Vijay Singh Chauhan, Authority for Advance Rulings of Customs
1. M/s. Dry Nut Enterprises, Delhi-110006, a resident, partnership firm, having IEC No. 0516946854 and PAN No. AAMFD5127F, filed an application dated 16-12-2020 seeking advance ruling under Section 28H of the Customs Act, 1962 before the Advance Ruling Authority (Central Excise, Customs & Service Tax), New Delhi (AAR, in short), which was received in the O/o AAR on 17-12-2020.
2. The said application was being processed in terms of Section 28 ibid by the O/o AAR. Consequent upon the appointment of Customs Authority for Advance Rulings (CAAR, in short) in New Delhi and Mumbai with effect from 4-1-2021, the said application was transferred to CAAR, New Delhi in terms of Section 28F(3) ibid and Regulation 31 of CAAR Regulations, 2021. The aforesaid application is accordingly taken up for pronouncing ruling within three months of the receipt of the application.
3. The applicant was given an opportunity of hearing on 15-3-2021, wherein, they were, inter alia, advised to submit arguments as to why a consolidated ruling has been sought for tour goods in one application filed under Section 28H ibid. During the Personal Hearing held on 15-3-2021. Shri Harish Kohli, Advocate submitted that it was on account of the fact that all the four goods originated from the same raw material, viz. betel nut. In view of the fact that this consolidated application was filed before the AAR, related precedence and administrative convenience, the application seeking ruling on classification of four goods is being taken up together for decision. His submissions in support of claim that the said four goods are correctly classifiable under Chapter 21 are discussed later in this order.
4. The question on which advance ruling sought is framed as following:
"whether the goods sought to be imported i.e. processed betel nut as described above [viz. 'API supari', 'Chikni supari', 'Unflavoured supari'; and 'Flavoured supari'] which does not contain lime or katha (catechu) or tobacco but may or may not contain any other ingredients, such as cardamom, copra or menthol is classifiable under the CTH 2106 90 30."
5. In support of his contention that the said four goods are classifiable under Chapter 21 and not Chapter 8, the applicant has cited reference to the rulings of the AAR for similar products, in the case of M/s. Excellent Betelnut Products Pvt. Ltd., Nagpur vide Order dated 7-8-2015 2015 (324) E.L.T. 619 (A.A.R.)] and M/s. Oliya Steel Private Limited, Kolkata, dated 31-3-2017. Reference has also been made to the order dated 18-1-2018 of Hon'ble High Court of Judicature at Madras in the case of M/s. Isha Exim : 2018 (13) G.S.T.L. 273 [LQ/MadHC/2018/497] (Mad.)].
6. On the aforesaid application, comments have been offered by the O/o the concerned Principal Commissioner of Customs (Import), ICD, Tughlakabad, New Delhi, wherein it has been submitted that API supari, Chikni supari and unflavoured supari appear to be covered under CTH 0802 and flavoured supari appears to be appropriately classifiable under CTH 2106. Copy of the comments of the Principal Commissioner of Customs, ICD, Tughlakabad have been supplied to the applicant.
7. Therefore, I proceed with discussion on the merits of the question posed for advance ruling. The four goods under consideration in these proceedings have a common primary ingredient, namely green fresh betel nut and the processes they undergo to obtain the said four items are as follows:
• API supari - removal of large impurities by labour, boiling in water for 6 hours, mixing food starch, and drying, polishing and packaging.
• Chikni supari - All the processes as described above plus slicing into small pieces.
• Unflavoured supari - Removal of large impurities by labour, small impurities by destoner, metal deflection (removal of metal items, if any), garbling, polishing in polishing machine, 3 stage cutting, blowing of weightless particles in blower, gravity separation by automatic gravity separation machine,: roasting in fire gas rotary roaster, metal detection by magnetic metal detectors and packaging.
• Flavoured supari - All the processes undertaken in case of unflavoured supari plus sterilizing to remove/kill bacteria and flavouring in automatic blenders with outsourced liquid flavours such as perfumes, etc. in mega size automatic blenders with compound.
8. It is seen that there are two contending classification for the said four goods, i.e. Chapter 8, more specifically CTH 0802 90 00; and Chapter 21, more specifically CTH 2106 90 30. In the aforementioned backdrop, it is necessary to examine the contending chapters/CTH of the customs tariff.
9. 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 this Chapter may be partially dehydrated 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 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.'
9.1. In the Chapter 8, areca nuts, whole, split, ground and two residuary sub-headings are accommodated under 0802 80 10, 20, 30, 90 and 0802 90 00, respectively.
10. 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.'
10.1. In this Chapter, the related entry, with respect to betel nuts, is the sub-heading 2106 90 30, i.e., betel nut products known as supari.
11. The applicant has contended that "though the products use the betel nut areca nut as main raw material however, in the process various other product are mixed and becomes a preparation and hence these goods clearly fall under the Chapter Heading 21 and more particularly in CTH 2106 90 30 as stated and not under Chapter 8 of the Customs Tariff and more particularly CTH 0802 90 00 which is for the product namely Areca nut."
12. On perusal of the advance rulings given by the erstwhile AAR, New Delhi, which have been referred to by the applicant, I find that cases of M/s. Excellent Betelnut Products Pvt. Ltd. and M/s. Oliya Steel Pvt. Ltd. do cover the four goods involved in the present proceedings; and in both these rulings, the erstwhile AAR has concluded that the said goods merit classification under subheading 2106 90 30. 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. Significantly, the erstwhile 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.
13. On careful consideration of the legal construct and specific provisions of Section 28J(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 the advance ruling 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. Therefore, in arriving at my ruling, I also refer to the following judgments relied upon by the Customs Authority for Advance Rulings, Mumbai in his Ruling No. CAAR/Mum/ARC/1/2021, dated 15-3-2021 in the case relating to M/s. Samreen International Pvt. Ltd., Chennai : 2021 (378) E.L.T. 680 (A.A.R. - Cus. -Mum.)], as extracted below:
13.1 'M/s. Crane Betel Nut Powder Works, as per the Hon'ble Supreme Court of India [ 2007 (210) E.L.T. 171 (S.C.)], were engaged in the business of marketing, betel nuts in different sizes after processing them by adding essential/non-essential oils, menthol, sweetening agent etc., and were, clearing the goods under Heading 2107 of the Central Excise Tariff and were paying duty accordingly. Subsequently, they filed a revised classification declaration under Rule 173B of the Central Excise Rules, 1944, with effect from 17th July, 1997, claiming classification of its product under sub-heading 0801 00 of the Central Excise Tariff. It was contended that the crushing of betel nuts into smaller pieces with the help of machines and passing them through different sizes of sieves to obtain goods of different sizes/grades and sweetening the cut pieces did not amount to manufacture in view of the fact that mere crushing of betel nuts into smaller pieces did not bring into existence a different commodity which had a distinct character of its own. In the aforesaid factual backdrop, the Hon'ble Apex Court observed that,
"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 of 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)"
13.2 "In the case of Azam Laminators Pvt. Ltd., reported at 2019 (367) E.L.T. A22 (Tri. - Chennai), 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 classifiable under subheading 0802 90 19 of Central Excise Tariff and not under 2106 90 30 as supari for period after 7-7-2009. The Hon'ble CESTAT, in coming to the above decision, relied upon the decisions of the Hon'ble Supreme Court decisions in the cases of M/s. Crane Betel Nut Powder Works and M/s. Satnant Overseas Ltd : 2015 (318) E.L.T. 538 (S.C.)]".
14. 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 of fruit in this Chapter.'
15. In this regard the concerned Principal Commissioner of Customs is of the opinion that only the preparations containing betel nuts fall under Chapter 21 and the whole nut even if split or ground does not fall under this chapter and are classifiable under CTH 0802. He has drawn attention to Note 6 to Chapter 21 of Central Excise Tariff, as reproduced below to propose that flavoured supari which contains flavouring materials like spices/or mulethi is classifiable under CTH 2106':
"6. In relation to product of tariff item 2106 90 30, the process of adding or mixing cardamom, copra, menthol, spices, sweetening agents or any such ingredients other than lime, katha (catechu) or tobacco to betel nut, in any form shall amount to manufacture."
16. During the personal hearing, Shri Harish Kohli, Advocate explained the process of preparation of supari items being imported by his client, starting with the green nut. He explained the process involving cleaning etc., then boiling upto 300 degree, and thereafter, addition of starch and spices etc. (in the case of flavoured supari). He laid great emphasis on the role of boiling of the raw nuts, which result in extraction of juice, which is understood to be retained by the exporter. He claimed that on account of extraction of juice during the process of boiling, the nuts have changed their basic character. In case of flavoured supari, he stated that boiled nuts are added with flavour of rose or lily, etc. He concluded his submission contending that the said items are correctly classifiable under Chapter 21 in view of Supplementary Note 2 to the said Chapter 21.
17. In view of the above, I observe that 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 0802 80. 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. 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 four 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. Alternatively, whether the processes carried out on the same for cleaning, preserving and making them more attractive to certain tastes/preferences are too minor to full short of rendering them as preparations of betel nuts.
18. To answer the posed question, I consider the three goods, namely API supari, Chikni supari and unflavoured 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, which are clearly covered by the Chapter Note 3 to Chapter 8. Addition of starch would be included under such processes. The applicant has contended that boiling of raw betel nut is a critical process, which changes the character of raw betel nut. However, in view of the Chapter Note referring to moderate heating, HSN Note and common understanding of boiling. I am unable to agree to the contention of the applicant regarding the exaggerated role of boiling in the process. Therefore, I conclude that the processes to which raw betel nuts have been subjected to obtain API supari, Chikni supari and unflavoured supari are 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, classifiable under Chapter 21.
19. In the case of flavoured supari, the question to be answered is whether the addition of special flavouring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21. In this regard, the concerned Principal Commissioner has also opined, citing reference to Central Excise Tariff, that flavoured supari is classifiable under Chapter 21. I find that the reference by the Principal Commissioner of Customs to the Note 6 to Chapter 21 of the Central Excise Tariff Act, which was essentially intended to deem certain processes as "manufacture" is inappropriate in the present context. This is particularly so, given the judgment of the Hon'ble Supreme Court of India in the case of M/s. Crane Betel Nut Provider Works and of the CESTAT, Chennai in the case of M/s. Azam Laminators Pvt. Ltd. Put simply, these decisions clearly imply that addition of flavouring agents do not change the character of the good, meaning in the present case betel nut would continue to remain betel nuts and not become preparations of betel nuts.
20. In view of the aforesaid discussions, I have reached the conclusion that all the four goods placed before me for consideration, i.e., API supari, chikni supari, unflavoured supari, flavoured supari merit classification under Chapter 8 of the First Schedule to the Customs Tariff Act, and more precisely, under the Heading 0802, and not under sub-heading 2106 90 30, as contended since they have not attained the character of "preparations of betel nut" despite the processes raw betel nuts have been subjected to and addition of starch (and flavouring agents in the case of flavoured supari).
21. I rule accordingly.
