Maximum Rate of CGST can be 20%. Maximum Rate of IGST can be 40%
In order to determine the rate applicable on a particular supply of goods or services, one needs to first determine the classification of such goods or services.
CLASSIFICATION OF GOODS
Classification of goods means identification of the tariff item, sub-heading, heading & chapter in which a particular product will be classified.
Tariff item, sub-heading, heading & chapters referred in the Schedules of rate notification for goods under GST are the Tariff item, sub-heading, heading & chapters of the First Schedule to the Customs Tariff Act, 1975.
Indian Customs Tariff is based on HSN. HSN stands for Harmonized System of Nomenclature.
It is a multipurpose international product nomenclature developed by the World Customs Organization (WCO) for the purpose of classifying goods across the World in a systematic manner.
It comprises of about 5,000 commodity groups; each identified by a 6-digit code [code can be extended], arranged in a legal & logical structure & is supported by well-defined rules to achieve uniform classification.
India has developed an 8-digit code of HSN.
Along the lines of HSN, the Indian Customs Tariff has a set of Rules of Interpretation of the First Schedule & General Explanatory notes. These rules & the general explanatory notes give clear direction as to how the nomenclature in the schedule is to be interpreted. These Rules for Interpretation including section & chapter notes & the General Explanatory Notes of the First Schedule apply to the interpretation of the rate notification for goods under GST also.
Consequently, under GST, goods are classified on the basis of HSN in accordance with the Rules for Interpretation of the Customs Tariff.
Once classification for a product has been determined on this basis, applicable rate has to be determined as per the rate prescribed in the rate notification issued under GST
CLASSIFICATION OF SERVICES
A new Scheme of Classification of Services has been devised under GST. It is a modified version of the United Nations Central Product Classification.
Under this scheme, the services of various descriptions have been classified under various sections, headings & groups. Chapter 99 has been assigned for services. This chapter has following sections:
Section 5 Construction Services.
Section 6 Distributive Trade Services; Accommodation, Food & Beverage Service; Transport Services; Gas & Electricity Distribution Services.
Section 7 Financial & related services; real estate services; & rental & leasing services.
Section 8 Business & Production Services.
Section 9 Community, social & personal services & other miscellaneous services.
Each section is divided into various headings which is further divided into Groups. Its further division is made in the form of ‘Tariff item’/ Service Codes. Rate of tax is determined as per the Service Code in which the service is classified.
Gambling Services, Services of admission to entertainment events/sporting event attract 28% GST.
Services not covered under any specific heading are taxed @ 18% (CGST @ 9% & SGST @ 9%).