Monday, December 11, 2017

Taxzone

GST coins Flip-Flop

 

Can an industry demand and avail a single slab rate for all products

 

The coin of GST has flipped with a number of pros and cons. There are a number of increased Compliances and Regulations. Some of these compliances create a constant ambiguity in execution. One of the most perplexing compliance under GST is identification of HSN and SAC Code for goods and services. The Harmonized Commodity Description and Coding System, also known as the Harmonized System (HS) of tariff nomenclature, is an internationally standardized system of names and numbers to classify traded products. It came into effect in 1988 and has since been developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent intergovernmental organization based in Brussels, Belgium, with over 181 member countries. HS is organized into 21 sections, which are subdivided into 99 chapters which are further subdivided into approximately 1,244 headings and 5,244 subheadings.

 

The HS code consists of 6-digits. Indian authorities have further categorized six digit HSN into another two digit sub chapter, thus making total number of digit to be eight. Under GST, the majority of dealers will need to adopt two-, four-, or eight-digit HSN codes for their commodities, depending on their turnover the year prior.

 

 

Turnover Limit / Particulars

Digits of HSN Code requirement

Upto Rs.1.5 crores

Not required

Rs.1.5 – Rs.5 crores

2

Above Rs.5 crores

4

Imports/Exports

8

 

 

Further, an example would give a better clarity regarding the HSN Code. Example :- HSN code 10063020 indicates Chapter 10(Cereals), Heading 06 (Rice), and Subheading 30 (Semi-milled or wholly milled rice, whether or not polished or glazed), Tariff Item 20 (Rice Semi-Milled or wholly-milled rice, whether or not polished or glazed : Basmati rice)

 

Under the earlier tax regimes, such classification was not a major requirement. Under Service Tax, there was requirement of the SAC code at the time of registration. Under VAT, the HSN was available with the description of goods during registration, and in case of billing mentioning the HSN was not mandatory and hence there was minimal requirement for mentioning HSN Code based on goods notified by States respectively. This was a huge relief to service providers, traders and businesses. The Excise & Customs had the requirement for mentioning the HSN Codes, which was the only base of usage of HSN Codes pre GST in India.

 

The classification has been the most challenging task. The basic complexities include

  • Identifying the goods/services, and the Chapter heading under which the same shall be classified.
  • Identifying of goods/services falling under more than one Chapter heading.
  • Classification of various articles of a single industry under different Chapter headings.etc

Over and above the afore said challenges, there are frequent changes in the HSN/SAC Code and its rates, which makes it more complex to trace from time to time.

 

The changes made by government from 1st July till date includes the following:-

 

Corrigendum/Notification No.

Sector/Commodity

Changes

Notification No.18/2017 dated 30.06.17

Fertilizers

Deleted from 12 per cent slab and Inserted to 5 per cent slab

Notification No. 19/2017 dated 18.08.17

Tractors

Insertion of entries 452A - 452O under 18 per cent slab rate

Notification No. 20/2017 dated 22.08.17

Construction services (Works Contract, transportation services (GTA), printing services

Substitution and insertion of various entries in taxable list of services.

Notification No. 21/2017 dated 22.08.17

Services provided by and to FIFA, by fair shops to SG and CG under PDS,

Substitution and insertion of various entries in exemption list of services.

 

 

Prior to GST introduction, there have been various litigations related to HSN classification issues like :-

 

 

  •               It was observed that one of the final product viz. Lost Circulation Control Additives (LCCA) are classified by the appellant under Chapter Heading 4701, while it is the case of Revenue that the said product gets classified under Chapter Heading 3824. After analysis of Central Excise Regional Laboratory at Vadodara , LCCA is classifiable under Heading 4701 and not under Chapter 38 [Commissioner of C. Ex., Ahmedabad-I V/S Dhariyal Chemicals.]
    •              Bentonite was classifiable under Chapter Heading 2508 as claimed by the appellants. However, the Department’s contention is that the product is classifiable under Chapter Heading 3802. Chemical Examiner’s test report show that imported item is activated clay unless appellants show that acid treatment did not change the structure of bentonite. The decision in the case was that Bentonite when treated with acid is to be classified under Chapter Heading 3802. [Adani Wilmar Ltd. V/S Commissioner of Kandla]
    • The Appellants claim classification of Metablen P-551 (acrylic processing aid) and Metablen C-201 (acrylic modifier) under Chapter Heading 3823 while Department seeks classification under Chapter Heading 3906. Test report relied on by Department was not categorical and only reveals that samples are having thermoplastic properties as exhibited by polymers. The Appeallants were allowed relief classifying the same under Chapter Heading 3823 as prepared chemicals. [Classic Plastics (P) Ltd. V/S Collector of Customs]
    • The assessee claimed that Refractory goods to be considered as part or accessories of machinery and not as refractory goods falling under Chapter 69. However, as per Commissioner (Appeals) findings refractory goods are not capital goods therefore not eligible to exemption and hence taxable as goods falling under Chapter 69. [A.C.C. Limited V/S Commissioner of C. Ex., Raipur]
    • The Appeallants classified Polyols under Chapter 38 while Assistant Commissioner classified it under Chapter 39. According to the ruling Tribunal, Assistant Commissioner determining the classification contrary to classification determined by Tribunal was regrettable and hence appeal got dismissed, classifying Polyols under Chapter 38. [Comm. Of Customs, Hyderabad V/S U-Foam Pvt. Ltd.]
    • The Switch Fuses were classified under Chapter 853690 by CBEC, further an order was passed classifying it under Chapter 8537, and thus parties had classified it under Chapter 8537. Later impugned order which had taken a contrary view is set aside and it was classified under Chapter 8537. [Ganapathy Engg. Manufacturers P. Ltd. V/S Commr. Of C. Ex.(Appeals), Madras].    It is clearly visible from afore said caselaws that there has been lot of ambiguities relating to the classification. Especially when it comes to chemical products like products classified under Chapter 38, there is further requirement of test reports which may also be ambiguous at times if proper care not exercised as seen in the case of Classic Plastics (P) Ltd. V/S Collector of Customs. Such litigations not only bothers The Appellants but the Department also. With GST, the requirement of HSN/SAC being mandatory will create unnecessary wastage of time, energy, money, if proper initiatives and clarity is not provided by the Government.

 

The Government is taking various initiatives so as to reduce complications related to rates and HSN/SAC Code. One such initiatives by GST Council is to move the rate on job work of textile industry to 5 per cent from 18 per cent. This move would attract more registered taxpayers in textile industry. A common rate across the chain would also avoid confusion and thus benefiting the industry, government and customers as a whole. Further, a few days ago, CBEC had to spell out whether a 'saree', which had undergone 'further processing' such as embroidery, stitching of lace, etc. with two or more kinds of fabrics, would still be classified as a 'saree' under Chapter 54, i.e nil rate or as 'other made-up textile goods' under Chapter 63, i.e 12.5 per cent rate. It was clarified that the essential characteristic of the fabric would not change for a 'saree' which has been embellished with embroidery, lace or sequins and hence would continue to attract nil duty. One of the industries requiring such an initiative is the construction chemicals industry. This industry ensures modern construction practices by creating durable and sustainable buildings and other civil structures. Today, the industry is a Rs.4000 crore industry having both organized and unorganised manufacturers all over India. The industry deals with construction and repair of important structures like roads, bridges, dams, canals, power houses, airports, railway infra-structure, factories, laboratories, multi-storied building structures etc. The industry offers varied categories of products to make the construction of varied structures possible in various sectors of construction, most of which are not very well defined under GST slab rate. The below table provides with some of the goods used by Construction Chemicals, its HSN Code, along with its rate under Excise, Custom, and GST regime. As it is clearly visible that under excise and customs the said goods are taxable at a common rate of 12.5 per cent and 10 per cent, respectively. Due to such consistency there has been huge transparency, and thus it would be highly helpful if in GST regime also it is taken under a single slab rate.

 

 

The products manufactured by this industry can be classified in the following groups:

 

Sr. No:

Description

HSN

GST Rates

Excise Rates

Customs Rates

1

Tile Adhesive, Tile Joint Fillers , Grout for Machine foundation, Block fixing adhesive , High strength cementatious repair products, Skim coat plaster

38245090

18 per cent

12.5 per cent

10 per cent

2

Admixtures : Ligno based, Napthalene based and PC based PP fibre, Grout Additive, Quick setting compound, SBR repair product, Acrylic repair products, Mould Release Agent, Acrylic waterproof coatings, PVA Bonding Agent.

38244090

18 per cent

12.5 per cent

10 per cent

3

Coal Tar Pitch Epoxy, Injection Grouting Epoxy, 2 component Epoxy Products, 3 component Epoxy products, Epoxy Tile Joint Filler Epoxy coating, Epoxy self levelling products

39073010 and 39073090

18 per cent

12.5 per cent

10 per cent

4

Crystalline cementatious waterproof coating, Two component Acrylic Cementatious waterproof coating, Conloured acrylic water proof Coating water proof powder, bitumen based water proof coating, Insulation cum waterproof coating.

38244010

18 per cent

12.5 per cent

10 per cent

5

Styro Acrylic waterproof coatings , Acrylic repair products, Silicone based water-repellent, Resin based curing compound acrylates.

38244010

18 per cent

12.5 per cent

10 per cent

6

Cementations Putty, Epoxy Putty, Polysulphide Sealant

32149090

28 per cent

12.5 per cent

10 per cent

7

Acrylic Sealants

32141000

28 per cent

12.5 per cent

10 per cent

8

Polyester Grouts

39079110

18 per cent

12.5 per cent

10 per cent

9

PU Injection Grouting material , PU based waterproof Coating, PU Sealant.

39095000

18 per cent

12.5 per cent

10 per cent

 

 

 

Some of the products are not found in the classification list. As a result the manufacturers on the advice of excise (non-technical) consultants tend to classify them on the basis of raw materials used in making these products.

It is like a tea vendor classifying his cup of tea either as milk or tea or sugar when he does not own a dairy farm, or tea plantations, or a sugar factory.

 

 

Further, on the ambiguity relating as to under which slab rate should the Council classify this industry, Construction Chemicals Manufacturers Association (CCMA) has sent a representation to the GST Council that most of the products to the extent of 99 per cent fall under the 18 per cent GST tariff even going by the classification on the basis of raw material consumed, and about 1 per cent falls in the 28 per cent tariff category. Therefore, it would be a great aid, if the GST Council grant one classification i.e. Construction Chemicals and one tariff, i.e. 18 per cent to this industry.

 

 

Looking to the future perspective also, the scope of work of the said industry will necessitate the development of new products with various raw materials to keep the advanced construction techniques moving ahead. As a result often it becomes difficult to fit a product or a product group in any established product categories. This constantly engages the Association with ambiguities for classification of such goods. By classifying construction chemicals head with one tariff, there will be easy compliance, increased no. of registered taxpayers, easy availment and transfer of ITC, less disputes or litigations and many such transparencies under a well-regulated tax system.

 

CA Sandesh Mundra & Maitri Thakkar,

Sandesh Mundra & Associates, Ahmedabad  authors are currently engaged in doing several impact analysis assignments for the construction sector. They have also developed their own in house tool named GST Builder for doing multi state impact analysis. They have also authored a book titled “GST – Quick Connect with Construction Sector” available on www.consultconstruction.com

Besides, CA Sandesh Mundra as Chairman -GST Committee of the Builders’ Association of India, has been actively involved in giving several representations to the government on issues connected to the construction and infrastructure sector.




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