FM calls for clarity on classification-related issues under GST at the earliest

Finance Minister Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman on March 4 asked the central and state GST officials to provide clarification on classification-related issues under the indirect tax regime at the earliest.

“Sitharaman stressed that clarity on classification-related issues should be looked into at the earliest through appropriate channels. She exhorted the GST officials to engage with stakeholders to understand their concerns, enhance compliance, streamline processes, and work collaboratively towards making the tax system more transparent and efficient,” the Finance Ministry said in a statement.

Sitharaman was speaking at the inaugural national conference of enforcement chiefs of the states and the central Goods and Services Tax (GST) in New Delhi. The conference aimed at facilitating understanding and streamlining operations of the tax authorities in enforcement actions undertaken by different indirect tax authorities.

Minister of State for Finance Shri Pankaj Chaudhary, Revenue Secretary Sanjay Malhotra, Central Board of Indirect Taxes and Customs (CBIC) Chairman Sanjay Agarwal, GSTN CEO and other heads of enforcement like the Chairman Central Board of Direct Taxes (CBDT), Directorate of Enforcement (ED) Director, Narcotics Control Bureau Director were also present at the conference.

The GST law provides a classification framework based on Harmonized System of Nomenclature (HSN) codes for goods and services.

The GST system encompasses a wide range of goods and services, making classification complex. Determining the appropriate classification for specific goods or services can be challenging, especially for items that don't neatly fit into predefined categories. There can be ambiguity in the classification guidelines provided by the GST authorities, leading to confusion among taxpayers. This ambiguity may arise due to differences in interpretation or lack of clear guidance on certain items.

Incorrect classification can result in the misapplication of input tax credit, leading to compliance issues and potential tax liabilities. Classification disputes between taxpayers and tax authorities arise due to disagreements regarding the correct classification of goods or services, leading to lengthy and costly legal proceedings.

Sitharaman urged all the GST formations to leverage technology to plug the loopholes as well as provide better taxpayer services. She also emphasised the need for seamless coordination across states.

“The enforcement chiefs of Centre and states can leverage this platform for discussing obstacles, exchanging successful strategies and advancing towards a more robust and harmonious tax infrastructure,” she said.