Hsn misclassified by supplier
This query is : Resolved
14 September 2018
I am a manufacturer's distributor for a commodity (processed fruit product) that was taxable under VAT regime.
During GST transition, the Manufacturer misclassified it under HSN 0801 as NIL rated and gave us Inter state supplies.
I informed them correct HSN was 2008 with GST 12% and gave several reasoning & evidences for the same. Similar product manufactured by larger companies and Importer’s HSN of product in Customs records supported my view. But manufacturer did not agree.
I sought advice from State GST officials who after examining the product, packaging, ingredients and a cursory glance of schedule, verbally informed that:
a) this was clear misclassification.
b) asked me to suggest the manufacturer to seek an AAR ruling
I also enquired if I could switch HSN from 0801 to 2008 and issue invoice for this commodity @12% GST.
They verbally informed me that I cannot change the HSN and invoice this commodity, because then I will have accumulated stocks under HSN 0801 and sales with unaccounted purchases for HSN 2008, but did not offer me any other solution.
Hence I adopted supplier's HSN and invoiced at NIL rate.
Points a & b were relayed to Manufacturer in writing.
Manufacturer informed us in writing that they have verbally discussed it with Central Excise, State VAT and based on their CA's opinion they will continue on same HSN @ Nil rate.
I stopped all purchases from this Manufacturer in Dec 17 and liquidated stocks within FY-1718.
I am of the opinion that:
i) my supplier's liability is a matter for their jurisdictional officer in their state to assess.
ii) my liability is forward charge based and will be assessed in my state by my jurisdictional officer.
iii) Nil GST charged by supplier cannot be a defence for not collecting GST from recipients.
iv) I should pay the tax & interest on these supplies for FY 1718 and avoid penalty and litigation.
I met Anti evasion team officials of my CGST Commissionerate recently for this issue and they suggested
A) Issue supplementary Invoices for FY 1718
B) Give a representation to my SGST Commissioner with Copy to CGST Commissioner explaining the issue, as a defence for any future events.
Now my queries:
1) Is my opinion/stance in points i), ii), iii) and iv) above correct?
2) Is supplementary invoice the correct way to remedy the situation?
3) What HSN do i adopt for issue of supplementary invoices?
4) What will be the issue date of such Supplementary invoices? Original invoice date or current date?
5) Do I need to raise individual supplementary invoices for B2C (small) supplies as well?
6) My price to my B2B customers was rate including tax & delivery and I feel they will refuse to pay me the tax.
What steps could you suggest to recover tax?
Please guide me.
During GST transition, the Manufacturer misclassified it under HSN 0801 as NIL rated and gave us Inter state supplies.
I informed them correct HSN was 2008 with GST 12% and gave several reasoning & evidences for the same. Similar product manufactured by larger companies and Importer’s HSN of product in Customs records supported my view. But manufacturer did not agree.
I sought advice from State GST officials who after examining the product, packaging, ingredients and a cursory glance of schedule, verbally informed that:
a) this was clear misclassification.
b) asked me to suggest the manufacturer to seek an AAR ruling
I also enquired if I could switch HSN from 0801 to 2008 and issue invoice for this commodity @12% GST.
They verbally informed me that I cannot change the HSN and invoice this commodity, because then I will have accumulated stocks under HSN 0801 and sales with unaccounted purchases for HSN 2008, but did not offer me any other solution.
Hence I adopted supplier's HSN and invoiced at NIL rate.
Points a & b were relayed to Manufacturer in writing.
Manufacturer informed us in writing that they have verbally discussed it with Central Excise, State VAT and based on their CA's opinion they will continue on same HSN @ Nil rate.
I stopped all purchases from this Manufacturer in Dec 17 and liquidated stocks within FY-1718.
I am of the opinion that:
i) my supplier's liability is a matter for their jurisdictional officer in their state to assess.
ii) my liability is forward charge based and will be assessed in my state by my jurisdictional officer.
iii) Nil GST charged by supplier cannot be a defence for not collecting GST from recipients.
iv) I should pay the tax & interest on these supplies for FY 1718 and avoid penalty and litigation.
I met Anti evasion team officials of my CGST Commissionerate recently for this issue and they suggested
A) Issue supplementary Invoices for FY 1718
B) Give a representation to my SGST Commissioner with Copy to CGST Commissioner explaining the issue, as a defence for any future events.
Now my queries:
1) Is my opinion/stance in points i), ii), iii) and iv) above correct?
2) Is supplementary invoice the correct way to remedy the situation?
3) What HSN do i adopt for issue of supplementary invoices?
4) What will be the issue date of such Supplementary invoices? Original invoice date or current date?
5) Do I need to raise individual supplementary invoices for B2C (small) supplies as well?
6) My price to my B2B customers was rate including tax & delivery and I feel they will refuse to pay me the tax.
What steps could you suggest to recover tax?
Please guide me.
15 September 2018
They verbally informed me that I cannot change the HSN and invoice this commodity, because then I will have accumulated stocks under HSN 0801 and sales with unaccounted purchases for HSN 2008.... Wrong explanation.
There is self assessment in GST. Every supplier is required to assess his GST liability. Your supplier assessed it Chapter 8. You cannot do anything about it. However, when you supply, you have to assess your own tax liability. Your own assessment of tax liability shall not depend upon assessments of your supplier, and wrong assessment of your supplier cannot be an excuse your own wrong assessment.
You should have received the goods under Chapter 8 without payment of duty, and should have charged duty under Chapter 20 from your customer. That would have been the correct solution.
What to do now? You are not required to do anything and hope for the best. If any objection is raised, and you are convinced that the product is classifiable in Chapter 20, pay the differential duty amount along with interest. Issuing supplementary invoice at this stage may not be very wise.
There is self assessment in GST. Every supplier is required to assess his GST liability. Your supplier assessed it Chapter 8. You cannot do anything about it. However, when you supply, you have to assess your own tax liability. Your own assessment of tax liability shall not depend upon assessments of your supplier, and wrong assessment of your supplier cannot be an excuse your own wrong assessment.
You should have received the goods under Chapter 8 without payment of duty, and should have charged duty under Chapter 20 from your customer. That would have been the correct solution.
What to do now? You are not required to do anything and hope for the best. If any objection is raised, and you are convinced that the product is classifiable in Chapter 20, pay the differential duty amount along with interest. Issuing supplementary invoice at this stage may not be very wise.
24 September 2018
Sir,
Thank you for the reply.
Would you suggest using Form DRC 03 to voluntarily pay the tax and interest- instead of issuing Supplementary invoices?
If yes, would you suggest filing a monthly DRC 03 or a consolidated DRC 03 for FY-1718 with detailed calculation sheet and explanatory letter as attachment?
Thank you for the reply.
Would you suggest using Form DRC 03 to voluntarily pay the tax and interest- instead of issuing Supplementary invoices?
If yes, would you suggest filing a monthly DRC 03 or a consolidated DRC 03 for FY-1718 with detailed calculation sheet and explanatory letter as attachment?
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