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HSN to be re-structured?

6 December 2022

The World Customs Organisation (WCO) has announced an exploratory project to look at the possibility of a strategic review of the HSN and its tools: tools: see WCO launches an exploratory Study Project on a possible strategic review of the HS – WCO ( This has relevance not only for importers and exporters, but also for those in the business of domestic trade.

The HSN and its relevance to Indian taxes

The HSN is a standardised system of identifying goods for the purpose of international trade. It lists goods in numbered categories, and has guidelines on how to place goods into the appropriate category. The Indian customs and central excise tariffs have been based on the internationally used harmonised system nomenclature (HSN) for several decades. Changes are enacted into these whenever the HSN is amended. In 2003, the states adopted the same system for VAT. In 2017, when GST was introduced, no separate tariff was enacted for it: instead, the central as well as state governments incorporated the customs tariff by reference for the purposes of GST. Thus, any change in the HSN eventually translates into change in domestic taxes too, via the customs tariff.

Why change the HSN?

Introducing its abovesaid exploratory project, the WCO noted that the HSN has remained largely unchanged since its inception in 1988, and that the rules of interpretation and the four-digit headings that form the HSN structure go back even farther as they were taken over from the 1959 Brussels Tariff Nomenclature. The structure of the HSN, which has thus far been its strength, may also give a clue to the need for change. Below is a glance at this structure.

Structure of the HSN

The structure of the HSN is based on ‘headings’ read with the rules for interpretation which guide the user on how to place goods under headings. The HSN consists of 99 ‘chapters’, each of which lists goods of broadly similar origin or type. These chapters are for ease of reference only. They contain four-digit ‘headings’, which are the basic unit of classification for legal purposes.

For example, chapter 17 which is for ‘sugar and sugar confectionary’ contains four headings at the four-digit level, namely 1701 for cane sugar, beet sugar and chemically pure sucrose; 1702 for other sugars including syrups and caramel; 1703 for molasses; and 1704 for sugar confectionery. After placing an item into a ‘heading’, one then looks for the appropriate tariff entry under it. The four-digit ‘headings’ are subdivided into subheadings, which in turn are subdivided into ‘tariff entries’. Rates of duty are specified at the tariff entry level. The whole is like a vein and capillary system, hence one has to follow the branching. ‘Cane jaggery’ is specified twice at the eight-digit tariff entry level under 1701, so one has to carefully place one’s cane jaggery in the subdivision of the correct subheading.

In principle the HSN can cover any conceivable thing. One just has to find the heading to which it has the greatest affinity, and if it is not specified therein, it will be accommodated in the ‘residual’ entry which is for items not elsewhere specified. There are rules, too, to guide the process of classification. In essence, these require that the item be classified in the heading under which the most specific description of the item can be found.

Modern technology and the shortcomings of the HSN

Despite the ‘catch-all’ nature of the HSN, modern technology has left users of the HSN confused about the appropriate classification and rate of duty applicable to certain items. Hybrid items are a frequent source of contention between the business and the regulatory authority. Is a watch that is equipped with a camera to be treated as a watch or a camera? Is a smartphone really a phone or is it a data-processing machine that also accommodates a phone connection? These are the simpler questions. There are more complex issues for which there can be no definitive resolution in the present system of classification. The WCO is now looking at possibilities of change.

WCO invites your participation

The WCO has invited the participation of stakeholders, including international organizations, industry and sector associations, the trade community and administrations of its member countries in the project.

More on this can be accessed at

Communications can be addressed to

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