# Classification Under GST

Correct classification is essential because different classifications attract different tax rates.

## A. Classification of Goods

Basis: First Schedule of the Customs Tariff Act, 1975, using HSN codes.

Hierarchy:

```

Sections → Chapter → Heading → Sub-heading → Tariff item

```

HSN (Harmonized System of Nomenclature):

Developed by the World Customs Organization (WCO)
Contains 500 commodity groups
Uses a 6-digit code (extendable)
India extends HSN to 8 digits

The Indian Customs Tariff also provides Rules of Interpretation and General Explanatory Notes which serve as the foundation for determining the GST rate of a good.

## B. Classification of Services

Basis: A new Scheme of Classification — a modified version of the United Nations Central Product Classification (UN CPC).

Hierarchy:

```

Chapter → Section → Heading → Group → Tariff item/Service code

```

The five sections covering services are:

Section	Coverage
5	Construction Services
6	Distributive Trade Services; Accommodation, Food & Beverage; Transport; Gas & Electricity Distribution
7	Financial & Related Services; Real Estate; Rental and Leasing
8	Business and Production Services
9	Community, Social and Personal Services and other miscellaneous services

Rate of tax is determined according to the Service Code under which the service is classified.

Worked example

### Example 1

Example (Goods classification): A manufacturer supplies 'pan masala'. Goods are classified per Customs Tariff Act → HSN 2106 90 20. The rate applicable to this heading determines the GST rate. India's 8-digit HSN provides finer granularity than the WCO's 6-digit baseline.

### Example 2

Example (Services classification): A construction contractor's work falls under Section 5 (Construction Services) of the Scheme of Classification of Services. The exact 'Service Code' under Section 5 determines the GST rate applied.

⚠️ Common exam mistakes

Confusing HSN hierarchy with the services hierarchy — goods use Sections→Chapter→Heading; services use Chapter→Section→Heading→Group.
Assuming HSN is Indian — it is developed by the WCO; India only extends it from 6 to 8 digits.
Ignoring Rules of Interpretation and General Explanatory Notes when classifying goods.
Believing services use HSN — services use a separate Scheme based on UN CPC.

Reference:

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Classification of Goods and Services under GST

Worked example

⚠️ Common exam mistakes