Appeals Board Reclassifies Prohance-D (Chocolate) as 'Diabetic Food' under GST, Lowering Rate

The appellate authority overturned the initial classification of Prohance-D (Chocolate) as a 'compound preparation for making non-alcoholic beverages' and reclassified it as a 'diabetic food' under chapter heading 2106 90 91. This reclassification resulted in a GST rate of 12% instead of 18%. The decision was influenced by the product's ingredients, marketing as a food for special dietary use, and alignment with FSSAI regulations, supported by legal provisions favoring specific headings over general ones.

---

---

Issues Involved:
1. Classification of Prohance-D Chocolate variant under GST.
2. Determination of applicable GST rate for Prohance-D Chocolate variant.
3. Comparison of Prohance-D Chocolate variant with Prohance Vanilla variant.
4. Analysis of ingredients and their impact on classification.
5. Consideration of product marketing and labeling.
6. Examination of relevant legal provisions and guidelines.

Detailed Analysis:

1. Classification of Prohance-D Chocolate Variant under GST:
The primary issue was whether Prohance-D (Chocolate) should be classified as a 'diabetic food' under Tariff Item No. 2106 90 91 or as a 'compound preparation for making non-alcoholic beverages' under Tariff Item No. 2106 90 50. The AAR initially classified it under the latter, reasoning that it was marketed for various health benefits and lacked high dietary fiber.

2. Determination of Applicable GST Rate for Prohance-D Chocolate Variant:
Notification No. 1/2017-Central Tax (Rate) dated 30.06.2017 specifies a 12% GST rate for 'diabetic foods' under Tariff Item No. 2106 90 91 and an 18% GST rate for 'compound preparations for making non-alcoholic beverages' under Tariff Item No. 2106 90 50. The appellant argued that Prohance-D should be taxed at 12% as a 'diabetic food.'

3. Comparison of Prohance-D Chocolate Variant with Prohance Vanilla Variant:
The appellant highlighted that the Prohance-D Chocolate variant contains additional ingredients like Isomaltulose, Gum Arabic, Inulins, Myo-Inositol, Sucralose, and Fructose, which are sugar substitutes and dietary fibers, differentiating it from the Prohance Vanilla variant.

4. Analysis of Ingredients and Their Impact on Classification:
The ingredients of Prohance-D Chocolate, including sugar substitutes and dietary fibers, were examined. These ingredients are specifically formulated for diabetic patients, indicating that the product is intended for diabetic use. The explanatory notes to HSN under Chapter 2106 support the classification of foods containing synthetic sweetening agents for diabetics under 'diabetic foods.'

5. Consideration of Product Marketing and Labeling:
The product is marketed as a 'food for special dietary use' and 'food for people with diabetes,' which aligns with its classification as a 'diabetic food.' The labeling and FSSAI license support this classification.

6. Examination of Relevant Legal Provisions and Guidelines:
The General Rules of Interpretation and various legal precedents were considered. Rule 3(a) of the General Rules of Interpretation states that a specific heading should be preferred over a general heading. Since Tariff Item No. 2106 90 91 specifically covers 'diabetic foods,' it should be preferred over the general heading for 'compound preparations for making non-alcoholic beverages.'

Conclusion:
The appellate authority set aside the AAR's classification of Prohance-D (Chocolate) under heading 2106 90 50 and instead classified it as a 'diabetic food' under chapter heading 2106 90 91, attracting a GST rate of 12%. The classification was based on the product's ingredients, intended use, marketing, and labeling, as well as relevant legal provisions and guidelines.

---