GST Classification & HSN Code Dispute Resolution in India: Legal Guidance & Process

GST classification and HSN code  disputes are among the most common and complex issues faced by businesses operating in India. Accurate classification of goods and services under the correct HSN (Harmonized System of Nomenclature) code, under Customs Tariff Act, 1985, as made applicable to GST,is crucial, as it directly impacts the applicable GST rate, compliance requirements, and tax liability. Disputes often arise due to ambiguity in classification, frequent changes in GST notifications, and differing interpretations by tax authorities 

What is GST Classification and HSN Code?

• GST Classification: Refers to the process of categorizing goods and services under the correct heading as per GST law, which determines the applicable tax rate.
• HSN Code: A globally recognized system for classifying goods, used in India to standardize GST rates and reporting.

Common Causes of GST Classification and HSN Code Disputes

1. Ambiguity in Product/Service Description: Products with multiple uses or compositions may fall under more than one HSN code.
2. Frequent Changes in GST Notifications: Updates in GST rates or HSN codes can lead to confusion and retrospective disputes.
3. Differences in Interpretation: Tax authorities and businesses may interpret classification rules differently.
4. Import vs. Domestic Classification: Discrepancies between customs and GST classification can trigger disputes.

Legal Framework for Dispute Resolution

• Section 9 under CGST Act: Empowers the Government to notify GST rates and classifications.
• Advance Ruling Mechanism: Businesses can seek advance rulings for clarity on classification.
• Appellate Authorities: Disputes can be escalated to GST Appellate Authorities and Tribunals.
• Judicial Review: High Courts and the Supreme Court can be approached for final resolution.

Best Practices for Avoiding and Resolving Disputes

1. Comprehensive Understanding of HSN Codes: Study the HSN codes under Customs Tariff Act,1985 relevant to your industry and stay updated with changes.
2. Regular Review of GST Notifications: Monitor official GST portals and circulars for updates.
3. Maintain Robust Documentation: Keep detailed product descriptions, technical specifications, and supporting documents to justify classification.
4. Internal Audits: Conduct periodic reviews to ensure consistency and compliance.
5. Seek Expert Legal Advice: Consult GST experts or law firms for complex or ambiguous cases.
6. Training and Awareness: Educate staff on GST classification principles and compliance requirements.

Step-by-Step Dispute Resolution Process

1. Identify the Dispute: Clearly define the classification issue and gather all relevant documents.
2. Internal Review: Conduct an internal audit to verify the classification and supporting evidence.
3. Consultation: Seek expert legal or tax advice for a second opinion.
4. Representation before Authorities: Respond to notices and represent your case before GST officers.
5. Advance Ruling: Apply for an advance ruling if the issue is interpretational.
6. Appeal: If unsatisfied, escalate to appellate authorities or courts.
7. Continuous Monitoring: Implement corrective actions and monitor for future compliance.

Standing Instructions for Businesses

• Always use the latest HSN code list and GST rate finder tools,.
• Document every classification decision with supporting evidence.
• Subscribe to GST updates and legal newsletters.
• Engage in regular staff training on GST compliance.
• Consult legal experts for high-value or complex transactions.

Why Foreign and Indian Companies Need Expert Guidance

Foreign companies exporting to or operating in India often face unique challenges in GST classification due to differences in international and Indian HSN codes. Indian businesses, especially those with pan-India operations, must ensure uniform classification across all states to avoid multi-jurisdictional disputes.

FAQs 

Q1: What is an HSN code under GST?
A: HSN code (Harmonized System of Nomenclature) is a standardized international system for classifying goods, used in India to determine GST rates and ensure uniformity in tax compliance.

Q2: How can businesses resolve GST classification disputes?
A: Businesses can resolve disputes by seeking advance rulings, maintaining robust documentation, consulting legal experts, and appealing to GST appellate authorities if necessary 

Q3: Why do GST classification disputes arise?
A: Disputes arise due to ambiguity in product descriptions, frequent changes in GST notifications, and differing interpretations by tax authorities 

Q4: What documents are required to support GST classification?
A: Product descriptions, technical specifications, invoices, contracts, and any correspondence with tax authorities are essential for supporting GST classification decisions.

Q5: Can foreign companies face GST classification disputes in India?
A: Yes, foreign companies often face disputes due to differences in international and Indian HSN codes and should seek expert legal guidance for compliance.

Contact AMLEGALS

To know about our advisory & litigation services in GST in Mumbai, Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata, Pune, Prayagraj, Vapi, Vadodara and Surat, you may connect with us on info@amlegals.com or call on 91-8448548549