The myLaw Blog

More questions about GST – What is anti-profiteering? What are HSN codes?

Since I wrote my last column here, some of you have contacted me with a few more questions about the Goods and Services Tax (“GST”). I’ve answered a couple of them below.

What are HSN and SAC codes? What purpose do they serve?

HSN (or Harmonised System of Nomenclature) is an internationally adopted system for describing and coding commodities. It was developed by the World Customs Organization (WCO) and is used by more than 200 countries as the basis for customs tariffs. Currently, over 98% of the merchandise in international trade is classified under an HSN code. The Indian government has decided to adopt this system for the classification of goods for the levy of GST.

For instance, the HSN code for “firewood” or “fuelwood” is 4401 and the tax on it is 0%. India had already been using HSN codes to classify goods under the erstwhile central excise system.

SAC or Services Accounting Code is a classification system for services developed by the Service Tax Department of India. Using the SAC code, the GST rates for services are fixed in five slabs — 0%, 5%, 12%, 18% and 28%. If a service is not exempted from GST or if the GST rates are not provided, then the default GST rate for services, that is, 18%, would be applicable.

Mentioning the HSN code or SAC on invoices and in tax payment challans is important to ensure that tax is paid under the correct category.

Notification No 12/2017 – Central Tax specifies the number of digits of the HSN Code that has to be indicated.

 

Annual turnover

Number of digits of HSN code

Up to rupees one crore and fifty lakhs

NIL

More than rupees one crore and fifty lakhs and upto rupees five crores

   2

More than rupees five crores

   4

A person dealing in firewood at a turnover less than Rs 1.50 crores therefore, need not mention any HSN code on invoices. If the turnover is between Rs 1.50 crores and Rs 5 crores, the HSN code “44” needs to be mentioned and if the turnover is more than Rs 5 crores, the HSN code “4401” should be mentioned.

I’ve heard the GST law has “anti-profiteering” provisions. How would they work?

Tax rates under the GST can be different from those under the erstwhile systems of indirect taxes. Secondly, under those systems, input tax credits could not be claimed across all taxes. For instance, credit of VAT could not be claimed against the central excise payable. Now, since the GST subsumes all these taxes, credit may be available subject to any restrictions that can be imposed. Some taxpayers can benefit from both these changes.

Since the GST Council wants taxpayers to pass on any such benefits to the end user, Section 171(1) of the CGST Act states that any reduction in rates of tax on any supply of goods or services or the benefit of input tax credit, shall be passed on to the recipient through a commensurate reduction in prices.

The Central Government is expected to constitute an authority, or empower an existing authority, to examine whether the benefits of input tax credits availed by any registered person or the reduction in the tax rate, have actually led to a commensurate reduction in the price of the goods or services supplied.

For example, say the rate of tax on the supply of food and beverages is 12% (6% CGST and 6% SGST). If, in Budget 2018, the rate of tax is reduced to 5% (2.5% CGST and 2.5% SGST), the supplier will obviously charge these new rates of tax from the date on which it becomes applicable. Because of the anti-profiteering provisions of Section 171(1), a further reduction in prices would be needed because the supplier can also continue to avail input tax credits. Further clarifications about how the anti-profiteering provisions would apply in practice are also expected soon.

Mohan Lavi is a Chartered Accountant with over 28 years of post-qualification experience. He is a partner with K.P Rao & Co, Chartered Accountants, Bengaluru and heads their IFRS and GST practices.

Add comment

eighteen + six =

Get Updates