CA Ashish kr Bansal

CA Ashish kr Bansal

1) Introduction:

In any indirect tax classification of goods is very important and has very wide implications particularly in case of multi rate tax structure like GST As we are aware that classification of goods under CGST Act, IGST Act and respective SGST Acts have to be done in accordance with Harmonized System of Nomenclature (HSN). However a large majority of taxpayers specially traders are not familiar with HSN codes. Further certain HSN appears in more than one tax rate schedule notified by the government. Hence it becomes utmost important to analyze various provisions regarding classification of goods under Goods and Service Tax law.

2) Notification of Rate of Tax

The Central government on recommendation of GST council has notified rate of Integrated tax payable on goods vide notification no 01/2017 – Integrated tax (rate) date 28/06/2017. It may be noted that notifications regarding central tax (CGST) issued by central govt and notification regarding state tax (SGST ) issued by respective state govt have identical provisions. We shall now analyze provisions of notification no 01/2017 – integrated tax (rate) dt 28/06/2017. The notification divides all goods in following 6 schedules-

i) Schedule I – 5% – 264 entries

ii) Schedule II – 12% – 242 entries

iii) Schedule III – 18% – 453 entries

iv) Schedule IV – 28% – 228 entries

v) Schedule V – 3% – 18 entries

vi) Schedule VI – 0.25% – 3 entries

3) Notification of Exempted goods :

The goods exempted from IGST have been separately notified vide Notification no 02/2017 Integrated (Rate) dated: 28/06/2017. The notification has 149 entries It is needless to say notifications having identical exemptions have been notified by Central government and respective State governments.

4) Significance of HSN codes & applicability of Customs Tariff Act 1975

The World Customs Organization has developed common classification system of goods in order to facilitate international trade. This Common classification system is popularly called Harmonized System of Nomenclature (HSN). In India Central Excise Tariff and Custom Tariff are already based on HSN. GST rates notified by respective governments are based on Customs Tariff Act 1975. Legal provisions regarding this are as under-

The schedules in notification issued by respective government as discussed in para2 and para 3 of this article has reference to chapter, heading sub heading and tariff items. Explanation at the end of each of the above notification inter alia provides

“Tariff item”, “sub-heading” “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.

5) Meaning of Chapter/ heading/ Sub heading /Tariff item

a) Chapter The Custom Tariff Act 1975 is divided int o 21 sections which are further divided into 98 Chapters. The first two digits of 8 digit HSN code denotes the chapter under which it falls

b) Heading : Each chapter is further divided into various “ heading “ accompanied by a four digit number thus first four digits of an 8 digit hsn code denotes the heading under which it falls.

c) Sub Heading : Each heading is further divided in to various “ sub heading “ accompanied by a six digit number, thus first 6 digits of an 8 digit HSN codes denotes the sub heading under which it falls

d) Tariff Item : Each Sub heading is further divided into various “ tariff item “ accompanied by a eight digit number, thus all 8 digits of HSN code denotes the tariff item.

6) Residual Entry

Entry no 453 of schedule III (18%) is reproduced below Chapter / Heading / Sub-heading / Tariff item Description of Goods
453 Any chapter Goods which are not specified in Schedule I, II, IV, V or VI

Since reference is to any chapter,therefore any goods which are classifiable under any Chapter of Customs Tariff Act 1975 but does not fall in any other entry of schedule III, or any entry of the other five schedules would be taxable at the rate of 18% (IGST).

7) How to arrive at Rate of GST payable :

Step 1 :

Find HSN code of the goods according to Customs Tariff Act 1975 arrive at tariff item or at least sub heading under which goods fall. Rules of interpretation of Customs Tariff Act 1975 would be prevalent in case of ambiguity or confusion.

Step 2 :

Search each schedule discussed in para 2 of this article. Following points must be kept in mind

a) that several entries in schedules of rate notification are accompanied only by the chapter number, while some entries are accompanied by heading or sub heading, only few entries are accompanied by full 8 digit tariff item.

b) The same chapter no, heading, sub heading appears in more than 1 schedule, however the description of goods differ. in some cases exclusions are given in the description.

Goods should be classified in the entry which has most specific description Also search the exemption notification to check if goods has been exempted

Step 3 :

if goods cannot be classified in any of the entries of any schedule but are classifiable in any chapter as per customs tariff act 1975 then goods will fall under entry 453 of schedule III and will be taxable at the rate of 18% as discussed in para 6 of this article.

Step 4

If goods cannot be classified under customs tariff act but there is entry in schedule of rate notification which does not refer to any chapter/heading/ sub heading/tariff item and the description matches with the goods, the goods would be classifiable under that entry for example lotteries which cannot be classified under customs tariff act 1975 but falls under entry 242 of schedule II or entry 228 of schedule IV.

(Author can be reached at, Mobile No: 9336100380)

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November 2020