GST and paperwork
How to Read a GST Invoice Line by Line: Buyer Checklist
A forensic guide to reading every field on an Indian GST tax invoice. Verify GSTINs, HSN codes, Place of Supply, and protect your...
GST and paperwork
HSN Codes for Surplus Stock Lots: Choosing the Right Code
In Indian GST compliance, the Harmonized System of Nomenclature (HSN) code determines the tax rate applied to every physical good. For regular manufacturing or distribution, selecting an HSN code is straightforward: you produce cotton shirts, so you bill under HSN 6205 at 5% or 12%.
In the surplus stock-lot trade, however, inventory frequently arrives as mixed assortments: cancelled multi-category consignments, mixed metal scrap, factory liquidation lots containing both machinery parts and electrical cables, or composite assemblies sold as single job lots.
Misclassifying goods under the wrong HSN code, either to deliberately obtain a lower tax rate or out of simple administrative ignorance, is one of the top reasons tax authorities issue demand notices under Section 73 and Section 74 of the CGST Act.
Here is an experienced guide on how to determine, declare, and invoice the correct HSN codes for surplus stock deals in India.
1. The Myth of the "General Stock Lot" HSN Code
A common mistake made by new traders is searching for a generic "surplus lot" or "mixed stock" HSN code.
There is no single HSN code for surplus stock in the GST tariff.
Under GST law, the character of the physical item dictates its classification, not whether it was bought at a discount, cleared from a dead-stock godown, or purchased in an auction.
- If you sell surplus ball bearings, you must bill under HSN 8482 (Ball or roller bearings, 18% GST).
- If you sell surplus cotton printed fabric rolls, you must bill under HSN 5208 or 5209 (5% GST).
- You cannot invent artificial descriptions like "Job Work Surplus" to apply an arbitrary tax rate.
2. Dealing with Mixed Stock Lots: Composite vs Mixed Supply
When a lot contains multiple distinct products sold together for a single lump-sum price (e.g., a factory clearance containing safety shoes, safety helmets, and hand gloves), GST Section 8 rules govern the classification:
Composite Supply vs Mixed Supply
| Supply Type | Definition | Tax Treatment |
|---|---|---|
| Composite Supply | Two or more goods naturally bundled together in the ordinary course of business, with one principal supply (e.g., machinery sold with its initial motor and spare belts). | Taxed at the rate applicable to the principal supply. |
| Mixed Supply | Two or more individual goods sold together for a single price that could easily be sold separately (e.g., a festive gift pack containing dry fruits, sweets, and ceramic mugs). | Taxed at the rate of the item with the highest GST rate in the bundle. |
If you buy a mixed lot for Rs 5,00,000 containing plastic mugs (18% GST) and textile dusters (5% GST), billing it under a single line as a "household bundle" forces you to pay 18% GST on the entire Rs 5,00,000 value.
Best Practice: Break down the manifest into individual line items on your invoice with their respective individual HSN codes and allotted values.
3. Stock Lot vs Industrial Scrap: Where Is the Boundary?
One of the most heavily scrutinized areas during GST audits is the distinction between usable surplus stock and scrap.
Scrap carries specific HSN classifications with unique tax provisions (and in many cases, mandatory Tax Collected at Source (TCS) under Section 206C of the Income Tax Act):
- Ferrous Metal Scrap: HSN 7204 (Waste and scrap of cast iron, alloy steel, tinned iron).
- Aluminium Scrap: HSN 7602.
- Copper Scrap: HSN 7404.
- Plastic Waste & Scrap: HSN 3915.
The Commercial Usability Test
To classify an item under an operational HSN code rather than scrap:
- Can it perform its original intended mechanical or functional purpose? If you are selling second-hand electric motors that still rotate and power equipment, they are motors (HSN 8501), not copper scrap (HSN 7404).
- Is it damaged beyond economic repair? If transformers are burnt, stripped of oil, and smashed for core metal extraction, they are scrap under Chapter 72/74.
Billing operational goods as scrap to evade regulatory scrutiny or applying scrap tax rules to usable secondary goods triggers anti-evasion investigations.
4. HSN Digit Rules and Thresholds
Make sure your invoice mentions the legally required number of HSN digits:
- Turnover up to Rs 5 Crores in previous FY: Minimum 4 digits of HSN code for all B2B supplies.
- Turnover exceeding Rs 5 Crores in previous FY: Minimum 6 digits of HSN code for all B2B and export supplies.
- Chemicals, Explosives & High-Risk Goods: 8 digits of HSN are mandatory regardless of annual turnover.
Use Bikwao’s free business tools and invoice generator to verify your tax calculations and split CGST, SGST, and IGST accurately. Always consult our safe trading guidelines to verify counterparty GST status before executing transactions.
Questions
What happens if I use an incorrect HSN code on a stock lot invoice?
If the incorrect HSN code resulted in charging a lower GST rate, tax authorities will recover the differential tax amount, plus 18% annual interest and penalties under Section 122 of the CGST Act. The buyer may also face temporary disallowance of Input Tax Credit until an amended return or credit/debit note is filed.
Can I bill an auction lot under a single general description?
Only if the auction manifest defines the entire consignment under a specific single tariff heading. If the lot contains disparate items from multiple industries, tax authorities require itemized billing according to the respective HSN headings.
Where can I check the official GST rates for specific HSN codes?
You can search official GST tariff schedules and HSN rates directly on the Central Board of Indirect Taxes and Customs (CBIC) portal at cbic-gst.gov.in.
<section class="bikwao-ecosystem" style="margin-top:2rem;padding:1.25rem;background:#f8f9fa;border-left:4px solid #1a6b3a;border-radius:4px;"> <h3 style="margin:0 0 0.75rem;font-size:1rem;color:#1a6b3a;">Explore More on Bikwao</h3> <ul style="margin:0;padding-left:1.25rem;line-height:2;"> <li><a href="https://bikwao.com" rel="dofollow">Bikwao.com – B2B Wholesale & Surplus Stock Marketplace</a></li> <li><a href="https://agri.bikwao.com" rel="dofollow">Bikwao Agri – Used Farm Machinery & Agro Produce</a></li> <li><a href="https://vehicle.bikwao.com" rel="dofollow">Bikwao Vehicle – Buy & Sell Used Vehicles</a></li> <li><a href="https://property.bikwao.com" rel="dofollow">Bikwao Property – Real Estate Listings India</a></li> <li><a href="https://business.bikwao.com" rel="dofollow">Bikwao Business – Buy & Sell Running Businesses</a></li> <li><a href="https://resto.bikwao.com" rel="dofollow">Bikwao Resto – Restaurant & F&B Equipment</a></li> <li><a href="https://rentals.bikwao.com" rel="dofollow">Bikwao Rentals – Equipment & Machinery on Rent</a></li> </ul> </section>
