HSN or SAC code in Works contract under GST

Question BankCategory: Goods & Service Tax (GST)HSN or SAC code in Works contract under GST
Mohan Amdekar asked 1 year ago
1 Answers
Ashok Kumar answered 1 year ago

Dear Mohan Amdekar,
With reference to your query regarding SAC /HSN code for works contract, it is suggested that HSN/SAC code of works contact may differ case to case basis. HSN code stands for Harmonized System Nomenclature. HSN code is used to categorize all type of material for the purpose of GST. In the same way SAC stands for Service Accounting Code and used to categorize all type of services for the purpose of GST.
Now make a note that all SAC code starts with 99. Initial 99 means the code is SAC code, If code 99 is provided then it means the supply is in the nature of a Service. Then After 99, third digit of SAC code describe the type of service. For the purpose of SAC code, Services are divided in following sections, which are further divided into headings and headings are further divided into groups and each group is finally divided into SAC codes:-
SECTION 5(third digit being 5, One heading being 9954) : CONSTRUCTION SERVICES
SECTION 6(third digit being 6, Nine heading 9961 to 9969) : DISTRIBUTIVE TRADE SERVICES ; ACCOMODATION, FOOD & BEVERAGE SERVICE; TRANSPORT SERVICES; GAS & ELECTRICITY DISTRIBUTION SERVICES
SECTION 7 (third digit being 7, Three heading being 9971 to 9973) : FINANCIAL AND RELATED SERVICES; REAL ESTATE SERVICES; AND RENTAL AND LEASING SERVICES
SECTION 8(third digit being 8, Nine heading being 9981 to 9989) : BUSINESS AND PRODUCTION SERVICES
SECTION 9(third digit being 9, Nine heading being 9991 to 9999): COMMUNITY, SOCIAL & PERSONAL SERVICES AND OTHER MISCELLANEOUS SERVICES

To find which SAC code will apply to Works contract, First we need to find type of works contracts:-

  1. Is it Composite Supply.
  2. Is it Mixed Supply.

Composite Supply / Naturally Bundled goods or services:
A composite supply is comprised of two or more supplies (of goods or of services or of both) which are naturally bundled, generally comes together and one of which is a principal supply (intention of Supply receiver was for principal supply and other supplies are naturally bundled with it so they comes together). In the case of Composite Supply which are naturally bundled, the whole shall be treated as a supply of such principal supply and tax shall be paid according to GST rate applicable on principal supply. It means Rate of Principal supply shall be applicable for whole supply.
In this situation we need to find whether principle supply is a material or Service. If it is a material then HSN code of that material will be used for this works contract, But if principle supply is a service then SAC code of that service is used for that works contract. For example if it is Construction Service being works contract of composite supply, Use SAC code 9954, find further categorization under heading 9954 , for example it is a “Construction services of single dwelling or multi dewlling or multi-storied residential buildings” then SAC code is 995411.
Mixed Supply / Artificially Bundled goods or services:
A mixed supply is comprised of two or more individual supplies (of goods or of services or of both) which are not naturally bundled but artificially bundled. In the case of mixed supply, whole supply shall be treated as supply of that particular supply which attracts the highest rate of tax.
In this situation we need to find whether item attracting highest rate is a material or Service. If it is a material then HSN code of that material will be used for this works contract, But if it is a service then SAC code of that service is used for that works contract.
Hence taxability of works contract is the way to decide HSN/SAC code for Works contract. It may differ case to case basis.
Do you need to use SAC/HSN code:-
Use of HSN and SAC code depends on the dealer’s turnover in the previous financial year. According to the law:

  • Dealers with an annual turnover of less than Rs 1.5 crores are not required to use HSN codes when creating invoices or filing returns
  • Dealers whose annual turnover is between Rs 1.5 crores and Rs 5 crores need to use the right two-digit HSN code for their commodities when invoicing or filing returns
  • Dealers with annual turnover equalling Rs 5 crores and above must use a four-digit HSN code for their invoices
  • In the case of import or export of goods, using the right HSN codes of eight digits is compulsory, as these GST-compliant invoices also have to be compatible with international invoicing standards and practices.

To know more about works contract in GST click here

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