In this article, we are going to discuss and dive deeper for,
- What is HSN Code and it’s important in e-Way Bills
- Solution for invalid HSN code in the e-way bill
- How incorrect HSN code impacts the invoices & GST
- Penalties for wrong e-way bills
- How to feed the HSN code accurately on e-way bills?
Let’s start without any further delay.
e-Way Bill Catch it easily
One of the GST Regime’s statutory compliance is the Electronic Way-Bill System. Implemented for all Businesses from April 2018, the e-Way Bill has helped the Government immensely is making Businesses more & more inclined towards GST Compliance.
e-Way Bill is a mandatory document, generally generated by the owner or the supplier of the goods & essentially carried by the transporter of the goods.
E Way Bill generation is mandatory for all types of businesses, goods & types of movements of the consignment, given that the value of the goods being carried must be Rs. 50,000 & more.
e-Way Bills are mandatory for both intra-state & inter-state movements and also for SEZ & import/export movements as well. There is a list of essential & precious goods that are exempted from e-Way Bills given by CBIC, other than that, the e-Way Bill must be carried for all the goods.
Non-Compliance with the e-Way Bill Rule can levy penalties, scrutiny & even confiscation of the goods found in such conditions. Both monetary & non-monetary implications of non-compliance with the e-Way Bill are a persuasive step to make Businesses comply better with GST & its rules.
e-Way Bills are generated against Invoices as a supportive document for transportation purposes. It is made of 2 Parts. Part A- that consists of the import Invoice details such as GSTIN of the receiver, their address, Item details like the value of items, HSN Codes, item quantity, taxes, etc.
And Part-B contains the important transporter details, such as transportation mode, transporter Id & vehicle number.
All the details must be accurately inserted in the e-Way Bill, as e-Way Bill once generated cannot be rectified or changed. The user has to cancel the error-prone e-Way Bill & create a new one with the right details. Any HSN code error in the e-way bill will have a greater impact!
What is HSN Code? Why it is so important in e-Way Bills?
HSN is the system of naming goods to make the identification & categorization process more systematic & simpler, even for a vast variety of products & services.
The Harmonized System of Nomenclature of Goods, is the system of classifying goods in a hierarchy-based & logical manner. The HSN is adopted uniformly in PAN INDIA. Meaning the HSN’s are accepted in the same pattern & manner across the whole country.
The HSN Code is a 6-8 digit code, these codes systematically classify around 5,000 different goods & commodities. The HSN is an internationally accepted System & hence facilitates International Trade as well. HSN code error in the e-way bill should be avoided.
Unlike the previous system, where different states had different code systems for products & goods. The HSN brings uniformity to the classification of goods & avoids confusion caused by multiple coding systems of different states.
The current GST HSN Codes consist of 8-digits assigned to organized goods & the GST Rates are then calculated accordingly. This is one big feature of HSN Codes.
This feature of the HSN Code increases its value in the GST system, it is used as a base for deciding the GST Rate of the goods. The HSN Code is used in Invoices, e-Way Bills as well as in GST Filing.
When a taxpayer enters the HSN Code in their filing, the GST System automatically calculates the tax liability based on the Tax rate slab under which that HSN falls.
Feeding wrong HSN Codes to any of these important documents can be problematic for the Accountant & the taxpayers. The goods are classified on the basis of HSN Codes, any error in entering the HSN Code can change the tax liability slab of the good & may create friction for the Business.
Invalid HSN code in the e-way bill
After introducing 6 and 8 digit HSN codes on an invoice, now exist an issue called “invalid HSN code in the e-way bill”. This error means that how many numbers or digits are to be acknowledged while generating your e-way bill.
CBIC introduced that the 6-digit HSN code is required as mandatory for the taxpayer’s turnover greater than 5 crores. This is updated on the 1st of April, 2021.
Problems faced at present
While users tend to generate a 6-digit HSN code, there exists an error called, “Invalid HSN code in the e-way bill”
Possible Solution for the above issue
If you faced this issue, try to put the 8-digit HSN code. It is because, when you navigate to the GST portal, under your search tab – User Services, you can able to view your HSN code search option.
When you place your HSN code, two scenarios exist
- One is if there exists a 6 digit HSN code, then you can generate your e-way bill (with your respective 6-digit HSN code)
- On the other hand, you are not able to find any 6-digit HSN code! You find only an 8-digit HSN code. Then you must update only the 8-digit HSN code on the mentioned area.
Remember, while you generate your E-way bill, you have to enter two additional zeros “00” after the HSN code.
Incorrect HSN code? Know how it impacts Invoices & GST Returns
The HSN codes must match flawlessly in the reconciliation of e-Way Bills, Invoices & the GSTReturns filed. Any careless error in the matching of the HSN Codes can create trouble & confusion in calculating the Taxable amount & the Tax liability.
This will eventually lead the Taxpayer towards serious consequences, including Penalties & Scrutiny.
Incorrect HSN Codes can be a potential problem for Buyers. If a supplier enters the wrong HSN Code, the GST Rates for goods change. Upon this, the Buyer shall not be able to claim ITC due to the mismatch in reconciliation.
HSN Code error is also a threat to the Supplier themselves. Since the system automatically fetches the GST Rate & thus the Tax liability based on the HSN code. Any error in the HSN Code can change the Tax liability, which has serious consequences especially Notices & Scrutiny.
This can be a potential problem for e-Way Bills. As the e-way bill data needs to be matched with the GSTR-1 data, such errors can cause mismatches in the report.
For a smooth filing of GST returns the e-Way Bills, Invoices & Return Filing must work in harmony. In such a case, a mismatch would not help to make things better. And taxpayers must ensure to avoid errors like these & be very careful while entering any data in their Filings.
Penalties on wrong e-way bills
Non-compliance with any provision of the e-Way Bills or flawed generation of the e-Way Bill under the CGST rule can levy a penalty of Rs. 10,000 or the amount of tax sought to be evaded.
Although the Government has been very lenient on small e-Way Bill errors such as spelling mistakes, minor errors in HSN, PIN codes & addresses. To ensure that this leniency is not being misused or taken for granted the Government studies the cases before actually taking action.
No penalty or actions shall be taken if the first 2 digits of the 4-8 level of the HSN code are correct & the Tax rates are mentioned accurately.
Since the Tax Rates are calculated on the basis of the HSN, a change in the HSN shall result in a change in Tax Rate & eventually the Tax liability shall change too, this is a type of dodging of taxes & hence some action needs to be taken.
So, in case the officials find out that the errors have been made by the Taxpayer on purpose as part of a conspiracy plan to evade tax or falsely supply goods, then the officials can take strict actions under the CGST Rule.
The Goods can be seized, detained & confiscated. In such cases, not just the Supplier but the Transporter & Receiver can be penalized also under the provisions of the same Act.
Here is an Illustration to understand this better, a taxpayer creates an e-Way Bill & enters a wrong HSN Code, & wrong Tax rate to dodge or reduce the Tax liability.
On being caught in an interception, he claims that it was a data entry error, this arises suspicion & the officials can examine the e-Way Bill closely, & levy penalties & scrutiny on the taxpayer for not complying with all the provisions of the e-Way Bill Rule.
Their goods can be detained & confiscated as a result of non-compliance.
How to accurately feed HSN Codes to your e-Way Bills
Compliance with GST & its branches such as the e-Way Bill system is still a nightmare for many Businesses. Taxpayers find it difficult to comply with such minute details & preciseness.
Even though, there are other technology-driven solutions that can help Businesses in this context. APIs & site-to-site integration is an excellent solution for Businesses. And one such API solution provider is GSTHero. GSTHero is a GST Suvidha Provider authorized by the Government of India, that provides the most relevant & accurate solutions for overall GST, e-Way Bill, e-Invoicing, & Reconciliation complications.
Enter correct HSN codes with GSTHero- GSTHero’s smart solution recognizes if there is an issue with the HSN Code & indicates the error. The solution then displays all the HSN Codes used by the user in that e-Way Bill.
This simplifies the work up to a huge extent, a. The error is pointed out, which normal ERPs cannot do & b. Suggestions to identify the wrong HSN are given in a NotePad making the work short & simple for the user since they now only need to check which HSN Code looks odd.
Never enter wrong HSN Codes in your e-Way Bills with GSTHero’s e-Way Bill solutions. Listed are other features of the Integrated Solution,
1. Generate e-Way Bills quicker & easier:
It save your time & avoid extra efforts on one single task.
The process is shortened to a few steps with GSTHero, no juggling between the ERP & the Portal. It all emerged in one, with GSTHero Integration.
3. Say No to JSON Files:
No more use of JSON files with the ERP plug-in or Integration. The process becomes more direct & extra steps are omitted.
4. No manual data entry:
The process becomes automated & digital completely, the required data can be furnished in just 1 click.
5. Accuracy for easier Compliance:
GST Compliance can be tough, but we tried to ease it up a little. You can comply better with accuracy in each & every branch of GST, e-Way Bills included. No manual process means more accuracy.
6. Excellent After-Sales Support:
GSTHero’s dedicated team is thereby the clients’ side at all times to provide the best after-sales training & support.