Case Law Details

Case Name : In re Vaibhav Enterprises (CAAR Delhi)
Appeal Number : Advance Ruling No. CAAR/Del/Vaibhav/21/2021
Date of Judgement/Order : 21/10/2021
Related Assessment Year :

In re Vaibhav Enterprises (CAAR Delhi)

To answer the posed question, I consider the five goods, namely API supari, Chikni supari, unflavored supari, boiled supari and boiled & cut supari together. In these cases, one set of processes are found to be intended for cleaning; the second set for enhancing preservation; and third set for enhancing appearance or presentation, in addition to cutting. Addition of starch would be included under such process. I find that these processes are clearly covered by the Chapter Note 3 to Chapter 8 as well as the HSN. I find that in the instant case, betel nuts after being boiled are dried; and this fact per se would not exclude the end-products from the scope of “dried nuts”. Further, it is equally obvious to me that boiling or mere addition of certain additives for the limited purpose of enhancing preservation or appearance or ease of consumption per se does not result in obtaining a preparation of betel nut. Speaking more generally, in view of the design of the Schedule to the CTA, HSN and plethora of judgements, besides common understanding and parlance, every irreversible process does not result in obtaining a new product with a distinct classification even at the eight or ten-digit level; and every irreversible process does not result in coming into being of a “preparation of the raw material”. Therefore, 1 conclude that the processes to which raw betel nuts have been subjected to obtain API supari, Chikni supari, unflavored supari, boiled supari and boiled & cut supari are squarely in the nature of processes referred to in the Chapter Note 3 to Chapter 8 and HSN Note. Therefore, at the end of the said processes, the betel nuts retain the character of betel nut and do not qualify to be considered as “preparations” of betel nut, which is sine qua non for a good to be classifiable under Chapter 21.

In the case of flavored supari, the question to be answered is whether the addition of special flavoring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21. In this regard, the judgment of the Hon ‘ble Supreme Court of India in the case of M/s Crane Betel Nut Powder Works and of the CESTAT, Chennai in the case of M/s Azam Laminators Pvt. Ltd. [where scented betel nut was being manufactured by cracking of dried betel nut into small pieces, and thereafter, gently heating it with addition of vanaspati oil, sweetening and flavoring agents and marketed in small pouches as Nizam Pakku (in Tamil)/Betel Nut (in English), the Hon’ble CESTAT held the resultant product classifiable under sub-heading 08029019 of Central Excise Tariff and not under 21069030 as supari for period after 07.07.2009] are relevant. Put simply, these decisions clearly imply that addition of flavoring agents do not change the character of the good, meaning in the present case betel nut would continue to remain betel nut and not become preparation of betel nut.

CAAR Held that that all the six goods placed before me for consideration, i.e., API supari, Chikni supari, boiled supari, boiled & cut supari, unflavored supari, and flavored supari, merit classification under Chapter 8 of the First Schedule to the Customs Tariff Act, and more precisely, under the heading 0802. This is so in view of the fact that the processes to which raw green fresh betel nuts have been subjected to obtain the said six goods are squarely in the nature of processes mentioned in Note 3 to Chapter 8, and have not materially changed the essential character of betel nuts, as held by the Hon’ble Supreme Court in the M/s Crane Betel Nuts case. Further, the said six goods are not classifiable under sub-heading 2106 9030, as contended by the applicant, since they have not attained the character of “preparations” of betel nut, which is sine qua non for a good to be so considered.

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

1. M/s Vaibhav Enterprises, a resident proprietorship firm having IEC No. 0515063908, PAN AAYPU3493R and GSTIN No. 07AAYPU3493R1Z7 (M/s Vaibhav, in short), has filed an application dated 29.07.2021 seeking advance ruling under section 28-H of the Customs Act, 1962 before the Customs Authority for Advance Rulings, New Delhi (CAAR, New Delhi in short). On scrutiny of the application, it was found to be in order as per CAAR Regulations, 2021 and the application was accordingly registered under serial No. 13/2021-Delhi dated 29.07.2021.

2. On registration of the application, the concerned Principal Commissioners/Commissioner of Customs were requested vide letter dated 13.08.2021 to furnish their comments in the matter. However, despite a subsequent reminder dated 13.09.2021, including intimation regarding personal hearing on 22.09.2021, no comments or communication have been received from the concerned Principal Commissioners /Commissioner. The applicant, Shri Vaibhav Uppal, proprietor attended the personal hearing on the said date. In his submission, Shri Uppal described the products in question, referred to the earlier rulings of the erstwhile AAR and claimed that import of these products was being allowed under Chapter 21 at some Customs formations in respect of atleast few importers. The Authority explained the legal framework of advance rulings including scope of Section 28J of the Customs Act, and cited reference to his own rulings on the same question of classification of betel nut products, wherein it has been ruled that the same are classifiable under Chapter 8, even as the preferability of consistency in classification was recognized.

3. The applicant, vide the aforesaid application, has sought ruling by CAAR, New Delhi on the question of classification of six items, the details of which are summarized as under:

(i) ‘API Supari’: Following processes are conducted on raw green fresh betel nut: removing of large impurities by labour, boiling in water for 6 hours, mixing food starch, drying, polishing and packaging.

(ii) ‘Supari’: Following processes are conducted on raw green fresh betel nut. Removing of large impurities by labour, slicing in small pieces, boiling in water for 6 hours, mixing food starch, drying, polishing and packaging.

(iii) ‘Unflavored Supari’: Following processes are conducted on raw dried betel nut: removing of large impurities by labour, removing of small impurities by de-stoner, metal deflection (removal of metal item, if any), garbling, polishing in polishing machine, 3 stage cutting, blowing of weightless particles by blower, gravity separation by automatic gravity separation machine, roasting in fire gas rotary roaster, metal detection by magnetic metal detectors and packaging.

(iv) ‘Flavored Supari’: Following processes are conducted on raw dried betel nut. Removing of large impurities by labor, removing of small impurities by de-stoner, metal deflection (removal of metal item, if any), garbling in automatic garblers, polishing in polishing machine, sterilization to remove bacterial count, splitting (half) and/or 3 stage cutting, blowing of weightless particles in blowers, gravity separation by automatic gravity separation machine, roasting in fire gas rotary roaster, flavoring in large size automatic blenders with compound of different variety such as spices, methanol, copra, cardamom and/or mulethi etc. in liquid format, metal deflection by Magnetic Metal Deflectors, sterilizing to kill bacteria count increased due to handling in processing and packaging.

(v) ‘Boiled Supari’: Following processes are conducted on raw green fresh betel nut: removing of large impurities by labor, boiling in water for 4 hours, removing the husk, boiling again for 2 hours, drying by hot air, sterilizing, shorting, polishing and packaging.

(vi) ‘Boiled & Cut Supari’: Following processed are conducted on raw green fresh betel nut. Removing of large impurities by labor, boiling in water for 4 hours, removing the husk, boiling again for 2 hours, drying by hot air, 3 stages cutting thereafter sterilizing, shorting, polishing and packaging.

The applicant submitted that the main raw material for manufacturing of aforesaid six items is Betel Nut, which falls under Chapter 8, specifically heading 08029000; it undergoes material changes after processing addition/ mixing of ingredients and become edible preparations approximately classifiable under heading 2106 90 30. The applicant has also referred to the Supplementary Note 2 of Chapter 21 (Miscellaneous edible preparations) to justify that these products are classifiable under the Sub-heading 2106 90 30. As per the said Supplementary Note:

2: “In this chapter “Betel Nut product known as Supari” means any preparation containing betel nuts but not containing any one or more of the following ingredients, namely lime, katha (catechu) and tobacco whether or not containing any other ingredients such as cardamom, copra or menthol.”

Thus, according to the applicant, the final products to be imported being processed betel nut product, not containing lime, katha or tobacco, by virtue of aforesaid chapter note are specifically classifiable under Chapter 21.

5. After mentioning above details and processes involved in making of various types of Supari, the question on which advance ruling has been sought is,

“The goods sought to be imported namely ‘API Supari’, ‘Chikni Supari’, ‘Flavored Supari’, ‘Unflavored Supari’, ‘Boiled Supari’ and ‘Boiled & Cut Supari’ being processed Betel Nut products which do not contain lime, katha and tobacco but containing other flavoring materials/additives such as food starch, spices, mulethi , flavors, essence (food grade) etc. are classifiable under the CTH 2106 90 30 of the First Schedule to the Customs Tariff Act, 1975.”

6. In support of his contention, the applicant also relied on the following rulings of the erstwhile Authority for Advance Rulings (AAR):

(i) Ruling dated 07/08/2015 in the matter of M/s Excellent Betel Nut Products Pvt. Ltd. Nagpur;

(ii) Ruling dated 31/03/2017 in the matter of M/s Isha Exim, Mumbai; and

(iii) Ruling dated 31/03/2017 in the matter of M/s Oliya Steel Private Limited, Kolkata.

7. I find that the concerned Principal Commissioner/Commissioner of Customs have not submitted their comments on this specific advance ruling application, despite being requested to. However, the detailed opinion of the concerned Principal Commissioner of Customs, NS-I and ICD, Tughlakabad on the similar subject of classification of the goods covered by the instant application are available with this Authority. In view of the same, finding that the application is valid in terms of the provisions of the Customs Act and the CAAR Regulations, 2021, having heard the applicant, and recognizing the importance of timely pronouncement of rulings, I proceed to examine the question on merits.

8. The applicant has explained the processes involved in making six different products, as stated in para 3 above. The applicant has contended that from the processes mentioned above, it is clear that though the end-products use betel nut/ areca nut as the main raw material, in the process various other products are mixed and therefore, the products become a preparation. Hence these goods fall under the Chapter 21 and more particularly in CTH 21069030; and not under Chapter 8. The applicant has also referred to the Supplementary Note 2 of Chapter 21 to justify that these products are classifiable under the Sub-heading 2106 90 30. As per the said Supplementary Note 2: “In this chapter “Betel Nut product known as Supari” means any preparation containing betel nuts but not containing any one or more of the following ingredients, namely lime, katha (catechu) and tobacco whether or not containing any other ingredients such as cardamom, copra or menthol.” They have also placed significant reliance on the above cited ruling of the erstwhile AAR, New Delhi in the case of M/s Excellent Betelnut Products Pvt. Ltd, M/s Oliya Steel Private Limited, Kolkata and M/s Isha Exim. I will revert to these rulings, as also rulings of CAAR, Mumbai and my own rulings on the same question of classification later in this ruling.

9. On the basis of the submissions of the applicant, along with the cited reference to the ruling of the erstwhile AAR, there are two contending entries in the CTH for the aforesaid six goods, viz. sub-heading 2106 90 30 and sub-heading 0802 80 90. Therefore, it would be useful to carefully consider the two competing tariff entries and the guidance relating thereto.

9.1 Chapter 8, which covers Edible fruit and nuts: peel of citrus fruit or melons includes, inter alia, the following Note 3:

‘3. Dried fruits or dried nuts of  Chapter may be partially rehydrated, or treated for the . following purposes:

a. For additional preservation or stabilization (for example, by moderate heat treatment, sulphuring, the addition of sorbic acid or potassium surbate);

b. To improve or maintain their appearance (for example, by the addition of vegetable oil or small quantities of glucose syrup), provided that they retain the character of dried fruit or dried nuts.’

In the Chapter 8, areca nuts, whole, split, ground, and two residuary sub-headings are accommodated under 0802 8010, 20, 30, 90, and 0802 9000, respectively.

9.2 On the other hand, Chapter 21 covers miscellaneous edible preparations. The relevant Supplementary Note 2 to the said Chapter lays down that,

In this Chapter “betel nut product known as Supari” means any preparation containing betel nuts, but not containing any one or more of the following ingredients, namely: lime, katha (catechu) and tobacco whether or not containing any other ingredients, such as cardamom, copra, menthol.’

In this Chapter, the related entry, with respect to betel nuts, is the sub-heading 2106 9030, i.e., betel nut products known as supari.

10. Further, since the question relates to classification of goods proposed to be imported, guidance of the Harmonized Commodity Description and Coding System of the World Customs Organization, to which India is a signatory, would be useful. It is seen that with respect to Chapter 8, the HSN prescribes the following as general guidelines:

‘Fruit and nuts of this Chapter may be whole, sliced, chopped, shredded, stoned, pulped, grated, peeled or shelled.

The addition of small quantities of sugar does not affect the classification °limit in this Chapter.’

11. On perusal of the advance rulings given by the erstwhile AAR, New Delhi, which have been referred to by the applicant, I find that case of M/s Excellent Betelnut Products Pvt. Ltd. do cover the four goods, i.e., API supari, Chikni supari, Unflavored supari and Flavored supari, involved in the present proceedings; and in both these rulings, the erstwhile AAR has concluded that the said products merit classification under sub-heading 21069030. I find that in reaching this conclusion, AAR has been of the view that on account of the positive language of the Supplementary Note 2 to Chapter 21, it is not necessary for betel nut (supari) to undergo a change of character for it to be classified under Chapter 21. I also find that the AAR had considered the contention of the department that the said four goods merit classification under Chapter 8, but rejected the same.

However, while doing so, the erstwhile AAR did not make any comment on the implications of the Chapter Note 3 to Chapter 8 on the processes that raw betel nuts were subjected to obtain the said four goods. Further, AAR was of the opinion that the decision of the Hon’ble Supreme Court in the case of M/s. Crane Betel Nut Powder Works reported at 2007 (210) E.L.T. 171 (S.C.) has no application in the facts of the cases before them. It is my considered opinion that in order to arrive at the appropriate classification of the said four goods, all originating from common source viz. raw green fresh betel nut, a more comprehensive view needs to be taken than in the aforesaid M/s Excellent Betelnut case, as has been done by CAAR, Mumbai in the case of M/s. Samreen International Pvt. Ltd. (Ruling No. CAAR/Mum/ARC/3/2021 dated 15th of March, 2021) and this Authority in the case of M/s Dry Nut Enterprises (Ruling No. CAAR/Del/Dry Nut/01/2021 dated 16th March, 2021).

12. In view of the above, I now summarize the contending positions on the question posed for advance ruling. Advance ruling has been sought on classification of six different goods, each known as “supari” in common trade parlance, albeit with differentiator, viz. API, Chikni, unflavored, flavored, boiled and boiled & cut. The basic raw material for each of the six goods is raw betel nut, which is classifiable under Chapter 8, more specifically sub-heading 080280. I also note that Chapter 8 covers only edible nuts; inedible nuts and fruits being excluded by virtue of Chapter Note I; and that betel nut/supari are masticatory. However, these items have been subjected to certain processes and added with certain materials, resulting in the question being posed whether the said processes and mixing/addition of certain materials are substantive enough to lead to the said six goods be considered as “preparation of betel nut” that would make them classifiable under Chapter 21 by virtue of Supplementary note 2 of Chapter 21. It is the contention of the applicant that due to the processes that the raw betel nuts have been subjected to, the goods have become preparations of betel nuts. Alternatively, whether the processes carried out on the same for cleaning, cutting, preserving and making them more attractive to certain tastes/ preferences are too minor to fall short of rendering them as preparations of betel nuts. Further, it would be inadvisable and inappropriate to approach the issue of classification of the said six goods solely with the prism of the positive nature of Supplementary Note 2 to Chapter 21.

13. Before I proceed to answer the question on which advance ruling has been sought, I wish to clarify that on careful consideration of the legal construct and specific provisions of section 28-J (1) of the Customs Act, 1962, I am of the view that the task before me as the Customs Authority for Advance Rulings cannot be to pass rulings on questions of classification of goods simply based on the previous ruling of AAR, even as I readily acknowledge the persuasive value of the same. However, in arriving at this ruling, I also rely on other judgments and ruling of Customs Authority for Advance Rulings, Mumbai in M/s Samreen International Pvt. Ltd, Chennai and my own ruling in the case of M/s Dry Nut Enterprises.

14. To answer the posed question, I consider the five goods, namely API supari, Chikni supari, unflavored supari, boiled supari and boiled & cut supari together. In these cases, one set of processes are found to be intended for cleaning; the second set for enhancing preservation; and third set for enhancing appearance or presentation, in addition to cutting. Addition of starch would be included under such process. I find that these processes are clearly covered by the Chapter Note 3 to Chapter 8 as well as the HSN. I find that in the instant case, betel nuts after being boiled are dried; and this fact per se would not exclude the end-products from the scope of “dried nuts”. Further, it is equally obvious to me that boiling or mere addition of certain additives for the limited purpose of enhancing preservation or appearance or ease of consumption per se does not result in obtaining a preparation of betel nut. Speaking more generally, in view of the design of the Schedule to the CTA, HSN and plethora of judgements, besides common understanding and parlance, every irreversible process does not result in obtaining a new product with a distinct classification even at the eight or ten-digit level; and every irreversible process does not result in coming into being of a “preparation of the raw material”. Therefore, 1 conclude that the processes to which raw betel nuts have been subjected to obtain API supari, Chikni supari, unflavored supari, boiled supari and boiled & cut supari are squarely in the nature of processes referred to in the Chapter Note 3 to Chapter 8 and HSN Note. Therefore, at the end of the said processes, the betel nuts retain the character of betel nut and do not qualify to be considered as “preparations” of betel nut, which is sine qua non for a good to be classifiable under Chapter 21.

15. In the case of flavored supari, the question to be answered is whether the addition of special flavoring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21. In this regard, the judgment of the Hon ‘ble Supreme Court of India in the case of M/s Crane Betel Nut Powder Works and of the CESTAT, Chennai in the case of M/s Azam Laminators Pvt. Ltd. [where scented betel nut was being manufactured by cracking of dried betel nut into small pieces, and thereafter, gently heating it with addition of vanaspati oil, sweetening and flavoring agents and marketed in small pouches as Nizam Pakku (in Tamil)/Betel Nut (in English), the Hon’ble CESTAT held the resultant product classifiable under sub-heading 08029019 of Central Excise Tariff and not under 21069030 as supari for period after 07.07.2009] are relevant. Put simply, these decisions clearly imply that addition of flavoring agents do not change the character of the good, meaning in the present case betel nut would continue to remain betel nut and not become preparation of betel nut.

16. In view of the aforesaid discussions, I have reached the conclusion that all the six goods placed before me for consideration, i.e., API supari, Chikni supari, boiled supari, boiled & cut supari, unflavored supari, and flavored supari, merit classification under Chapter 8 of the First Schedule to the Customs Tariff Act, and more precisely, under the heading 0802. This is so in view of the fact that the processes to which raw green fresh betel nuts have been subjected to obtain the said six goods are squarely in the nature of processes mentioned in Note 3 to Chapter 8, and have not materially changed the essential character of betel nuts, as held by the Hon’ble Supreme Court in the M/s Crane Betel Nuts case. Further, the said six goods are not classifiable under sub-heading 2106 9030, as contended by the applicant, since they have not attained the character of “preparations” of betel nut, which is sine qua non for a good to be so considered.

17. I rule accordingly.

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