2021 (3) TMI 1328 - AAR - Customs

Classification of imported goods - processed betel nut - API supari, Chikni supari, Unflavoured supari and Flavoured supari which does not contain lime or katha (catechu) or tobacco but may or may not contain any other ingredients, such as cardamom, copra or menthol - HELD THAT - The advance ruling has been sought on classification of four different goods, each known as supari in common trade parlance, albeit with differentiator, viz. API, Chikni, unflavoured and flavoured. The basic raw material for each of the four goods is raw betel nut, which is classifiable under Chapter 8, more specifically sub-heading 0802 80. I also note that Chapter 8 covers only edible nuts, inedible nuts and fruits being excluded by virtue of Chapter Note 1; 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 four 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 full short of rendering them as preparations of betel nuts. The three goods, namely API supari, Chikni supari and unflavoured supari are considered together - In these cases, 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 processes. The applicant has contended that boiling of raw betel nut is a critical process, which changes the character of raw betel nut. 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 upon, regarding the exaggerated role of boiling in the process. Therefore, it is concluded that 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 - In this regard, the concerned Principal Commissioner has also opined, citing reference to Central Excise Tariff, that flavoured supari is classifiable under Chapter 21. The reference by the Principal Commissioner of Customs to the Note 6 to Chapter 21 of the Central Excise Tariff Act, which was essentially intended to deem certain processes as manufacture is inappropriate in the present context. This is particularly so, given 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 M/s. Azam Laminators Pvt. Ltd. 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 nuts and not become preparations of betel nuts. Thus, 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. Classification of processed betel nut products (API supari, Chikni supari, Unflavoured supari, Flavoured supari).
2. Determination of whether the processes applied to betel nuts change their classification under the Customs Tariff Act.

Issue-wise Detailed Analysis:

1. Classification of Processed Betel Nut Products:
The applicant, a partnership firm, sought an advance ruling on the classification of four types of processed betel nut products: API supari, Chikni supari, Unflavoured supari, and Flavoured supari. The question posed was whether these products, which do not contain lime, katha, or tobacco but may contain other ingredients like cardamom, copra, or menthol, fall under CTH 2106 90 30.

The applicant argued that these products should be classified under Chapter 21, citing previous rulings by the AAR for similar products and a High Court judgment. The Principal Commissioner of Customs, however, suggested that API supari, Chikni supari, and Unflavoured supari fall under CTH 0802, while Flavoured supari falls under CTH 2106.

2. Determination of Processes and Classification:
The processes involved for each product were detailed:
- API supari: Removal of impurities, boiling, mixing with food starch, drying, polishing, and packaging.
- Chikni supari: Same as API supari, with additional slicing.
- Unflavoured supari: Removal of impurities, metal detection, polishing, cutting, blowing, gravity separation, roasting, and packaging.
- Flavoured supari: Same as Unflavoured supari, with sterilizing and flavouring.

The Authority examined whether these processes and the addition of ingredients were substantial enough to classify the products as "preparations of betel nut" under Chapter 21. The Authority referred to Chapter 8, which covers edible fruits and nuts, including betel nuts, and Chapter 21, which includes miscellaneous edible preparations.

Legal References and Judgments:
The Authority considered previous AAR rulings and judgments, including:
- M/s. Excellent Betelnut Products Pvt. Ltd. and M/s. Oliya Steel Pvt. Ltd., which classified similar products under CTH 2106 90 30.
- M/s. Crane Betel Nut Powder Works (Supreme Court), which held that processing betel nuts without changing their essential character does not constitute manufacturing a new product.
- Azam Laminators Pvt. Ltd. (CESTAT, Chennai), which classified scented betel nuts under CTH 0802 90 19, not CTH 2106 90 30.

Conclusion:
The Authority concluded that the processes applied to API supari, Chikni supari, and Unflavoured supari were primarily for cleaning, preservation, and appearance enhancement, which are covered by Chapter Note 3 to Chapter 8. These processes did not change the essential character of the betel nuts. Therefore, these products should be classified under Chapter 8, specifically under Heading 0802.

For Flavoured supari, the addition of flavouring agents did not change the essential character of the betel nuts, as supported by the Supreme Court and CESTAT judgments. Thus, Flavoured supari also falls under Chapter 8, Heading 0802.

Ruling:
All four products—API supari, Chikni supari, Unflavoured supari, and Flavoured supari—are classified under Chapter 8, Heading 0802, and not under sub-heading 2106 90 30.