Classification of FMCG Products: GRI and the Welkin Foods Hierarchy

Classification of FMCG Products explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Two Supreme Court decisions in the first two months of 2026 settled how a classification argument must be ordered. Welkin Foods put statutory text first and demoted common parlance to a residual aid. Hamdard, six weeks later, showed when that residual aid becomes decisive.

Commissioner of Customs (Import) v. M/s Welkin Foods Pvt. Ltd., Supreme Court, Civil Appeal No. 5531 of 2025, dated 06.01.2026. Aluminium shelving imported for mushroom cultivation was classified by the importer as "parts of agricultural machinery" under Heading 8436 on common parlance and end use; the Revenue classified it as "aluminium structures" under Heading 7610 on objective characteristics. The Supreme Court allowed the Revenue's appeal, holding that classification must be determined primarily by the GRI, tariff headings, Section Notes, Chapter Notes and HSN Explanatory Notes, and that "the importer could not rely upon common parlance or intended use to override the statutory tariff description."

The hierarchy the Court laid down

The Guide sets out the four propositions:

• GRI, tariff headings, Section Notes, Chapter Notes and HSN Explanatory Notes are the primary tools of classification;
• the common parlance test is a residual interpretative aid, applicable only where statutory provisions do not conclusively determine the classification;
• the end-use test is relevant only where the tariff entry itself permits consideration of use;
• commercial understanding or market nomenclature cannot override a clear statutory tariff description.

On common parlance, the Court held it "is not an independent or primary rule of classification under an HSN-based tariff. It is merely a supplementary principle that can be invoked only where the tariff entry is ambiguous, the statute does not prescribe a technical meaning, and the General Rules for Interpretation do not conclusively determine the classification."

On end use, "the intended or actual use of goods is relevant only where the tariff entry itself expressly or impliedly incorporates use as a criterion. Since Heading 7610 did not make the intended use of aluminium structures relevant, the fact that the shelving was specially designed for mushroom cultivation could not alter its classification."

And the governing principle: classification "must be based primarily on the objective characteristics, composition and intrinsic nature of the goods rather than their commercial nomenclature or intended use."

The General Rules for Interpretation

The Guide summarises the GRI as "the backbone of classification under GST":

• Rule 1 — classification is determined "according to the terms of the headings and any relevant Section Notes or Chapter Notes". The tariff entry itself remains the primary basis.
• Rule 2 — incomplete or unfinished goods may be classified as complete goods if they possess the essential character of the finished article.
• Rule 3 — where a product is classifiable under two or more headings, classification turns on specificity and essential character.
• Rule 5 — packaging materials and containers presented with the goods, "of practical relevance for FMCG products that are sold in distinctive packaging."
• Rule 6 — classification at the sub-heading level, applying the same principles within a heading.

And the statutory framework more broadly rests on the Customs Tariff Act, 1975, its First Schedule, the Section and Chapter Notes, the GRI, the HSN Explanatory Notes, and the GST rate notifications — presently Notification No. 09/2025-Central Tax (Rate), with the caution that "corresponding State rate notifications must equally be verified since GST operates on a dual structure."

The methodology for a new product

The Guide's step sequence is worth following literally when launching a variant.

Step 1 — identify the essential character. "Classification should not be based merely on the trade name or marketing description. Instead, the product composition, ingredients, manufacturing process, intended use and technical or scientific characteristics should be examined."

The worked example: a product marketed as a "Herbal Wellness Drink" "cannot be classified merely because the word 'herbal' appears on the packaging." The question is whether it is "a beverage under Chapter 22, a food preparation under Chapter 21 or a healthcare product under Chapter 30" — and "where the product contains a standardised herbal extract with a therapeutic claim and is licensed under the Drugs and Cosmetics Act, 1940, classification as a medicament under Chapter 30 would merit consideration."

Step 2 — identify the Chapter. The FMCG map: dairy — 4; sugar confectionery — 17; cocoa and chocolate — 18; preparations of cereals — 19; processed food — 20 and 21; beverages — 22; tobacco and pan masala — 24; medicaments — 30; cosmetics and personal care — 33; soaps and detergents — 34.

Step 3 — read the Section and Chapter Notes. "These Notes frequently contain specific inclusion and exclusion provisions which override the general product descriptions and play a decisive role."

Step 4 — check the pre-packaged status. For food preparations under Chapters 4, 11 and 19, "the taxability threshold may pivot on whether the product is pre-packaged and labelled within the meaning of the Legal Metrology Act, 2009", with a distinction drawn since 18 July 2022 between goods pre-packaged and labelled and goods pre-packaged but not labelled. Pre-packaged and labelled →

Step 5 — apply the GRI where headings compete. "preference is generally given to the Heading providing the most specific description", and where several are equally applicable, to the heading imparting the essential character.

The ready-to-drink beverage battleground

The Guide singles out RTD beverages as "a recurring area of dispute" — "fruit-based drinks, energy drinks, dairy-based beverages, flavoured drinks and carbonated beverages."

The rate stakes are extreme. Following the 2025 rate rationalisation, "specified fruit juice-based drinks and certain milk-based beverages now attract GST at the concessional rate prescribed under Schedule I, whereas specified carbonated beverages, caffeinated beverages and other notified non-alcoholic beverages continue to fall under the special 40 per cent GST category."

And the classic dispute is the carbonated fruit drink: "manufacturers often contend that the product should be classified as a fruit-based beverage attracting a lower rate, whereas the tax authorities seek to classify the product as a carbonated beverage liable to GST at 40 per cent."

FSSAI does not decide it. "While FSSAI classification may provide useful guidance regarding the nature of the product, it is not conclusive for determining the GST rate. The actual composition of the product, manufacturing process, ingredients used, percentage of fruit content, carbonation levels and the relevant tariff entries are the primary factors."

The evidence to assemble is accordingly technical: "product formulation, FSSAI licence category, laboratory reports, ingredient declarations and tariff descriptions" — because "an incorrect classification may result in substantial tax exposure, interest and litigation."

HSN reporting: two independent obligations

Turnover-based. "The mandatory HSN digit requirement — 4-digit or 6-digit — for reporting in GSTR-1 is based on the Aggregate Annual Turnover (AATO) of the registered person in the preceding financial year."

Goods-based, and independent of turnover. "8-digit HSN reporting is not turnover-based — it applies to specified goods, such as certain chemical products, irrespective of the supplier's turnover. FMCG companies dealing in such notified goods must comply with the 8-digit requirement even where their general turnover-based obligation would otherwise only require 4 or 6 digits."

A small company handling one notified chemical therefore reports 8 digits on that line and 4 or 6 on everything else — a configuration point that is routinely missed in ERP setup.

Key takeaways

• Welkin Foods (SC, 06.01.2026): GRI, headings, Section and Chapter Notes and HSN Explanatory Notes govern first.
• Common parlance is a residual aid, available only where the statutory materials are inconclusive.
• End use matters only where the tariff entry makes it matter — Heading 7610 did not, so mushroom-farm design was irrelevant.
• Classification rests on objective characteristics, composition and intrinsic nature, not trade name or marketing.
• GRI Rule 1 (headings and Notes), Rule 2 (unfinished goods), Rule 3 (competing headings), Rule 5 (packaging), Rule 6 (sub-headings).
• Chapter map: 4 dairy, 17 confectionery, 18 cocoa, 19 cereals, 20–21 processed food, 22 beverages, 24 tobacco, 30 medicaments, 33 cosmetics, 34 soaps.
• FSSAI categorisation is guidance, not determination — carbonated fruit drinks turn on composition, fruit content and carbonation against the tariff entry.
• 4/6-digit HSN reporting is turnover-based; 8-digit reporting is goods-based and applies regardless of turnover.

Read next

• Rooh Afza, Hamdard and the Essential Character Test
• Composite Against Mixed Supply: FMCG Combos and Gift Boxes
• "Pre-Packaged and Labelled": GST and the Legal Metrology Link

Disclaimer: Positions stated as on 5 September 2026, based on the Customs Tariff Act, 1975 and its First Schedule, the General Rules for Interpretation, Notification No. 09/2025-Central Tax (Rate), the Legal Metrology Act, 2009 and the decision in Commissioner of Customs (Import) v. M/s Welkin Foods Pvt. Ltd., Supreme Court, Civil Appeal No. 5531 of 2025 dated 6 January 2026, as reproduced in the ICAI GST Sectoral Guide on Fast-Moving Consumer Goods (July 2026).