Exporters and importers often interchangeably use the terms HS codes, HTS codes, and Schedule B codes. However, it is important to know that these terms are codes that represent the categories or classifications of commodities. Thus, it becomes essential to have clarity about what these codes mean, where can they be used appropriately, and what are the elements that make them distinct or similar to each other.
There is nothing majorly wrong in using these terms casually in an informal conversation. But you might get into trouble in a formal setup, or your shipments can also face difficulties.
To make it easy for all the exporters and importers out there, here are the definitions of these terms.
HS Code (Harmonised System)
Harmonised System incorporates a standard numerical method used for the classification of trade products. The HS codes help in identifying commodities to assess taxes, and duties levied, and to collect statistical data. It is globally used by all the customs authorities.
Harmonised System codes are under the administration of the World Customs Organisation. It has gained recognition in around 98% of the world trade system. An HS code comprises 6 digits. There can be more than six digits in the HS code, added by the government of different nations in order to categorise commodities. Every country uses different numbers to add to the standard HS codes. Most of the documentation and commercial invoices across borders tend to use the Harmonised System codes.
India adopted the HS codes for its import-export operations. The customs authority in India uses eight digit ITC-HS codes in accordance with the national trade requirements.
What is the ITC-HS codes Schedule?
The ITC-HS codes are segregated into two distinct schedules. ITC-HS Imports Schedule I includes the guidelines and provisions regarding import policies. Whereas the second one contains the rules and guidelines for export policies. Schedule I of the ITC-HS code is spread into 21 sections with every section further split into chapters. There are 98 chapters in total in Schedule I which has subheads under which the HS codes are written. In the Export Policy Schedule II, there are 97 chapters with information related to the provisions for export policies.
Governing Body of HS code
The Directorate General of Foreign Trade (DGFT) is responsible to regulate and make amendments to the ITC-HS codes. Product description, removing defunct codes, adding new codes, editing product descriptions, and other related activities are taken up in the process. This helps in effectively managing the shortcomings.
HTS Codes (Harmonised Tariff Schedule)
Harmonised Tariff Schedule codes are used to classify products using codes of 8-10 digits. The first 6 digits are the Harmonised System codes (HS) as explained above and the subsequent digits are provided by the countries of import for additional categorisation. For instance, the US HTS codes have 10 digits and are regulated by the US International Trade Commission.
You will be provided with an HTS code by the suppliers. The first 6 digits of the HTS code is a universal Harmonised System code, thus, countries determine the last four digits of the HTS code according to the Harmonised Tariff Schedule. HTS code helps in estimating customs duties that have to be paid for imports. Having Duty Credit Scrips is beneficial for the exporters involved in international trade in various aspects.
Schedule B Code
A Schedule B code is 10 digit code added as a subpart of the HTS codes for exporters. The government uses the Schedule B codes to assess and examine the exports of the country. It is a US-specific code used for the classification of export goods from the US. the Schedule B number is administered by the Foreign Trade Division of the Census Bureau which is responsible for recording the export by the nation along with the value and quantity in US currency.
Similar to the Harmonised Tariff Schedule (HTS) codes, the first 6 digits of the Schedule B code are the same as the HS code. The subsequent four digits can be different even from the HTS codes.
Export businesses generally use the Schedule B codes for their commodities instead of the HTS codes for the export documentation and while filling the EEI under the Automated Export System (AES). Schedule B codes are a subpart of the HTS codes thus, it is comparatively easier and quicker to categorise commodities with Schedule B codes.
Those export-import businesses who are using HTS codes for the classification of their import products may use HTS classifications for all the commodities to prevent classifying the products twice- once through HTS and then with Schedule B codes. There is no restriction on this, it is acceptable. However, you must be aware that there are some HTS codes that cannot be used for export purposes.
Also, you cannot replace HTS codes with Schedule B codes for classifying import products.
The HTS helps to efficiently regulate international trade, the Schedule B codes are mainly used to retain statistical and analytical data for the government to monitor export processes.
Why Understand These Codes?
You may face consequences if there is any misclassification done for the product. Doing the classifications incorrectly is identified as fraud which will make you pay fines and some other penalties.
Why is it Important to Know The Difference?
Simply put, the subsequent four digits can entirely change the classification of your international export products. Thus, it is necessary to know the difference between the HS codes, HTS codes, and the Schedule code for correct usage. You may use a Schedule B code or HTS code for exports in place of HS codes.
The Director General of Foreign Trade (DGFT) has issued Duty Credit Scrip which is used for paying taxes or duties to the Central Government. The Duty Credit Scrip can be issued to the exporters of goods as well as those exporting services. It can be obtained from the Regional Offices located in various cities in India.
With the help of Duty Credit Scrips, the exporters can make payments of basic customs duty, transitional product specific safeguard duty, anti-dumping duty, and safeguard duty. These scrips are issued through various schemes introduced in the Foreign Trade Policy.
The objective is to incentivise exporters and encourage them to enhance the inflow of foreign exchange to India.