Concept of HSN and Tax free exports

HSN Tariff Reading &Tax free exports under GST

Introduction

The Harmonized Commodity Description and Coding System, also known as the

Harmonized System (HS) of tariff nomenclature is an internationally standardized

system of names and numbers to classify traded products.

It came into effect in 1988 and has since been developed and maintained by the

World Customs Organization (WCO), Belgium, with over 181 member countries.

HS is organized into 21 sections, which are subdivided into 99 chapters which is

further subdivided into approximately 1,244 headings & 5,244 subheadings.

96 chapters are uniform globally, 97, 98 & 99 chapters are at individual countries’

discretion for customization of those products & services not recognized elsewhere.

HSN in GST GST being “one nation one tax one market” has introduced the

requirement of HSN classification for goods & services.

This has enabled smooth functioning of trade within & across the

boundaries.

The HSN classification is introduced with one major objective of keeping

track record of quantum of supply of goods & services.

The requirement of HSN in INDIA has been made applicable depending on

their turnover the year prior :-

Turnover Limit / Particulars Digits of HSN Code requirement

Upto ₹ 1.5 crores Not required

₹ 1.5 crores – ₹ 5 crores 2

Above ₹ 5 crores 4

Imports/Exports 8

HSN in GST Two basic notes clarified by GST in its notifications for HSN are :-

1. “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).

2. 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

The flow of 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, i.e from 1 to 83 chapters; &

man-made or technologically advanced products like machinery appear later, i.e

from chapter 84 onwards.

Steps of identifying HSN Code

Lets understand the steps using an example to find Raisins :-

Section :- 02 :- Vegetable products

Chapter :- 08 :- Edible fruit & nuts; peel of citrus fruits or melons

Heading :- 0806 :- Grapes, fresh or dried

Sub-heading :- 080620 :- Dried

Tariff :- 08062010 :- Raisins

Practical aspects of finding HSN

The sites online available to find HSN Codes include the following :-

1. cbec-gst.gov.in

2. cbec.gov.in (Booklet)

3. cybex.in/HS-Code/Default.aspx

4. HSN File of SMA

The CBEC has provided the above mentioned sites for finding the HSN

Code by description or Code.

Importance of notes in disputed matters :-

In case of disputes & confusions with regards to HSN, the General

Interpretative Rules (GIR) for interpretation of import tariff of customs

shall be referred to arrive at any conclusions :-

Rule 1 :- The titles of Sections, Chapters and sub-chapters are provided for ease

of reference only; for legal purposes, classification shall be determined according

to the terms of the headings and any relative Section or Chapter Notes and,

provided such headings or Notes do not otherwise require

Example :- Christmas tree candles, it would seem logical to classify them with

Classification No. 9505: Other, articles for Christmas festivities. However, when

reading the Notes to Chapter 95, it clearly states this Chapter does not cover

Christmas tree candles. In fact, we must classify them with the Classification No.

3406: Candles, tapers and the like.

Rule 2 (a) :- Any article, incomplete or unfinished article has the essential character of thecomplete or finished article. It shall also be taken to include a reference to that articlecomplete or finished (or failing to be classified as complete or finished by virtue of this Rule),presented unassembled or disassembled.

Example :- An automobile missing only its wheels would be classified the same as if it were complete.

Rule 2 (b) :- Products which are composed of a mixture of materials or substances. Itbasically states that a Heading referring to a given material or substance includes mixturesof that substance with others. Similarly, a reference to a product composed of a givenmaterial or substance includes products composed either wholly or partly of the material orsubstance. Rule 3 must be used to decide between alternate Headings.

Example :- If you were importing dicalcium citrate, the Tariff does not specifically state thiscompound. However, it is a compound containing more than one material and its essentialcharacter is that of a salt of citric acid. Therefore, dicalcium citrate qualifies as ClassificationNumber 2918: Salts and esters of citric acid, Other.


Rule 3 (a) :- The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

Example :- Mint tea is not stated specifically, as a product, in the Tariff. Although the product descriptions available are mint and tea, the importer must classify mint tea under the appropriate tea Heading because it provides the most specific product description and mint is only the flavor of the tea.

Rule 3 (b):- Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

Example :- An importer bringing in "liquor gift sets" (that include the bottle of liquor and

glasses) must classify the goods under the appropriate liquor Heading. The essential character of the item is the liquor itself and not the glasses contained within the set.


Rule 3 (c) :- When goods cannot be classified by reference to 3(a) or 3(b), they shall beclassified under the heading which occurs last in numerical order among those whichequally merit consideration.

Example :- A gift set which includes socks (Heading number 6115) and ties (Headingnumber 6117) cannot be classified by the previous rule since neither item gives the gift setits essential character. The gift set must be classified under the Heading number for tieswhich is the Heading that occurs last in numerical order.

Rule 4:- Goods which cannot be classified in accordance with the above Rules shall beclassified under the heading appropriate to the goods to which they are most akin.

Rule 5 (a) :- Camera cases, musical instrument cases, gun cases, drawing instrumentcases, necklace cases and similar containers, specially shaped or fitted to contain aspecific article or set of articles, suitable for long-term use and presented with the articlesfor which they are intended, shall be classified with such articles when of a kind normallysold therewith. This Rule does not, however, apply to containers which give the whole itsessential character;


Example :- Rule 5 (a) would apply to flute cases because flutes are normally sold with theircases (due to their specific shape) and are intended for long term use.

Rule 5 (b) :- Subject to the provisions of Rule 5 (a) above, packing materials and packingcontainers presented with the goods therein shall be classified with the goods if they are ofa kind normally used for packing such goods. However, this provision does not apply whensuch packing materials or packing containers are clearly suitable for repetitive use.

Example :- An importer bringing in goods and using styrofoam chips for padding fits wellinto Rule 5 (b). Styrofoam chips are normally used for the padding and insulation of manygoods, however they are rarely reused and are therefore classified with the goods.

Rule 6 :- For legal purposes, the classification of goods in the subheadings of a headingshall be determined according to the terms of those subheadings and any relatedSubheading Notes and mutatis mutandis, to the above Rules, on the understanding thatonly subheadings at the same level are comparable. For the purpose of this Rule therelative Section and Chapter Notes also apply, unless the context otherwise requires.


Tax free exports under GST

“Export of Goods”, with its grammatical variations and cognate expressions, meanstaking out of India to a place outside India. It includes both goods and services.

“Export of Services” as defined under Section 2 (6) of IGST Act, 2017 means thesupply of any service, when –

• The supplier of service is located in India;

• The recipient of service is located outside India;

• The place of supply of service is outside India;

• The payment for such service has been received by the supplier of service inconvertible foreign exchange; and

• The supplier of service and the recipient of service are not merely establishments of adistinct person in accordance with Explanation 1 in section 8;

(Explanation 1.— For the purposes of this Act, where a person has,—

o an establishment in India and any other establishment outside India;

o an establishment in a State or Union territory and any other establishment outside that State; or

o an establishment in a State or Union territory and any other establishment being a businessvertical registered within that State or Union territory, then such establishments shall be treated asestablishments of distinct persons.

Rule 96A of Central Goods and Services Tax Rules, 2017 provides that in case of export of

goods or services without payment of GST, the exporter has to furnish a bond or letter of

undertaking (LUT) in form RFD-11. This is also required in the case of provision of goods or

services to SEZ units/ developer.

Submission of LUT in place of a Bond

1. The following persons would be eligible to provide a LUT instead of a bond:

• Status holder as per Para 5 of Foreign Trade Policy 2015-2020; or

(Business leaders who have excelled in international trade and have successfully contributed to country’s

foreign trade based on Export Performance FOB / FOR (as converted) Value (in US $ million) during current and

previous two years are proposed to be recognized as Status Holders)

• A person who has received foreign inward remittances equal to minimum of 10% of the

export turnover, which should not be less than INR 10 million, in the preceding financial

year.

2. Such a person should not have been prosecuted for any offence under the CGST Act or any

existing law where the amount of tax evaded exceeds INR 25 million.

3. Valid for 12 months.

4. If the exporter fails to comply with the conditions of LUT, he may be asked to provide a bond.


Submission of bond

• A running bond will be submitted and the bond amount should cover the export

based estimated tax liability as assessed by the exporter.

• A fresh bond is to be submitted if the amount in the bond is less than the

outstanding tax liability on exports.

• The amount of bank guarantee would be decided by the jurisdictional

Commissioner and it should not exceed 15% of bond amount.

• The bond shall be furnished on non-judicial stamp paper of the value as

applicable in the State in which the bond is being furnished.

• In case of splitting and accountal of receipts and turnover across different

registered person with the same PAN but inward remittances maybe Rs. 1 crore or

more and it also maybe 10% or more of total export turnover. In such cases, the

registered person can be allowed to submit bond without bank guarantee


Basics of RERA The Real Estate (Regulation and Development) Act, 2016 is an Act of the Parliament of

India which seeks to protect home-buyers.

The Act came into force on 1 May 2016 with 92 sections The Central and state governments are liable to notify the Rules. Currently, 25 states have notified the rules.

https://en.wikipedia.org/wiki/Parliament_of_India

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Concept of HSN and Tax free exports