2024 (11) TMI 1618 - AAR - Customs

Limited processing and flavouring do not alter betel nut's essential character, keeping classification under Chapter 8 rather than Chapter 21.

Betel nut subjected to cleaning, drying, de-stoning, polishing, sterilisation, cutting, roasting and menthol flavouring remained classifiable under ... Classification of goods - Menthol Scented Supari - classifiable under heading 2106 90 30 as betel nut product known as supari, or under heading 0802 as betel nut - Scope of Chapter Note 3 to Chapter 8 - Essential Character - General Rules for Interpretation - Classification by Heading and Chapter Notes - explanations (iii) and (iv) appended to IGST Rate Notification 01/2017- IGST (Rate). Classification under Chapter 8 vis-a-vis Chapter 21 - Chapter Note 3 to Chapter 8 - Essential character of betel nut - HELD THAT: - Chapter Note 3 of Chapter 8 read with explanatory notes to HSN clearly stipulates that even if the dried nuts are- i. rehydrated, or ii. imparted treatment of preservation or stabilisation by moderate heat treatment, sulphuring, the addition of sorbic acid or potassium sorbet etc., or iii imparted treatments like addition of vegetable oil or glucose syrup etc. to improve or maintain their appearance. They remain classified under Chapter 8 only. Thus, any treatment which is either one of the processes mentioned in the said Chapter note to Chapter 8 or, is akin to such processes, will not take the classification of Betel Nut out of the purview of Chapter 8. It is also worthwhile to mention that the processes mentioned in Chapter notes 3(a) and 3(b), as reproduced in para above, are not exhaustive but only illustrative as the expression used in the bracket is 'for example'. Hence, all such processes, as are done for preservation or stabilization of Betel Nut or for maintaining or improving their appearance, will be covered under the ambit of Chapter Note 3 of Chapter 8 and, hence the betel nut, having undergone such processes, will continue to be covered under Chapter 8. The Hon'ble Apex Court had affirmed the order dated 26.02.2021 of CESTAT, Chennai Bench in case of S.T. Enterprises [2021 (3) TMI 27 - CESTAT CHENNAI] and Ayush Business Overseas [2021 (3) TMI 1285 - SC ORDER], wherein CESTAT had held that boiled betel nuts are appropriately classifiable under Chapter 8, and not Chapter 21 relying on the principles observed in the Hon'ble Supreme Court's decision in case of Crane Betel Nut Powder Works case [2007 (3) TMI 6 - SUPREME COURT] The Authority held that the processes applied to the betel nut, namely dehydration, removal of impurities, polishing, sterilization, cutting, roasting and addition of menthol flavour, were processes directed to cleaning, preservation and improvement of appearance or presentation, and were therefore covered by Chapter Note 3 to Chapter 8. It found that these processes did not alter the essential character of the goods as dried betel nut. The Authority further held that heading 21.06 applies only where the goods are food preparations not elsewhere specified or included, whereas heading 08.02 gives the more specific description for the goods in question. The expression relating to betel nut product known as supari in Chapter 21 was not treated as covering merely scented betel nuts retaining the character of dried nuts. Relying on the binding precedent concerning processed betel nuts, the Authority concluded that the goods remained classifiable under Chapter 8, specifically under CTI 0802 8090. [Paras 5, 6] The proposed classification under Chapter 21 was rejected, and Menthol Scented Betel Nuts were ruled to fall under CTI 0802 8090 of the First Schedule to the Customs Tariff Act, 1975. Final Conclusion: The Authority ruled that Menthol Scented Betel Nuts do not cease to retain the character of betel nut merely because they are cleaned, cut, roasted and blended with menthol flavour. They were accordingly held classifiable under CTI 0802 8090 under Chapter 8, and not as supari under tariff item 2106 9030. Issues: Whether menthol scented supari, subjected to cleaning, drying, de-stoning, polishing, sterilisation, cutting, roasting and flavouring, is classifiable under heading 2106 90 30 as betel nut product known as supari, or under heading 0802 as betel nut.Analysis: The classification was examined by applying the tariff headings, the Chapter Notes and the General Rules for Interpretation. Note 3 to Chapter 8 permits only limited processing of dried nuts for preservation, stabilisation or appearance, provided the goods retain the character of dried nuts. The processes described for the subject goods were found to fall within that limited field, as the betel nut retained its essential character notwithstanding cutting, roasting and addition of menthol and other flavouring ingredients. Supplementary Note 2 to Chapter 21, though referring to betel nut product known as supari, was read in the context of a prepared product and not as displacing the more specific treatment of the imported goods under Chapter 8. The view was reinforced by the principle that classification must follow the terms of the headings and relevant Chapter Notes, with the more specific description prevailing.Conclusion: The goods are not classifiable under heading 2106 90 30 and are classifiable under heading 0802, specifically CTI 0802 8090, against the applicant.Ratio Decidendi: Where betel nut undergoes only limited processing that preserves its essential character as a dried nut, classification remains under Chapter 8 and does not shift to Chapter 21 merely because menthol or similar flavouring is added.