Bulk Imported Nutraceutical Ingredients Cannot Be Classified As "Edible Preparations": CESTAT Delhi

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that nutraceutical ingredients imported in bulk cannot be classified as “edible preparations” and therefore do not attract a higher customs duty.

The Bench, comprising President Justice Dilip Gupta and Technical Member Hemambika R. Priya, set aside a customs duty demand of Rs. 7 crore raised against Sundyota Numandis Probioceutical Private Limited on allegations of misclassification of imported nutraceutical ingredients. They noted:

"It is settled law that the fundamental principle while determining the classification under the Customs Tariff Act, 1975 is the condition of goods at the time of import, which is the taxable event."

The appellant, engaged in the manufacture and sale of nutraceutical and probiotic products in India, had imported three ingredients: Tendofit, Mobilee, and GG Orosoluble, from overseas suppliers. The imports were in bulk packaging and intended as raw materials for further formulation into finished nutraceutical products in India.

The Department issued a show-cause notice alleging that the goods were misclassified under Customs Tariff Heading 2106 as “miscellaneous edible preparations” instead of under Chapters 39 and 30, as claimed by the appellant. Based on this, differential duty along with interest and penalties was proposed. The Department argued that the imports, cleared with Food Safety and Standards Authority of India (FSSAI) approval and were intended for use in nutraceutical formulations.

The appellant contended that classification must be based on the condition of the goods at the time of import, not their eventual use as finished products, and that the ingredients were not edible in the imported form.

Allowing the appeal, the Tribunal emphasised that classification under the Customs Tariff must be determined strictly with reference to the condition of the goods at the time of import, which is the taxable event under the Customs Act.

The Bench held:

"Tendofit, which at the time of import is not edible, would not be classifiable under the said residuary heading 21069099. This is further strengthened by the examples of "Namkeen, Mithai, Misthans" etc given for the said heading. It is also important to note that there is no chemical examination report which supports the Department's contention that the imported goods are edible at the time of import."

The Tribunal noted that the ingredients were imported in bulk drums as raw materials, neither palatable nor consumable in that form, requiring further processing and formulation into prescribed dosages. It further held that the essential character of Mobilee, given by Sodium Hyaluronate, justified classification under CTH 3913.

Rejecting the Department's reliance on FSSAI certification, the Bench clarified that regulatory approvals under food laws do not determine tariff classification and that the department had failed to prove that the goods were edible or marketable as food preparations at the time of import.

The Bench concluded that:

"...the Tendofit imported is converted to capsules for use as nutraceutical, for which the appellant has the FSSAI license as well. However, what was imported is not the final product, ready to use as nutraceuticals but merely its raw material. Hence, the use of the imported goods cannot become the principle for its classification. In view of the above discussions, we hold that Tendofit is rightly classified under CTH 3913 by the appellant.”

Accordingly, the Tribunal quashed the demand of customs duty along with interest and penalties, holding that the appellant had correctly classified the imported goods under the Customs Tariff.

For Appellant: Senior Advocate, Tarun Gulati, and Advocates Ketan Tadsare, Shruti Kulkarni, and Rajat Chhabra

For Respondent: Authorised Representative, M.K. Shukla