TAXING THE SMALL: HOW PRODUCT CLASSIFICATION ERRORS WEAPONIZE GST COMPLIANCE AGAINST INDIAN MSME’S

DOI: https://doi.org/10.56815/IRJAHS/2025.V(2025)I2.70-77

Abstract

Micro, Small, and Medium Enterprises (MSMEs) form the backbone of the Indian economy, contributing significantly to employment, manufacturing, and exports. While the introduction of the Goods and Services Tax (GST) in 2017 aimed to streamline indirect taxation, the complexity of the Harmonized System of Nomenclature (HSN) has created structural vulnerabilities. Product classification errors—arising from ambiguous tariff lines, frequent rate notifications, and technological asymmetry—have transformed from administrative mismatches into systemic legal and financial liabilities. This paper examines the post-2021 GST ecosystem to analyse how classification disputes disproportionately penalize MSMEs. Utilizing secondary financial data, judicial precedents, and descriptive statistical analysis, this study demonstrates that classification errors function as an involuntary tool of compliance aggression. This aggression disrupts working capital, triggers retrospective tax demands, and compromises the ease of doing business for small- scale enterprises.