1. CLASSIFICATION & RATES UNDER
CA ALOKE R. SINGH
PARTNER
M/s SINGH SINGH & ASSOCIATES
CHARTERED ACCOUNTANTS

2. CLASSIFICATION
WHAT ?
December 6, 2018
CA. ALOKE R. SINGH

3. CLASSIFICATION – WHAT ?
the action or process of classifying something.
the arrangement of animals and plants in taxonomic groups according to their observed similarities (including at least kingdom and phylum in animals, division in plants, and class, order, family, genus, and species).
a category into which something is put.
It is a general process related to categorization
A systematic arrangement in groups or categories according to established criteria;
December 6, 2018
CA. ALOKE R. SINGH

4. CLASSIFICATION
WHY ?
December 6, 2018
CA. ALOKE R. SINGH

5. CLASSIFICATION – WHY? To arrive at correct chargeable tax
To avail other benefits viz. deduction / abetment / exemption etc.
To establish global acceptance of business
To allow seamless flow of benefits viz. ITC
To establish best and competitive business practices.
December 6, 2018
CA. ALOKE R. SINGH

6. IMPORTANCE OF CORRECT CLASSIFICATION
Correct classification assumes great importance as tax liability essentially depends on effective rate of duty.
An improper classification could have serious effect on business and relation with customers.
December 6, 2018
CA. ALOKE R. SINGH

7. POSSIBLE ILL EFFECTS OF WRONG CLASSIFICATION
a. There could be additional liability at later stage after correctly classifying and the taxable person could be saddled with huge demand from department and customer not willing to pay.
b. Customer willing to pay tax [when received invoice/debit note within filing of next year Sept return] but not willing to pay interest and penalty.
c. Missed out correct exemptions which were available if correct classification was done.
d. Transaction cost added by litigation.
December 6, 2018
CA. ALOKE R. SINGH

8. CLASSIFICATION
HOW ?
December 6, 2018
CA. ALOKE R. SINGH

9. CLASSIFICATION – HOW ?
I. Understanding of Business / Dictionary / Technological changes: It is important to understand the nature of business, to determine the classification of the activities which are being taken by the company by referring to:
i. Company’s website
ii. Technical Write-up
iii. Scientific / Technical terms / standards
iv. Description of products given by sales and marketing team of company– especially the positioning of the goods/services,
v. Competitors classification
vi. Dictionary / Wikipedia:
December 6, 2018
CA. ALOKE R. SINGH

10. CLASSIFICATION – HOW ? II. Classification based on HSN:
HSN is an international practice of adopting a uniform classification was done to facilitate a common understanding of products across countries.
HSN is a multi-purpose 8 digit product coding system for classifying goods. The HSN could be a good guide for confirming the understanding when in doubt.
CCE v. Wood Craft Products Ltd (77) E.L.T. 23 (SC) HSN can be resorted to in case of ambiguity in classifying goods.
Phil Corporation Ltd 2008 (223) ELT 9 (SC) has held that HSN is a safe guide for classification.
December 6, 2018
CA. ALOKE R. SINGH

11. HSN Normal to Complex Chapters Heading Sub-Heading
Further classified as per section / chapter notes of the item
December 6, 2018
CA. ALOKE R. SINGH

12. BASICS OF HSN CLASSIFICATION
21 Sections
99 Chapters
1244 Headings
5224 Subheadings
Sections and chapters are arranged in order of a product’s degree of manufacture or in terms of its technological complexity. Natural products like animals and vegetables appear in the earlier sections; man-made or technologically advanced products like machinery appear later.
December 6, 2018
CA. ALOKE R. SINGH

13. General Rules for the Interpretation of the Harmonized System
1- classification of products at the 4-digit Heading level, based on the wording of the headings and the relative HS Section and Chapter Notes.
2 - classification of both incomplete and unassembled goods, and mixtures and combinations of goods.
3 – classification of products that are, prima facie, classifiable under two different HS headings.
4 - classification of products that cannot be classified according to rules 1, 2, and 3.
5 - classification of packaging.
6 - classification of products at the 6-digit subheading level, based on the wording of the subheadings and the relative HS Section and Chapter Notes.
December 6, 2018
CA. ALOKE R. SINGH

14. General Explanatory Notes
(a) Relevance of one dash [“-“] and two dash [“--“]
“-“ denotes that the said article or group of articles shall be taken to be sub-classification of the article or group of article covered by the said heading.
“--“ denotes that that the said article or group of articles shall be taken to be sub-classification of the immediately preceding article/group of articles which has “-“.
(b) Meaning of abbreviation “%” in relation to the rate of duty
“%” means that the duty shall be computed at the percentage specified on the value of the goods.
(c) Standard rate of duty applicable if no preferential rate specified in any entry,
December 6, 2018
CA. ALOKE R. SINGH

15. General Explanatory Notes
EXAMPLE
CLASSIFICATION1. PDF
December 6, 2018
CA. ALOKE R. SINGH

16. HSN - CLASSIFICATION
Worldwide, the HS code consists of 6-digits. The first two digits designate the HS Chapter. The second two digits designate the HS heading. The third two digits designate the HS subheading. HS code , for example indicates Chapter 10 (Cereals), Heading 06 (Rice), and Subheading 30 (Semi-milled or wholly milled rice, whether or not polished or glazed).
December 6, 2018
CA. ALOKE R. SINGH

17. HOW TO FIX THE RATE OF TAX ?
Classify the Goods & Services
Luxury / Special / Precious - High
Standard Moderate
Essential Goods & Services - Low
Exempted Nil - CPI
Rates 0%, 5%, 12%, 18% & 28%
3% & 0.25%
Cess to be charged extra
December 6, 2018
CA. ALOKE R. SINGH

18. RATES
December 6, 2018
CA. ALOKE R. SINGH

19. WHEN TO MENTION HSN Less than 1.5 Cr No HSN 1.5 Cr – 5 Cr 2 Digit
Above 5Cr 4 Digit
Imports & Exports 8 Digit HSN codes compulsory, as GST has to be compatible with international standards and practices.
December 6, 2018
CA. ALOKE R. SINGH

20. Composite vs Mixed supply under GST
a. a composite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;
b. a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.
December 6, 2018
CA. ALOKE R. SINGH

21. COMPOSITE SUPPLY
Section 2(30) “composite supply” means a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Composite supply comprising of two or more supplies, one of which is principal supply shall be treated as supply of such principal supply.
Example: Where goods such as fans are supplied and installation done at buyer place, the supply of fan and installation of fan is a composite supply and supply of fan is the principal supply to be taxed at the GST rate which is applicable to fan.
December 6, 2018
CA. ALOKE R. SINGH

22. MIXED SUPPLY
Section 2(74) “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply;
Mixed supply comprising two or more supplies shall be treated as supply of particular supply which attracts highest rate of tax. It shall not be a mixed supply if these items are supplied separately
Examples: A supply consisting of cakes and fresh fruits in single box, for a single price is a mixed supply. In such case where cakes are taxable and fruits exempted, each of these items can be supplied separately and is not dependent on any other. When supplied together, taxed at GST rate applicable to cakes.
December 6, 2018
CA. ALOKE R. SINGH

23. TRADE PARLANCE THEORY
This is used when the words are not defined under the act and words are not used in scientific or technical sense in the tariff.
Trade parlance means the meaning as commonly understood by the people dealing commercially with the subject goods or the commercial recognition that is given to a commodity.
This aspect is at times ignored by the revenue departmental officials leading to litigation.
This could be obtained from evidences led by the client whose product is being classified as well as how the product is classified by trade associations.
December 6, 2018
CA. ALOKE R. SINGH

24. CAUTION Classification of goods and services to be done carefully
When in doubt of the classification, confirmation in writing may be sought from the Department by communicating by RPAD / by speed post.
In case there is no reply within 6 months, the classification adopted is deemed to be ratified.
December 6, 2018
CA. ALOKE R. SINGH

25. THANK YOU
December 6, 2018
CA. ALOKE R. SINGH