HSN/SAC Codes

What is an HSN Code?

HSN stands for Harmonized System of Nomenclature. HSN was established and industrialised by the WCO (World Customs Organization) in 1988. Since then, five revisions have already been made worldwide. GST HSN code states more than 5000 goods and is primarily practised by more than 150 countries. This 6-digit HSN code can be utilised to classify more than five thousand commodities and is further applied for tax objectives classification. The Customs and Central Excise attached two more digits later to advance HSN code search for more reliable differentiation. It is a globally trusted multipurpose instrument for indirect taxes. More than 95% of the industry is currently monitored under the WCO, and each country is revising it, including India.

How does HSN Code Work?

It has about 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and logical structure. It is supported by well-defined rules to achieve uniform classification.

Why is HSN Code important?

The main purpose of HSN is to classify goods from all over the World in a systematic and logical manner. This brings in a uniform classification of goods and facilitates international trade

Understanding the HSN Code

The HSN structure contains 21 sections, with 99 Chapters, about 1,244 headings, and 5,224 subheadings.

• Each Section is divided into Chapters. Each Chapter is divided into Headings. Each Heading is divided into Sub Headings.
• If the principal moves the items across state borders to the employee.
• Section and Chapter titles describe broad categories of goods, while headings and subheadings describe products in detail.

Services Accounting Code (SAC) in GST

Like goods, services are also classified uniformly for recognition, measurement and taxation. Codes for services are called Services Accounting Code or SAC

For example:

Legal documentation and certification services concerning patents, copyrights and other intellectual property rights– 998213

• The first two digits are same for all services i.e. 99
• The next two digits (82) represent the major nature of service, in this case, legal service
• The last two digits (13) represent detailed nature of service, i.e., legal documentation for patents etc.

Application of the code in India

Notification No. 78/2020 –Central Tax, dated 15 October 2020 was published by the Central Board of Indirect Taxes and Customs to inform that the implementation of HSN code is mandatory.

What If You Wrongly used The HSN Code?

If you have stated an inaccurate code as an exporter, it can lead to shipment difficulties during customs review. There can be problems like denial of import opportunities, heavy custom duty assessments, non-compliance punishments etc.

If you have used an incorrect HSN Code under GST, the buyer will not be able to claim his input tax credit. As per Section 31, an invoice must be flawless in all phases, including accurate HSN Code classNameification for declaring the input tax credit.

Difference between SAC and HSN code