HSN Code and Taxation
- What is HSN Code?
- Why is it important?
- How does it work?
- How does it affect the end customer?
- 100% penalty must be paid by the supplier
- The difference in the amount of tax & duty
- Interest on the amount till date
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).
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.
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.
| While importing With HSN Code 8528 | While importing Without HSN Code 8528 | |||
|---|---|---|---|---|
| Supplier A | Tax to be paid | 28% | Tax to be paid | 18% |
| Duty to be paid | 10-15% | Duty to be paid | 0% | |
| Supplier A while importing display of Rs. 50000 | Tax to be paid | 14,000 | Tax to be paid | 9,000 |
| Duty to be paid (10%) | 5,000 | Duty to be paid | 0 | |
| Duty to be paid (15%) | 7,500 | 0 | ||
| Total (10%) | 19,000 | 9,000 | ||
| Total (15%) | 21,500 | 9,000 | ||
A theft of Rs. 7500 is carried out by supplier A by misclassifying and importing the display under the wrong category.
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:
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.