AAR application under customs can be for only one good

In Re BASF India Limited (CAAR Mumbai)

It is the applicant’s contention that there is nothing in the law which prohibits them from seeking advance rulings in respect of as many products as they may choose. They also seek to derive strength from the provisions of the General Clauses Act for this proposition. In my considered opinion, such an assertion flies in the face of logic and common sense. The scheme of advance ruling in customs envisages that an applicant can receive certainty in respect of their entry/exit tax liability prior to importation or exportation. The issues on which advance rulings can be sought have been outlined in the statute. A time limit of three months is prescribed for rendering an advance ruling. The process also includes consultation with the jurisdictional customs authorities and adherence to the principles of natural justice. In such a scenario, if advance rulings in respect of multiple goods/items/products are sought in one application, then it would be well nigh impossible to render a ruling within the time prescribed in the statute. I can appreciate that there would be instances where the items/products etc. are so similar that they can be combined in a single application. For example, I had the occasion to deal with the issue of classification of API supari, boiled supari, chikni supari, unflavoured supari and flavoured supari in one application. In respect of all the above, the starting raw material is raw areca nut/betel nut, which then undergoes the processes of cleaning, sorting, removal of impurities, garbling, cutting etc. In such a case, grouping several items in one application can perhaps be justified. However, so far as the present proceedings are considered, any product, to be eligible for classification as an animal feed supplement, must satisfy the conditions prescribed for that purpose. The relevant chapter note reads as under: –

Heading 2309 includes products of a kind used in animal feeding, not elsewhere specified or included, obtained by processing vegetable or animal materials to such an extent that they have lost the essential characteristics of the original material, other than vegetable waste, vegetable residues and by-products of such processing. ‘

However, I find nothing in the application before me to suggest that the mandate of the chapter note reproduced above is satisfied by any of the 16 products, the classification of which has been sought in the present advance ruling application. Therefore, it is not sufficient to decide the classification of, say LUTA.CAPLAN 98% 25KG 5H41, which is said to be Calcium D Pantothenate minimum 98% on the basis of the following description of usage,

• ‘It is an animal feed supplement required for protein, carbohydrates and fat metabolism in the body.
• The product is used in animal feed in the form in which it is imported, as food supplements.’

Therefore, there is no doubt in my mind that the applicant needs to reapply separately in respect of each of these 16 products with sufficient details to justify compliance of the conditions laid down in the note to chapter 23 of the tariff in respect of the heading 23.09.

I would also like to mention here that the World Customs Organisation, an independent intergovernmental body whose mission is to enhance the effectiveness and efficiency of customs administrations of which India is also a member, in the clause 7 of its Technical Guidance on Advance Rulings for Classification, Origin and Valuation, says the following: –

An application for advance ruling on classification, origin or valuation shall be made in writing to a competent authority and relate to only one good ‘

In view of the discussions supra, I hold that the present application before me is defective and merits rejection.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI

An application for advance ruling filed by M/s. BASF India Ltd. was received in the secretariat of the erstwhile Authority for Advance Rulings (Central Excise, Customs and Service Tax) on 03.06.2019. Since, no port of impbrt was specified in the said application, the Chairman, Central Board of Excise & Customs appointed the Principal Commissioner of Customs (Import), Air Cargo Complex, New Delhi to discharge the functions entrusted under various provisions of the Chapter VB of the Customs Act, 1962. Comments of the designated commissioner of Customs is on record. However, no ruling was actually issued by  the while AAR and an appointment of the Customs Authority for Advance Rulings under Section 28EA of the Act, the said application has been transferred to the CAAR, Mumbai in terms of the provisions of Section 28F (3) of the Act.

2. On scrutiny of the said transferred application by the Secretary to the CAAR, Mumbai, it appeared that the time limit of three months as provided under the statute was already over when the application was actually received in the secretariat of the CAAR, Mumbai, and therefore, a communication was sent to the applicant to re-submit the application as envisaged under sub-clause (I) of clause (6) of the Customs Authority for Advance Rulings Regulations, 2021. The applicant, vide their communication dated 01.03.2021 (received on 24.03.2021) re-submitted their application. On scrutiny, it appeared that the applicant has left the Entry No. 13 in the format CAAR – I, prescribed in terms of section 28-1(1) of the Act read with regulation 5(2)(c) of the regulations, unfilled, and therefore, it was advised that they rectify the said omission. In reply, the applicant mentioned four entry ports, i.e., Principal Commissioners/Commissioners at Air Cargo Complex (Import), Mumbai; Chennai – III; Kolkata Port; and Nhava Sheva – I of Jawaharlal Nehru port. In the said communication, it was also asserted that the application for advance ruling was filed in June, 2019, and therefore, the original date of filing should be honoured. It was, thereafter, pointed out to the applicant that section 28-(I)(1) of the Act envisages that only one Principal Commissioner or Commissioner would be involved in every application for advance ruling and that the present application has been filed in terms of the regulations of 2021, and therefore, would be considered as a fresh application. The counsels of the applicant, in their response dated 04.05.2021, argued that the statute doesn’t envisage that only one port of import would be mentioned in an application for advance ruling and relied upon the relevant provisions of the General Clauses Act, 1897, which state that words in singular shall include the plural, and vice versa in support of their contention. In the said communication, reliance was placed on section 28F(2) to argue that the present application is not a fresh application and since the earlier application has been transferred, the original date of filing would remain valid.

3. The application was listed for admission on 19.05.2021. Sri T. Viswanathan and others represented the applicant, while the government was represented by Sri M. K. Sarangi, Additional Conunissioner (Import), Air Cargo Complex, Mumbai; and Sri R. P. Borkar, Assistant Commissioner(Import), Air Cargo Complex, Mumbai. The issues that were pertinent for the admission of the application were,

• Whether the original date of filing would still remain valid or the fresh date of application has to be considered,
• Whether it is permissible to mention multiple Principal Commissioners/Commissioners in one application for advance ruling,
• Whether it is permissible to seek advance rulings in respect of multiple products/commodities in one application for advance ruling.

During the admission hearing, it was clarified on behalf of the applicant that they have already imported some of the products for which advance rulings have been sought. On the issue of mentioning multiple ports for import, it was the contention of the applicant that there is nothing in law which prohibits such action. On the issue of seeking advance rulings on multiple products in one application, it was explained that the products are similar and therefore, have been grouped together. Time was sought by the applicant’s counsel to present additional submissions.

4. The additional submissions have been received on 24.05.2021. In the said communication, they have reiterated their earlier arguments w.r.t. the issue of the date of application. They have also submitted case laws in support of their contention they souldn’t suffer the consequences for delay on part of the erstwhile AAR In respect of the issue of mentioning multiple principal commissioners/commissioners of customs, all their earlier arguments including the reference to the General Clauses Act have been reiterated. On the issue of seeking advance rulings on multiple products in one application, it is argued that there is no legal bar in doing so.

5. The scheme of advance rulings in customs was introduced by virtue of section 103 of the Finance Act, 1999. It is contained in the chapter VB of the Customs Act, 1962. Major amendments/deletions/substitutions were carried out to the scheme of advance rulings in the Finance Acts of 2017 and 2018. Prior to such changes, advance rulings were given by the AAR which comprised of a chairperson, who was to be a retired judge of the Supreme Court, an officer of the Indian Customs and Central Excise Service who is qualified to be a member of the Board, and an officer of the Indian Legal Service who is, or is qualified to be, an additional secretary to the government of India. However, by virtue of section 28EA, inserted in the Act w.e.f. 28.03.2018, provision was made for appointment of an officer of the rank of principal commissioner of customs or commissioner of customs as the CAAR to render advance rulings and at the same time the erstwhile AAR was converted into an appellate body. However, during the transition period, the proviso to section 28EA(1) made provision for filing of advance ruling applications with the erstwhile AAR, while making provision of transfer of pending cases to the newly created CAARs under sub-sections (2) and (3) of the section 28F of the Act. In this case the applicant filed an application for advance rulings on 03.06.2019 under the proviso to the sub-­section (1) of section 28EA of the Act. This application has, however, not been disposed of by the erstwhile authority. Thereafter, on the appointment of CAAR, Mumbai and notification of the relevant regulations w.e.f. 04.01.2021, this application has been transferred to CAAR, Mumbai under the provisions of sub-section (3) of section 28F (and not under 28F(2), as contended). The said provision states that, ‘On and from the date of appointment of the Customs Authority for Advance Rulings, every application and proceeding pending before the erstwhile Authority for Advance Rulings shall stand transferred to the Authority from the stage at which such application or proceeding stood as on the date of such appointment.’ In the advance ruling no. CAAR/Mum/ARC/4/2021, dated 27.04.2021, I have taken a view that applications where advance rulings were not given by the erstwhile AAR would be considered as lapsed and an application which had already lapsed at the end of the erstwhile AAR, would remain so at the time of transfer to CAAR. On careful reconsideration, I have reached the conclusion that it is perhaps not desirable to adopt a restrictive interpretation of law. It is true that the applicant was not at fault that their application went unattended. Therefore, they shouldn’t be penalised for no failure on their part. Therefore, the present proceedings would be deemed to be a continuation of the earlier proceedings and not a fresh application, as was initially held. The significance of this line of reasoning would be that the applicant would remain eligible for receiving advance rulings in respect of those products which have been imported after filing the advance ruling application on 03.06.2019. the definition of ‘advance ruling’ as per clause (b) of the section 28E of the Act is that, it is a written decision on any of the questions referred to in section 28H raised by the applicant in his application in respect of any goods prior to its importation or exportation. Therefore, a reasonable interpretation of the definition would lead one to the conclusion that once application for advance ruling has been filed, and there is a delay in rendering a decision, as has happened in this very instance, imports made after filing the advance ruling application would not take away the right of the applicant to receive a ruling.

6. In the application originally filed before the erstwhile AAR in New Delhi, no port of import, i.e., a principal commissioner/commissioner, as referred to in sections 281, 28J, and clause (9) of the CAAR Regulations, 2021 read with section 28KA of the Act was mentioned. Therefore, the Chairman of CBEC (now CBIC) had appointed the Principal Commissioner of Customs (Import), Air Cargo Complex, New Delhi to.discharge the functions entrusted under various provisions of the Chapter VB of the Customs Act, 1962. After the deficiency memo raised  by the Secretary to the CAAR, Mumbai, the applicant has mentioned four such principal/Commissioners. It is the contention of the applicant that law doesn’t prohibit such an action. Sub-section (1) of section 281 of the Act states that,

‘On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the Principal Commissioner of Customs or Commissioner of Customs and, if necessary, call upon him to furnish the relevant records:

Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the Principal Commissioner of Customs or Commissioner of Customs. ‘

Further, clause (c) to the sub-section (1) of section 28J of the Act lays down that an advance ruling pronounced under section 28-I would be binding, among others, on the Principal Commissioner of Customs or Commissioner of Customs, and the customs authorities subordinate to him, in respect of the applicant.

Further, section 28KA read with regulation 9 mandates that the Principal Commissioner or the Commissioner is authorised to file an appeal against an advance ruling.

The import of reading all the legal provisions cited above together leads one to the inescapable conclusion that the scheme of advance rulings in customs, as contained in the Chapter VB of the Act, envisages that an applicant would indicate only one port/point of entry for their proposed activity. The use of the definite article ‘the’ in all these legal provisions also point to the intention of the legislature to define a specific individual and not indulge in a generic description where a singular can be read as plural and vice versa. The statutory mandate to give a ruling within 3 months of filing an application would also be difficult to comply with if applicants cite multiple ports/points of import/export as corresponding with multiple principal commissioners/commissioners and conveying their comments to the applicant and take into account the rebuttals/rejoinders of the applicant would be time consuming and would make it difficult to render advance rulings within the time prescribed in the statute. In my view, applicants should avoid such tactics which would only result in delay. I understand that such a strategy is adopted specifically because of the wordings of section 28J of the Act, as is evident from the submissions of the applicant. I feel that such an apprehension is unfounded. The settled position of law, as it stands now, flows from the decision of the Hon’ble High Court of Madras in the case of M./s. ISHA EXIM reported at 2018 (13) G.S.T.L. 273.

7. In the present application before me, advance ruling has been sought in respect of 16 items grouped under 4 categories, i.e., vitamins, carotenoids, organic acids, clay products/Glycinates/Omega-6’s(CLA). It is the applicant’s contention that these are animal feed supplements. The basic issue for determination is whether the 16 items grouped under 4 categories would merit classification under heading 23.09 of the tariff as animal feed supplements or they are required to be classified separately, e.g., vitamins under heading 29.36, carotenoids under 32.04, organic acids under 29.15 etc. Relevant portions of the section 28H of the Act reads as under: –

SECTION 28H Application for advance ruling. – (1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner as may be prescribed, stating the question on which the advance ruling is sought.

(2) The question on which the advance ruling is sought shall be in respect of ­

(a) classification of goods under the Customs Tartff Act, 1975 (51 of 1975);

(b) applicability of a notification issued under sub-section (1) of section 25, having a bearing on the rate of duty;

(c) the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act.

(d) applicability of notifications issued in respect of tax or duties under this Act or the Customs Tariff Act, 1975 or any tax or duty chargeable under any other law for the time being in force in the same manner as duty of customs leviable under this Act or the Customs Tariff Act;]

(e) determination of origin of the goods in terms of the rules notified under the Customs Tariff Act, 1975 (51 of 1975) and matters relating thereto.]

(f) any other matter as the Central Government may, by notification, specify.’

It is the applicant’s contention that there is nothing in the law which prohibits them from seeking advance rulings in respect of as many products as they may choose. They also seek to derive strength from the provisions of the General Clauses Act for this proposition. In my considered opinion, such an assertion flies in the face of logic and common sense. The scheme of advance ruling in customs envisages that an applicant can receive certainty in respect of their entry/exit tax liability prior to importation or exportation. The issues on which advance rulings can be sought have been outlined in the statute. A time limit of three months is prescribed for rendering an advance ruling. The process also includes consultation with the jurisdictional customs authorities and adherence to the principles of natural justice. In such a scenario, if advance rulings in respect of multiple goods/items/products are sought in one application, then it would be well nigh impossible to render a ruling within the time prescribed in the statute. I can appreciate that there would be instances where the items/products etc. are so similar that they can be combined in a single application. For example, I had the occasion to deal with the issue of classification of API supari, boiled supari, chikni supari, unflavoured supari and flavoured supari in one application. In respect of all the above, the starting raw material is raw areca nut/betel nut, which then undergoes the processes of cleaning, sorting, removal of impurities, garbling, cutting etc. In such a case, grouping several items in one application can perhaps be justified. However, so far as the present proceedings are considered, any product, to be eligible for classification as an animal feed supplement, must satisfy the conditions prescribed for that purpose. The relevant chapter note reads as under: –

Heading 2309 includes products of a kind used in animal feeding, not elsewhere specified or included, obtained by processing vegetable or animal materials to such an extent that they have lost the essential characteristics of the original material, other than vegetable waste, vegetable residues and by-products of such processing. ‘

However, I find nothing in the application before me to suggest that the mandate of the chapter note reproduced above is satisfied by any of the 16 products, the classification of which has been sought in the present advance ruling application. Therefore, it is not sufficient to decide the classification of, say LUTA.CAPLAN 98% 25KG 5H41, which is said to be Calcium D Pantothenate minimum 98% on the basis of the following description of usage,

• ‘It is an animal feed supplement required for protein, carbohydrates and fat metabolism in the body.
• The product is used in animal feed in the form in which it is imported, as food supplements.’

Therefore, there is no doubt in my mind that the applicant needs to reapply separately in respect of each of these 16 products with sufficient details to justify compliance of the conditions laid down in the note to chapter 23 of the tariff in respect of the heading 23.09.

8. I would also like to mention here that the World Customs Organisation, an independent intergovernmental body whose mission is to enhance the effectiveness and efficiency of customs administrations of which India is also a member, in the clause 7 of its Technical Guidance on Advance Rulings for Classification, Origin and Valuation, says the following: –

An application for advance ruling on classification, origin or valuation shall be made in writing to a competent authority and relate to only one good ‘

In view of the discussions supra, I hold that the present application before me is defective and merits rejection. The applicant can, however, file fresh applications for advance ruling for any of these products in accordance with law.