2021 (3) TMI 1306 - AAR - Customs

Classification of imported goods - processed betel nut containing ingredients such as food starch, spices, mulethi, flavours, essence (food grade) etc. and not containing any lime or katha or tobacco - API supari - Chikni supari - unflavoured supari - goods imported by the applicant from the countries, East Timor, Bangladesh, Myanmar, Thailand, Indonesia, Vietnam, Sri Lanka Laos - HELD THAT - 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 process. The applicant has contended that boiling of raw betel nut is more than moderate heat treatment. However, in view of the Chapter Note referring to moderate heating, HSN Note and common understanding of boiling, the contention of the applicant cannot be agreed and it is held that boiling of betel nut is akin to moderate heat treatment. Thus, 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. Flavoured supari - HELD THAT - The judgment of the Hon ble Supreme Court of India in the case of M/s. Crane Betel Nut Powder Works and of the CESTAT, Chennai in the case of AZAM LAMINATORS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, TRICHY (VICE-VERSA) 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 0802 90 19 of Central Excise Tariff and not under 2106 90 30 as supari for period after 7-7-2009 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 preparations of betel nut. All the four goods placed 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).

Summary

Issues Involved:
1. Time Barred Application
2. Classification of Processed Betel Nut Products
3. Interpretation of Supplementary Note 2 of Chapter 21
4. Consideration of Previous Rulings and Legal Precedents

Detailed Analysis:

1. Time Barred Application
The application by M/s. Globe Impex was initially deemed time-barred as it was received on 10-12-2019, and the three-month limit for pronouncing advance rulings had lapsed. However, the Authority for Advance Rulings (AAR) provided an opportunity for the applicant to confirm their interest in obtaining a ruling or resubmit their application under the new Customs Authority for Advance Rulings (CAAR) Regulations, 2021. The applicant affirmed the validity of their earlier declarations, allowing the process to continue.

2. Classification of Processed Betel Nut Products
The primary issue was whether the processed betel nut products (API Supari, Chikni Supari, Unflavoured Supari, and Flavoured Supari) imported by the applicant should be classified under Customs Tariff Heading 2106 90 30 as "preparations of betel nut" or under Heading 0802 80 as "areca nut (betel nut)."

- API Supari and Chikni Supari: The processes involved boiling raw betel nuts, adding food starch, and drying and polishing. These processes were deemed to fall under the preservation and stabilization methods listed in Chapter Note 3 to Chapter 8, indicating they retain the character of betel nuts.

- Unflavoured Supari: Similar processes were involved, including sterilization and cutting, which also fell under the preservation and stabilization methods of Chapter Note 3 to Chapter 8.

- Flavoured Supari: Involved additional processes like flavouring with spices, menthol, and other compounds. Despite these additions, the product was still considered to retain the character of betel nuts based on legal precedents.

3. Interpretation of Supplementary Note 2 of Chapter 21
The applicant argued that their products should be classified under Chapter 21 based on Supplementary Note 2, which defines "betel nut product known as Supari" as any preparation containing betel nuts but not lime, katha, or tobacco. The Authority found that the processes applied did not significantly alter the character of the betel nuts to classify them as preparations under Chapter 21.

4. Consideration of Previous Rulings and Legal Precedents
The applicant cited previous rulings from the AAR and legal precedents to support their classification under Chapter 21. However, the Authority noted that these previous rulings did not consider Chapter Note 3 to Chapter 8 and were thus not binding precedents. The Authority relied on the Supreme Court's judgment in the case of "M/s. Crane Betel Nut Powder Works," which held that processes like cutting and adding flavours do not result in a new product distinct from betel nuts.

Conclusion:
The Authority concluded that all four products (API Supari, Chikni Supari, Unflavoured Supari, and Flavoured Supari) should be classified under Chapter 8, Heading 0802, as they did not attain the character of "preparations of betel nut" despite the processes and additions. The ruling emphasized that the processes involved were for preservation and stabilization, which did not change the essential character of the betel nuts.