A GST rate dispute is usually a classification dispute before it becomes a demand dispute. The question is not simply whether the invoice used 5 percent, 12 percent or 18 percent. It is whether the supplied goods or services fall within the tariff entry and notification description on which that rate depends.
A defensible reply therefore starts with what is actually supplied: composition, technical literature, manufacturing process, function, ordinary trade identity, packaging, contracts and invoice description. Classification cannot be decided by the rate that appears convenient after an audit query has arrived. It should be supported by a reasoned chain from product fact to tariff entry to rate notification.
Establish the classification record
For goods, review the relevant heading, subheading, section notes, chapter notes, tariff language adopted for GST and any applicable exemption or rate notification. For services, identify the nature of the obligation, contractual deliverable and the rate entry relied on. Product catalogues, test reports, purchase orders, bills of entry where relevant, prior assessments, advance rulings relating to the taxpayer, and competing tariff workings should be indexed with the reply.
If the notice proposes a different heading, it should disclose why the product fits that description better than the classification adopted by the taxpayer. A useful response sets out both entries side by side, explains the decisive features, and computes the tax consequence separately without conceding classification.
Current GST judicial guidance
In Union of India v. Bharat Forge Limited, Civil Appeal No. 5294 of 2022, decided on 16 August 2022, the Supreme Court considered a procurement dispute involving the GST rate stated for railway supplies. The Court held that the supplier was responsible for determining the correct HSN classification and applicable GST rate in its bid, rather than treating an erroneous purchaser representation as determinative. For businesses, the lesson is practical: classification must be independently supported before supply and defended from the underlying product record.
Procedure remains important when the dispute reaches adjudication. In M/s Azam Laminators Pvt. Ltd. v. The State Tax Officer, W.P. No. 11726 of 2025, decided on 24 April 2025, the Madras High Court set aside an adverse order in a classification-related GST demand where the taxpayer had not been afforded an effective opportunity to present its case. A technical classification issue requires a genuine opportunity to file material and be heard.
Service Tax analogy on classification discipline
Classification disputes also arose under the earlier Service Tax regime, although GST rate entries are governed by their own statute and notifications. In a decision authored by me, the Bench examined service classification in Shashi Cables Ltd. v. Commissioner of Central Excise and Service Tax, CESTAT Allahabad, Final Order No. 72545/2018 dated 4 December 2018. The demand sought to classify an activity as erection, commissioning or installation service; the Bench held that the facts did not satisfy the proposed taxable-service definition merely because tax had been collected under a mistaken description.
Applied mutatis mutandis, the point is modest but useful: a GST classification proposal must match the statutory entry on proved facts. Invoice labels and earlier tax treatment are evidence, not substitutes for that exercise.
Three response failures to avoid
Do not rely only on commercial names where the tariff turns on composition or function. Do not cite a notification without identifying the entry and effective period. Do not omit the alternate tax calculation, interest analysis and documentary trail if the proposed entry is disputed.
AGS Consulting assists businesses and counsel in structuring GST classification responses through product review, tariff comparison and adjudication strategy. For a review of a GST rate or classification notice, contact AGS Consulting.
FAQs
What is the first step in replying to a GST classification notice?
Prepare a factual product or service dossier, then compare the adopted and proposed tariff entries against that evidence and the relevant notification period.
Is the HSN printed on an invoice decisive?
No. It is relevant evidence, but the classification must follow the statutory entry, notes and proved characteristics of the supply.
Can a classification order be challenged for lack of hearing?
Yes. Where technical evidence or submissions were not fairly considered, procedural unfairness may be a material ground, subject to the facts and remedy available.
Do Service Tax classification decisions settle GST rates?
No. They can assist on reasoning discipline where comparable, but GST classification depends upon the GST tariff and notifications applicable to the supply.