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2025 (2) TMI 94 - AAAR - GSTClassification of goods - applicable rate of tax - supply of instant mix flours for gota khaman dalwada dahiwada idli dhokla dhosa pizza methi gota and handvo - supply of instant mix flour for gota/methi gota along with chutney powder/kadhi chutney powder - supply of khaman along with masala pack. Mix flours of Khaman Gota Dalwada Dahiwada and Methi Gota - instant mix of Idli Dhokla Dhosa and Handvo - HELD THAT - What Rule 3(b) ibid encapsulates is that mixtures consisting of different material which cannot be classified by reference to 3(a) shall be classified as if they consisted of the material or component which gives them their essential character. The argument put forth is that as the essential character of the instant flour mixes is given by the Flour so in terms of Rule 3(b) of the GRI it would fall under chapter heading 1101 1102 or 1106. The argument is not legally tenable owing to the fact that in the paragraphs above we have already held that on account of the composition etc. the product gets excluded from falling under chapter headings 1101 1102 and 1106. Therefore the question of relying on Rule 3(b) of the GRI to classify the goods based on the essential character does not arise. It is owing to this finding that the averment of the appellant that entry most beneficial to the appellant needs to be preferred also stands rejected. None of the products of the appellant merit classification under Chapter 11 of the Customs Tariff Act 1975 and specifically under Chapter Headings 1101 1102 or 1106 of the Customs Tariff Act 1975. Instant Gota mix supplied with chutney powder - Methi gota instant mix supplied with kadhi chutney powder - instant Khaman mix supplied with masala pack - HELD THAT - The appellant has stated that they are naturally bundled hence supplied in conjunction with each other the GST rate applicable to principal supply ie instant mix flour would be applicable. The findings of GAAR recorded in para 8.3 of the impugned ruling dated 19.7.2021 agreed upon and it is held that it is a mixed supply. Mix Flour / Instant Mix Flour - appellant submitted that Mix Flour / Instant Mix Flour is not a ready-to-eat food - HELD THAT - Chapter Heading 21.06 and specifically Tariff Item 2106 90 is not confined to processed or semi processed food cooked or semi cooked food preserved food and ready to eat food. In fact any product which is a food preparation and which is not elsewhere specified or included in the CTA 1975 gets covered under Chapter Heading 2106 of the CTA 1975. Therefore merely because the end consumer of the Instant Mix Flour is required to follow certain food preparation processes before such product(s) can be consumed is no ground to take these products out of Chapter Heading 2106 of the CTA 1975. Conclusion - i) The products are classifiable under HSN 2106 90 attracting an 18% GST rate. ii) The products do not qualify for classification under HSN 1101 1102 or 1106. iii) Supplies with additional items are considered mixed supplies.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment were: a) The correct classification of the appellant's products under the Harmonized System of Nomenclature (HSN) for the purposes of determining the applicable Goods and Services Tax (GST) rate. b) Whether the products should be classified under HSN 1101, 1102, or 1106, which would attract a lower GST rate of 5%, or under HSN 2106 90, which attracts an 18% GST rate. c) Whether the products supplied with additional items (e.g., chutney powder or masala pack) should be considered a composite or mixed supply for GST purposes. ISSUE-WISE DETAILED ANALYSIS Classification under HSN 1101, 1102, or 1106 Relevant legal framework and precedents: The appellant argued that their products should be classified under HSN 1101, 1102, or 1106 based on the essential character of the flour. They cited the CBIC circular No. 80/54/2018-GST, which clarifies that flour improved by small amounts of additives can still fall under HSN 1106. Court's interpretation and reasoning: The Court examined the composition of the products, noting that they contain significant proportions of spices and additives, which are not merely small amounts as contemplated by the circular. The Court also referenced the explanatory notes to HSN, which exclude flours with added substances for use as food preparations from headings 1101 and 1102. Key evidence and findings: The products contain spices and additives in proportions ranging from 5% to 33.4%, which are not mentioned in the relevant HSN headings or explanatory notes. Application of law to facts: Based on the composition of the products and the applicable HSN explanatory notes, the Court found that the products do not qualify for classification under HSN 1101, 1102, or 1106. Treatment of competing arguments: The appellant's reliance on VAT regime precedents and the CBIC circular was dismissed as not applicable due to the significant presence of additives and spices in the products. Conclusions: The Court concluded that the products do not merit classification under HSN 1101, 1102, or 1106. Classification under HSN 2106 90 Relevant legal framework and precedents: HSN 2106 90 covers "Food preparations not elsewhere specified or included," which includes preparations for use after processing for human consumption. Court's interpretation and reasoning: The Court noted that the products are preparations consisting of foodstuffs used in making food preparations for human consumption. The products require processing, such as cooking or boiling, before consumption, which aligns with the scope of HSN 2106 90. Key evidence and findings: The products are not ready-to-eat and require preparation, fitting the description of food preparations under HSN 2106 90. Application of law to facts: The Court applied the explanatory notes to HSN 2106, finding that the products are appropriately classifiable under this heading as they are not specified elsewhere. Treatment of competing arguments: The appellant's argument that the products are not ready-to-eat was addressed by clarifying that HSN 2106 90 is not limited to ready-to-eat foods. Conclusions: The Court upheld the classification of the products under HSN 2106 90, attracting an 18% GST rate. Composite vs. Mixed Supply Relevant legal framework and precedents: The appellant argued that products supplied with chutney or masala should be considered a composite supply, with the principal supply determining the GST rate. Court's interpretation and reasoning: The Court agreed with the GAAR's finding that these are mixed supplies, as they are not naturally bundled and are supplied for a single price. Key evidence and findings: The products and additional items are supplied together but do not constitute a naturally bundled supply. Application of law to facts: The Court applied the definition of mixed supply, concluding that the GST rate for mixed supplies applies. Treatment of competing arguments: The appellant's argument for composite supply was rejected based on the lack of natural bundling. Conclusions: The Court upheld the mixed supply classification, applying the GST rate for mixed supplies. SIGNIFICANT HOLDINGS The Court upheld the GAAR's ruling that the products are classifiable under HSN 2106 90, attracting an 18% GST rate. The Court found that the products do not qualify for classification under HSN 1101, 1102, or 1106 due to the presence of significant additives and spices. The Court also agreed with the GAAR's classification of certain supplies as mixed rather than composite. Core principles established: - The classification of products under GST must consider the composition and intended use of the products, as guided by HSN explanatory notes. - Products containing significant additives and spices do not qualify for classification under headings meant for pure flours. - The presence of additives and the requirement for processing align products with food preparations under HSN 2106 90. - Supplies are classified as mixed when they do not exhibit natural bundling. Final determinations on each issue: - The products are classifiable under HSN 2106 90, attracting an 18% GST rate. - The products do not qualify for classification under HSN 1101, 1102, or 1106. - Supplies with additional items are considered mixed supplies.
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