2019 (7) TMI 95 - AAR - GST

Classification of goods - Prohance D (Chocolate) - classified under Heading No. 2106 90 91? or not - whether the said food is covered under the definition of Diabetic Food or not? - whether it can be considered as product of cocoa or a compound preparation for making non-alcoholic beverages? - Sl- No. 46A of Schedule II to N/N. 1/2017-CentraI Tax (Rate) dated 30.06.2017 - HELD THAT - The subject product is an edible substance consisting of nourishing and nutritive components such as carbohydrates, fats, proteins, essential mineral and vitamins and can be ingested and digested and provides nutrients to the human body. Hence there is no doubt that the subject product can be categorized as food. Whether the subject product can be considered as a diabetic food? - HELD THAT - While Prohance contains sugar, the subject product Prohance-D does not contain sugar - it can be said that the subject product, Prohance-D is different from the parent product in as much as it contains extra ingredients as mentioned in (i) to (vi) above, ingredients which along with the other regular ingredients may assist diabetics in replacing a meal or part of it. However it is also found that the product is also advertised as providing Energy, Immune Health, Heart Health, Vitamins and Minerals and maintains cholesterol levels. On the container there is a mentioned that Prohance-D is a specifically designed sugar free and low GI product. It contains Isomaltutose a low glycemic carbohydrate that helps minimize blood sugar spikes. It provides energy from high quality protein, fat and is rich in dietary fibre and MUFA that heart health. The subject product is also advertised as having various other health benefits and to treat the same only as a diabetic food will not be proper in our view. Secondly, as per information available on the internet, the diabetic foods must contain high amounts of dietary fibre and some slow digestion agents. Though the preparation in question contains gum Arabic, it does not contains high amount of dietary fibre. A little amount of fibre as found in this preparation is found in all kinds of food and Prohance-D has no extra amount of fibre. It is also seen that there are no substances in its composition that help in slowing down of food moving through stomach and sugars moving to blood stream - In view of these deficiencies, the Prohance-D cannot be categorized as diabetic food. Whether the same can be treated as a product classifiable under Chapter 1 8/19 of the Tariff? - HELD THAT - The basic product is Prohance and Prohance D is a variation of the basic product. We also find that the vanilla and chocolate flavours are just a kind of variation to attract the customers. Further we agree with the submissions made by the applicant that Prohance D will not be covered under Chapter 19 - Chapter heading 2106 of the Tariff specifically covers Food preparations not elsewhere specified or included and in view of the submissions made by the applicant it is clear that Prohance-D (Chocolate) is a food preparation which is meant to be consumed by people by dissolving the same in water or milk. It is thus, a food preparation , squarely covered under Chapter Heading 2106 of the Customs Tariff - We also find that both, the applicant as well as the jurisdictional officer are in agreement that the subject product falls under heading 2106 and we also have no doubt about the same. Prohance-D is a combination of various items as seen from the discussions above and can very clearly be treated as a compound preparation. This compound preparation is in powder form and can be consumed by direct mix with either water or milk. Further, the resultant beverage which is obtained after mixing the powder with water or milk is a non-alcoholic beverage and as such the Prohance-D will be clearly covered under the description Compound preparations for making non-alcoholic beverages therefore fall under Chap. Hdg 2106 90 50, thus attracting GST @ 18% as per Sch-III, Sr. No. 23.

Summary

Issues Involved:
1. Appropriate classification of the Applicant’s product, Prohance-D (Chocolate).

Detailed Analysis:

1. Classification of Prohance-D (Chocolate):
The applicant, Sun Pharmaceutical Industries Ltd., sought an advance ruling on the classification of Prohance-D (Chocolate) under GST laws. They contended that the product should be classified under "Diabetic Food" (Heading 2106 90 91) attracting 12% GST, arguing that it is specially designed for diabetics, sugar-free, low on Glycemic Index (GI), and marketed as a diabetic food.

Applicant's Interpretation:
The applicant argued that Prohance-D (Chocolate) is a "Diabetic Food" under Heading 2106 90 91, emphasizing that it is formulated with ingredients like Isomaltulose, Fructo-oligosaccharides, and Inulin, which are recognized by FSSAI as suitable for special dietary uses. They cited various definitions and legal precedents to support their claim that the product is a food preparation for diabetics and should be classified accordingly.

Jurisdictional Officer's Contention:
The jurisdictional officer argued that Prohance-D (Chocolate) is not exclusively a diabetic food as it is marketed for general health benefits. They suggested that the product should be classified under "Compound preparations for making non-alcoholic beverages" (Heading 2106 90 50), attracting 18% GST, because it is a powder mixed with water or milk to make a beverage.

Authority's Observations:
The authority reviewed the definitions of "food" and "diabetic food" from various sources, including the FSSAI Act and dictionaries, and concluded that Prohance-D (Chocolate) qualifies as food. However, they noted that the product is marketed for various health benefits beyond diabetes, and lacks sufficient dietary fiber and slow-digestion agents typical of diabetic foods.

Conclusion on Classification:
The authority determined that Prohance-D (Chocolate) does not meet the criteria to be classified solely as a diabetic food. Instead, they classified it under "Compound preparations for making non-alcoholic beverages" (Heading 2106 90 50), attracting 18% GST, as it is a food preparation meant to be mixed with water or milk to create a beverage.

Final Judgment:
The appropriate classification of the Applicant’s product, Prohance-D (Chocolate), is under Heading 2106 90 50 as a "Compound preparation for making non-alcoholic beverages," attracting GST at the rate of 18%.