GST Rate & HSN Code for Lac, Gums & Resins (Chapter 13)

Lac, gums, resins, and other Chapter 13 of the HSN classification system plant-based products have relevance to a variety of industries from food processing to pharmaceuticals, cosmetics, and handicrafts as well. These plant-based naturally occurring products are commonly ignored but are extremely important raw materials in age-old and new industries alike. It is crucial for the manufacturers, exporters, small and medium enterprises, and traders involved in these products to know their GST rate as well as HSN code.

Chapter 13 of the Customs Tariff deals with plant exudates and extracts, e.g., lac, natural gums, resins, balsams, and other vegetable saps and extracts. The GST regime has brought uniform rates of taxation and systematic classification of such products, but for efficient compliance, business firms need to know how the products are classified and taxed.

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Analysis of Lac, Gums & Resins under Chapter 13

Chapter 13 of the HSN (Harmonised System of Nomenclature) primarily caters to such items as Lac (seed lac, shellac in any form), Natural gums (gum arabic, gum ghatti, gum tragacanth), Resins (oleoresins, rosin, etc.), Vegetable saps and extracts.

All these have a specific HSN code, which prescribes the GST rate that can be applied to them. A simple classification follows:

Product Description	HSN Code	GST Rate
Lac (including shellac and seed lac)	1301	5%
Natural gums and resins (e.g., gum arabic)	1301	5%
Vegetable saps and extracts	1302	18%
Oleoresins (e.g., capsicum oleoresin)	1302	18%

The justification for differential rates is in their application. For example, whereas natural gums in the raw form are taxed at a basic rate (5%), oleoresins and processed extracts are taxed at 18% because of industrial usage and added value.

Small-scale industries and rural enterprises employ lac and resins in coatings, dyes, adhesives, and handicrafts. These products go through several stages of processing, and it is essential to classify them accurately under the appropriate HSN code to record their tax in a proper manner and to maintain compliance.

Benefits of Transparency in GST Classification of Chapter 13 Products

Transparency to Businesses: The inclusion of lac, gums, and resins in Chapter 13 provides transparency to traders and manufacturers, making invoicing easier and compliance simpler.

Simplified Tax Return Filing: Accurate HSN codes make filing of GST returns, e-invoicing, and making e-way bills simpler, reducing the administrative burden.

Boost to Small-Scale Industries: Lac and natural gums usually come from tribal and forest areas. The lower rate of GST of 5% supports these small-scale suppliers.

Exporters Support: The well-defined classification facilitates exporters in claiming input tax credit and GST refund without any dispute or confusion over product codes.

Standardisation in Pricing: Similar GST rates in all states remove arbitrary local levies, facilitating competitive pricing and increased transparency in the supply chain.

Drawbacks & Challenges (Minimal but Noteworthy)

Even though GST structure has introduced multiple advantages, some challenges still exist:

Classification Uncertainty: Most traders continue to be confused in classifying closely related items. For instance, it is challenging to make a distinction between unprocessed gum and processed resin.

Higher Tax on Extracts: While raw materials like lac are taxed at 5%, their extracts attract 18%, which can become an additional burden for small businesses using them in production.

Gaps in Awareness: Agents dealing with lac or gum collecting in rural or semi-urban areas might not be aware of HSN codes or billing standards, leading to non-compliance.

Conclusion

It is essential for businesses dealing in natural product supply chains to know the rate of GST and HSN code of lac, gums, and resins under Chapter 13. The classification provides discipline and tax transparency, which simplifies compliance and increases productivity. Despite some classification difficulties and awareness hurdles, the advantages of transparency, availability of input credits, and easy logistics dominate the disadvantages to a significant extent. Small and medium businesses will benefit the most if they tailor their invoicing and accounting to the appropriate HSN codes.

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FAQs

1. Do all natural gums have the same GST rate?

No, raw and unprocessed natural gums usually come under the 5% GST slab. But when processed or utilized in compound forms, they might be subject to a higher GST rate based on their final use and category.

2. Is e-way bill necessary for the movement of lac or natural resins?

Yes, if the value of the consignment is more than the stipulated limit (generally ₹50,000), an e-way bill has to be issued, even for materials such as lac or resins.

3. Can I avail ITC on buying oleoresins charged 18% GST?

Yes, oleoresins can be bought by businesses for manufacture or resale and input tax credit on GST paid can be availed, subject to other conditions for ITC being fulfilled.

4. What happens if I classify a product under the incorrect HSN code?

Misclassification can attract notices, fines, and GST return mismatch. It's essential to check current GST schedules or contact a tax professional if in doubt.

5. Is GST payable on lac procured by tribal community for local sale?

If the turnover is less than the threshold exemption (₹20 lakh or ₹40 lakh, depending on the state), no GST registration or tax is needed. But above that value, provisions of GST are applicable without considering the source.