TaxTMI 
TaxTMI 
2024 (12) TMI 1739
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.... Company Limited, 140/7, Soi Nabg Linchi 6 Lane, 1 Babg Linchi RD, Thungmahamek, Sathan, Bangkok- 10120, Thailand is a registered company having its registered office at 140/7, Soi Nabg Linchi 6 Lane, 1 Babg Linchi RD. Thungmahamek, Sathan, Bangkok- 10120, Thailand and is represented herein by Mr. Phumravit Chaiyaponggosone. The company is a reputed company and based in Thailand and duly registered with the respective statutory authorities at Thailand and other tax departments. The company is in the business of trading, import and export of various items and commodities. 2. That the applicant is in the process of setting up its business of trading / export of (1) Menthol Scented Supari and (2) Flavored and coated Illaichi (hereinafter referred to as the 'subject goods") to India for use in mouth freshener. The appellant intends to export the said goods mainly from Burma (Myanmar), Indonesia, Malaysia, Sri Lanka, Thailand, Cambodia, UAE and Singapore etc. to India. 3. That therefore the applicant is approaching this Hon'ble Authority, seeking advance ruling qua the subject goods as mentioned in the following paras of this application as the applicant intend....
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....rotary roaster, (xi) Adding scents and flavors e.g., Menthol, Spices, sweetening agents etc. in desired quantities along with liquid flavours (as and if desired) and edible oil are mixed in automatic mega size Blenders, (xii) Packaging in industrial packs of 5kgs to 80kgs as per requirement. (xiii) This process however, does not contain any materials like Lime, Katha (catechu) and tobacco. 7. That thus, the raw material i.e. betel nut, undergoes a substantial change in its appearance as well as in its chemical characteristics on account of various processes mentioned herein above and thus the tannin and arecoline and other content of raw betel nut/areca nut get substantially changed and therefore, after process as mentioned herein above on the betel nut, it become a distinctive product of betel nut which is processed and prepared and thus making it suitable for immediate consumption also. 8. That as per the supplementary notes (2) of Chapter 21 of Customs Tariff Act, 1975, "Betel nut product known as Supari" means "any preparation containing betel nuts, but not containing any one or more of the following ingredients, namely: lim....
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.... accordingly attract GST at the rate of 18% (S. No. 23 of schedule III of notification No. 1/2017-Central Tax (Rate) dated 28.06.2017). Therefore according to the limited knowledge and information of the applicant, the subject goods as stated herein above are covered and classifiable under CTH 2106 9030 of the Customs Tariff Act, 1975. 1.2.4. That in terms of the indicated additives like flavors and menthol etc., the product is classifiable under 2106 90 30 in terms of Supplementary Note 5(b) to Chapter 21 which reads as: Heading 2106 (except tariff items 2106 90 20 and 2106 90 30), inter alia, includes: (b) Preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk or other liquids), for human consumption; However, as per the Explanatory Notes to Chapter 08, 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 Ch....
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....d under sub-section (8) [or sub-section (8A), as the case may be]. This provision has been substituted (w.e.f. 01-07-2017 vide Notification No. 25/2017-Cus., dated 28-6-2017) by S. 4 of the Taxation Laws (Amendment) Act, 2017 (18 of 2017). Contents of the CBIC Circular No. 163/19/2021-GST dated 06.10. 2021 are applicable to the present case by virtue of legal framework as discussed herein above. Classification and applicable rate of duty under GST are clarified in the paras reproduced from the CBIC Circular No. 163/19/2021-GST dated 06.10.2021 from F. No. 190354/206/2021-TRU. By virtue of application of section 3(7) of the Customs Tariff Act, 1975 "any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty percent as is leviable under section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (8) for sub-section (8A), as the case may be". Based on the contents of the CBIC circular No. 163/19/2021-GST dated 6th October, 2021, it is clear that the provision of section 3(7) of the Customs Tariff ....
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....hi is subjected to in the instant case the emerging product is definitely a value-added product of illaichi and also distinctly different from illaichi or cardamom classifiable under chapter 9 of the Customs Tariff Act, 1975. In view of the above supplementary note to chapter 21 read with para 7 of CBIC circular No. 163/19/2021-GST dated 06.10.2021, same merits to be classified under Tariff Heading 2106 9099. VALUE ADDITION 1.3. That it is submitted that for both the products e.g., (a) Menthol/Scented cutting supari and (b) Flavoured and coated Illaichi, the manufacturing process involves intricate and skilled manufacturing process on raw produce the value of the processed materials is enhanced at each and every stage. For example, the refining stage improves the quality of major inputs. The sweetening and blending stage require use of costly raw materials like fragrances and flavours which enhances the manufacturing cost. THE PREPARATION 1.4. That the process before blending mainly adds quality and shelf life. While blending, the fragrance imparts a distinct function and nature to the finished articles which have than the major function as suppress....
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....irst Schedule shall, so far as may be, apply to the interpretation of this notification. 1.7.2. That identical provisions have been incorporated in CGST Rate notification No. 01/2017- CGST (Rate) dated 28-6-2017. In view of the acceptance of the fitment committee in GST Council, clarificatory acceptance of Central Government through its board circular and the homogenous adaptation of Customs Tariff Act for classification and interpretation makes it amply clear that the classification of any product under Customs and GST has to remain same for all purposes in both laws. This would also be required with a view that while filing a bill of entry, a product cannot be classified in two different headings for the purpose of charging basic customs duty and IGST. 1.7.3. That a legal framework governed by Customs Tariff Act, 1975, specifically section 3(7), Chapter notes of Chapters 8, 9 and 21, section notes, supplementary notes of chapter 8 of the Customs Tariff Act, 1975 and CBIC Circular No. 163/19/2021-GST dated 06.10.2021 issued based on the recommendations of the GST Council in its 45th meeting held on 17.09.2021 clarifying classification aspects related to both the products cov....
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....ly: lime, katha (catechu) and tobacco whether or not containing any other ingredients, such as cardamom, copra or menthol'. 21 06- Food preparations not elsewhere specified or included. 2106 10 - Protein concentrates and textured protein substances 2106 90 -- Other 1.12. In this classification the word 'preparation' is a guiding factor. The applicant has explained the detailed process carried out on the raw products i.e., betel nut and cardamom (illaichi). These processes as described and carried out on the subject products are essential for the preparation of the subject goods as mouth freshener and goods after being subjected to such processes cannot be ordinarily used for any other purpose. The betel nut products commonly known as supari is covered under sub-heading 21069030 of this chapter. In this regard CBIC circular no. 163/19/2021-GST dated 06.10.2021for its claim to the classification of scented supari. 1.13. Insofar, as flavoured and coated illaichi (cardamom) is concerned, the contending classifications can come from the chapters 09 and 21 of the Customs Tariff Act, 1975. Chapter 09 covers Coffee, Tea, Mate and Spices and Head....
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....the chapter 21 of the Customs Tariff Act, 1975 examination of relevant CTHs under chapter 21 is essential. The chapter 21 includes within its ambit, miscellaneous edible preparations and tariff item 2106 covers food preparations not elsewhere specified or included. The chapter notes mandate that: 1. - This Chapter does not cover: (a) Mixed vegetables of heading 0712; (b) Roasted coffee substitutes containing coffee in any proportion (heading 0901); (c) Flavoured tea (heading 0902); (d) Spices or other products of headings 0904 to 0910; 2106 - Food preparations not elsewhere specified or included. 21061000 - Protein concentrates and textured protein substances 210690 - Others 21069020 - Pan Masala 21069090 - Betulnut product known as "Supari" 21069090 - Others. The Supplementary Note 5(b) to Chapter 21 reads as: "5. Heading 2106 (except tariff items 2106 90 20 and 2106 90 30), inter alia, includes: (b) preparations for use, either directly or after processing (such as cooking, dissolving or boiling in water, milk or other liquids), for human consumption". 1.14. That in fact for simi....
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....annot be treated as only betel nut which is found mentioned under CTH 08 as the same only is for the raw betel nut and not for any processed and/or prepared betel nut hence, the goods in question must fall under CTH 21 and not under CTH 08. e. That in fact for the similar product, this Hon'ble Authority has already issued Ruling thereby declaring the above said goods falls under CTH 21 and not CTH 08. The said ruling has been given in the case of M/s BAG Industries, vide (2023) 2 Centax 213 (A.A.R. - Cus. - Mum.)/2023 (384) E.L.T. 119 (A.A.R. - Cus. - Mum.) on 31-10- 2022 by CAAR, Mumbai. f. That the applicant has made the present application bonafide and seeks the kind indulgence of this Hon'ble authority thereby seeking the subject goods under classification CTH 21 and more particularly under the CTH 2106 90 30. Accordingly, it is prayed that this Hon'ble Advance Ruling Authority may kindly pass order for appropriate classification of the goods as explained herein above. 2. Comments of Customs Port Commissionerate, ICD, Tughlakabad (Import), New Delhi. As per the provisions of CAAR Regulation, 2021, the complete application of the applicant ....
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.... being 'whole'." 1.2 Applicability of Supplementary Note 2 to Chapter 21 Supplementary Note 2 to Chapter 21 applies to products that qualify as "preparations of betel nut." For a product to be classified as such, it must undergo substantial transformation beyond the scope of preservation or flavor enhancement. The addition of menthol and minor flavoring agents does not meet this threshold. * Judgment: M/s Sarveshwari Industries "The processes to which raw betel nuts have been subjected to obtain flavoured supari are found to be for cleaning, boiling, drying, and the addition of flavouring agents. These processes do not result in obtaining a 'preparation' of betel nut within the meaning of Chapter 21 but rather aim to preserve or enhance the appearance or appeal of the betel nut." (Para 19) 1.3 Consistency with Harmonized System of Nomenclature (HSN) According to HSN guidelines, products in Chapter 8 may undergo limited processing like slicing, roasting, or adding minor quantities of stabilizers without altering their classification. "Fruit and nuts of this Chapter may be whole, sliced, chopped, shredded,....
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....ned in Note 3 to Chapter 8 and have not materially changed the essential character of betel nuts." 2.5 Applicability of GST Circulars and Notifications The applicant's reliance on GST notifications and CBIC Circular No. 163/19/2021-GST dated 06.10.2021 does not supersede the established framework of classification under the Customs Tariff Act, 1975. The classification under GST is distinct from customs classification and cannot be used to alter the principles of tariff classification under Chapter Notes and HSN guidelines. Judgment: M/s Crane Betel Nut Powder Works "The processes applied to betel nuts, such as flavoring or coating, do not transform them into a preparation and thus retain their classification under Chapter 8." Applicability of CBIC Circular No. 163/19/2021-GST * While the applicant references the CBIC Circular for GST classification under S. No. 23 of Schedule III, this is not directly applicable in the context of Customs classification. The Customs Tariff Act and GST laws are separate regimes, and while consistency between the two is desirable, the Customs Tariff Act has its own rules of classification based on Section Notes, Chapt....
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.... AGRO LLP- para 17 of the judgement " I rule that 'Scented & Flavoured and/or Sweetened Betel Nut merit classification under Chapter 8, more specifically 0802 80 of the First Schedule to the Customs Tariff Act." 2.8 Based on the provided information provided above, the items are rightly to be classified under Chapter 8. 2.9. It is also requested to seek comments from the Tax Research Unit. Records of the personal hearing in the matter: - 3. In the instant case, the personal hearing could not be taken place, as the port authority has not requested for opportunity of personal hearing. Further, the Authorized Representative (AR) of the applicant was forwarded the port comments vide email dated 16.12.2024 and requested to intimate as to whether they want to avail opportunity of personal hearing in the matter. The AR of the applicant vides their email dated 18.12.2024 submitted additional submissions and informed that the applicant does not want any further opportunity of personal hearing in above said instant matters and requested for taken the rebuttal and additional submissions, on record. Rebuttal and Additional Submission: 4. The A.R. of the applicant has subm....
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.... confirms its classification under 2106 90 30 as a preparation for human consumption. Therefore, based on the manufacturing process and ingredients, the subject goods are classified under CTH 2106 9030 of the Customs Tariff Act, 1975. viii. Classification of Menthol Scented Supari under Customs Tariff Act, 1975 and GST: The Customs Tariff Act, 1975 ("CTA") and Goods and Services Tax ("GST") laws govern the classification of menthol scented supari. Specifically: Definitions - "Tariff item," "sub-heading," "heading," and "chapter" refer to the First Schedule to the CTA. - The rules for interpreting the First Schedule, including Section and Chapter Notes and General Explanatory Notes, apply to this notification. Applicability of CBIC Circular and GST Council Recommendations - The Central Board of Indirect Taxes and Customs ("CBIC") Circular No. 163/19/2021-GST dated October 6, 2021, clarifies the classification of scented supari. - The GST Council's 45th meeting recommendations support classification under 2106 90 30 with an 18% IGST rate. ix. Classification under Customs Tariff: - Contending classifi....
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..... xv. That the decision of the Apex Court in Crane Betel Nut Work's case as well as the decision of the Delhi High Court in Great Nuts Impex Pvt. Ltd., lost its precedential value because of a subsequent new scenario that has emerged, post the Finance (No.2) Act, 2009 dated 9th August 2009 and also in view of the concept of 'manufacture' itself being of no consequence in the wake of the introduction of GST in 2017. xvi. That it is important to reliance on the decision of this Court in The Commissioner of Customs v. M/s. Shahnaz Commodities International P. Ltd. and 2 others, rendered in CMA Nos. 600, 1206 and 1750 of 2023 = 2023 (386) E.L.T. 214 (Mad.) = (2023) 9 Centax 183 (Mad.), where a Division Bench of Madras High Court, in and by a Common Judgment dated 1-8-2023, held that when there is a specific clause under Chapter 20, the classification cannot be made under Chapter 8. xvii. That for the correct classification of 'Menthol Scented Supari', we may refer to some of the relevant statutory provisions and supplementary notes. Chapter 08 (02) deal with 'other nuts, fresh or dried, whether or not shelled or peeled. ....
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.... "Menthol Scented Supari" can be classified under Chapter 8 or not or whether it has to be classified under Chapter 21. We can notice that under Chapter 8, betel nut can be whole, split, ground or other. The HSN Explanatory Notes clarifies that fruit and nut in Chapter 8 may be whole, sliced, chopped, shredded, stoned, pulped, graded, peeled or shelled and further addition of small quantities of sugar does not affect the classification of fruit in this Chapter. xix. That as it is contented by the Ld Commissioner (Respondent) that the betel nut being merely cut into smaller pieces and it is sweetened, it remains a betel nut only and would therefore squarely come under the purview of Chapter 8 and that Chapter 21 is only residuary in character and when Chapter 8 applies to the product in question. the Advance Ruling Authority cannot fall back on Chapter 21 and classify the product under Chapter 21. In this regard it is submitted that Supplementary Note 2 specifically deals with 'Supari' and states that it is any preparation containing betel nuts, but not containing lime, katha (catechu) and tobacco, whether or not containing cardamom, copra or menthol. Therefore Supp....
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....lucose syrup, as long as the product retains the character of a dried nut or fruit, it would be classified under Chapter 8. However, under Chapter 21 what is contemplated is a preparation containing betel nuts and not containing lime, katha (catechu) or tobacco, whether or not it contains ingredients like cardamom, copra or menthol. Thus, there is a fundamental distinction even in the object and purport of both the Chapters. Therefore, applying the General Rules of Interpretation for Import Tariff, there being a specific entry for the product in question, viz. "Menthol Scented Supari" under Chapter 21, applying the rules of interpretation, the classification of the said product has to be only under Chapter 21 and not Chapter 8. xxvi. In the case before the Hon'ble Supreme Court in Crane Betel Nut Powder Work's case, the issue was relating to whether crushing of betel nut and adding ingredients to it would involve any 'manufacture' or not and in that context it was held that the process of boiling, slicing etc. and adding flavours to the betel nut would not result in altering the nature and characteristics of the product and therefore the classification woul....
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....f Act. The amendments also have been incorporated only under the Central Excise Tariff Act, clarifying that the process of adding or mixing cardamom, copra, menthol etc. would not amount to manufacture etc. xxviii. Under the Customs Tariff Act, the question of manufacture loses its relevance since the Act deals only with the tariff applicable to the goods or products imported from outside the country, in an as is where is basis, or rather the product as imported in whatever form is the basis for levy of Customs Tariff. Thus, the judgment of the Hon'ble Supreme Court in Crane Betel Nut Powder Work's case cannot be said to be a bar U/s. 28(i) of the Customs Act. xxix. It is pertinent to note that by inserting a specific tariff entry for 'Supari' under Chapter 21, the question of classifying it under Chapter 8 does not even arise, especially when this was neither the issue before the Apex Court nor the basis on which the decision was rendered. It is also trite law that a decision is only an authority for what is decided and it cannot be extended to something which has not been decided by applying the process of a logical deduction. In P.Rajendran v. T....
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....Supari 5.1 The applicant has sought the classification of the "Menthol Scented Supari" under Chapter 21 on the following, among other grounds: i. The raw betelnut/ areca nut is classifiable under the HS code 0802 80. ii. Edible preparation of betel nut, i.e., betelnut product known as 'supari' is classifiable under the HS code 2106 9030. 5.2 The processing as mentioned by the importer i.e. Harvesting and Drying the Raw Betel Nut under Sun or oven, de-husking, boiling, washing & drying in sun or oven, multi stage cutting, flavouring and packing do not change the character of the Betel Nut and after going through the above mentioned process the Betel Nut has not attained any major change causing it to be classified under Heading 0802 not under the heading 2106 9030. 5.3 Further, 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 ingr....
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....er 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. 5.6 From the processes detailed in para 5.1 above, to obtain menthol scented supari, betel nut is dried, de-stoned (removal of metal item), garbled, polished, sterilized for cleaning and to remove bacterial count. The cleaned betel nuts are then cut and roasted. After going through the stage of cutting and roasting the betel nuts are mixed with menthol flavour. After blending with flavours, the processed betel nuts are ready to pack. Thus, the processes involved are nothing but dehydrating, removal of impurities, cutting, sterilization, roasting and addition of flavours. These processes are intended for cleaning, enhancing preservation; and for enhancing appearance or presentation, which are clearly covered by the Chapter Note 3 to Chapter 8. 5.7 The Hon'ble Apex Court had affirmed the order dated 26.02.2021 of CESTAT, Chennai Bench in case of S.T. Enterprises- 2021(378) E.L.T. 514 (S.C.) and Ayush Business Overseas-2021 (378) E.L.T. A142 (S.C.), wherein CESTAT had held that boiled betel nuts are appropriately classifiable und....
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....#39;s vide its order dated 01.03.2023 in case of M/s Great Nuts Impex Pvt. Ltd & M/s The Nut Co Vs Commissioner of Customs Delhi & Ors. (CUSAA17/2022 & CUSAA18/2022 respectively) is noteworthy to mention. The Hon'ble High Court upheld the view taken by CAAR (Customs Authority for Advance Rulings) in case of M/s Great Nuts Impex Pvt Ltd & M/s The Nut Co wherein it was ruled that the goods (i) API Supari; (ii) Chikni Supari; (iii) Unflavoured Supari; (iv) Flavoured Supari; and (v) Boiled and Cut Supari are classifiable under Chapter 8. The process involved in making flavoured supari in these cases were as those carried out in case of impugned ruling. The relevant extract of the aforesaid order is as follows: "23. The CAAR had ruled that that the processes for making API Supari, flavoured supari, unflavoured supari chikni supari, boiled supari, and boiled and cut supari are, essentially, the processes of cleaning, preservation and enhancing the appearance of presentation and thus, were covered under Note 3 of the Chapter 8 of the Customs Tariff. 24. Insofar as flavoured supari is concerned, the CAAR relied on the de....
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....s as defined under Chapter 8, except for adding of Menthol to the goods. Further, the addition of the Menthol does not alter the character of the goods viz., dried Areca/Betel Nut. 5.12 As far as the General Rules for the Interpretation (GRI) is concerned, the classification process is guided by six GRIs of the Harmonized System of Nomenclature (HSN), out of which, particular relevance is drawn to- i . GRI 1: Classification is determined according to the terms of the headings and any relative Section or Chapter Notes; ii. GRI 3(a): The heading providing the most specific description shall be preferred to headings providing a more general description; & iii. GRI 6: Classification in subheadings should be determined according to the terms of those subheadings, related subheading notes, and mutatis mutandis, to the above rules. 5.13 The Port Commissionerate has correctly cited the Principles of: Specificity, Essential Character, Degree of Processing, Intended Use & Exclusion to establish the classification under 0802. The applicant's point is that the addition of menthol constitutes a form of preparation, potentially shifting classification to 21.0....
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....ce with principle of specificity, aligns with the allowances for minor treatments in Chapter 8, and recognizes that the essential character of the product remains that of a nut rather than a prepared food item. B. Flavoured and Coated Illaichi 5.16 The Applicant further sought the classification of the "Flavoured and Coated Illaichi" under Chapter 21 on the following, among other grounds: i. Flavored and Coated llaichi (cardamom) is a spice-based mouth freshener that includes cardamom seeds, aromatic spices, silver leaf, saffron, and artificial sweeteners. The product is distinct from raw ilaichi due to its value-added processing and additional ingredients. ii. The product undergoes extensive processing, including coating with edible colors, menthol, and sweeteners, making it fit for direct consumption as a mouth freshener. This alters its characteristics from raw cardamom. iii. The applicant argues that Flavored and Coated llaichi is a value-added product, classifiable under CTH 2106.90.99, as per Supplementary Note 5(b) to Chapter 21 of the Customs Tariff Act, 1975. It is clarified that this product is distinct from raw cardamom, which falls under....
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....natory notes confirm that mixtures of spices, even if subjected to additional processing (e.g., coating), can still be classified within Chapter 9 as long as they retain their essential spice characteristics. Whereas, Chapter 21 covers miscellaneous edible preparations not elsewhere specified, and CTI 2106 deals with food preparations that cannot be classified in any other specific heading. While the product in question undergoes coating and flavoring, these processes do not change its essential character as cardamom. Therefore, the argument for classifying the product under Chapter 21 is untenable, given that the product retains the essential characteristics of a spice, as intended under Chapter 9. 5.21 The Supplementary Notes on Cardamom and Explanatory Notes to Chapter 9 provide that "mixtures of spices or preparations containing spices remain classified as such, provided they maintain their essential nature". Here, the Flavored and Coated llaichi continues to retain the primary characteristics of cardamom, despite the additional flavouring. The relevant extract of Chapter 9 Notes is reproduced below: "This Chapter also includes mixtures consisting of plants, part....