Tariff Tales: Part 1- Understanding Harmonized System of Nomenclature

By Hansa Sinha

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Tariff Tales is a series that I am starting to understand basic concepts related to tariff, custom duty, bound rates, tariff commitments etc. Starting the first one with Harmonized System of Nomenclature/ HS Code / Harmonized Commodity Description and Coding System.

HS Code is basically a very long list of products/commodities. This has about 5000 commodity groups which are given a 6 digit code to make classification of commodities logical and put in place a uniform system across countries that follow it. More than 200 countries follow this. Let’s take an example to understand and what better than Chocolates? So chocolates come under chapter 18 (there are 97 chapters relating to different product types). As I said there are 6 digits in the HS Code. For example

Code Name
1801.00 Cocoa Beans, whole or broken, raw or roasted
1802.00 Cocoa Shells, husks, skins and other cocoa waste
1803 Cocoa Paste whether or not defatted
1803.10 – Not defatted
1803.20 – Wholly or partly defatted
1804.00 Cocoa butter, fat and oil
1805.00 Cocoa powder, not containing added sugar or other sweetening matter.
1806 Chocolate and other food preparations containing cocoa.
1806.10 – Cocoa powder containing added sugar or other sweetening matter
1806.20 – Other preparations in blocks, slabs or bars weighing more than 2 kg or in liquid, paste, powder, granular or other bulk form in containers or immediate packing, of a content exceeding 2 kg

–       Other, in blocks slabs or bars

1806.31 – Filled
1806.32 – – Not Filled
1806.90 – Other

As you can see since cocoa and cocoa products are covered under chapter 18, and all these descriptions have 18 as the first two digits. Take for example Cocoa Butter, fat and oil’s HS Code 1804.00 It indicates heading of 1804 and 00 indicates no further subheading. As you can see unsweetened cocoa powder is 1805.00, so there is no further subheading. It is just one category. However in case of 1806 there are five different sub headings like sweetened cocoa powder, filled chocolate, not filled chocolate etc. HS Code of 1806.20 indicates 6th heading of Chapter 18, 2nd sub heading which has not been further sub divided (hence the zero after 2). In the same vein 1806.31 shows 6th heading of chapter 18, third subheading, first two dash subheading of the first one dash subheading. The fifth and sixth digits therefore denote one dash and two dash sub-heading respectively. Read more here.

Clearly cakes and pastries are not mentioned in the above category. They come under Chapter 19 which is named as ‘Preparations of cereals, flour, starch or milk; pastrycook’s products. So whether it is pasta, cakes, biscuits, they will all come under chapter 19. What do you think will happen in case of chocolate cake? It’s a cake and it’s chocolate. Well in that case it will fall under chapter 18. The reason is simple. Chapter 19 and its various subheadings make it clear that only food (read cakes, biscuits etc) not containing cocoa are defined under this chapter. So if we understand the above logic, a country can impose one custom duty on chocolate cake and another on a non-chocolate cake.

Now that you have understood the above let me add a complication for you. There are 8 digit classifications also. Where you ask? Well HS classification is an international standard based on which different countries which follow it formulate their standards. The countries not only take HS classification as a guiding factor while formulating their custom classification but also use it to establish the basic rules of various trade agreements. So it is quite a helpful guide. India has formulated Custom Tariff Act, 1975, which similar to HS classification gets updated and amended from time to time. The chapter 18 of CTA is cocoa and cocoa preparations. But it has eight digit classifications for some products. For instance while the HS Classification stops at 1806.90 as others. India has created further 5 sub categories:

Code Name
1806 90 – Other
1806 90 10 – – – Chocolate and chocolate products
1806 90 20 – – – Sugar confectionary containing cocoa
1806 90 30 – – – Spreads containing cocoa
1806 90 40 – – – Preparations containing cocoa for making beverages
1806 90 90 – – – Other

There are three dashes in front of all the five categories denoting their level. HS Code 1806 90 10 means 6th heading of chapter 18, 9th sub heading and 1st three dash sub heading. A Hershey’s kisses will come under 1806 90 10. Nutella will come under 1806 90 30 and anything like Bournvita would come under 1806 90 40. Got it? Good.

I look forward to writing posts on other aspects of tariff, but as always, baby steps.

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