HSN Codes Classification –Basics and Challenges

Background-

HSN stands for ‘Harmonized System Nomenclature.’ The WCO (World Customs Organization) developed it as a multipurpose international product nomenclature that first came into effect in 1988 with the vision of facilitating the classification of goods all over the World in a systematic manner.

How do HSN work?

HSN is a six-digit code that classifies more than 5000 products, arranged in a legal and logical structure. To achieve uniform classification, the HSN is supported by well-defined rules and is accepted worldwide.

Interestingly, HSN is in use worldwide, with 200+ countries participating, the benefits of HSN include:

1.?Collection of international trade statistics

2.?Provision of a rational basis for Customs tariffs

3.?Uniform classification

Nearly 98% of international trade stock is classified in terms of HSN, further evidence of its reputation as the best form of international classification.

HSN in India:

India has been a member of the?WCO?(World Customs Organization) since 1971. It initially employed six-digit HSN codes to classify merchandise for Customs as well as Central Excise duties, but to make the codes more precise, the Customs and Central Excise authorities went on to add two more digits. This resulted in an eight-digit HSN classification.

Almost all goods in India are classified using the HSN classification code, which facilitates the use of HSN numbers for calculations of the?(GST) also.

?Example of an HSN code - schematic

The last 2 digit are mostly country specific and may vary country to country, but the purpose of classification gets established via first 6 digits.

I want to highlight here the classification dispute faced mainly by importers during clearance of goods from customs, further what intrigues me is the reason for dispute inspite of the HS codes mentioned on the Supplier?Invoice, which have uniform classification worldwide, so why should there be ?difference in opinion in classification ?

Importers do face this challenge on regular basis ?and this may result in :

1.Delay in clearance of shipments.

2.Costs incurred for this delay in the form of demurrage and detention costs.

3. Personal Hearing/ Notice?are also issued for classification dispute and long delays in closure of such matters.

4. Adding to finally Customer dissatisfaction due to these delays.

So if Supplier’s also use WCO based Harmonised System why we should we face such disputes ? And these are terms as “Unform Classifications.”

With signficiant improvements done in Custom processes and procedures, Tarifff classification can also be ?looked for reasonable easy of clearance in line with WCO guidelines.

Friends , what are your experiences, would be eager to know more?

Source Images : ( Google), Shiprocket