What is a SAC code in GST?

What is a SAC Code in GST?

SAC Code (Services Accounting Code) is a systematic numerical code used for the classification of services under the Goods and Services Tax (GST) regime in India. Just like the HSN Code (Harmonized System of Nomenclature) is used to classify goods, the SAC code is used to classify services for tax purposes under GST.

Key Features of SAC Code in GST:

1. Service Classification:
   • SAC codes help identify and classify services in a uniform manner. This system is crucial for determining the GST rate that applies to various services.
   • SAC codes are used to categorize services for input tax credit (ITC) and taxable supplies under GST.
2. Format of SAC Code:
   • The SAC Code is structured as a 6-digit code:
     • First two digits represent the section or major category of the service.
     • Next two digits represent the sub-section, which further categorizes the service.
     • Last two digits represent the specific service or subcategory of services within that section or sub-section.
3. GST Application:
   • Each service is assigned a specific SAC code, which helps in determining the GST rate for that service.
   • Services under GST are subject to varying tax rates, typically in the slabs of 5%, 12%, 18%, and 28%.
4. Services vs. Goods:
   • Unlike goods, which are classified using HSN codes, services are classified using SAC codes. These codes help ensure uniformity in the classification of services for GST purposes.
5. Use in GST Returns:
   • Businesses are required to mention the SAC code when filing GST returns to ensure that the correct tax rate is applied to the services they provide.

Provision & Acts in the Indian Constitution Related to SAC Code

While the Indian Constitution does not specifically mention SAC codes, the SAC system and its application under GST are governed by the following provisions and acts:

1. 101st Constitutional Amendment Act (2016):
   • This amendment was pivotal in laying down the foundation for GST in India. It amended several Articles in the Constitution to allow the implementation of a unified GST system across the country, covering both goods and services.
   • Article 246A provides the authority for both the Central Government and State Governments to levy taxes on goods and services under the new GST regime.
2. Goods and Services Tax Act (GST Act, 2017):
   • The Goods and Services Tax Act (2017) laid down the framework for the GST regime in India and provided the structure for GST on goods and services.
   • Section 9 of the CGST Act (Central Goods and Services Tax Act) and Section 5 of the IGST Act (Integrated Goods and Services Tax Act) specify the provisions regarding the levy of tax on services, where SAC codes play an important role in categorizing services and determining applicable tax rates.
   • Section 2(102) of the CGST Act defines “service”, and SAC codes are crucial for the classification of services.
3. GST Council:
   • The GST Council, which is a body consisting of representatives from both the Central and State Governments, is responsible for setting the tax rates and making recommendations for classifications of goods and services, including the creation and modification of SAC codes for services.
   • The GST Council plays an important role in determining which services are assigned which SAC codes and the corresponding GST rate.
4. Integrated Goods and Services Tax (IGST) Act, 2017:
   • Under the IGST Act, services provided in interstate trade or commerce are classified under the appropriate SAC codes. The IGST Act ensures that services, just like goods, are taxed uniformly across India when traded across state boundaries.

Landmark Cases Involving SAC Codes under GST

There have been some landmark cases that involved the application of SAC codes under the GST system. These cases typically address the interpretation of service classifications, the determination of GST rates, and the eligibility for input tax credit (ITC) on services. Here are some notable cases:

1. M/s. Narayan Gangaram & Co. v. Union of India (2018):
   • This case dealt with the classification of contractual services under the SAC codes and the applicability of the GST rate. The petitioner argued that the classification of certain services under the SAC code was ambiguous and led to inconsistencies in the GST rate applied to them.
   • The Court ruled that SAC codes must be applied consistently to ensure uniformity in tax application. It also emphasized that businesses should accurately classify their services based on the SAC codes to avoid tax disputes.
2. In Re: Classification of Services (2020):
   • This case involved a dispute regarding the classification of tourism-related services under GST. The petitioner challenged the SAC code assigned to their service, arguing that the services should fall under a different SAC category with a lower tax rate.
   • The court affirmed that SAC codes help standardize service classification, and any ambiguity in classification should be addressed through the GST Council‘s recommendations. This case reinforced the importance of accurate SAC classification for GST compliance.
3. M/s. Coca-Cola India Pvt. Ltd. v. Union of India (2019):
   • This case concerned exports of services and the applicability of input tax credit (ITC) on export-related services. The issue was whether certain services, such as advertising services for exported goods, could be classified under the correct SAC code to ensure the company could claim ITC.
   • The Court clarified that services related to exports are also zero-rated under GST, but accurate SAC codes are crucial to ensure that exporters can claim ITC and that the correct tax rate is applied.
4. In Re: Service Classification Dispute (2018):
   • In this case, a consultancy firm disputed the classification of its services under a certain SAC code and its associated GST rate. The petitioner contended that the services should fall under a lower GST bracket, but the GST Council and courts upheld the classification as per the assigned SAC code.
   • This case reaffirmed that SAC codes must be followed strictly, and the GST rate applicable to each service is determined by the code assigned, ensuring a transparent and predictable tax environment.

Conclusion

The SAC Code (Services Accounting Code) is a critical part of India’s GST regime, enabling the classification of services for the proper application of GST rates. SAC codes help ensure consistency and uniformity in the taxation of services across the country. These codes are governed by constitutional provisions like the 101st Amendment Act (2016), the Goods and Services Tax Act (2017), and the Integrated Goods and Services Tax Act (2017). Landmark cases have clarified the proper use of SAC codes in service classification and the correct GST rates to be applied. Proper use of SAC codes ensures compliance with tax regulations and facilitates input tax credit claims, which ultimately helps businesses maintain clarity and consistency in their GST filings.