GST GST Advisory

Mandatory declaration of HSN/SAC Code

The Union Finance Minister Nirmala Sitharaman, in the 42^nd GST council meeting held via video conferencing on 5^th October 2020, concluded the need to disclose the HSN/SAC codes in the GST invoice.

Later, the CBIC (Central Board of Indirect Taxes and Customs) has published the HSN/SAC code’s mandatory declaration in the GST invoice. However, there are specific requirements, which we will look into in this article.

What is the HSN/SAC code?

HSN codestands for Harmonized System of Nomenclature. The system was introduced for the systematic classification of goods across the world. It is a 6- digit uniform code used to classify more than 5000 products worldwide. The World Customs Organization (WCO) developed the HSN and it came into effect from 1988.

The HSN system is used by many countries because:

• Uniform classification
• Collection of international trade statistics
• The base for their custom tariffs

In India, 6-digit code of HSN was initially used, later 2 more digits were added by the customs to make it 8- digit.

Structure of the HSN code

The HSN code contains 21 sections, 99 chapters, about 1244 headings & 5244 subheadings.

For example, 62.13.90-HSN code for Handkerchiefs. Let us understand the breakup of the HSN code.

No.	Description
62	The first 2 digits represent the no. of articles of apparel & clothing accessories (not knitted or crocheted).
13	The next 2 digits represent the number of handkerchiefs.
90	The last 2 digits is the product code for handkerchiefs made for other textile materials.

SAC Code is the Services Accounting Code developed by the CBIC (Central Board of Indirect Taxes and Customs) to classify services for better measurement, taxation & recognition. SAC codes are controlled by the Central Board of Excise and Customs (CBEC).

These codes are based on HSN (Harmonized System of Nomenclature), which is recognized internationally to codify all the products in the world.

These codes provide a framework for the collaboration of data of sale & purchase and analyze the same. The system also permits GST compliance based on international standards.

Let us now understand the SAC code

For example, 998314- SAC code for Information Technology (IT) Design & Development services. Let us understand the breakup of the SAC code.

No.	Description
99	The first 2 digits are the same for all
83	The next 2 digits represent the primary nature of service, which in this case is IT services
14	The next 2 digits represent the detailed nature of services, which is a Design & Development service.

What is the need for the HSN/SAC code?

The HSN/SAC codes are important as it is used to:

• Help the businesses and the user to identify the GST rates applicable to the goods & services.
• It is compulsory to insert the details for the registration.
• It helps to recognize specific goods or services amid a large number of goods & services.

Is there a difference between the HSN/SAC code?

The major difference between the two is that:

• HSN prescribes codes to classify goods under the GST. HSN has 8 digit code prescribed for goods only.
• Whereas SAC has 6 digit codes prescribed to classify services under GST.

What was the need to make mandatory disclosure of HSN/SAC code?

The CBIC (Central Board of Indirect Taxes and Customs) has published the HSN/SAC code’s mandatory declaration in the GST invoice.

The first proviso to Rule 46 of the CGST rules, 2017^[1], was amended to give effect to the notification published by the CBIC. It says that the declaration of the HSN/SAC code is mandatory in the GST invoice.

The amended proviso states that w.e.f 01-04-2021:

• The 4 digit HSN/SAC code is mandatory for the B2B transactions up to Rs. 1.5 crores in the preceding financial year;
• The 6 digit HSN/SAC code is mandatory for the B2B transactions of more than Rs. 5 crores in the preceding financial year; and
• The 8 digit HSN/SAC code is mandatory for supplying chemicals in the preceding financial year.

The following table would illuminate the current requirement of HSN/SAC on invoice & its comparison with expected change recommended by GST Council:

Current Position	Recommended
Aggregate Turnover	Digits	Aggregate Turnover	Digits
Upto Rs. 1.5 crores	Not required	Upto Rs. 5 crores	4 Digits (for B2B transaction)
More than Rs. 1.5 Cr but upto Rs. 5 Cr	2 Digits	Above Rs. 5 crores;	6 Digits
More Than Rs. 5 Crores	4 Digits	Imports & Exports of Goods	8 digits
Import Exports of Goods	8 digits	Govt notified supplies	8 digits

Penalty

According to the Section 125 of the Central Goods and Services Tax Act, 2017 a penalty of Rs. 50,000 (INR each for CGST & SGST) can be imposed for non- mentioning or wrong mentioning of the HSC/SAC code.

Conclusion

The CBIC (Central Board of Indirect Taxes and Customs) has published the HSN/SAC code’s mandatory declaration in the GST invoice. The first proviso to Rule 46 of the CGST rules, 2017, was amended to give effect to the notification published by the CBIC. It says that the declaration of the HSN/SAC code is mandatory in the GST invoice.

Read our article:HSN Code Under GST – How to Implicate It?