HSN - Classification

1 HSN - Classification M. S. REDDY, IRSS pecial CommissionerGST -Application of HS CodeExplanationappendedtonotification1/2 017and2/2017-centraltax(rate) (iii) Tariffitem , sub-heading heading and Chapter shallmeanrespectivelyatariffitem,sub-hea ding,headingandchapterasspecifiedintheFi rstScheduletotheCustomsTariffAct,1975(51 of1975). GST -Application of HS CodeExplanationappendedtonotification1/2 017and2/2017-centraltax(rate) (iv)TherulesfortheinterpretationoftheFir stScheduletotheCustomsTariffAct,1975(51o f1975),includingtheSectionandChapterNote sandtheGeneralExplanatoryNotesoftheFirst Scheduleshall,sofarasmaybe,applytotheint erpretationofthisnotification.

2 GST -Use of HSN for GoodsNotification12 (Chapternumber) 4digits(Headingnumber)GST-SAC -UNCPC for Services ServiceAccountingCode(SAC)orServiceCode Chapter99ofHSN Notification11 ClassificationunderGSTisbasedonUNCPC(Uni tedNationsCentralProductClassification)H SN HarmonizedSystem of NomenclatureNomenclatureMeans asystematicnaming,orenumeratingofallgood sfoundininternationaltradealongwithinter nationalrulesandinterpretations ClassificationMeans aprocessofarrivingataparticularheadingor subheadingofacommodityenteringtheinterna tionaltrade HSN Classification of Goods TheHarmonizedCommodityDescriptionandCodi ngSystemsgenerallyreferredtoas"Harmonize dSystemofNomenclature"orsimply"HSN"or HS Itisamultipurposeinternationalproductnom enclaturedevelopedbytheWorldCustomsOrgan ization(WCO)Historical Background 1950-BrusselsTariffNomenclature(BTN)

3 1974-(BTN)renamed TheCustomsCooperationCouncilNomenclature (CCCN) 1983-CCCN wasreplacedbytheHarmonized(commoditydesc riptionandcoding)SystemNomenclature(HSN) 1988-TheHarmonizedSystemadopted ArrangementEach commodity is identified with8 digit codeTo achieve uniform Classification of about 5000 commoditiesSupported by well defined rulesArranged in a legal and logical structureExplanatory notes 5 volumes by WCOHS Structure21 Sections99 Chapters1,244 Headings5,224 Subheadings Chapters: 77 reserved for future use Chapter 99 now meant for Classification of services under GSTE xplanatory notes TheHarmonizedSystemisgovernedby"TheInter nationalConventionontheHarmonizedCommodi tyDescriptionandCodingSystem TheofficialinterpretationoftheHSisgiveni ntheExplanatoryNotes(5volumesinEnglish)p ublishedbytheWCO.

4 IndianTradeClassification-ITC(HS)ofExpor tandImportitems-PublishedbyMinistryofCom merceArrangement of harmonized system Raw materials/ natural goods Un-worked products Semi-finished products Finished productsPrinciples of tariff Classification A commodity can be classified either by: Terms of heading notes to sections, chapters or subheadings General interpretative rulesHow to go Sec 12 Customs Tariff Act,1975-Section 2 First andSecond Schedules(Import &ExportTariffs)General RulesFor InterpretationGeneralExplanatory notesthe connectivityHow to read98 chapters in Customs77 chapter left blankChapter NotesSection I TO XXI( 21 Sections)

5 Section NotesSub Chapters are mentioned within the ChapterSub Chapter notesTariff ArrangementSectionsChaptersSub-ChaptersF irst Six DigitFirst Four DigitTotal Eight DigitCustoms & Central Excise Tariff ArrangementHeadingSub-headingTariff itemClassification dashes - Single dash -- Double dash --- or ---- dashes Example for dashes7607 ALUMINIUM FOIL (WHETHER OR NOT PRINTED OR BACKED WITH PAPER, PAPERBOARD, PLASTICS OR SIMILAR BACKING MATERIALS) OF A THICKNESS (EXCLUDING ANY BACKING) NOT EXCEEDING MM-Not backed : 7607 11 --Rolled but not further worked : 7607 11 10 ---Ordinarily used for tea chest lining 7607 11 90 ---Other 7607 19 --Other: 7607 19 10 ---Ordinarily used for tea chest lining ---Other : 7607 19 91 ----Plain 7607 19 92 ----Embossed 7607 19 93 ----Perforated or cut-to-shape 7607 19 94 ----Coated 7607 19 95 ----Printed 7607 19 99 ----Other 7607 20 -Backed : 7607 20 10 ---Ordinarily used for tea chest lining 7607 20 90 ---Other kgExample Eight digit code.

6 8504 40 30 85-Chapter 04-Heading 40-Sub-heading 30 -Tariff entryMethods of Rates of DutyPercentage rate(% )Ad valoremMethods ofRates of DutyQuantity based rate(Qty)Specific RateGeneral Interpretative Rule -1(GIR 1) Headingsandtheirlegalnotemustfirstbecons ideredwhendeterminingclassification Rules2-5canonlybeusedwhenRule1hasfailed TherulesmustbeusedinhierarchicalorderAll goods must be classified according to the terms of theheading texts in the nomenclature. ANDany relative section or chapter notesRULE 1 For example: The following can be classified directly Dentist s Chairs Drawing chalk Cotton handkerchiefs Interpretative Rule -2(GIR 2)Rule two can only be used if rule one has failed essential character Principle Incomplete or Unfinished Unassembled orDisassembled ( SKD/CKD ) Mixturesorcombinationsofmaterialsorsubst ancesRULE 2(a) Essential character as the finished goodsIncomplete or UnfinishedExamples.

7 Motor vehicles without wheels wrist watch without strapRule 2(a)Unassembled or disassembledCompletely Knocked Down (CKD)Semi Knocked Down (SKD) 2(b)Mixtures or Combinations Mixtures or combinations of materials or substances Mixtureseg: Di Calcium Citrate salt of citric acid (salt and citric acid)eg: Mixed Seasonings (Sauces)RULE 2(b)Another ExampleCOMBINATION OF ARTICLESC lassify a wooden carpenters plane in steel blade? 44 Note Chapter 82 Note 1 (a)RULE 2(b)COMBINATION OF ARTICLESC hapter 44 Note 5 Heading4417doesnotapplytotoolsinwhichthe blade,workingedge, 82 Note 1 (a)Apartfromblowlamps,portableforges,gri ndingwheelswithframeworks,manicureorpedi curesets,andgoodsofheading8209,thisChapt ercoversonlyarticleswithablade,workinged ge,workingsurfaceorotherworkingpartof:(a )basemetal.

8 Classification shall be under Interpretative Rule -3( GIR 3)There are three parts to this ruleRule 3 (a), 3 (b) & 3 (c)Order of priority(a)Most specific description(b)Essential character for Mixture and Composite goods(c)Heading which occurs last in numerical orderGeneral Interpretative Rule -3 (a)( GIR 3 a)Most specific descriptionIf goods answer to description which more clearly identifies textile carpet for cars ? ?Answer : Tea: as mint or as tea?Answer: Interpretative Rule -3 (b)Essential CharacterFor the purposes of this rule ,Goods must be: Mixtures Composite goods of different materials Composite goods of different Components Goods put up in sets for retail sale RULE 3(b)Goods put up in set for retail sale means Consist of at least two different articles.

9 Consistofproductsorarticlesputuptogether tomeetaparticularneedorcarryoutaspecific activity. 3(b)ExampleSandwich made of beef, with or without cheese, packed with Potato : ,orcomponentstakentogether,whichcanbereg ardedasconferringonthesetasawholeitsesse ntialcharacterGeneral Interpretative Rule -3 (c)The Classification in this rule specifies that heading which occurs last in numerical order among those which equally merit considerationEg: and No essential character of socks or muffler is foundLast numerical order Classification is Interpretative Rule -4 Commonly referred to as the kinship rule Rule 4 is rarely used Classifyunderthesameheadingasgoodssimila rorvirtuallyidentical(mostakin)General Interpretative Rule -5(a) Presented with the articles themselves Suitable for long term use.

10 Shaped or fitted to contain a specific articles(s) Of a kind normally sold with the articles(s)Eg: Camera, Musical instrument, Gun, drawing instrument, necklace and similar containersThe rule don t apply to containers which give the whole its essential characterGeneral Interpretative Rule -5 (b) Packing materials and packing containers, Presented with the goods, Normally used for packing such good, Classify with the : Styrofoam Chips used for the padding and insulation of many goods. Rarely the chips are reused. Classification of chips shall be along with the main t apply to containers suitable for repetitive gas cylinder, metal drums etcGeneral Interpretative Rule -6 Only Subheadings at the same level are comparableConclusionOver 90% of goods can be classified using Rule oneClassification of PartsParts of General Use -Section Note 2 to Sec XVThroughout this Schedule, the expression parts of general use means :(a) articles of headings 7307, 7312, 7315, 7317 or 7318 and similar articles of otherbase metal.