Dhathri Ayurveda Private Limited ., In re

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KERALA

1. M/s. Dhathri Ayurveda Private Limited Kannampilly Bhagom, Kayamkulam, Alappuzha (hereinafter referred to as the applicant) is engaged in the distribution of various herbal ayurvedic products produced by M/s. Warriers Hospital and Panchakarma Cen tire, Velanchira, Kayamkulam, Alapuzha having GSTIN 32AAAFW5661RIZN.

2. At the outset it is clarified that the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act) and the Kerala State Goods and Services Tax Act, &017 (hereinafter referred to as KSGST Act) are same except for certain provisions. Accordingly, a reference hereinafter to the provisions of the CGST Act, Rules and Notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the Notifications issued there under.

3. The applicant requested advance ruling on the following:

3.1. Is not the product “Dhathri Dahasamani” to be rightfully classifiable under HSN 0910 91 00 instead of classifying Linder HSN 2106 90 50 and therefore tax rate is under entry number 44 of schedule I prescribed by notification number 1/2017-CT(R) dated 28.06.2017 as amended?

3.2. If not classifiable as above, is not the product to be classifiable under HSN 2103 90 40 and therefore tax rate is under entry No. 44 of schedule I prescribed by notification No. 1/2017-CT(R) dated: 28,06.2017 as amended?

4. Contentions of the Applicant:

4.1. The applicant submits that they are the sole distributor of various herbal ayurvedic products produced by M/s. Warriers Hospital and Panchakarma Centre, Velanchira, Kayamkulam, Alappuzha. The products are manufactured under drag license number DL/No.24/25D/O4, issued by the Deputy Drugs Controller ASU and State licensing Authority, Government of Kerala and renewed up to 31 December 2023.

4.2. It is submitted by the applicant that one of the products distributed by them, viz, “Dhathri Dahasamani”, which is used as a flavour and taste component in drinking water is presently sold by classifying under HSN 2106 90 50 and is subjected to tax at the rate CGST 9%, SGST 9% in the local market and IGST @ 18% on interstate transactions.

4.3. The applicant submits that the product is a mixture of a variety of dried herbs and spices. The ingredients are mixed together in a prescribed proportion and packed as per specification. The product in prescribed quantity is added to the required volume of boiling water to enhance the flavour and taste of water so that the consumption of drinking water becomes more inviting. The applicant submitted the list of ingredients and their quantity used in production of each packet of the product “Dhathri Dahasamani” weighing 5G grams as follows;

SI. No

4.4. The applicant submits that as per the above table, the main ingredients of the product are Chukku, Karingali and Naruneendi, which are known as spice items. The Chapter Note 1 of Chapter 9 of the Customs Tariff Act, 1975 reads as follows;

“Note No.1- Mixtures of the products of headings 0904 to 0910 are to be classified as follows:

(a) Mixtures of two or more of the products of the same heading are to be classified in that heading;

Supplementary Note 2 of Chapter 9 of the Customs Tariff Act defines the term “spice” as;

“spice” means a group of vegetable products (including seeds etc) rich in essential oils and aromatic principles, and which, because of their characteristic taste, are mainly used as condiments. These products may be whole or in crushed or powdered form.

In common parlance, the word “condiments” means something added to food to make its taste better. Therefore, the ingredients dry ginger (Chukku), Karingali, Naruneendietc used in Dhathri Dahasamani are well covered under the definition of “spice” as these ingredients are rich in essential oils and aromatic properties and because of their characteristic taste they are mainly used as condiments.

Further, Chapter Note(l)(b) of Chapter 9 is reproduced as follows;

“Note No, 1 Mixtures of the products of headings 0904 to 0910 are to be classified as follows:

(a) ……………………………

(b) The mixtures of two or more of the products of different headings are to be classified in heading 0910.

The addition of other substances to the products of headings 0904 to 0910 [or to the mixtures referred to in paragraph (a) or (b) above] shall not affect their classification provided the resulting mixtures retain the essential character of the goods of those heading. Otherwise, such mixtures are not classified in this Chapter, those constituting mixed condiments or mixed seasonings are classified in heading 2103″.

4.5. The product “Dhathri Dahasamani’ contains certain ingredients that come under the definition of “spice” as well as certain other substances. As per the Chapter Note 1(b) of Chapter 9, the addition of other substances to spices will not affect the classification provided the resulting mixture retains the essential character of spices. In the case of the product “Dhathri Dahasamani’ it retains the essential characteristics of the spice ingredients ie; dry ginger (chukku), naruneendi and karungali, even though it contains certain other substances. Therefore, the addition of such substances shall not affect the classification of the product. Therefore, following the principle contained in Chapter Note 1 “Dhathri Dahasamini” is to be classified under heading 0910.

4.6. The applicant submits that a similar product manufactured by M/s KP Namboothiri’s Ayurvedics, Thrissur under trade name “KP Namboothiri’s Dahamukthi” having certain ingredients of dried herbal plants and spices same as that of the subject product is sold in market under HSN Code 0910 30 90 at 5% GST classifying the same as spices”. The ingredients used for producing each 25 grains of the product WKP Namboothiri’s Dahamukthi”are as follows;

4.7. In this context, it is pertinent to refer to the General Rule for Interpretation of the Schedules to the Customs Tariff, These Rules states that the classification of the goods in this schedule shall be governed by the following principles;

(1) to (3) ………………………

(4) Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.

Applying the above principle, the classification of “Dhathri Dahasamani” being a product akin to “K P Namboothiri-s Dahamukthi” shall be made under the HSN 0910. The applicable tax rate as per the Notification No. 1/2017-CT(R) dated 28 .06.2017 is as follows;

4.8. The applicant states that without prejudice to the above, if the authority arrives at the conclusion that the subject product is not classifiable under Heading 0910; then it is to be classified under the Heading 2103 within Chapter 21 relating to miscellaneous edible preparations. The subject product can never be eaten up or consumed as food stuff, but it is only a condiment. The derived essence of a combination of various items in the mixture only is dissolved within water and the water is consumed and not the mixture as such and hence the product cannot be included in the category of food.

Chapter Note (1)(b) of Chapter 9 is reproduced as follows;

“Note No. 1 Mixtures of the products of headings 0904 to 0910 are to be classified as follows;

(a) …………………………….

(b) The mixtures of two or more products of different headings are to be classified in heading 0910.

The addition of other substances to the products of headings 0904 to 0910 [or to the mixtures referred to in paragraph (a) or (b) above] shall not affect their classification provided the resulting mixtures retain the essential character of the goods of those heading. Otherwise, such mixtures are not classified in this Chapter/those constituting mixed condiments or mixed seasonings are classified in heading 2103.”

4.10. The above chapter note specifies that that if the mixtures of spice ingredients do not retain the essential character of spices as a result of addition of other substances with them, such mixtures are classified under the Heading 2103. Therefore, the subject product being a mixture of spices and other substances has to be classified under Heading 2103; particularly under Heading 2103 90 40 with tax rate of 12% [CGST 6% and SGST 6%] as per entry at SI. No. 44 of Schedule II of Notification No. 01/2017 CT (Rate) dated 28.06,2017.

5. Comments of the Jurisdictional Officer:

5.1. The application was forwarded to the jurisdictional officer as per provisions of Section 98(1) of the CGST Act. The jurisdictional officer reported that no application has been pending or decided in any proceedings in respect of the applicant from, that office.

6. Personal Hearing;

The applicant was granted an opportunity for personal hearing on 20.07,2022. Shri. Soman N. L., Chartered Accountant represented the applicant for personal hearing. He reiterated the contentions made in the application and requested the Advance Ruling Authority to issue the ruling on the basis of the submissions made in the application,

7. Discussion and Conclusion:

7.1. The application and submissions were examined. The advance ruling to be issued is on the classification of the product “Dhathri Dahasamani”. The questions on which advance ruling is sought falls under the purview of Section 97 (2) (a) of the CGST Act, 2017, “classification of any goods or services or both” and hence admitted.

7.2. The question that arises for consideration is whether the product; “Dathri Dahasamani” is classifiable under CTH 0910 91 00 – Mixtures referred to in Note 1 (b) to this Chapter or 2103 90 40 – Mixed condiments and mixed seasoning or 2106 90 50 – Compound preparations for making non-alcoholic beverages. The product is stated to be manufactured under a drug license issued by the Deputy Drugs Controller ASU and State Licensing Authority, Government of Kerala. The ingredients and their quantity used in the production of each packet of the product “Dhathri Dahasamani” weighing 50 grams is stated to be as below;

7.3. The product is a mixture of dried herbs and spices and when the mixture is added to boiling water in the prescribed measure the resultant drinking water will be slight dark coloured with a unique flavour. The product is used to enhance the flavour and taste of drinking water;

7.4. It is stated by the applicant that at present the product is supplied by classifying it under the CTH 2106 90 50 of Chapter 21 of the First Schedule to the Customs Tariff Act, 1975 and subject to tax at the rate of 18% [CGST – 9% and SGST – 9%].

7.5. The Explanation (iii) & (iv) appended to the Notification No. 01/2017 -Central Tax (Rate) dated 28.06.2017 reads as follows;

(iii) “Tariff item”, “subheading” “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 7 975 {51 of 1975.

(iv) The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be apply to the interpretation of this notification.

7.6. In view of the above explanation, the rules for interpretation of the First Schedule of the Customs Tariff Act, 1975 including the Section and Chapter Notes and the General Explanatory Notes are applicable for interpretation of the GST Tariff / Rate Schedule. Accordingly the circulars issued by the CBIC and the ratio of various judgments of the Supreme Court, High Court and Tribunals regarding the classification of commodities under the Central Excise and Customs Tariff are equally applicable and have precedent value in relation to the classification of goods under the GST Tariff / Rate Schedule as the classification under the Central Excise and Customs Tariffs and the GST Tariff / Rate Schedule are aligned and based on the Harmonised System of Nomenclature Codes. [HSN Codes]

7.7. The General Rules for Interpretation of the First Schedule to the Customs Tariff Act, 1975 can be summarised as follows;

Rule 1; Classification has to be determined based on the description of headings and relevant Section and Chapter Notes.

Rule 2: Classification of incomplete or unassembled goods/mixture and combinations.

Heading to include incomplete and unfinished goods that have acquired the essential character of complete/finished goods.

Finished goods to include goods removed unassembled / disassembled. Semi Knocked Down / Completely Knocked Down.

Any reference to a material/sub stance shall include reference to a mixture or combination of that material with others.

Where by application of Rule 2 goods prima facie falls under more than one heading the classification shall be as per Rule 3.

Rule 3 prescribes the principles for the classification of goods consisting of more than one material or substance.

The heading which provides the most specific description shall be preferred to headings providing a more general description.

Mixtures, composite goods consisting of different materials or made up of different components shall be classified as if they consisted of the material or component which gives them their essential character.

When goods cannot be classified as above, they shall be classified under the heading which occurs last in numerical order among those.

Rule 4: Akin Rule – Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.

7.8. In the case of COMMISSIONER OF CENTRAL EXCISE VsM/s WOCKHARDT LIFE SCIENCES LTD reported in 2012 (277) ELT 299 (SC); the Hon’ble Supreme Court, inter alia, laid down the following principles for the classification of goods;

> There is no fixed test for classification of a taxable commodity. This is probably the reason why the common parlance test’ or the ‘commercial usage test’ is the most common. Whether a particular article will fall within a particular Tariff heading or not has to be decided on the basis of the tangible material or evidence to determine how such an article is understood in ‘common parlance’ or in ‘commercial world’ or in ‘trade circle’ or in its popular sense meaning. It is they who are concerned with it and it is the sense in which they understand it that constitutes the definitive index of the legislative intention, when the statute was enacted.

> However, there cannot be a static parameter for the correct classification of a commodity. The process of manufacture of a product and the end use to which it is put, cannot necessarily be determinative of the classification of that product under a fiscal schedule like the Central Excise Tariff. What is more important is whether the broad description of the article fits in. with the expression used in the Tariff.

> Moreover, the functional utility and predominant or primary usage of the commodity which is being classified must be taken into account, apart from the understanding in common parlance.

> A Commodity cannot be classified in a residuary entry, in the presence of a specific entry, even if such specific entry requires the product to be understood in the technical sense. A residuary entry can be taken refuge of only in the absence of a specific entry that is to say, the latter will always prevail over the former.

> The combined factor that requires to be taken note of for the purpose of the classification of the goods are the composition, the product literature, the label, the character of the product and the use to which the product is put.

7.9. The question of classification of various Indian traditional convenience food mixes, masalas and condiments whether under Chapter 9 or Headings 21.03 or 21.08 of the Central Excise Tariff was brought to the notice of the Board as early as 1996 and the CBIC by Circular ;Nor205/39/96-CX dated 30.04.1996 Clarified as follows;

“Subject; Classification of Indian traditional convenience food mixes, masalas and condiments ¦ Chapter 9 and headings 21,03 or 21.08 -regarding.

Board has received representations from “Indian Food Industries Association and others seeking clarification as regards the classification of various Indian traditional convenience food mixes, masalas, spices and condiments such as puliyougare powder, vangibath mix, Instant sambar mix, yangibath powder, sambar powder, instant bisibelebath, rasam powder, bisibelebath masala, mix spiced chutney powder, curry powder, pickle masala, garam masala etc.

2. From the reports received from the Commissionerates, it is observed that while in some places the products in question are being classified as either “spices” of Chapter 9 of CET or as “Mixed Condiments and mixed seasonings’ of Heading 21,03 of CET, in others the same products are being classified under Heading 2108.90 as ‘edible preparations not elsewhere specified or included’. In the latter case, Chapter notes 9(b) & 9(c) of Chapter 21 are being relied upon for classifying these products under the sub-heading 2108.90. Trade interests have, however, argued that these products are merely additives for different food items and not readily consumable products through the simple processes of cooking, frying, boiling or adding with water, oil or milk. Hence it is claimed that the products in question cannot be classified under sub heading 2108.90 of CET

3. The matter has been examined. Spices are specifically covered under Chapter 9 of Central Excise Tariff and mixed condiments and mixed seasonings under Heading 21.03 of Central Excise Tariff. Heading 21.08 of CET on the other hand is a residuary entry which refers to “edible preparations not elsewhere specified or included*. While there are no definitions available for spices and mixed condiments and mixed seasonings in the Central Excise Tariff, the Explanatory Notes to the HSN give the following description of these products.

Spices

Spices i.e., a group of vegetable products (including seeds etc), rich in essential oils and aromatic principles and which because of their characteristic taste are mainly used as condiments. Spices (including mixed spices) containing added substances of other Chapters, but themselves having flavouring or seasoning properties, remain in this Chapter provided the added quantity does not affect the essential character of the mixture as a spice.

Condiments /Seasonings

Mixed condiments and mixed seasonings containing spices differ from spices and mixed spices of Headings 09.04 to 09.10 in that they also contain one or more flavouring or seasoning substances of Chapters other than Chapter-9t in such proportions that the mixture has no longer the essential character of a spice within the meaning of Chapter-9.

3.2 . While the Explanatory Notes in HSN distinguish between spices on the one hand and mixed condiments and mixed seasonings on the other, the English Dictionary meanings and statutory bodies dealing in quality specifications of spices, condiments and seasonings often use these words interchangeably. What is however emphasised in the literature an the subject is that the essential character of these substances is in their Junction, viz., to add flavour, aroma and pungency to various food preparations.

3.3 Chapter Notes 9(b) and 9(c) of Chapter 21 of CET no doubt gives an indication of the type of preparations which are intended to be included in Heading 21.08 of CET. However, it must be remembered that Heading 21.08 is a residuary entry in Chapter 21 and the Rules for the interpretation of the Schedule require that the heading which provides the most specific description shall be preferred to headings providing a more general description. Further, heading 21 in HSN excludes spices of Chapter 9.

4. Consequently, products which are predominantly mixtures of spices / Condiments / seasonings and which are used as such or in the making of food preparations mainly for their aromatic flavouring or seasoning properties would merit classification under the specific entry o/spices in Chapter 9 or Heading 21.03 of CET. However, products which in addition to spices, Flavouring and seasoning substances also contain, other foodstuffs in such quantity that the products as such or after processing are capable of being used as food preparations for human consumption in their own right will go out of Chapter 9 or Heading 21.03 of CET and merit classification in the residuary Heading 21.08 provided, they are not cohered or included in any other heading of CET.

4.2. Viewed in the context, product like sambar powder, rasam powder, puliyogare mix or powder, vanghibhath mix or powder consisting or mainly spices and required to be added to cooked dal or cooked rice mainly for spicing, flavouring or seasoning would appear to merit classification as spices or mixed condiments and seasonings. On the other hand, products like instant sambar mix, instant rasam mix, instant spiced bhath mix (Bisibeiebath) or instant Kharabhath mix consisting of dal or rice fakes or sooji along with spices and other substances and which can be made up into food preparations by simply mixing and boiling/cooking in water would merit classification as miscellaneous edible preparations of Heading 2108 of Central Excise Tariff.

5. In view of the above. Board desires that classification of each product be decided on merit having regard to discussions hereinabove.

7.10. The classification of the subject product namely; ‘Dhathri Dahasamini” has to be determined keeping in view the principles mentioned above Admittedly, the product is predominantly made of ingredients falling under Heading 1211 of the Customs Tariff Act. Heading 1211 covers plants and parts of plants of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal or similar purposes, fresh or chilled. As per the list of ingredients of the product given by the applicant, it is seen that there is only one ingredient; i.e; Chukku [Ginger: 0910 11 20 – Dried, unbleached] which falls under Chapter 9 of the First Schedule to the Customs Tariff Act; 1975 and all the other ingredients fall under Heading 1211 of Chapter 12 of the First Schedule to Customs Tariff Act, 1975.

7.11. Chapter Note 1 of Chapter 9 of the First Schedule to the Customs Tariff Act, 1975 reads as follows;

1. Mixtures of the products of headings 0904 to 0910 are to be classified as follows:

(a) mixtures of two or more of the products of the same heading are to be classified in that heading;

(b) mixtures of two or more of the products of different headings are to be classified in heading 0910

The addition of other substances to the products of headings 0904 to 0910 [or to the mixtures referred to in paragraph (a) or (b) above] shall not affect their classification provided the resulting mixtures retain the essential character of the goods of those heading. Otherwise, such mixtures are not classified in this Chapter; those constituting mixed condiments or mixed seasonings are classified in heading 2103.

7.12. The subject product; “Dhathri Dahasamani” contains only one ingredient namely; Chukku [Ginger: 0910 11 20 – Dried, unbleached] that fall under Chapter 9 and the percentage of the ingredient is only 8%. The subject product is primarily a mixture of Karingali, Pathimukam and Ramacham falling under Heading 1211; which together constitute 80% of the ingredients. The above ingredients together with Naruneendi and Chandanam both falling under Heading 1211 constitute 92% of the ingredients. Therefore, 92 % of the ingredients of the subject product fall under Heading 1211 and hence it cannot be considered as a mixture of products ;of Headings 0904 to 0910 with the addition of other substances; but having the essential character of the goods of Chapter 9. Therefore, the product cannot be classified under the CTH 0910 91 00 – Mixtures referred to in Note 1 (b) to Chapter 9 of the First Schedule to Customs Tariff Act, 1975.

7.13. The product “Dhathri Dahasamini” is not capable of being used as a food preparation for human consumption in its own right; i.e., the product cannot be used as such either directly or indirectly or after processing (such as cooking, dissolving or boiling in water, milk or cither liquid etc.) for human consumption. On the other hand, it is used for flavouring or increasing the taste of water by adding it to boiling water. The consumers of the products are also using it for adding it to boiling water for giving flavour, aroma or taste to the boiled water and not for the consumption of the product by adding boiled water. Hence as per common parlance understanding also the product is used for flavouring boiled water.

7.14. Accordingly, applying the principles of Rule 3 of the General Rules for Interpretation of the First Schedule to the Customs Tariff Act, 1975; the ratio of the above referred judgment of the Hon’ble Supreme Court and the clarification of the Board in Circular dated 30.04.1996 extracted above, the product “Dhathri Dahasamini” which is predominantly a mixture of condiments/seasonings that is added to boiling water mainly for its aromatic, flavouring or seasoning properties merits classification under Heading 2103 90 40 – Mixed condiments and mixed seasoning of the First Schedule of the Customs Tariff Act, 1975.

7.15. In the light of the discussion above, it is concluded that the product, “Dhathri Dahasamini’ is appropriately classifiable under Heading 2103 90 40 of the First Schedule to the Customs Tariff Act, 1975 and liable to GST at the rate of 12% (6% – CGST + 6% SGST] as per entry at SI.No. 44 of Schedule II of Notification No. 01/2017 – Central Tax (Rate) dated 28.06.2017.

Given the observations above, the following rulings are issued:

RULING

Question 1: Is not the product “Dhathri Dahasamani” to be rightfully classifiable under HSN 0910 91 00 instead of classifying under HSN 2106 90 50, and therefore tax rate is under entry No. 44 of schedule I prescribed by Notification No. 1/2017 – CT(R) dated 28.05.2017 as amended?

Ruling: No.

Question 2: If not classifiable as above is not the product to be classifiable under HSN 2103 90 40 and therefore tax rate is under entry No. 44 of schedule II prescribed by Notification No. 1/2017 -CT(R) dated 23.06.2017, as amended?

Ruling: The product; “Dhathri Dahasamani” is appropriately classifiable under Heading 2103 90 40 of the First Schedule to the Customs Tariff Act, 1975 and liable to GST at the rate of 12% [6% CGST + 6% SGST] as per entry at SI. No. 44 of Schedule II of Notification No. 01/2017 – Central Tax (Rate) dated 28.06. 2017.