Food preparation classification prevails for a nutrient tonic, with time-barred demand and penalties set aside, and cum-duty re-quantification ordered.

A nutrient tonic made chiefly of malt extract, with added vitamins and minerals, was held not to be a medicament under Chapter 30 because it was marketed for daily consumption, carried no indication of disease-specific treatment, and retained the character of a food preparation under heading 19.01. The demand for the earlier period was time-barred since the product and classification details had been disclosed, so suppression or wilful misstatement could not be inferred; penalties were therefore unsustainable. For the surviving period, duty was directed to be recomputed on a cum-duty basis with the statutory deduction applied.

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Issues: (i) Whether the product Sharkoferrol was classifiable as a patent or proprietary medicament under heading 3003.10 or as malt extract/food preparation under heading 19.01; (ii) whether the demand for the earlier period was barred by limitation and whether penalties were sustainable; (iii) whether the assessable value had to be recomputed on a cum-duty basis.

Issue (i): Whether the product Sharkoferrol was classifiable as a patent or proprietary medicament under heading 3003.10 or as malt extract/food preparation under heading 19.01.

Analysis: The product contained malt extract as the principal ingredient, while vitamins and minerals were added in small quantities to improve nutritional value and general health. The label did not indicate any specific disease, ailment, dosage for treatment, or curative use. The product was marketed as a nutrient tonic for daily consumption and was comparable to ordinary health supplements. Chapter Note 2 of Chapter 30 and the HSN explanatory note exclude food preparations and fortified foods that retain the character of food or beverage, and heading 30.03 applies only where the foodstuff merely serves as a vehicle for medicinal substances. The presence of pharmacopoeia-grade ingredients and manufacture under a drug licence did not alter the essential character of the product.

Conclusion: The product was not a medicament and was correctly classifiable under heading 19.01.

Issue (ii): Whether the demand for the earlier period was barred by limitation and whether penalties were sustainable.

Analysis: Classification lists and product labels had been filed with the department from time to time, and the relevant facts were disclosed. The difference between domestic and export labels did not establish suppression or wilful misstatement. The dispute was a bona fide classification dispute, and the show cause notice issued beyond the normal period could not be sustained. Since the demand for the time-barred period failed, the corresponding penalties also could not survive. For the demands within the limitation period, the bona fide nature of the dispute made the penalty provisions inapplicable.

Conclusion: The demand for the time-barred period was barred by limitation and the penalties were not sustainable.

Issue (iii): Whether the assessable value had to be recomputed on a cum-duty basis.

Analysis: Since the duty demand for the surviving period was required to be sustained, the value had to be recalculated by treating the realisation as cum-duty price and granting the statutory deduction for duty.

Conclusion: The adjudicating authority was required to re-quantify the duty on a cum-duty basis.

Final Conclusion: The classification in favour of the Revenue was upheld, the time-barred demand and penalties were set aside, and the surviving demand was left to be reworked on a cum-duty basis.

Ratio Decidendi: A product marketed and used as a nutritional health tonic, with no indication of treatment or prevention of a specific disease and with medicinal ingredients added only to enhance nutritional value, is not a medicament for Chapter 30 classification; in a bona fide disclosed classification dispute, suppression cannot be inferred and penalties do not automatically follow.

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