Q. HSN code for Freight charged in the Tax Invoice

Question

Dear Sir,

If we include freight charges in the invoice, it will be treated as composite supply and tax rate applicable on the principal supply will be levied on the freight charges.

My query is that what will be HSN code we have to mention in the Tax invoice? Is it the HSN code of the principal supply or SAC of the freight?

Answer 1

When including freight charges in an invoice, and it constitutes a composite supply, the tax rate applicable to the principal supply will indeed be levied on the entire value of the supply, including the freight charges. In the context of GST in India, a composite supply is defined under Section 2(30) of the CGST Act, 2017 as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

The principal supply is defined under Section 2(90) of the CGST Act, 2017 as the supply of goods or services that constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.

Regarding the HSN (Harmonized System of Nomenclature) code or SAC (Services Accounting Code) to be mentioned on the tax invoice for a composite supply, the GST law requires that the HSN/SAC code of the principal supply be mentioned. This is because, in a composite supply, the entire supply is treated as a single supply of the principal supply. Therefore, the HSN code for the goods or the SAC code for the services that constitute the principal supply should be mentioned on the invoice.

For example, if the principal supply is the sale of goods and freight charges are included in the invoice as part of the delivery of those goods, the HSN code corresponding to the goods being sold should be mentioned on the invoice. The SAC code for freight services would not be separately mentioned since the supply is treated as a composite supply, and the tax rate applicable to the principal supply (i.e., the goods) applies to the entire value, including the freight charges.

It's important to accurately determine the principal supply in a composite supply scenario to ensure compliance with GST invoicing requirements and the correct application of tax rates.

Regards, CA. Praveen Sharma

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