2021 (5) TMI 1078 - AAR - Customs

Classification of goods intended to be imported - preparation/product of betel nut (API supari, Chikni supari, unflavoured supari and boiled supari) commonly known as Supari, which does not contain lime or katha (catechu) or tobacco but may or may not contain any other ingredients such as food starch, cardamom, copra, mulethi, menthol (flavours), perfume etc. - classifiable under the CTH 2106 90 30 as food preparation or not? - HELD THAT - 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, Addition of starch would be included under such process. It is found that these processes are clearly covered by the Chapter Note 3 to Chapter 8. It is also noted that during the personal hearings the learned advocate requested to consider the distinction arising out of moderate and heavy boiling. In this regard, it is also submitted in the application that with the process of boiling, betel nut loses the character of being fresh dried nut therefore the item will not be covered under Chapter 8. It is found in the instant case, betel nuts after being boiled are dried; and this fact per se would not exclude the end-products from the scope of dried nuts . Further, it is equally obvious to me that boiling or mere addition of certain additives for the limited purpose of enhancing preservation or appearance or ease of consumption per se does not result in obtaining a preparation of betel nut. Speaking more generally, in view of the design of the Schedule to the CTA, HSN and plethora of judgements, besides common understanding and parlance, every irreversible process docs not result in obtaining a new product with a distinct classification even at the eight or ten-digit level; and every irreversible process does not result in coming into being of a preparation of the raw material . The processes to which raw betel nuts have been subjected to obtain API supari, Chikni supari, unflavoured supari and boiled supari are squarely 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, which is sine qua non for a good to be classifiable under Chapter 21. Flavoured supari - whether the addition of special flavouring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21? - HELD THAT - Hon'ble Supreme Court of India in the case of CRANE BETEL NUT POWDER WORKS VERSUS COMMR. OF CUS. C. EX., TIRUPATHI 2007 (3) TMI 6 - SUPREME COURT 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 CES TAT held the resultant product classifiable under sub-heading 08029019 of Central Excise Tariff and not under 21069030 as supari for period after 07.07.2009 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 preparation of betel nut. Thus, all the five goods placed before me for consideration, i.e., API supari, chikni supari, boiled supari, unflavoured supari, and flavoured supari, merit classification under Chapter 8 of the First Schedule to the Customs Tariff Act, and more precisely, under the heading 0802. This is so in view of the fact that the processes to which raw green fresh betel nuts have been subjected to obtain the said five goods are squarely in the nature of processes mentioned in Note 3 to Chapter 85 and have not materially changed the essential character of betel nuts, as held by the Hon'ble Supreme Court in the M/S Crane Betel Nuts case. Further, the said five goods are not classifiable under sub-heading 21069030, as contended by the applicant, since they have not attained the character of preparations of betel nut, which is sine qua non for a good to be so considered.

Summary

Issues Involved:
1. Classification of various types of Supari (betel nut products) under the Customs Tariff Act.
2. Determination of whether the processes applied to betel nuts result in a change of classification from Chapter 8 to Chapter 21.

Detailed Analysis:

Issue 1: Classification of Various Types of Supari
The applicant, a resident proprietorship firm, sought an advance ruling on the classification of five types of Supari products: API Supari, Chikni Supari, Unflavoured Supari, Flavoured Supari, and Boiled Supari. The main question was whether these products, which do not contain lime, katha (catechu), or tobacco but may contain other ingredients such as food starch, cardamom, copra, mulethi, menthol, or perfume, should be classified under CTH 2106 90 30 as food preparations or under Chapter 8 as edible nuts.

Issue 2: Determination of Change in Classification
The applicant contended that the processes applied to the raw betel nuts (such as boiling, mixing with food starch, drying, polishing, and packaging) transformed the products into preparations of betel nuts, thereby meriting classification under Chapter 21, specifically under sub-heading 2106 90 30. The applicant referred to Supplementary Note 2 of Chapter 21 and previous rulings by the erstwhile Authority for Advance Rulings (AAR) in support of their claim.

Analysis and Judgment:
1. Processes Involved:
- API Supari: Involves boiling raw green fresh betel nuts, mixing with food starch, drying, polishing, and packaging.
- Chikni Supari: Similar to API Supari but includes slicing the betel nuts into small pieces.
- Unflavoured Supari: Involves removing impurities, metal detection, garbling, polishing, splitting, drying/roasting, and packaging.
- Flavoured Supari: Similar to Unflavoured Supari but includes flavoring with spices or perfumes.
- Boiled Supari: Involves boiling raw green fresh betel nuts, removing the husk, further boiling, drying, sterilizing, sorting, polishing, and packaging.

2. Contending Tariff Entries:
- Chapter 8: Covers edible fruit and nuts, including betel nuts, under sub-headings 0802 80 10, 20, 30, 90, and 0802 90 00. Note 3 to Chapter 8 allows for processes such as moderate heat treatment, sulphuring, and the addition of sorbic acid or potassium sorbate, provided the nuts retain their character as dried nuts.
- Chapter 21: Covers miscellaneous edible preparations. Supplementary Note 2 defines "betel nut product known as Supari" as any preparation containing betel nuts but not containing lime, katha, or tobacco, whether or not containing other ingredients like cardamom, copra, or menthol. The relevant sub-heading is 2106 90 30.

3. Guidance from Harmonized System (HSN):
- The HSN guidelines indicate that fruit and nuts may be whole, sliced, chopped, shredded, stoned, pulped, grated, peeled, or shelled, and the addition of small quantities of sugar does not affect their classification under Chapter 8.

4. Precedents and Judicial Interpretations:
- Previous rulings by the erstwhile AAR, such as in the cases of M/s Excellent Betelnut Products Pvt. Ltd. and M/s Isha Exim, classified similar products under sub-heading 2106 90 30.
- The Supreme Court's decision in M/s Crane Betel Nut Powder Works held that the addition of flavoring agents does not change the character of betel nuts, implying that they remain classified under Chapter 8.

5. Conclusion:
- The processes applied to the raw betel nuts, such as boiling, mixing with food starch, drying, and polishing, are covered by Note 3 to Chapter 8 and do not materially change the essential character of the betel nuts.
- The addition of flavoring agents in Flavoured Supari does not render the betel nuts into preparations of betel nuts.
- Therefore, all five types of Supari (API Supari, Chikni Supari, Unflavoured Supari, Flavoured Supari, and Boiled Supari) are classified under Chapter 8, specifically under the heading 0802, and not under sub-heading 2106 90 30 as contended by the applicant.

The judgment concludes that the said products have not attained the character of "preparations" of betel nut, which is necessary for classification under Chapter 21. Thus, they remain classified under Chapter 8.