HSN & SAC Codes

Where the numbers come from

HSN stands for Harmonised System of Nomenclature, a classification maintained by the World Customs Organization in Brussels and used by the large majority of trading economies. Its purpose was originally customs: if every country describes a consignment of woven cotton shirts by the same number, tariffs, quotas and trade statistics become comparable across borders.

The internationally agreed part of the code is six digits. Every member country must classify identically down to that level, which is why a six-digit code means the same thing in Rotterdam as it does in Nhava Sheva. Below six digits each country may extend the code for its own purposes, and India does: the Customs Tariff Act carries an eight-digit national tariff item.

When GST was introduced, India did not invent a new classification. The rate notifications adopt the Customs Tariff schedule wholesale, along with its section notes, chapter notes and the General Rules for the Interpretation of the tariff. This has a consequence that surprises people: GST classification questions are settled using customs law and customs case law, because it is literally the same nomenclature.

The Harmonised System is amended by the WCO on a multi-year cycle, and headings are created, merged and renumbered when they are. A code copied from an old master or an old invoice can be a code that no longer exists.

How the digits nest

The code is read left to right, each pair of digits narrowing the one before it. Nothing is arbitrary: the position of a digit tells you what kind of question it answers.

• Take 8517 13 00, the tariff item for a smartphone.
• 85 — Chapter 85, electrical machinery and equipment, and parts of it.
• 8517 — the heading for telephone sets and other apparatus for transmitting or receiving voice or data over a network.
• 8517 13 — the six-digit sub-heading for smartphones specifically, which the WCO created when handsets grew too commercially significant to leave inside a general heading.
• 8517 13 00 — the eight-digit Indian tariff item. Here the last pair adds nothing further, which is common; elsewhere it carries a real distinction the Indian tariff wanted and the international one did not.

The phone is 8517. Its charger, its earphones and its case are not — each is classified as the article it is, under its own heading, and each can carry a different rate. Classifying a bundle by its headline item is one of the most reliable ways to file a wrong return.

SAC, and how the service side is numbered

Services have no customs history — nothing crosses a border in a container — so the Harmonised System does not cover them. India uses the Services Accounting Code, built on the United Nations Central Product Classification and carried into GST by the services rate notification and its annexure of service descriptions.

The shape is different from HSN in three ways worth holding on to. Every SAC begins with 99, which is the chapter reserved for services in the tariff, so the first two digits carry no information beyond 'this is a service'. The code is six digits and stops there — there is no eight-digit service tariff item, because there is no customs assessment to make. And the middle digits work as a heading and a group before the final pair identifies the service itself.

So 9965 is the heading for goods transport services; 9965 11 is road transport of goods within it. Similarly 9954 covers construction services, and the six-digit codes beneath it separate residential construction from commercial, from roads, from demolition, from painting. The searchable directory on this page carries both goods and services and can be filtered to one or the other.

A composite supply is classified once, by its principal supply, not split into a goods code and a service code. A works contract and an annual maintenance contract are each a single supply with a single code, however naturally the invoice would divide into materials and labour.

How many digits you must quote

The classification runs to eight digits, but you are not always required to print all of them. How many you owe is a single rule with three answers — four digits, six digits or eight — and which answer applies to you is decided by your aggregate turnover in the preceding financial year, with exports and imports overriding it. This is why the directory below is presented as three tables at the three depths rather than one flat list: the table you should be reading is the one your turnover puts you in.

The threshold is aggregate turnover of ₹5 crore. A business below it quotes four digits on its B2B invoices; a business above it quotes six on everything. The requirement has been tightened in stages since GST began — it started at eight digits for a narrow band and no requirement at all for the smallest — so what a business quoted three years ago is not a guide to what it must quote now.

• Four digits is a heading — 8517, telephone apparatus. Six is the internationally agreed sub-heading under it — 8517 13, smartphones. Eight is the Indian tariff item under that. The first four digits of a six-digit code are its heading, and the first six of an eight-digit code are its sub-heading, so the three tables in the directory below are the same tree read at three depths, not three different lists.
• Aggregate turnover is computed across all registrations on the same PAN, all India — not the turnover of the one GSTIN raising the invoice. A group under ₹5 crore in one state can still owe six digits.
• Exports and imports need eight digits whatever the turnover, because the shipping bill and the bill of entry are assessed by customs at the tariff item and there is no shorter form of it. An exporter of any size is working at eight digits even if its domestic invoices only need four.
• A short list of chemical tariff items requires eight digits from every supplier, again regardless of turnover.
• The same rule governs the HSN summary in Table 12 of GSTR-1, and the portal now supplies the code from a dropdown rather than a free-text box. A code that has been withdrawn, or a four-digit code from someone who owes six, is rejected or flagged rather than quietly accepted.

Quoting more digits than required is safe; quoting fewer is not. But more digits is only safe if the extra digits are right — an eight-digit code that narrows to the wrong tariff item is a worse answer than the correct four-digit heading, because it asserts something specific and false.

Finding the right code

The single most useful habit is to classify by what the thing is, in the terms the tariff uses, rather than by what the trade calls it. The tariff is written in an older and more literal vocabulary than any product catalogue: it knows 'articles of apparel, knitted or crocheted' and does not know 'athleisure'. Marketing names, brand names and industry shorthand have no standing in classification, and searching for them is how people end up in the wrong chapter entirely.

Work down the tree rather than guessing at the bottom. Establish the chapter first from the material or the general family, then read the headings in that chapter in order, then the sub-headings under the heading you settled on. Section notes and chapter notes are part of the law and frequently decide the answer outright by excluding something you would otherwise have put there.

Where two headings both seem to fit, the General Rules for the Interpretation of the tariff resolve it in a fixed order — the most specific description prevails over the more general; a composite article takes the classification of the component giving it its essential character; and only if neither settles it does the later heading in numerical order win. These are rules of law, applied in sequence, not rules of thumb.

• The CBIC rate finder at cbic-gst.gov.in searches the notified schedules by code and by description and is the authority for the current rate.
• Where a genuine doubt exists, the customs tariff's own explanatory notes and the published advance rulings on the same product are far better evidence than a search result.
• Whatever code you settle on, the description printed on the invoice must be consistent with it. An invoice reading 'consultancy' against a construction SAC invites the question, and it is not a question with a good answer.
• Set the code once, on the item master, not per invoice. A code chosen freshly each time is a code that will differ across invoices for the same product, and the difference will surface in the GSTR-1 HSN summary.

Copying a code from a competitor's or a supplier's invoice is common and is not a defence. If they are wrong, you are wrong in your own name, and the liability follows your GSTIN.

Why the code matters beyond the rate

It is easy to treat the code as an administrative field that happens to sit next to the rate. It carries rather more than that.

• It determines the rate. The rate notifications are schedules of codes, so there is no route to a rate that does not pass through a classification decision.
• It determines exemption. Nil-rated and exempt entries are also written against codes, and the difference between a taxable heading and an exempt one is often a single sub-heading.
• It is what a customs entry is assessed on. On an import, the tariff item drives basic customs duty, IGST on import, and any cess or safeguard measure attached to that item.
• It drives the HSN summary in GSTR-1, so a code that varies across invoices for the same product produces a summary that cannot be reconciled to the sales ledger.
• It travels on the e-invoice and the e-way bill, which means the same classification is on record with a second system and can be compared against the return.
• It is the commonest single cause of a classification dispute. Departmental notices on rate very rarely allege that the rate was misread; they allege that the goods belonged in a different heading, and the rate followed from that.

A wrong code that produced a lower rate is recovered with interest, and the demand runs for the whole period the code was in use — not from the date the department noticed. That is why a code on a master is worth checking properly once rather than approximately often.

Where a heading splits, and why

Most classification errors are not exotic. They happen at a handful of headings that split on something other than what the article is made of, where the obvious code is right for one version of the product and wrong for another. The split is deliberate policy in each case, and it is worth knowing the shapes.

Where the split turns on value, the rate belongs to the transaction and not to the item master. A garment master carrying one fixed rate will be wrong on every sale that falls the other side of the threshold, and the error is invisible on the invoice because the invoice prints whatever the master said.

When no code genuinely fits

Occasionally the doubt is real. A new product, a bundled offering, or something the tariff plainly never contemplated can leave two headings equally arguable after the interpretative rules have been applied. Adopting a view and hoping is the expensive option, because if the department later takes the other view the exposure has been accumulating the whole time.

The statutory route is an advance ruling. The CGST Act allows an application to the Authority for Advance Ruling on a defined list of questions, and the classification of goods or services is expressly one of them. The application is made on the prescribed form with a fee, the Authority takes the applicant's submissions and the jurisdictional officer's, and it pronounces a ruling in writing within the period the Act allows.

A ruling can be appealed by the applicant or by the department to the Appellate Authority for Advance Ruling, within the time the Act prescribes. What comes out binds the applicant and the officers with jurisdiction over that applicant, and nobody else — which is exactly why a published ruling in someone else's favour is persuasive material rather than protection.

• The relevant provisions are in Chapter XVII of the CGST Act: section 97 for the application, section 98 for the procedure and the ruling, section 100 for the appeal, and section 103 for who the ruling binds.
• The question must be prospective or about a supply being undertaken. An advance ruling is not a route to settle a period already under enquiry.
• A ruling obtained by suppressing or misstating facts can be declared void from the beginning, so the application is only worth making on a complete disclosure.
• Published rulings on the same product are worth reading before applying, both for the reasoning and because contradictory rulings between states are not unusual and tell you where the real difficulty lies.

Rulings from different state Authorities on the same product have gone opposite ways more than once. A ruling in your own name is the only one that protects you; another applicant's is an argument, not an answer.