In re Dlecta Foods Pvt Ltd. (GST AAR Maharashtra)
Whether the product ‘Non-Dairy Cream’ manufactured by the Applicant is covered under CH 1517 90 90 or under CH 2106 90 99 of the GST Tariff?
Subject classification matter is pending as a dispute in proceedings initiated by the Directorate General GST Intelligence (DGGI), Pune Regional Unit and therefore in view of the first provisio to Section 98 of the CGST Act, we refrain from answering the question raised by the applicant and reject the application
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, MAHARASHTRA
(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively ] by M/s. Dlecta Foods Pvt Ltd. , the applicant, seeking an advance ruling in respect of the following question.
Whether the product ‘Non-Dairy Cream’ manufactured by the Applicant is covered under CH 1517 90 90 or under CH 2106 90 99 of the GST Tariff?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.
2. FACTS AND CONTENTION — AS PER THE APPLICANT
The submissions of the applicant, M/s. Dlecta Foods Private Limited are as under:-
2.1 The Applicant, is a manufacturer of goods falling under Chapter 04, 15 and 21 of the Tariff (equivalent to the Customs Tariff Act, 1975 and erstwhile Central Excise Tariff Act, 1985), like Milk, Cream, Cheese & Butter as well as Products such as Dairy Whipping Cream, Non-Dairy Whipping Cream and other (Dark Ganache) and are supplying the same in bulk as well as retail packing.
2.2 “ Applicant introduced the product “Non Dairy Whipping Cream” (‘NDW Cream’) since December 2010. The said NDW Cream is obtained from Vegetable Fats and manufactured using Vegetable Fats, Sugar, Emulsifiers, Stabilisers, Additives/Flavors, Sugar and Water in desired proportion.
2.3 The said NOW Cream is used in Bakery / Confectionary product as Topping Cream or Filling Cream, assuch the said NOW Cream is to be consumed in the manufacture of Cakes, Pastry and confectionary as enhanced value and not directly for human consumption as ‘ready to eat’.
2.4 The product NDW Cream, since its inception in the product list, is classified under Central Excise Tariff Head 1517 90 90 as the said NDW Cream originated primarily from “Vegetable Fats”. The Applicant was regularly discharging Central Excise Duties on the said NDW Cream at applicable rate and the same was duly reflected in monthly returns in form ER-1 then being filed under erstwhile regime. The said classification of the product under CH 1517 90 90 continued in the present era of GST Regime and are being shown in GSTR-1 and GSTR-3B Returns.
2.5 The Central Excise Authorities as well the Audit Team who carried out EA 2000 Audit on the records of the Applicant in 2014 & 2016, after due inquiry about the composition and manufacturing process as well as the ingredients thereof, did not find any irregularity in classification of said NDW Cream, as well GST Authorities also did not find any irregularity for the said product.
2.6 The Directorate General GST Intelligence, Pune Regional Unit raised a dispute with the classification of said NDW Cream seeking classification of the said product Non-Dairy Cream under Tariff Head 2106 on the basis that one of the manufacturer viz. M/s. RICH GRAVISS PVT LTD with whom identical dispute was raised applied for closure of their case under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 and settled the matter.
2.7 The Applicant, however, does not agree with the dispute of reclassification of product NDW Cream under Tariff Head 2106 from settled classification under Tariff Head 1517, purely on the basis that some other manufacturer settled the matter under the SVS Scheme.
STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW
2.8.1 SETTLEMENT OF CASE BY ANOTHER MANUFACTURER OF SAME PRODUCT CANNOT BE GROUND FOR CLASSIFICATION OF THE APPLICANT’S PRODUCT:
2.8.2 Applicant, without prejudice, submits that merely on the grounds that, M/s. RICH GRAVISS PVT LTD approached the department under SVS to settle the issue cannot be the ground for the DGGI, Pune to consider the classification of NDW Cream under Tariff 2106. The Finance Act, 2019 at Section 131 clearly clarifies as under:
131. For the removal of doubts, it is hereby declared that, save as otherwise expressly provided in sub-section (1) of section 124, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to the matter and time period to which the declaration has been made. Thus, the SVS is limited to the benefit, concession or immunity on the Declarant for which declaration is made. Therefore, application made by M/s. RICH GRAVISS PVT LTD under the said Scheme cannot be read as acceptance of classification of the product. The said Scheme envisages settlement of disputes in legacy cases without going into the merits or de-merits and hence cannot be a parameter to decide any classification against the Applicant per se.
2.9 THE PRODUCT MANUFACTURED BY THE APPLICANT:
2.9.1 The product manufactured by the Applicant is known as “Non-Dairy or Analogue creams/ toppings”. The Applicant manufactures analogue dairy creams or non-dairy creams which are replicas/substitutes of dairy creams where milk fat is replaced by vegetable oil based fats for the purpose of either cost reduction, or functionality or nutritional benefits. The creams made by the Applicant are of two types:
a) Whip Toppings: For whip topping application, wherein they are whipped and used for garnishing and decoration of cakes.
b) Cooking creams: For cooking application, wherein they substitute the dairy cream in normal cooking applications like gravies, pastas etc.
2.10 The technology, ingredients and processes involved in manufacture of the applicant’s product:
2.10.1 These products are essentially classified as oil-in-water emulsions. Wikipedia defines an emulsion as a mixture of two or more liquids that are normally immiscible (unmixable or unbendable). Water and oil are generally immiscible. They can be combined into an emulsion only by use of special technology. The technology revolves around ingredients and processes.
2.10.2 To form this functional emulsion it is necessary to use the right type of fat. For whipped toppings, hydrogenated palm kernel oils are used. For cooking cream, hydrogenated vegetable fat is used.
2.10.3 To form the emulsion it is necessary to use emulsifiers, which are essentially molecules that are water loving at one end and oil loving at the other end. With proper choice and dispersion of emulsifiers we can expect the emulsion to form, to be stable and also to give the required functionality like whipping etc. Every company zealously guards their emulsifier selection and recipe. Applicant also adds stabilizers to improve the stability. It is the objective of stabilisers to keep the oil well dispersed into water and not to allow oil molecules to coalesce together.
2.10.4 Typically, Non-dairy whipping creams are composed of: Hydrogenated Vegetable Oils (20%); Sugars (20%); Emulsifiers/ Stabilizers/Other additives (<3%) and Water Balance.
2.10.5 Typically Non-dairy cooking creams are composed of : Hydrogenated Vegetable Oils (20 — 22%); Milk Solids (6 — 10%); Liquid Glucose (8 — 10%); Emulsifiers/Stabilizers/Other additives (<3%); Water Balance
2.11.1 The emulsifiers and stabilizers will generally be either water soluble or oil soluble. Two fractions ate formed — oil soluble and water soluble fractions.
2.11.2 To bring these fractions together into an emulsion, we need an emulsification process which creates the emulsion by high speed mixing/dispersion of oil fraction into water fraction. We also homogenise the emulsion to break oil into smaller droplets and to further improve stability. The high speed dispersion and homogenization together constitute the emulsification process.
2.12 THE CLASSIFICATION OF THE PRODUCT BY THE FOOD SAFETY AND STANDARDS AUTHORITY OF INDIA IS EQUIVALENT TO AN EXPERT’S OPINION:
The Applicant, without prejudice to whatever is stated herein, submits that the classification dispute of the product NDW Cream is raised without any authority of law or Experts’ Opinion and without giving any reason but only ground that M/s. RICH GRAVISS PVT LTD had accepted the liabilities and approached under SVS. The settled classification cannot be disputed unless supported by legal backing and Opinion from an Expert. This is especially so in case of technical products like the product in question.
2.13 In this regard, FSSAI, which is the premier regulatory authority for all Food Products in India, has created a FOOD CATEGORY SYSTEM for classification of all foods and classified the Applicant’s Product ‘Non-Dairy Creams’ as under:
a. The non-dairy creams are classified under Food Category 2.3 “Fat emulsions mainly of type oil-in-water, including mixed and/or flavoured products based on fat emulsions”. All of the Applicant’s non-dairy creams have been declared accordingly on the pack as well as in the FSSAI license.
b. Non-dairy creams are not standardized products. No standards are laid out for them. They are ‘proprietary products’ under FSSAI and have to be approved by them beforehand.
c. Each proprietary product manufactured by the food business operator has to go through the scrutiny of FSSAI, particularly the category in which it is classified. Category is very important because additives are accordingly specified.
Thus the premier Regulatory Agency for Food Products, FSSAI, without whose certification and — approval, no food product can be sold to consumers, has classified the Applicant’s product as above. Now, above classification under FSSAI vis-à-vis the classification under the Customs Tariff and the GST Tariff has to be seen.
2.14 CLASSIFICATION OF THE PRODUCT UNDER CUSTOMS TARIFF AND GST TARIFF MORE SPECIFIC UNDER CH: 1517 90 90:
present classification of ‘Non-diary Cream’ under the Customs Tariff Act, 1975, is as under:
1517 : MARGARINE; EDIBLE MIXTURE OR PREPARATIONS OF ANIMAL OR VEGETABLE FATS OR OILS OR OF FRACTIONS OF DIFFERENT FATS OR OILS OF THIS CHAPTER, OTHER THAN EDIBLE FATS OR OILS OR THEIR FRACTIONS OF HEADING 1516
