2021 (6) TMI 1147 - AAR - Customs

Classification of Betel Nuts by Customs Authority: Not as Preparations under Chapter 21

The Customs Authority for Advance Rulings (CAAR) concluded that various forms of betel nuts, including API Supari, Chikni Supari, unflavoured Supari, ... Classification of goods proposed to be imported - Betel Nuts such as API Supari - Chikni Supari - unflavoured Supari - flavoured Supari - Boiled Supari (all packed in consumer packing and bulk packing) - to be classified under heading 080280 of the schedule to the Customs Tariff Act, 1975 or under Chapter heading 21069030 of the Customs Tariff. HELD THAT:- The basic raw material for each of the five goods is raw betel nut, which is classifiable under Chapter 8, more specifically sub-heading 080280. It is noted that Chapter 8 covers only edible nuts; inedible nuts and fruits being excluded by virtue of Chapter Note l; 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 five 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 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 five goods solely with the prism of the positive nature of Supplementary Note 2 to Chapter 21. The processes to which raw betel nuts have been subjected to obtain API supari, Chikni supari, unflavoured supari and boiled 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. Flavoured supari - whether the addition of special flavouring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21? - HELD THAT:- The judgment of the Hon’ble Supreme Court of India in the case of M/s Crane Betel Nut Powder Works [2007 (3) TMI 6 - SUPREME COURT] and of the CESTAT, Chennai in the case of M/s Azam Laminators Pvt. Ltd. [2019 (3) TMI 782 - CESTAT 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 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 07.07.20091 are relevant. 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 nut and not become preparation of betel nut. In recent judgement of the CESTAT, Chennai, in the case of S. T. Enterprises [2021 (3) TMI 27 - CESTAT CHENNAI], the Hon'ble Tribunal has addressed the question whether by mere boiling and drying whole betel nut it would merit classification under 21069030 The Hon'ble Tribunal has held that since the import goods are betel nuts whole, these would merit classification under Chapter 8. Thus, all the five goods placed before me for consideration, i.e., API supari, chikni supari, unflavoured supari, flavoured supari and boiled 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 five 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 - Further, the said five goods are not classifiable under sub-heading 21069030, 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. Issues Involved:1. Whether the goods sought to be imported qualify as preparation of betel nut.2. Classification of the goods under Chapter 21 or Chapter 8 of the Customs Tariff Act, 1975.3. Validity of previous rulings and their applicability.4. Impact of Chapter Note 3 to Chapter 8 on the classification.5. Specific processes and their effect on classification.Detailed Analysis:1. Qualification as Preparation of Betel Nut:The applicant proposes to import various forms of betel nuts, including API Supari, Chikni Supari, unflavoured Supari, flavoured Supari, and Boiled Supari. The processes involved include boiling, mixing with food starch, drying, polishing, and adding flavors. The applicant argues that these processes transform the raw betel nuts into a food preparation, classifiable under Chapter 21, specifically heading 21069030. The applicant refers to Supplementary Note 2 of Chapter 21, which defines 'Betel Nut product known as Supari' as any preparation containing betel nuts but not lime, katha, or tobacco.2. Classification Under Chapter 21 or Chapter 8:The Customs Authority for Advance Rulings (CAAR) examined whether the processes applied to the betel nuts are substantive enough to classify them under Chapter 21 as preparations of betel nuts. The CAAR considered the processes such as boiling, slicing, polishing, and adding flavors, and compared them to the guidelines and notes under Chapter 8 and Chapter 21.3. Validity of Previous Rulings:The applicant cited previous rulings by the erstwhile AAR, which classified similar products under heading 21069030. However, the CAAR noted that these rulings did not consider the implications of Chapter Note 3 to Chapter 8 and were rendered without addressing this specific contention. Therefore, these previous rulings were not deemed binding precedents.4. Impact of Chapter Note 3 to Chapter 8:Chapter Note 3 to Chapter 8 states that dried fruits or nuts may be partially rehydrated or treated for preservation or stabilization, provided they retain the character of dried fruit or nuts. The CAAR found that the processes applied to the betel nuts, such as boiling, drying, and polishing, are covered by this note and do not materially change the essential character of the betel nuts.5. Specific Processes and Their Effect on Classification:The CAAR analyzed each type of Supari:- API Supari and Chikni Supari: Processes include boiling, mixing with food starch, drying, and polishing. These processes are intended for cleaning, preservation, and appearance enhancement, which fall under Chapter Note 3 to Chapter 8.- Unflavoured Supari: Processes include removing impurities, polishing, cutting, and roasting. These processes are also covered by Chapter Note 3 to Chapter 8.- Flavoured Supari: Involves additional flavoring agents. However, based on the judgment of the Hon'ble Supreme Court in M/s Crane Betel Nut Powder Works, the addition of flavoring agents does not change the character of the betel nuts.- Boiled Supari: Processes include boiling, drying, and sterilizing. The Hon'ble Tribunal in the case of S. T. Enterprises held that such processes do not merit classification under Chapter 21.Conclusion:The CAAR concluded that all five types of Supari (API Supari, Chikni Supari, unflavoured Supari, flavoured Supari, and Boiled Supari) should be classified under Chapter 8, specifically heading 0802. The processes applied to the betel nuts do not materially change their essential character, and they do not qualify as preparations of betel nuts under Chapter 21. Therefore, the goods are not classifiable under sub-heading 21069030 as contended by the applicant.