2024 (3) TMI 1436 - AAR - Customs

Pet food imported in bulk bags classified under CTH 2309 90 90 not 2309 10 00 due to lack of retail packaging requirements

IN RE : ROYAL CANIN INDIA PVT. LTD.

AAR Mumbai ruled that imported pet food in bulk bags should be classified under CTH 2309 90 90 rather than 2309 10 00. The authority determined that CTH ... Classification of imported pet foods in bulk bags - rate of custom duty - to be classified as put up for retail sale under Customs Tariff Heading (CTH) 2309 10 00 or under the residual entry 2309 90 90? - HELD THAT:- It is seen that under CTH 2309 of the Customs Tariff Act, 1975, there are two possible entries at 8-digit level wherein the pet food bulk bags can be classified, i.e., 2309 10 00 and 2309 90 90, i.e. the residual entry. The CTI 2309.10.00, clearly and specifically covers the cat and dog food ‘put up for retail sale’. Therefore, where the product under consideration is not meant for retail sale, the same shall not get covered under the specific CTI 2309.10.00. It is seen that the products under consideration are to be imported without any labelling, information, MRP etc. printed on the packages that are required for retail packages defined under Rule 2(k) of LM(PC) Rules, 2011. In fact, it cannot be sold directly in retail market considering inasmuch as the nature of the bulk import and the obligation of the applicant to follow the provisions of LM Rules. Hence the said goods cannot be classified under CTI 2309 10 00. Instead, the proposed pet food imported in bulk packages by the Applicant should be classified separately from the classification provided for packages for retail sale The other possible classification for the subject goods thus can be CTI 2309 90 90 i.e. “Other preparation of a kind used in animal feeding” under the same heading. Conclusion - The pet food i.e. cat and dog food, imported in bulk merit classification under CTI 2309.90.90 of the First Schedule of the Customs Tariff Act, 1975. Issues Presented and ConsideredThe core legal questions considered by the Authority for Advance Rulings (Customs) pertain to the classification of imported pet food in bulk bags under the Customs Tariff Act, 1975, specifically:Whether pet food imported in bulk packaging (bags ranging from 15 kgs to 700 kgs) qualifies as 'put up for retail sale' under Customs Tariff Heading (CTH) 2309 10 00 or falls under the residual entry 2309 90 90;The applicability of the Legal Metrology Act, 2009 and Legal Metrology (Packaged Commodities) Rules, 2011 (LM Rules) in determining whether the imported bulk packages are retail packages;The correct customs duty rate applicable on such bulk imports based on their classification;The relevance of General Rules of Interpretation (GRI) of the Harmonized System Nomenclature (HSN) and precedents, including Supreme Court rulings, in determining classification;The impact of the form of packaging and labelling on classification, and whether end-use or repacking activities post-import affect classification.Issue-wise Detailed Analysis1. Classification of Pet Food Imported in Bulk Bags under Customs Tariff Act, 1975Legal Framework and Precedents: The classification is governed by the Customs Tariff Act, 1975, applying the General Rules of Interpretation (GRI) for HSN sequentially. Chapter 23 covers 'Residues and waste from the food industries; prepared animal fodder,' with heading 2309 specifically including 'Preparations of a kind used in animal feeding.' Subheadings 2309 10 00 and 2309 90 90 are relevant, the former covering 'dog or cat food, put up for retail sale' and the latter covering 'Others: Other.'GRI Rule 1 and 2 emphasize classification according to the terms of headings and chapter notes, including incomplete or unfinished articles if they retain essential characteristics of finished articles. Rule 3 addresses classification conflicts, preferring the most specific description (3a), essential character (3b), or the last numerical heading if equally meritorious (3c).Precedents include the Supreme Court ruling in Union of India v. Pesticides Mfg. & Formulators Association of India, which held that when two headings are equally specific, the one occurring later numerically prevails.Court's Interpretation and Reasoning: The imported pet food in bulk bags is the same processed product as currently imported in retail packages but differs in packaging form. The bulk bags lack retail labelling, MRP, and other information mandated by LM Rules for retail packages and are not fit for direct sale to ultimate consumers without repacking and labelling.Given that the bulk packages are not 'put up for retail sale,' they do not fall under the specific heading 2309 10 00. Instead, they fall under the residual heading 2309 90 90, which covers other preparations used in animal feeding not specifically put up for retail sale.The Authority emphasized that classification depends on the form in which goods are imported, not on their end use or subsequent repacking. This aligns with the Supreme Court's decision in Commissioner of Central Excise, Delhi v. Carrier Aircon Ltd., which held that end use does not determine classification if the product falls under a specific heading.Key Evidence and Findings: The applicant's detailed description of the business model, packaging sizes, labelling practices, and repacking activities post-import was considered. The Legal Metrology Act and Rules define 'retail package' and 'retail sale,' which the bulk bags do not satisfy. The jurisdictional Commissionerate's comments concurred with the residual classification under 2309 90 90.Application of Law to Facts: The bulk pet food bags imported without retail labelling and MRP are wholesale packages under LM Rules and thus cannot be classified as 'put up for retail sale.' The GRI and chapter notes support classification under the residual heading 2309 90 90. The Supreme Court precedent supports preference for the later numerical heading when two headings are equally specific.Treatment of Competing Arguments: The applicant argued for classification under 2309 90 90 based on packaging form and GRI. The jurisdictional authority agreed, cautioning against misuse by importers misclassifying retail packages as wholesale to avail lower duty. The absence of any departmental representative at hearing meant no opposing arguments were presented.Conclusion: Pet food imported in bulk bags not bearing retail labelling and MRP is not 'put up for retail sale' and must be classified under the residual heading 2309 90 90 attracting 15% Basic Customs Duty (BCD) and applicable IGST, rather than 2309 10 00 which applies to retail-packaged pet food at 20% BCD.2. Applicability of Legal Metrology Act and Rules in Determining Retail Packaging StatusLegal Framework and Precedents: The Legal Metrology Act, 2009 and Legal Metrology (Packaged Commodities) Rules, 2011 govern packaging and labelling requirements for pre-packaged commodities. Definitions of 'retail package' (Rule 2(k)) and 'retail sale' (Rule 2(1)) are crucial, as is the distinction from 'wholesale package' (Rule 2(q)). Retail packages must bear detailed labelling including MRP, whereas wholesale packages require minimal declarations.CESTAT New Delhi's ruling in M/s. Midas Fertchem Impex Pvt. Ltd. clarified that not all packages under 25 kgs are retail packages and that classification must be based on evidence of packaging intended for retail sale.Court's Interpretation and Reasoning: The Authority noted that bulk bags imported by the applicant do not meet the LM Rules definition of retail packages as they lack requisite labelling and MRP, and are not intended for direct sale to ultimate consumers. The bulk bags are wholesale packages, and hence different legal provisions apply.Key Evidence and Findings: The applicant's submissions and LM Rules definitions were examined. The bulk bags bear 'not for retail sale' declarations and are stored in bonded warehouses before repacking. The jurisdictional Commissionerate's observations reinforced the distinction between retail and wholesale packaging for customs classification.Application of Law to Facts: Since the bulk bags do not comply with LM Rules for retail packages, they cannot be classified under tariff headings requiring retail sale packaging. This legal distinction is pivotal in customs classification.Treatment of Competing Arguments: The applicant's position was accepted; the departmental side did not contest. The Authority cautioned against attempts to circumvent customs duties by misclassifying retail packages as wholesale.Conclusion: The bulk pet food packages are wholesale packages under LM Rules and thus do not qualify as retail packages for customs classification purposes.3. Application of General Rules of Interpretation and Precedents on ClassificationLegal Framework and Precedents: The GRI provide a stepwise approach to classification. Rule 3(c) states that when goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those equally meriting consideration.The Supreme Court's ruling in Union of India v. Pesticides Mfg. & Formulators Association of India held that bulk technical grade pesticides should be classified under the later occurring specific heading rather than earlier general chemical chapters.Court's Interpretation and Reasoning: The Authority applied Rule 3(c) to the competing headings 2309 10 00 and 2309 90 90. Since the bulk pet food does not qualify under the specific heading for retail sale (2309 10 00), it falls under the residual heading 2309 90 90, which occurs later numerically and is thus preferred.Key Evidence and Findings: The applicant's reliance on GRI and Supreme Court precedent was accepted. The jurisdictional Commissionerate's concurrence further supported this interpretation.Application of Law to Facts: The bulk pet food is classifiable under 2309 90 90 as the residual entry, consistent with GRI and judicial precedent.Treatment of Competing Arguments: No contrary departmental submissions were presented. The Authority noted the applicant's and jurisdictional Commissionerate's aligned positions.Conclusion: Classification under 2309 90 90 is appropriate and consistent with GRI and Supreme Court jurisprudence.4. Impact of Global Classification PracticesLegal Framework: While not binding, global classification practices inform interpretation and consistency in trade.Findings: The applicant demonstrated that in Japan, pet food in bulk packages is classified under a residual heading similar to 2309 90 90, supporting the applicant's position.Conclusion: Global practice supports classification of bulk pet food under residual headings distinct from retail-packaged goods.Significant Holdings'The CTI 2309.10.00, clearly and specifically covers the cat and dog food 'put up for retail sale'. Therefore, where the product under consideration is not meant for retail sale, the same shall not get covered under the specific CTI 2309.10.00.''The classification of the product should be determined based on the form in which it is imported and not based on the end use of the product.''In view of the principals enshrined in GRI, as per Rule 3(c) of the GRI, CTI 2309.90.90 shall be given preference over CTI 2309.10.00 as CTI 2309.90.90 occurs last in the numerical order among those which equally merit consideration.''The bulk packages imported shall also bear the declaration 'not for retail sale'. The imported bulk bags will be construed as import of goods in wholesale. Therefore, the bulk packages imported by the Applicant shall not be required to bear the labels, declarations, MRP etc. as is mandated under the provisions of LM Rules applicable to packages meant for retail sale.''Thus, in view of the above facts, provision of law and the ratio of the judgments cited above, it can be said that the pet food i.e. cat and dog food, imported in bulk merit classification under CTI 2309.90.90 of the First Schedule of the Customs Tariff Act, 1975.'Core principles established include:Classification depends on the form and packaging of goods at the time of import, not on end use or subsequent repacking;Legal Metrology Act and Rules are integral to determining whether packaging qualifies as retail or wholesale;GRI rules, particularly Rule 3(c), and judicial precedents guide classification where multiple headings are possible;Bulk pet food without retail labelling is not 'put up for retail sale' and must be classified under residual headings with lower duty rates;Customs authorities must ensure compliance with packaging and labelling norms to prevent misuse of classification for duty avoidance.The Authority ruled that pet food imported in bulk bags without retail labelling and MRP shall be classified under CTH 2309 90 90 attracting Basic Customs Duty at 15%, rather than under 2309 10 00 applicable to retail-packaged pet food.