Wrong Classification of Goods and Services
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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 rate||More ITC Taken by the recipient|
|GST charged at lesser rate||Short payment of Tax to the Government|
|Wrong exemption claimed||Non-Payment or Short-Payment of Tax|
|Goods/services classified under Reverse Charge Mechanism where they are not supposed to be so classified or Vice-versa||Short-payment of Tax or Ineligible ITC taken|
|Non-payment of Compensation Cess on specified goods/services||Penal proceedings over and above interest cost|
|Wrong classification of export/import||Denial of benefits under Foreign Trade policy such as Duty drawback, Incentives|
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