Wrong Classification of Goods and Services

GST Doctor Pro Version is on sale. Purchase once and enjoy lifetime access with free updates, click topurchase

GSTIN Validator (Registration Status for Multiple GSTINs) is back...

Home » Articles » Wrong Classification of Goods and Services
GST Doctor

GST Doctor on Mon Apr 24 2023


Under GST law, one of the most important elements is the classification of goods/services for the purpose of determination of rate of tax to be levied on them. The rate of tax to be charged on a particular product depends on the HSN/SAC codes specified under the GST law. Also, for the availability of exemptions, we need to classify the goods/services properly and accurately.

What is HSN/SAC code?

HSN code is Harmonized System of Nomenclature for classification of different commodities.

SAC code is Services Accounting Code for classification of different services.

Effects of wrong classification of goods/services

Wrong classification leads to wrong valuation which further leads to wrong payment of taxes. Here are a few cases with their significant effects:

GST charged at higher rateMore ITC Taken by the recipient
GST charged at lesser rateShort payment of Tax to the Government
Wrong exemption claimedNon-Payment or Short-Payment of Tax
Goods/services classified under Reverse Charge Mechanism where they are not supposed to be so classified or Vice-versaShort-payment of Tax or Ineligible ITC taken
Non-payment of Compensation Cess on specified goods/servicesPenal proceedings over and above interest cost
Wrong classification of export/importDenial of benefits under Foreign Trade policy such as Duty drawback, Incentives

Disclaimer: All the information on this website is published in good faith and for general information purpose only. Any action you take upon the information you find on this website (gstdoctor.com), is strictly at your own risk.