HSN and SAC Code Classification: Avoiding Costly Audits and Mismatch Penalties

The Dangers of HSN Misclassification

Harmonized System of Nomenclature (HSN) for goods and Services Accounting Codes (SAC) for services form the backbone of GST rate determination. Under current rules, businesses with turnover above ₹5 Crores must mandate 6-digit HSN codes on all B2B invoices, while chemical and specialized manufacturing sectors frequently require 8-digit precision.

Financial and Legal Consequences of Misclassification

• Short Payment of Tax: Applying a 12% HSN code to a product attracting 18% GST triggers retrospective tax recovery with 18% per annum interest and 100% penalty under Section 74.
• Blocked Input Tax Credit: Buyers may be denied ITC if the HSN description conflicts with their business activity.

Built-in HSN Intelligence in Relaso

Relaso GST Billing Platform incorporates a validated HSN/SAC database with search suggestions, auto-filling standard tax rates, cess percentages, and unit quantity codes (UQC) to eliminate guesswork during invoice creation.