HSN Code and Taxation


  1. What is HSN Code?
  2. Harmonized System of Nomenclature (HSN) was a vision for classifying all the goods accepted worldwide in a systematic manner. This was developed by the World Customs Organisation (WCO).

  3. Why is it important?
  4. HSN Code makes GST systematic and globally accepted. It is a more uniform way for classification of goods not only nationally but also brings India at par with other countries. This ensures proper levy of taxes on all commodities reducing chances of misinterpretations.

  5. How does it work?
  6. All the digital displays like monitors, panels, LED video wall, etc fall under the category 8528 with 28% tax, but they are generally misclassified with the category 8531 with 18% tax. Indicators, sirens, etc fall under the category of 8531.

    Since category of 8528 has 28% tax, many suppliers misclassify the goods and import them under the category of 8531 due to less tax on the goods. However, most suppliers are not aware that misclassification of HSN code is a punishable offense and that they will have to bare heavy charges for it.

    Refer to the table for an example:
    While importing With HSN Code 8528While importing With HSN Code 8528
    Supplier ATax to be paid28%Tax to be paid18%
    Duty to be paid10-15%Duty to be paid0%
    Supplier A while importing display of Rs. 50000Tax to be paid14,000Tax to be paid9,000
    Duty to be paid (10%)5,000Duty to be paid0
    Duty to be paid (15%)7,5000
    Total (10%)19,0009,000
    Total (15%)21,5009,000

    A theft of Rs. 7500 is carried out by supplier A by misclassifying and importing the display under the wrong category.

  7. How does it affect the end customer?
  8. The consequences of the theft carried out due to misclassification of HSN code is not only limited to the supplier but also to the buyer.

    The supplier has to bare the following consequences:

    1. 100% penalty must be paid by the supplier
    2. The difference in the amount of tax & duty
    3. Interest on the amount till date

    If the supplier who is indulged in such theft fails to pay the penalty, the buyer of the goods is liable to pay the penalty. All the goods sold to the buyer will be confiscated until the penalty is paid.

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