Background of HSN :
As international trade increased, need was felt to have universal standard system of classification of goods to facilitate trade flow and analysis of trade statistics. Hence, Harmonised Commodity Description and Coding System (Generally referred to as ‘Harmonised System of Nomenclature’ or simply ‘HSN’) was developed by World Customs Organisation (WCO) .
This is an International Nomenclature standard adopted by about 200 Countries to ensure uniformity in classification in International Trade. HSN is multi-purpose international product nomenclature developed by WCO (World Customs Organisation). It comprises about 5,000 commodity groups, each identified by a six digit code, arranged in a
legal and logical structure. The system is used by more than 200 countries. Over 98% of the merchandise in international trade is classified in terms of HS – WCO website – quoted in Hitachi Home and Life Solutions v. CC (2012) 285 ELT 504 (CESTAT), where it was held that HSN automatically classifies the trade parlance test.
Harmonised System (HS) provides commodity/product codes and description upto 4-digit (Heading) and 6- digit (Sub-Heading) levels only and member countries of WCO are allowed to extend the codes upto any level subject to the condition that nothing changes at the 4-digit or 6-digit levels. India has developed 8-digit level classification to indicate specific statistical codes for indigenous products and also to monitor the trade volumes – Chapter 4 Para 2.2 of Customs Manual, 2011.
HSN is amended periodically in a cycle of 4/6 years, taking note of the trade flow, technological progress etc. Member countries including India are under obligation to amend the Tariff Schedules in alignment with HS – Chapter 4 Para 2.3 of Customs Manual, 2011.
For purpose of uniform interpretation of HS, the WCO has published detailed Explanatory Notes to various headings/sub-headings. WCO in its various committees discusses classification of individual products and gives classification opinion on them. Such information, though not binding in nature, provides a useful guideline for classifying goods – Chapter 4 Para 2.4 of Customs Manual, 2011.