Railways introduces HSN codes to stem losses from commodity transport

It's a bid to stem losses from misdeclaration of goods

In a first-of-its-kind move, the Ministry of Railways has started using Harmonised System of Nomenclature (HSN) codes for the classification of commodities in freight transportation, Business Standard has learnt.

“Starting this month, we have begun using HSN codes to identify commodities being transported through our network. We have begun this exercise to stop the corrupt practice of misdeclaration of goods in the freight order by private players," said a Railways official in the know.

Earlier, the Railways had its own list of commodities that were ferried through self-declaration. However, many finished goods and raw materials were being wrongly declared. Since, the Railways charges separate commodity-wise rates, vendors often declare a cheaper commodity while transporting a commodity with much higher value.

According to sources, while the Railways has no estimate on how much money it loses due to misdeclaration, roughly 20-30 per cent of goods are declared incorrectly.

According to the Freight Operation Information Systems (FOIS) -- the dedicated software for railway freight -- rates for commodities range between different classifications. For a distance of up to 100 km, the lowest freight charge is Rs 87 per tonne, while the highest is Rs 271 per tonne. The rates differ for the loading of individual wagons and entire rakes.

“HSN codes are required in e-way bills, as well. We plan to have all commodities mapped with their HSN codes, so that the order can be double-checked with the HSN code on the e-way bill of the consignment, and if the two don't match, we can identify misdeclaration,” said the official cited above.

On entering the commodity name, the system should automatically allow for choosing the most relevant HSN code and be verified against the class of rate charged against the commodity, the Railway Board said in a circular earlier this year, asking the Centre for Railway Information Systems (CRIS) to develop a system for the proposal.

The move is also expected to aid ease of doing business by harmonising Customs and trade procedures.

“The Indian Railways deals with transportation of more than 650 commodities, therefore appropriate classification of such commodities aligned with classification of commodities across various modes of transport and international standards becomes very important. This would benefit in tracking the complete logistics movement of commodities across various modes, which could provide deeper insights into movement characteristics of various commodities. This would also allow for ease in GST filing,” according to a Railways study on HSN mapping of goods.

Experts said the move was necessary for the national transporter as it started to diversify its freight basket to meet its targets under the National Rail Plan, with newer commodities coming into the picture. These would need to be adequately accounted for.

“While it will lead to better identification of goods, my view is that the Railways should target the root cause of misdeclaration which is the multiple slab system. When there is no slab-wise rate system for road transportation, why should there be one for the Railways?” Lalit Chandra Trivedi, former general manager of East Central Railway, told Business Standard.

WHY THE MOVE

• 20-30% of goods are misdeclared  
• Vendors often declare a commodity cheaper which has much higher value 
• Order being double-checked with the HSN code on the e-way bill of the consignment
• If the two don’t match, misdeclaration is caught