Dispute between import classification and Domestic supply classification

[V Lakshmikumaran]

Can the import classification and domestic classification for the same product differ. Is it correct proposition of law, to state classification for the purposes of import can be depended on classification adopted domestically?

[Aman Ved]

The dispute between import classification and domestic supply classification is indeed a nuanced topic. Import and domestic classifications for the same product can differ significantly due to the distinct regulatory frameworks governing each.

Import classification typically adheres to customs regulations and tariff codes, while domestic classification often falls under GST provisions or other local laws.

It’s crucial to note that while domestic classification may inform import classification, it should not be viewed as a definitive guide. Legal precedents suggest that import classification should be determined based on specific import regulations and product characteristics, rather than solely relying on domestic classifications.

For investors in the Bandhan Small Cap Fund, understanding these classifications is vital, especially for companies involved in both importing and domestic supply. Discrepancies between classifications can affect tax liabilities and ultimately impact profitability, influencing our investment decisions.

I’d love to hear more opinions or experiences related to this issue!

[Shilpi Jain]

Generally HS classification should not differ with the international one.

All efforts are being made to harmonise. Recently also there have been amendments made to HS classification in these lines.

Though specific classification that you are looking at may need examination to analyse

[Narayana Chambers]

The HSN Codes are determined in accordance with the Guidance issued by World Customs Organisation. Currently, the HSN Codes are determined as per 2022 series.

In order to provide a global standard, the HS Convention, 1988 was signed. According to this Convention, the HS Codes upto the 6-digit level are same across the world. However, some countries follow 8-digit system; while others follow 10-digit system. Thus, the final HSN may vary from country-country. But HSN upto 6 digit level would be similar in both countries. 

There are instances where new HS Codes are provided in newer series vis-a-vis old series. In such cases mismatch can occur, as exporter may be using the HSN based on old series, while importer is using HSN, based on newer series. 

Or in some cases, some old tariff lines are merged, in the newer series. The exporter might be unaware of these changes to HS Codes, and may continue using the old HS Code, which are no longer relevant, in the country of import.     

Thus, importer has to evaluate the HS Code, basis the Classification adopted in the Country of Import. Further, the importer should be mindful that exporter may not update his HS Code, based on newer series.    

[KASTURI SETHI]

Dear Sir,

In this context, the following judgment of Hon'ble Supreme Court can besomewhat useful  ;-      

"Classification of goods - When entries in HSN and tariff are not aligned, reliance cannot be placed upon HSN for purpose of classification of goods under tariff. [para 26]."---Supreme Court in the case of CAMLIN LTD. - 2008 (9) TMI 1 - SUPREME COURT

[Raghunandhaanan rvi]

The Harmonized System Nomenclature (HSN) is a critical framework for classifying products, contributing significantly to mitigating risks faced by customs and trade authorities while ensuring accurate tax assessments. By Notification No. 78/2020-Central Tax, taxpayers must declare between 4 to 6 digits of the HSN code in Table 12 of GSTR-1 and on invoices, depending on their Aggregate Annual Turnover (AATO). It is important to note that specifying the HSN code on invoices remains optional for taxpayers with a turnover of up to 1.5 crores. However, HSN is mandatory on invoices for the import and export goods.

The HSN not only simplifies the product classification process but also reduces inherent risks for customs and trade authorities, thereby facilitating the correct levying of taxes. Furthermore, it is imperative that the import classification and domestic classification of the same product remain consistent and avoid any discrepancies. This product classification must be based on the section and chapter notes of the first schedule of the Customs Tariff Act, in conjunction with the General Interpretation Rules of tariff classification.

Additionally, consistent application of HSN codes contributes to streamlined trade processes, better compliance, and improved tracking of product movements across borders, ultimately enhancing international trade relations and economic growth.

[YAGAY and SUN]

The classification of imported goods and indigenous goods can differ based on various legal and regulatory factors, including customs duties, taxes, and the applicability of specific exemptions or incentives. In the context of case law, judicial interpretations often clarify how imported goods and indigenous goods are to be treated under different tax and trade laws, such as the Customs Act, the Central Excise Act, and Goods and Services Tax (GST) in India.

Here are some notable case laws relating to the difference in classification of imported and indigenous goods:

These cases provide important insights into how imported and indigenous goods are treated differently in terms of classification, duties, and legal treatment. Depending on the context, the origin, tariff, and regulatory framework influence how goods are categorized for taxation or customs purposes.

AI Summary

HSN classification: import and domestic classifications can differ, import classification depends on customs tariff rules and HS series.
Import and domestic supply classification can differ because import classification is governed by the customs tariff, section and chapter notes, and General Interpretative Rules, and may reflect the HS series adopted in the country of import. Divergences arise from differences in HS series, national extensions beyond six-digit codes, and exporters using outdated codes; therefore importers must evaluate classification based on the country-specific tariff framework rather than relying solely on domestic classifications.