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Case Law Details

Case Name : In re UBS Exports International Pvt. Ltd. (CAAR Mumbai)
Appeal Number : Ruling No. CAAR/Del/UBS Exports/23/2021
Date of Judgement/Order : 20/12/2021
Related Assessment Year :
Courts : CAAR

In re UBS Exports International Pvt. Ltd. (CAAR Mumbai)

Advance ruling has been sought on classification of four different goods, each known as ‘supari in common trade parlance, albeit with differentiator, viz. API, Chikni, Unflavoured and Flavoured. The basic raw material for each of the four 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 1; and that betel nut/supari are masticatory.

CAAR Hekd that that the four betel nut products, viz. Unfavoured supari, API supari, Chikni supari and Flavoured supari, continue to retain their original character of dried nuts, albeit in different degree of modification, not substantive enough to be considered as “preparations of betel nuts”. They, therefore, are rightly classifiable under Chapter 08, more specifically sub-heading 0802 80, and not in Chapter 21, more specifically sub-heading 2106 90 30.

FULL TEXT OF ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, DELHI

M/s UBS Exports international Pvt. Ltd., Kolkata, a private limited company having IEC No.0207021066, PAN AAACL19385K and GSTIN No. 19A0QPP8070B1ZK (applicant  has filed an application dated 15.09.2017 seeking advance ruling central Excise, Customs & Service Tax). New Delhi (AAR, in short). The said application was under section 28-H of the Customs Act, 1962 before the Authority for Advance Ruling as received in the 0/o of AAR on 20.09.2017.

2. The said application was being processed in terms of section 28-I ibid by the O/o AAR. In the meanwhile, consequent upon the appointment of Customs Authority for Advance Rulings CAAR, in short) in New Delhi and Mumbai with effect from 04.01.2021, the said application was transferred to CHAR, New Delhi in terms of section 28-F (3) ibid and regulation 31 of CAAR Regulations,

3. On perusal thereof, and in view of the time limit of three months for pronouncing its advance rulings from the date of receipt of this application prescribed under section 28-I (6) ibid, it was held that the aforesaid application received in the O/o AAR, New Delhi on 20.09.2017 had become time barred for this

4. However, on constructive interpretation of the powers vested with this Authority, vide letter dated 17.06.2021 and 03.09.2021, the applicant was advised to intimate whether they continued to be interested in obtaining ruling of this Authority, and if so either resubmit their application in the Form CAAR-I appended to Customs Authority for Advance Rulings Regulations, 2021, or simply affirm that the declarations made in the earlier application remain valid and unchanged, at the earliest to this Authority. It was also informed that the date of receipt of such resubmitted application or affirmation, as the case may be, shall be taken as the date of receipt of their application under regulation 8(4); and no separate payment of the prescribed fee under regulation 6 (6) of CAAR Regulations, 2021 is required to be made.

5. The applicant vide letter dated 09.09.2021 affirmed that declarations made by them in their earlier application dated 15.09.2017 remain valid and unchanged for consideration of the application, and requested to arrange for consideration of the subject application at an early date for the ends of justice. Therefore, the application was taken up for expeditious decision, scheduling personal hearing on 13.10.2021, which went unattended. Subsequently, personal hearing on merits of the cases were held on 02.11.2021 and 18.11.2021, which are discussed later in this order.

6.1 As per annexure to the application, the applicant intends to import API Supari, Chilcni Supari, Flavoured Supari and Unflavoured Supari; and has sought ruling on classification of the said goods, contending that the same are classifiable under sub-heading 2106 90 30. The process of preparation involved in the manufacture of the said goods have been given as under:

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

(ii) ‘Chikni Supari’: Following processes are conducted on raw green and fresh betel nut:
removing of large impurities by labourers, slicing in small pieces as required in machine, boiling in water for 6-8 hours, mixing with food starch after boiling and then drying fully, polishing and packing.

(iii) ‘Unflavoured Supari’: Following processes are conducted on raw dried betel nut: removing of large impurities by labourers from raw semi-dried betel nuts, removing of small impurities by de-stoner. metal detection followed by garbling in automatic garblers, polishing in polishing machine, sterilization to remove bacterial count, 3 stage cutting, blowing of weightless particulars by blower machine, gravity separation by automatic gravity separation machine, roasting in fire gas rotary roaster or oven to minimize moisture content for longevity of the product and then packaging.

(iv) ‘Flavoured Supari’: Following processes are conducted on raw dried betel nut: removing of large impurities by labourers, removing of small impurities by de-stoner, metal detection followed by garbling in automatic garblers, polishing in polishing machine, sterilization to remove bacterial count, 3 stage cutting, blowing of weightless particulars by blower machine, gravity separation by automatic gravity separation machine, roasting in fire gas rotary roaster or oven to minimize moisture content. Thereafter, the so cut betel nuts are flavoured in automatic blending machine with flavouring compound of different variety such as spices, menthol, copra, cardamom and/or mulethi etc. in liquid format. After blending with flavours the processed betel nuts are ready to pack.

6.2 It is further stated that the main raw material for manufacturing the said four items is betel nut/supari covered under sub-heading 0802 9000, which undergoes material change after processing addition/mixing of ingredients and become edible preparation classifiable under sub-heading 2106 9030; referred to the Supplementary Note 2 of Chapter 21 which states, ‘(i)n 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’ and gave a justification that these products are classifiable under Chapter 21 as the final products to be imported are processed betel nut not containing lime, katha, tobacco. In support of their contention, applicant has also cited reference to ruling of the erstwhile Authority for Advance Rulings (AAR), New Delhi in the case of M/s Excellent Betelnut Products Pvt. Ltd.

6.3 In the light of the above, the question on which advance ruling has been sought is,

“The goods sought to be imported namely ‘API Supari’, Chikni Supari’ `Flavoured Supari’ and ‘Unflavoured Supari’ being processed betel nut products which do not contain specified ingredients namely lime, katha and tobacco but containing other flavouring materials/additives such as food starch, spices, mulethi, flavours, essence (food grade) etc. are classifiable under Customs Tariff heading 2106 90 30 of the First Schedule to the Customs Tariff Act, 1975″.

7.1 In the original application, the applicant had declared Commissioner of Customs, JNCH as the concerned Commissioner. Thereafter, the applicant obtained leave of the AAR vide order dated 05.01.2018 to amend column 17 of the application to add Commissioner of Customs (Preventive), Kolkata also as the concerned Commissioner of Customs.

7.2 The concerned Principal Commissioner of Customs (NS-I), JNCH vide his letter dated 24.09.2021 has referred, inter alia, to Ruling No. CAAR/Mum/ARC/1/2020 dated 15.03.2021 in the case of M/s Samreen International, Chennai (ruling that betel nut products are classifiable under Chapter 8); and reproduced his earlier comments in response to the Ruling of the erstwhile AAR in the case of M/s Excellent Betelnut Products that “pure betelnuts or supari which have not undergone changes, to merit being called as a product of supari, would remain to be classified under Chapter 8; that there does not appear to be any change in the nature of the end product, undertaken and therefore, it does not merit classification under CTH 21069020”. Further, he has placed reliance on the judgement of the Hon’ble Supreme Court in the case of M/s Crane Betelnut Powder Works and also referred to a recent judgement of CESTAT, Chennai in the case of M/s S.T. Enterprises, wherein the Hon’ble Tribunal has concluded that since the imported goods are whole boiled nuts, they would merit classification under Chapter 8.

7.3 In this regard, I note that earlier comments of Commissioner of Customs (NS-1), JNCH had been received vide letter dated 22.03.2018, wherein, inter alia, it had been stated that it is clear from the reading of chapter 8 and chapter 21 that pure betel nuts or “supari” which have not undergone changes to merit being called as a product of supari would remain under chapter 8; however, if it undergoes processes which render it to be known as a product of betel nut and it fulfills requirement of CTH 2106, then alone it will go there; unless the product is actually seen at the time of import, i.e. to ingredients, nature of packing and process of manufacture is clearly known it would be difficult to decide in advance; duration of boiling is a proposition which cannot be ascertained and is a misnomer; and finally, one blanket classification cannot be determined for such a product. In view of the revised comments of the concerned Principal Commissioner of Customs (NS-1) dated 24.09.2021, I take those as the views of the concerned Principal Commissioner and refrain from the temptation to put forward the obvious errors in the arguments made vide the letter dated 22.03.2018.

7.4 The other concerned Commissioner of Customs (Preventive), West Bengal, Kolka vide his office letter dated 04.09.2021 has re-affirmed the comments sent earlier vide their office letter dated /2.03.2018, wherein the concerned Commissioner had stated, inter-alia, that in the light of the Supplementary Note 2 of Chapter 21 (Miscellaneous edible preparations) of the First Schedule to the Customs Tariff Act, 1975 and the Advance Ruling already pronounced for the identical goods it can be concluded that the four types of supari, viz. API, Chikni, Flavoured and Unflavoured, proposed to be imported, being betel nut products which do not contain specified ingredients, viz. lime, katha and tobacco but containing other flavouring materials/additives such as food, starch, spices, mulethi, flavours, essence (food grade) may be classified under chapter heading 21069030.

8.1 In accordance with the procedure prescribed under the CAAR Regulations, 2021, personal hearings were conducted on 26.10.2021, 02.11.2021 and finally 18.11.2021. In the first PH, the proxy counsel for the applicant requested for scheduling the hearing on 02.11.2021 to enable their main Counsel to attend the personal hearing. During the personal hearing held on 02.11.2021, the Advocate explained that advance ruling has been sought on the issue of classification of four betel nut items. He contended that these goods are classifiable under heading 2106, and cited reference to the rulings earlier issued by the erstwhile Authority for Advance Rulings in the matter of M/s Excellent Betelnut and M/s Oliya Steel. While referring to comments of the concerned Commissioner of Customs (Preventive), Kolkata and Commissioner of Customs, Nhava Sheva, Shri Chakrabarti stated that both the Commissioners had not specifically commented that classification of the goods would not be under heading 2106. He further stated that in light of the question of law and statement of facts, rulings be issued on the application of M/s UBS Exports International Pvt. Ltd. The Authority then apprised the learned counsel regarding the developments since their filing of application before the erstwhile AAR and also apprised him of the rulings issued on the similar classification matters by CAAR, New Delhi and CAAR, Mumbai. On being informed that the learned advocate had not had the occasion to peruse the same, the Authority informed the learned advocate that all such rulings are available in public domain on the departmental website, www.cbic.gov.in. The Authority then asked the learned counsel if they wish to go through these rulings by CAAR and make further submissions, in this regard.

8.2 The learned counsel indicated his willingness to do so and requested for another date of personal hearing. Shri Chakrabarti was informed that next hearing would take place on 18.11.2021 at 12.00 P.M. During the personal hearing in the virtual mode held on 18.11.2021, the learned Advocate referred to the rulings issued on the similar classification matters by CAAR, New Delhi and Mumbai such as in the applications filed by M/s Morchhadi, M/s Drynut etc. He, however, submitted that reasons for not following the ruling given by erstwhile Authority for Advance Rulings in the application of M/s Excellent Betelnut have not been elaborated; since the ruling in the case of m/s Excellent Betelnut had been issued by a larger bench, it is not within the powers of CAAR to declare it per ineuriam and set it aside. The Authority explained to the clarified that earlier learned Advocate: (i) the statutory provisions applicable to CAAR; (ii) rulings issued by AAR have not been set aside; (iii) however, CAAR is not bound by the rulings pronounced by the erstwhile AAR, even as he acknowledged that they do have persuasive value; and (iv) in his rulings, detailed reasons for disagreement, including reliance on Supreme Court decision in M/s Crane Betelnut have been explicitly mentioned. The learned Advocate also requested that the question of classification of betelnut items be referred to some technical experts. since the question is essentially technical in nature. In this regard, the Authority explained that the question before the Authority is to decide the classification of these items under the First Schedule to the Customs Tariff Act, a task which as officer of Indian Revenue Service (Indirect Taxes and Customs), he is adequately qualified for, albeit assisted by the technical literature submitted by the applicants. Another suggestion put forward by the learned Advocate was to refer the matter to a larger bench. The Authority explained that Chapter V-B of the Customs Act relating to Advance Rulings does not envisage constitution of a larger bench, even as he noted that he has gone through the rulings pronounced by CAAR, Mumbai on the question of classification of betel nut items and found them to be consistent with his own rulings. The learned Advocate further mentioned that the judgement in the case of M/s S.T. Enterprises cited in one of the earlier rulings of this Authority refers to ‘Whole Betelnut’ which are not the goods in their application, to which the Authority readily agreed. The learned advocate concluded his submissions with a request for ruling in the matter.

8.3 Before proceeding further I wish to clarify/reiterate that the question posed for advance ruling before me relate to classification of betel nut products under the Customs Tariff Act; the technical specifications of the products are not in dispute, even as whether they fall within the ambit of “preparations of betel nuts” remains germane; the ruling to be pronounced would be private advance ruling that would not set aside the ruling of the erstwhile AAR in three different cases, and be legally applicable to only the applicant and the designated customs Commissioner; the option of referring it to larger bench of CAAR is not available; the requirement for seeking opinion of the technical experts is not warranted since CAAR is prima facie a body technically competent to decide the question posed before it.

9.1 Therefore, I proceed with the examination of the question posed before me on merits, noting that on the basis of the submissions of the applicant, along with the cited reference to the ruling of the erstwhile AAR, and contention of the department, along with reliance on the cited case laws, there are two contending entries in the Customs Tariff for the aforesaid four goods, viz. API Supari, Chikni Supari, flavoured supari and unflavoured supari are sub-heading 2106 90 30 and sub-heading 0802 80 90. It is clarified that classification of whole betel nut, subject matter of CESTAT decision in the case of M/s S.T. Enterprises, is not covered by the application

CESTAT decision

11.2 Having gone through the advance ruling application, supporting arguments for classification of the four goods under Chapter 21 as preparations of betel nuts, precedence of erstwhile AAR in support of the said classification and records of personal hearing, I summarize the contending positions on the question posed for advance ruling.

12.1 Advance ruling has been sought on classification of four different goods, each known as “supari in common trade parlance, albeit with differentiator, viz. API, Chikni, Unflavoured and Flavoured. The basic raw material for each of the four 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 1; and that betel nut/supari are masticatory.

12.2 I find that the processes involved in obtaining Unfavoured Supari include multi-stage cutting, but no addition or mixing of any other substance. In the case of API supari and Chikni supari, the processes include mixing of food starch. In determining the classification of these three supari items, viz. Unfavoured Supari, API supari and Chikni supari, the basic question is whether the process of cutting or slicing, and mixing of food starch change the substantive character of the betel nuts; and result in products that should appropriately be considered as “preparations of betel nut” and not betel nut, albeit with certain degree of processing. In case, it is considered that the said processes and mixing of food starch are substantive enough for the products to be considered as “preparation of betel nut” that would make them classifiable under Chapter 21 by virtue of Supplementary note 2 of Chapter 21. The appropriate guideline for determining the nature and impact of these processes or act of addition of food starch is found in Note 2 to Chapter 8 of the Customs Tariff Act. The said note prescribes that dried nuts of this Chapter may be partially rehydrated, or treated for the following purpose: (a) for additional preservation or stabilization (for example, by moderate heat treatment, sulphuring, the addition of sorbic acid or potassium sorbate); (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.’ Guided by the letter and spirit of the said Chapter Note (and HSN Notes for Chapter 8 in respect of Unflavoured Supari), I find that the processes and mixing of food starch that the said three supari have been subjected to fall in the category of processes carried out on the same for cleaning, preserving and making them more attractive to certain tastes/ preferences. More specifically, these supari items retain the essential character of dried nuts.

12.3 The last betel nut product included in the application is flavoured supari. In obtaining this product in addition to various processes, betel nuts are subjected to flavouring in automatic blending machine with flavouring compound of different variety likes liquid format. In deciding the classification of flavoured supari, in addition to the scope of aforesaid Note 2 to Chapter 8 and Supplementary Note 2 to Chapter 21 (In this Chapter 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), I need to also take into account the implications of the judgment of the Hon’ble Supreme Court of India in the case of Mis Crane Betel Nut Powder Works, [2007 (210) E.L.T. 171 (S.C.)] and decision of CESTAT, Chennai in the case Azam Laminators Pvt. Ltd. [2019 (367) E.L.T. A22 (Tri. – Chennai)] relying, inter alia, on the M/s Crane Betel Nut case. In the M/s Crane order, the Hon’ble Supreme Court held “30. In our view, the process of manufacture employed by the appellant-company did not change the nature of the end product, which in the words of the Tribunal, was that in the end product the ‘betel nut remains a betel nut’. The said observation of the Tribunal depicts the status of the product prior to manufacture and thereafter. In those circumstances, the views expressed in the D.C.M. General Mills Ltd. (supra) and the passage from the American Judgment (supra) become meaningful. The observation that manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation is apposite to the situation at hand. The process involved in the manufacture of sweetened betel nut pieces does not result in the manufacture of a new product as the end product continues to retain its original character though in a modified form.” (emphasis supplied)

12.4 In the case of 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 flavouring agents and marketed in small pouches as Nizam Pakku (in Tamil)/Betel Nut (in English), the Chennai Bench of the Hon’ble CESTAT held the resultant product to be classifiable under sub-heading 08029019 of Central Excise Tariff and not under 21069030 as supari for period after 07.07.2009.

13. In view of the above, I rule as under:

13.1 I hold that the four betel nut products, viz. Unfavoured supari, API supari, Chikni supari and Flavoured supari, continue to retain their original character of dried nuts, albeit in different degree of modification, not substantive enough to be considered as “preparations of betel nuts”. They, therefore, are rightly classifiable under Chapter 08, more specifically sub-heading 0802 80, and not in Chapter 21, more specifically sub-heading 2106 90 30.

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