Chuna Used With Paan, Supari, Tobacco Classifiable As Slaked Lime, Attracts 5% GST: GSTAT Rajkot

The GST Appellate Tribunal (GSTAT), Rajkot Bench, has held that chuna (lime) used with pan, supari and tobacco is classifiable as slaked lime attracting 5% GST, rejecting the Revenue's contention that it should be treated as a food preparation attracting 18% GST.

A bench comprising Judicial Member Pramod Kumar Rai and Technical Member Kishori Lal held that adding water and fillers to slaked lime, without any chemical reaction, does not change its essential character as lime.

The tribunal was hearing seven appeals filed by the GST Department against an order passed in favour of Babu Lime Pvt. Ltd., which manufactures and sells chuna in slurry and paste forms under the brand names Babu, Jay Sardar, Raja Baba and Deluxe.

The company had been classifying its products as slaked lime under tariff item 2522 20 00 and paying GST at 5%. However, the Revenue argued that the products should be classified as food preparations under tariff item 2106 90 99, attracting 18% GST. It contended that the addition of other ingredients took the products outside the classification of slaked lime under Chapter 25. It also relied on the company's FSSAI licence and the fact that the products were marketed as food additives.

The Revenue had consequently demanded differential tax, interest and penalty. The Commissioner (Appeals) set aside the demand, following which the Revenue approached the tribunal.

Rejecting the Revenue's contention, the tribunal held that merely adding other ingredients to slaked lime does not mean that it ceases to retain its character as lime. It noted that the manufacturing process involved physical blending without any chemical reaction or the emergence of a new compound.

The tribunal observed, "The addition of further water to slaked lime, to bring it to the consistency of a slurry or a paste, and the addition of fillers without any chemical reaction, do not change the character of its active ingredient, i.e., slaked lime, which the heading itself contemplates."

The tribunal further explained that the relevant test was whether the goods, after mixing, continued to remain slaked lime as covered by tariff heading 2522 or whether the added ingredients resulted in a different product.

It noted that slaked lime was the active ingredient, while water acted as a carrier and diluent, calcium carbonate served as a filler, and a small quantity of glycerin was added to the slurry for its soothing effect.

The Bench also rejected the Revenue's argument that chuna should be classified as a food preparation merely because it is used with pan, supari or tobacco.

It noted that chuna is not consumed directly or after processes such as cooking, dissolving or boiling in liquids. Rather, it is applied in small quantities to betel leaves or mixed with areca nut and tobacco as an ingredient in making something else.

The tribunal further observed that the products contained slaked lime, calcium carbonate, water and, in the case of slurry, a small quantity of glycerin. These ingredients did not bring the products within the scope of the relevant provisions of Chapter 21 dealing with food preparations.

The Bench also rejected the Revenue's reliance on the company's FSSAI licence. It held that a licence issued under a regulatory statute enacted for a different purpose cannot determine the classification of a product under the Customs Tariff.

The tribunal observed that the Food Safety and Standards Act, 2006, distinguishes between food and food additives. A food additive is defined as a substance not normally consumed as food by itself. It held that obtaining an FSSAI licence and complying with its regulatory requirements did not establish that the products were food preparations for GST classification.

The tribunal also relied on the Supreme Court's decisions in Commissioner of Customs & Central Excise v. 20 Microns Ltd. and HPL Chemicals Ltd. v. Commissioner of Central Excise while examining the scope of Note 1 to Chapter 25 and the principle of essential character in the classification of mixed products.

Accordingly, the tribunal held that the products manufactured and supplied by Babu Lime were correctly classifiable under tariff item 2522 20 00 as slaked lime, attracting 5% GST. It dismissed all seven appeals filed by the Revenue and upheld the order passed by the Commissioner (Appeals).

For Revenue: D. J. Kothari, Authorised Representative,

For Babu Lime: Advocates M. H. Patil and Viraj Reshamwala