HS 2022 classification gimmick: Significance of amendments effective from January 2022

The Harmonized System (HS) is a system used by customs authorities and businesses across the world to identify and classify the goods in a standardized manner. HS assists taxpayers or authorities to assess duties and taxes applicable for goods traded. The HS classification also impacts the origin management, import and export restrictions of products traded across the world.

With the evolution and changes in patterns of international trade and technology, it would be imperative that the HS codes are kept up-to-date and any amendments be made in accordance with the needs of industry.

The process of classification of goods is often complex, that is the subject of many disputes arising between importers and customs authorities. Over a period, it has been noticed that product classification has been challenging as many goods do not fit into a specific description. An example to it is where the product appears to classify under two or more HS Codes or where the same product is traded by two different countries under different HS Codes. Ambiguity in product descriptions and different classifications are the biggest challenges to performing product classification globally. Therefore, in order to align the process globally and to reduce disputes on classifications the WCO undertakes the revision basis the recommendations received by contracting parties, so that it could result in providing more clarity and transparency in classification of products globally.

As published by the WCO, the HS 2022 includes a total of 351 sets of amendments. These amendments would affect several sectors, including agriculture, food, tobacco, chemical, transport and electronic goods. Within the various sectors, it is expected that number of companies will be impacted, all of whom need to begin the process of preparing for the implementation of HS 2022.

Some major changes include:

—   New headings and / or explanatory notes for product 3D printers, smartphones, unmanned aerial vehicles or drones, flat panel display modules and novel tobacco and nicotine-based products;

—   Reconfigurations of subheadings under Heading 70.19 for glass fibres and articles, and Heading 84.62 for metal forming machinery to be more representative of technological advancements in these sectors;

—   Separate classification of Flat Panel Display Modules under heading 85.24 as product in their own right and removing the need to identify the final use

How it could impact companies:

The change in HS Code could impact companies in many ways like it may lead of non-availability of exemption benefits currently enjoyed by company or it would be imperative for companies which are claiming FTA benefits, to re-examine the fulfillment of FTA conditions with shift in HS Code. The change could also impact the pending litigation with respect to classification of products and the company which are not complying with such change could result in levy of hefty duties and penalties.

Therefore, ahead of 1 January 2022, importers, exporters and manufacturers alike must familiarize themselves with the amendments introduced by HS 2022, particularly those that may have an impact on the company’s product portfolio and master data set. Companies can also represent to the Government in case they are adversely effected by October 2021.

The companies should take all necessary steps to ensure timely adherence to the changes to avoid delays in trade activities and potential punitive action being taken by customs authorities. The proposed changes would impact the companies operating in multiple countries. Accordingly, detailed analysis would be needed to examine the impact of shift in HSN codes in each countries for smooth implementation with effect from January 2022.