THE authority for levy of tax on Goods and Services under CGST Act in respect of intra-state supplies can be found in Section 9 of the said Act. As per this section, tax shall be levied at such rates not exceeding 20% as may be "notified" by the government on the basis of recommendations of the GST Council. Similar provision can be found in Section 5 of IGST Act for levy of tax on interstate supplies. As per this Section, the tax will be at such rates not exceeding 40% as may be "notified" by the government. The UT Goods and Services Tax Act as well as Acts passed by State legislatures for levy of SGST have similar provisions.

2. Thus, the rates at which the goods and services will be subjected to tax will be as "notified" by the government on the basis of recommendations of the Council. The Council has recommended rates for various commodities in its meetings held on 18.5.2017, 03.6.2017 and 11.6.2017. Apparently, these rates will be consolidated and notified at a later date by the Union government.

3. Accordingly, the rates for various commodities will be as per the description of the commodities and the corresponding rates that are notified by the Union government. Obviously, there is no schedule or codification of the various items in the form of any Act for classification of goods, like the Schedule to the Central Excise Tariff Act 1985 on the basis of which excisable goods are now subjected to excise duty. The above Tariff Act gets repealed when GST comes into force.

4. This method of notifying the goods along with their rates raises several issues.

5. There are references to chapters and headings in the rates notified by the GST Council. There is a reference to HS Code in the GST return formats. There is a requirement to mention HS Code in the Tax invoices. But there does not appear to be any statutory backing for such chapters, headings or HSN Codes. Neither the GST Acts nor the Rules framed so far make any reference to any HS classification. It appears that from nowhere these have been brought into the description of the commodities without a basis or background. The rates fixed by the GST Council so far, reportedly take care of thousands of commodities. However, there are still thousands of commodities, which are not specifically covered by the rates specified by the Council. There is no clarity as to how and where to fit such commodities. Or, in other words, the proposed commodity descriptions are neither comprehensive nor complete. There are no interpretative rules to resolve any disputes that may arise on account of classification of a commodity and the rate applicable to it. Thus a yawning gap stares at us.

6. In fact, it appears that the Council has followed the States' VAT structure and the schedules in fixing the rates for different commodities. Till January 1986, Excise duty was charged on the basis of 68 Tariff items and Item 68 was "not elsewhere specified" item encompassing in its fold hundreds of items. There was a necessity to scientifically and logically classify the goods based on their composition, character and function and in that background, the internationally accepted harmonized system of nomenclature made by the World Customs Organisation was adopted with suitable modifications for the local requirement from February 1986, for levying excise duty. For Customs purposes, Union government has adopted the HS Code in 1975 itself. This HS Code is being followed by more than 200 countries and has been prepared based on decades of research by experts where classification of various products have been codified under different headings / levels. The international HS Code has various Sections and Chapters and also Section Notes and Chapter Notes as well as Interpretative Rules. In the form it exists today, it is the most comprehensive classification code where products which may be produced or invented at a future date also can be fitted in appropriate slots in the existing classification structure itself.

7. By abandoning this internationally accepted code in its entirety and going back to specific description of commodities with selective headings has put the clock back and pushed us back by several decades. Any assumption that a 'simple list' will be beneficial to small traders and other taxpayers will be, in the long run, misconceived. In fact, the clarity which is provided by the complete HS Code will be absent thus giving room for various views and subjective interpretations and opening up the floodgates for classification disputes.

8. The proposed list of commodities is not a complete code by itself on the lines of HS classification. It has left several areas open creating ambiguity and vagueness. For classification of composite goods, mixtures of different goods, multiuse commodities and identifiable parts of machinery there are no clear rules and provisions .

9. A few examples from the list will reveal the inadequacy of the proposed list.

10. Against Sl.No.21, "miscellaneous edible preparations" are mentioned . Prasadam for which classification is shown as '2106' is under "Nil" tax category. Sweetmeats with classification '2106 90' is under 5% tax category. Five products such as Roasted chicory, Roasted coffee with six-digit level classifications are shown under 12% category. Under 18% category, the description reads "All goods not specified elsewhere", but under that there are only five specifically described products with six-digit and four-digit classifications. Under 28% category, four product groups are given. Out of the above four, for three product groups, four-digit headings are given and for Pan Masala the classification is shown at eight-digit level. It is not explained anywhere as to what is the sanctity of all these headings at four-digit, six-digit and eight-digit levels and how these are traceable either to the CGST Act, IGST Act or the Rules thereof. The other interesting part is what happens to goods falling under other missing headings under Chapter 21 at four-digit, six-digit and eight-digit levels. If somebody is supplying such goods, which tax category he has to adopt is not known. One typical example can be "nutritional food supplements". These are not covered by specific reference or as a residuary category under the proposed list against Sl.No.21 and a supplier of such products will be in total darkness as to what rate he should apply.

11. Another example will be machinery and their parts against Sl.No.84. Hand pumps and parts thereof with headings 8413 and 8413 91 are shown under 5% category. Few power driven pumps and bicycle pumps etc. are shown under 12% category. Certain fuel discharge pumps are put under 28% tax category. Disputes will arise when parts for these different types of pumps are supplied. Only under 5% tax category, parts are mentioned under 8413 91. Under other tax categories, there is no specific reference to parts. Disputes can get complicated when such parts can be equally used in any type of the above pumps. Again there will be difficulties in respect of classification of goods like roller or ball bearings which are products by themselves but which also can be parts of any pump. Such bearings are not in the list now. In the proposed list machinery parts attract 18% under one omnibus entry. Thus while bicycle pump attracts 12% GST a part for it may attract 18% GST.

12. Like this, one can find numerous cases of ambiguity and lack of clarity which can constitute potential breeding grounds for classification and rate disputes. The authorities could have attempted fitment of the rates by retaining the HS Code in its entirety along with its rules without tinkering it beyond recognition by selectively taking four-digit, six-digit and eight-digit codes without a legal backing for such codes in the Acts or the Rules. Fixing the rates for the full HS Code "as it is" should not have been a difficult task after all and every GST taxpayer then will know what rate will apply to his goods. But the proposed 'simple' list of commodities may not result in a simplified procedure for determining the rates for thousands of commodities still not covered within the scope of this list. For suppliers of such goods, it will be a tough road ahead.