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2020 (2) TMI 894 - AAAR - GSTClassification of goods - rate of GST - production and making of nutritional powder for special dietary use called Prohance-D Chocolate variant - ‘diabetic food’ or not - appellant has stated that Prohance-D is a nutritional powder -special dietary use for people with Diabetics - though the AAR held that the product is a ‘food’, it held that it is not a diabetic food - Challenge to AAR decision. HELD THAT:- Prohance-D Chocolate contains some extra special ingredients which differentiate from the normal Prohance. All the ingredients in it especially Isomaltulose, Gum Arabic, Inulins, Myo-Innositol, Sucralose, Fructose are sugar replacements or sugar substitute. Gum Arabic is used as a ‘soluble dietary fiber’. The fact that these products are used in the Prohance-D shows that it is specially meant for people suffering from diabetes and is also marketed as meal replacement for diabetics. As per the definition of ‘Diabetic food’ in the ‘Dictionary of Food and Nutrition’ by David Bander, it covers foods that has specially formulated for people suffering from diabetics. In the present case, the impugned product though generally contributes to the well being of patient is specially formulated for diabetic patients as is evident from the fact that it contains certain sugar replacements which are not found in the normal Prohance. It is therefore specially directed for diabetics. In such a scenario, whether a normal person not suffering from Diabetes would opt for the Prohance-D variant as a meal replacement? The answer is no. Such a person would opt for Prohance and not for Prohance-D as it can be normally expected that only a diabetic patient would go for the Prohance-D variant. This makes it very clear that that the product is formulated for diabetic patients, is targeted at that particular segment and therefore, can be termed as a ‘diabetic food’. It is true that the heading 2106 also covers ‘Compound preparation for making nonalcoholic beverages’ under which heading is the product classified by the AAR. Heading 2106 covers both the descriptions and the Explanatory Notes to the HSN do not make it clear as to which product category the explanatory note given above applies. It is only under Customs Tariff Act that the category for ‘diabetic foods’ is carved out under the Heading 2106. But the very fact that the explanatory note explains what a diabetic food gives an indication as to what is intended to be covered by it. The intention is that foods which contains sugar replacement or sugar substitutes are meant to be covered by heading 2106 and such food may be products like sweets and gums also. In the instant case, the impugned product also contains sugar substitutes and therefore it will be covered by the term ‘diabetic food’. The AAR has also observed that the product is not a diabetic food because it does not contain high amount of dietary fiber and although the fact that it contains Gum Arabic, Gum Arabic is not a great source of dietary fiber. However, the AAR has not given any references in support of the statement that ‘Diabetic Foods’ have to contain dietary fibre. Also, it is felt that such a qualification would not be required to classify a product as diabetic food. As the HSN also considers food containing sugar replacements as diabetic food, the above product would also classify in it. The Order of the AAR classifying the product Prohance-D (Chocolate) under heading 21069050 is hereby set aside - The product would instead classify as a diabetic food covered under chapter heading 21069091.
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