This PPT gives a brief note regarding HSN and it's rules of interpretation and its applicability over Central Excise And Tariff Act

1. HARMONISED
SYSTEM OF

2. INTRODUCTION AND BRIEF HISTORY
▸Harmonised commodity description or product coding system, which is
otherwise commonly referred to as “HS”, is nothing but a multipurpose
international product nomenclature which was developed and maintained
by the World Customs Organisation (WCO) for the purpose of
maintaining uniformity in International Trade.
▸HSN is an internationally accepted product coding system formulated
under the auspices of the General Agreement on Tariffs & Trade (GATT)
▸It comprises of about 5,000 commodity groups; each identified by a six
digit code arranged in a legal and logical structure and is supported by
well- defined interpretive rules to achieve uniform classification.

3. HSN
▸The international practice of adopting a uniform classification was done to
facilitate a common understanding of products across countries. In other
words, the classification of a product under this code would be the same
across the countries.
▸The system is used by more than 200 countries across the world as a basis
for their Customs tariffs and for the collection of international trade statistics.
Over 98% of the merchandise in international trade is classified in terms of
the HS.
▸The HSN system is extensively used by governments, international
organisations and the private sector for many purposes such as internal
taxes, trade policies, monitoring of controlled goods, rules of origin, freight
traffics, transport statistics ,etc. The HSN is thus a universal language and
code for goods, and an indispensable tool for international trade.

4. CETA AND HSN
CENTRAL EXCISE TARIFF AND HSN
▸Central Excise Tariff Act, 1985 is based on the Harmonised System of
Nomenclature (HSN).
▸CETA consists of three schedules, in which, the first schedule specifies the
items on which basic duty is leviable and consists of 96 chapters and twenty
sections. Whereas, the second schedule specifies the items on which special
excise duty is leviable (However with effect from 01.03.2006, all goods have
been exempted from special excise duty). And, the third schedule deals with
the deemed manufacture in relation to various specified goods.
▸The first two digits of the HS code designate the chapter. The second two
digits designate the heading. And, the third two digits designate the
subheading.

5. CETA AND HSN
▸For example, if you're looking for the parts of the lifts manufactured
solely for the purpose of lifts under CETA, it will fall under the 8 digit
code of 84313100. In which the first two HS digits (i.e. 84) represents
the chapter, whereas the second two digits (i.e. 31) represents the
heading, and, the third two digits (i.e. 31) represents the subheading.
And, the remaining last two digits (i.e. 00) represents the sub-sub-
heading, has been added for detailed classification of products. The
first 6 digits are common and could not be altered. Only the code can
be altered by adding digits to the first common six digits for having
detailed classification of products that has been manufactured in the
market.

6. CETA AND HSN
▸Each section is divided into various chapters and sub-
chapters.
▸Each chapter and sub-chapter will further be divided into
various headings and sub-headings.
▸Each section will contain section notes and each chapter will
contain chapter notes for better understanding and
applicability of the respective sections and chapters.

7. HSN- INTERPRETIVE RULES
INTERPRETIVE RULES TO FIRST
SCHEDULE OF CETA
▸There are six general rules for the interpretation of the tariff items. These
rules of interpretation are identical to those contained in the HSN.
▸ Before resorting to the interpretive rules, nature, description, purpose and
usage of the goods must be considered.
▸RULE 1: The titles of Sections, Chapters and Sub-Chapters that are
provided are only for the ease of reference. And, for legal purposes,
classification should be done according to the terms of the headings and
any relative Section or Chapter Notes.
▸Example- Heading of Chapter 84 refers to nuclear reactors, machinery etc.
but even a hand pump falls under the same chapter.

8. HSN- INTERPRETIVE RULES
▸RULE 2(a): For the purpose of interpretation, even an incomplete/unfinished
article shall be considered as a complete/finished article, if those
incomplete/unfinished goods have the essential character of the finished goods.
▸Example- A car without any seats would still be classified as car.
▸RULE 2(b): For the purpose of interpretation, any reference in a heading to a
material or substance shall be taken to include a reference to mixtures or
combinations of that material or substance with other materials or substances.
▸Examples- 1) The term coffee will include coffee with chicory.
2) Natural rubber will cover a mixture of natural and synthetic rubber.

9. HSN- INTERPRETIVE RULES
▸RULE 3: When by application of rule 2(b) or for any other reason, goods are, prima
facie, classifiable under two or more headings, classification shall be effected as
follows:
▸RULE 3(a): The heading which provided the most specific description will be
preferred to headings providing a more general description.
▸RULE 3(b): If the product is a mixture, composite goods consisting of different
materials or made up of different components, and goods put ip in sets for retail
sale, which cannot be classified with reference to (a), shall be classified on the
basis of that material or substance that gives it its essential character.
▸Example- Lead pencil with an eraser at the back, will be considered as a pencil but
not as an eraser, because, its essential character is to write and the eraser is only
for the purpose of adding convenience to the user.

10. HSN- INTERPRETIVE RULES
▸RULE 3(c): If both the sub-rules (a) and (b) fails to classify the
goods in question, then resort may be had to sub-rule (c), which
provides that the composite goods shall be classified on the
basics of the heading that occurs last in numerical order.
▸RULE 4: This rule is otherwise referred to as AKIN RULE.
According to this rule, goods which are not classifiable in
accordance with the above mentioned rules, shall be classified
under the heading appropriate to the goods to which they are
most similar or akin.

11. HSN- INTERPRETIVE RULES
▸RULE 5(a): Classification of cases/containers used for packaging of goods:
Camera cases, musical instrument cases, gun cases, drawing instrument cases,
necklace cases and similar containers shall be classified with a specific article or a
set of articles when of a kind normally sold therewith.
▸Cases/containers that have been specifically designed for a specific article or a set
of articles shall be classified with such specific article or a set of articles.
▸RULE 5(b): Classification of packing materials and packing containers:Subject to
the provisions of (a) above, packing materials and packing containers presented
with the goods therein shall be classified with the goods, if they are of a kind
normally used foe packing such goods.
▸In other words, the packing materials and containers cleared along with the goods
are classifiable with the goods.

12. HSN- INTERPRETIVE RULES
▸RULE 6: According to this rule, in classifying a good in the sub-
heading of a heading, it shall be determined according to the
terms of those sub-headings and any related sub-heading notes, if
those sub-headings are at the same level and are relatable.
▸And for the purpose of this rule, the relative section and chapter
notes also apply unless the context otherwise requires.
▸The main proposition that has been laid down by this rule is that
sub-headings at the same level are comparable. This also implies
that a sub-heading can be compared only with another sub-
heading within the same meaning.