In re Perfect Trading Co. (CAAR Delhi)
The case of “In re Perfect Trading Co.” before the Customs Authority for Advance Rulings (CAAR), Delhi, has brought to light the complex issue of classifying Roasted Areca Nuts in various forms: whole, split, and cut. M/s. Perfect Trading Co., seeking to import these nuts from several countries into India, requested an advance ruling on their classification under the Customs Tariff Act, 1975.
The applicant argued that the roasted areca nuts are classifiable under chapter sub-heading 20081920, citing the lack of a definition for “roasting” in both the Customs Tariff and the Food Safety and Standards (FSS) explanatory notes. The process of roasting involves de-husking, drying, and subjecting the areca nuts to high temperatures, resulting in a product with a moisture content below 6 percent, aimed at improving quality rather than preservation. The applicant supported their classification with references to various case laws and the Harmonized System Nomenclature (HSN) Explanatory Notes, which explicitly include dry-roasted nuts under Chapter 2008.
The counter-argument from the concerned Commissionerate suggested that the roasted areca nuts fall under Chapter 080280, classifying them as merely dried nuts rather than a product that underwent a substantial transformation. They emphasized the standard procedures of drying and the regulations set by FSSAI, suggesting that the roasting process described by the applicant does not sufficiently alter the product to warrant a different classification.
After considering the submissions, the CAAR Delhi ruled in favor of the applicant, classifying the roasted areca nuts under sub-heading 20081920 as “Other roasted nuts and seeds.” This decision was supported by the specific mention of roasted nuts in the HSN Explanatory Notes and various judicial precedents that underscore the importance of these notes in tariff classification. The ruling acknowledges the distinct process and product outcome of roasting, differentiating it from mere drying or preserving methods. This decision not only clarifies the classification of roasted areca nuts for Perfect Trading Co. but also sets a precedent for similar cases in the customs and trade sector.
FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, DELHI
M/s. Perfect Trading Co., having IEC No. AESPK3717Q (`applicant’, in short) has filed an application (CAAR-1) for advance ruling before the Customs Authority for Advance Rulings, New Delhi (CAAR, in short). The said application was received in the Secretariat of the CAAR, New Delhi on 04.01.2024 along with their enclosures in terms of Section 28H (1) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’). The applicant intends to import “Roasted Areca Nuts (Whole), Roasted Areca Nuts (Split) & Roasted Areca Nuts (cut)” from Myanmar, Thailand, Indonesia, Vietnam, Sri Lanka, Cambodia, Laos & Singapore into India through the port falling under the Commissioner of Customs, Custom House, New Harbour Estate, Tuticorin — 628004 (Tamilnadu).
2. The applicant is currently engaged in the local trading of pan shop related spices & betel nuts items. The applicant intends to import Roasted Areca Nut (Whole), Roasted Areca Nut (Split) and Roasted Areca Nut (Cut) and sought ruling of the Authority in the matter of classification of the goods which in the opinion of the applicant, are classifiable under chapter Sub-heading 20081920, The submission of the applicant are as under:
2.1 The process of “roasting” is neither defined in the Customs Tariff nor in the FISN Explanatory/Section/Chapter Note.
2.2 The process for roasting involved in the manufacture of the above said goods is as under: –
2.3 Roasted Areca Nut (Whole), Roasted Areca Nut (Split) and Roasted Areca Nut (Cut): Following processes are conducted on raw betel nut:-
a) De-husking the raw betel/areca nut and drying the same before being fed into the roasting oven.
b) Feeding the fresh areca nut into a seed roasting oven, heating up to 130-150 deg. C and roasting the fresh areca nuts in an oven of the seed roasting machine.
c) Take the areca nuts out of the oven, cooling at room temperature and feeding back into the oven, heat and roast them again, and perform this cycle until the moisture content of areca nuts goes below 6 percent (%).
d) The fresh areca nuts are repeatedly heated, roasted and cooled to ensure that the areca nuts are quickly cooled and shrunk after thermal expansion so that the roasted areca nuts have higher quality; the roasting time is around 2-3 days.
e) Packaging in industrial packs of 50kgs to 80kg as per requirement.
In India, areca nut is chewed for a variety of reasons such as stress reliever, mouth freshener, concentration improver and for digestive purposes following food intake.
2.4 The above-mentioned goods are specifically covered and are classifiable under CTH 20081920 of the Customs Tariff Act, 1975. As per the HSN Explanatory Notes to Heading 2008, given below, Dry Roasted Areca (or Betel) Nuts are specifically covered under Chapter Heading 2008.
CTH 2008: Fruits, nuts and other edible parts of plants, otherwise prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, not elsewhere specified or included -Nuts, ground nuts and other seeds, whether or not mixed together:
20081920— Other roasted nut and seeds
2.5 The applicant placed reliance upon the case laws of L.M.L Ltd. Versus Commissioner of Customs reported in 2010 (258) E.L.T 321 (S.C), Holostick India Ltd. Versus Commissioner of Central Excise, Noida reported in 2015 (318) E.L.T 529 (S.C), Collector of Central Excise, Shillong Versus Wood Craft Products Ltd. reported in 1995 (77) E.L.T 23 (S.C) to submit that the HSN Explanatory note is the safe and dependable guide in the matters of classification of items.
2.6 As per the Explanatory Note to Chapter 8, fruits and nuts of this Chapter remain classified here even if put up in airtight packing (e.g. dried prunes, dried nuts in cans). In most cases, however, products put up in these packing have been prepared or preserved otherwise than as provided for in the headings of this Chapter, and are therefore excluded from chapter 8 (and will fall under Chapter 20). The processes mentioned in Chapter 8 are different from the processes performed on impugned goods, they are excluded for the purpose of classification from Chapter 8 of the Customs Tariff Act, 1975 (hereinafter also referred as “Tariff’).
2.7 The process of roasting changes the chemical and physical characteristics of the areca nut by reducing arecoline and tannin as well moisture.
2.8 In respect of alternate CT11 2106, the applicant draw attention to Chapter Note 2 and Explanatory Note (A) to Chapter 21, which is as under:
“Betel Nut product known as Supari” means any preparation containing betel nuts but not containing any one or more of following ingredients, namely lime, katha (Catechu) and tobacco whether or not containing any other ingredients such as cardamom, copra or menthol.
2.9 As per the Explanatory note, the heading covers preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk or other liquids), for human consumption.
2.10 The goods have undergone roasting, but they don’t contain lime, Katha (catechu) and tobacco.
Further, roasted betel nut can be consumed directly by merely cutting them into pieces. Therefore, the goods are equally classifiable under Chapter 21 of the Customs Tariff Act, 1975.
2.11 The applicant also referred to and discuss the case law of M/s Crane Betel nut Powder Works reported in 2007 (210) ELI 171 (S.C) stating that in this case, the Hon’ble Supreme Court purely went into the aspect whether crushing and adding other ingredients to betel-nut would amount to manufacture or not. Upon convincing that crushing and mixing other ingredients to the betel-nut into powder would not amount to manufacture, the Court ruled in favour of the party thus permitting them to classify the item under the CTH 0803. Based on the above, earlier ruling issued by the Customs Authority for Advance Rulings rejected the classification of betel-nut products under the HS Code 2106 90 30 and confirmed the same under Heading 0802, by holding that the process of such as boiling, slicing, removal of impurities, metal-deflection, garbling, polishing, roasting, cutting and adding flavours to the betel-nut do not alter the nature and characteristics of the product so as to it outside the purview of the Heading 0802. However, after the subsequent amendment to the Central Excise Tariff Act, 1985 vide The Finance (No.2) Act, 2009 (Act No.33 of 2009 dated 19″ August 2009) with the insertion of Note to Chapter 21, the decision of the Hon’ble Supreme Court in the above-mentioned case law was rendered infructuous.
2.12 In support of the above, they cited on the ruling issued in case of M/s Excellent Betel Nut Products by the Authority of Advance Rulings, wherein the authority took proper judicial notice and distinguished the decision in the case of M/s Crane Betelnut Powder Works Vs Commissioner of Customs & C. EX, Thirupathi reported in 2007 (210) E.L.T 171 (S.C) and held the classification of processed betel nuts under 21069030.
2.13 Roasted Areca nut is used for eating (mukhwas) directly as well as with paan (betel leaf).
2.14 The roasting is done using firewood/palm karnel-based ovens and the temperature of the flames is around 600 degrees Celsius. As a result, the betel nuts would be roasted well beyond 100 degree Celsius, usually in the range of 130-150 degree Celsius.
2.15 Roasted betel nut undergoes a change in its appearance as well as chemical characteristics on account of the roasting process. There is a substantial change in the chemical characteristics of the betel nut product on account of roasting process. The tannin and arecoline content of raw betel nut/areca nut get substantially changed by subjecting the same to roasting. Therefore, roasted betel nut is a distinctive product of betel nut making it suitable for immediate consumption.
2.16 Roasting is not aimed at additional preservation or stabilization or to improve or maintain their appearance.
2.17 The applicant further submitted that as per their best knowledge and belief the items are classified under Custom Tariff heading 20081920. The said entry in Customs tariff Act’ 1975 reads as under:
