2021 (5) TMI 1036 - AAR - Customs

Classification of goods - API/boiled supari - Chikani supari - Unflavoured supari - Flavoured supari - merits classification under Chapter 8 of the Customs Tariff or not? - HELD THAT - No ruling can be given in respect of classification of API/boiled supari, which, according to both the applications, undergo the same processes on the raw/green nut. The arguments of the Learned Counsel for the applicants that the products intended for import by them undergo roasting and boiling and therefore do not merit classification under Chapter 8 of the Customs Tariff need to be rejected when the notes to Chapter 8 are read together with the relevant HSN Explanatory Notes. In view of the relevant Chapter Notes and HSN Explanatory Notes, the processes of roasting and boiling alone are not sufficient to take the products under consideration here out of the purview of Chapter 8. So far as the argument that Supplementary Note 2 to Chapter 21 shouldn t be made redundant is concerned, it is very clear that so far as chikni supari and unflavoured supari are concerned, there is no doubt regarding inapplicability of the said note to these products. Hon ble Calcutta High Court in the case of Killing Valley Tea Co. v. Secretary to State 1920 (5) TMI 1 - CALCUTTA HIGH COURT has held that a tea leaf remains the same even after being subjected to mechanical processes like withering, crushing, roasting, fermenting, etc., is a definite pointer to the principle that need to be applied for classification in such matters. Hon ble Supreme Court s in their decision dated 11-9-1979 in the case of D.S. Bist and Ors. 1979 (9) TMI 168 - SUPREME COURT has held that all agricultural produce undergoes some processing on or outside the farm in order to make it non-perishable, transportable, and marketable and just because processing is a bit longer or complicated wouldn t rob the produce of its agricultural character. The observations of the Hon ble Supreme Court in the case of M/s. Crane Betel Nut Powder Works 2007 (3) TMI 6 - SUPREME COURT , that the process of cutting betel nuts into small pieces and addition of essential/non-essential oils, menthol, sweetening agent, etc., did not result in a new and distinct product having a different character and use is also an extension of the same line of reasoning. This decision of the Hon ble Supreme Court has been subsequently followed by the Chennai Bench of the Hon ble Tribunal in the case of Azam Laminators 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 this product classifiable under sub-heading 0802 90 19 of Central Excise Tariff which is aligned with customs tariff. Thus, even flavoured supari merits classification under Heading 0802 of the Customs Tariff and not under Heading 2106 as argued by the applicants - ruling in respect of API/boiled supari - application disposed off.

Summary

Issues Involved:
1. Classification of API/boiled supari, chikni supari, unflavoured supari, and flavoured supari.
2. Applicability of previous rulings and judicial decisions on the classification of these products.
3. Interpretation of Chapter Notes and Harmonized System of Nomenclature (HSN) Explanatory Notes.
4. Consideration of Supplementary Note 2 to Chapter 21 of the Customs Tariff.

Issue-wise Detailed Analysis:

1. Classification of API/Boiled Supari, Chikni Supari, Unflavoured Supari, and Flavoured Supari:
Both applications sought rulings on the classification of various supari products under sub-heading 2106 90 30 of the Customs Tariff Act, 1975. The applicants argued these products should be classified under Chapter 21 based on Supplementary Note 2 to the Chapter. However, the Principal Commissioner of Customs, Nhava Sheva-I, concluded that the processes undertaken on raw areca nuts (cleaning, boiling, starching, garbling) are covered under Note 3 to Chapter 8, thus meriting classification under Chapter 8. The processes described for each supari type (API/boiled, chikni, unflavoured, flavoured) were examined to determine if they resulted in a product substantially different from raw areca nuts. The ruling concluded that these processes did not significantly alter the character of the raw material, thus classifying them under Chapter 8.

2. Applicability of Previous Rulings and Judicial Decisions:
The applicants referenced the decision in M/s. Excellent Betelnut Products (2015) where similar products were classified under Heading 2106. However, the Principal Commissioner pointed out that this ruling did not consider Note 3 to Chapter 8 and was therefore not a binding precedent. The Chennai Bench of the Customs, Central, and Service Tax Appellate Tribunal (CESTAT) in M/s. S.T. Enterprises and M/s. Ayush Business Overseas (2021) held that boiled supari merits classification under sub-heading 0802 80 10. The ruling also referenced the Supreme Court decision in M/s. Crane Betel Nut Powder Works (2007), which stated that the process of cutting betel nuts and adding oils, menthol, sweetening agents did not result in a new product with a different character and use.

3. Interpretation of Chapter Notes and HSN Explanatory Notes:
Chapter 8 notes specify that dried fruits or nuts may undergo certain processes (rehydration, preservation, appearance improvement) without losing their classification under Chapter 8. The HSN Explanatory Notes clarified that nuts could be whole, sliced, chopped, etc., and still be classified under Chapter 8. The processes undergone by the supari products (cleaning, boiling, slicing, drying, polishing, packaging, sterilizing, flavouring) were examined against these guidelines. The ruling concluded that these processes did not significantly alter the nature of the products to necessitate a change in classification from Chapter 8 to Chapter 21.

4. Consideration of Supplementary Note 2 to Chapter 21:
The applicants argued that the products should be classified under Heading 2106 based on Supplementary Note 2 to Chapter 21, which defines "betel nut product known as supari." The ruling, however, determined that this note did not apply to the products in question. The decision referenced the Calcutta High Court in Killing Valley Tea Co. v. Secretary to State (1921) and the Supreme Court in D.S. Bist and Ors. (1979), which held that agricultural produce undergoing processing does not lose its original character. The ruling concluded that even flavoured supari, which undergoes additional processes like sterilizing and flavouring, should be classified under Heading 0802 of the Customs Tariff, aligning with the decisions of the Supreme Court and CESTAT.

Conclusion:
The ruling refrained from issuing any decision on API/boiled supari due to the existing decision by the CESTAT. For chikni supari, unflavoured supari, and flavoured supari, the ruling concluded that these products are correctly classified under Heading 0802 of the First Schedule to the Customs Tariff Act, 1975, and not under sub-heading 2106 90 30 as contended by the applicants.