2021 (8) TMI 919 - AAR - Customs

Classification of imported goods - API Supari (Boiled Supari) - Chikni Supari - Flavoured Supari - Unflavoured Supari - processed betel nut products do not contain specified ingredients namely lime, katha and tobacco but containing other flavouring materials/additives such as food starch, spices, mulethi, flavours, essence (food grade) etc. - classifiable under the Customs Tariff Heading 2106 90 30 of the First Schedule to the Customs Tariff Act, 1975 or otherwise? - value on the invoice/contract raised by overseas third party supplier on the applicant - transaction value or not - section 14 of the Customs Act, 1962 read with Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. HELD THAT - 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 indisputably classifiable under Chapter 8, more specifically sub-heading 080280. It is also noted 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. The three goods, namely API supari, Chikni supari and unflavoured supari together - 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, which are clearly covered by the Chapter Note 3 to Chapter 8. Cutting into pieces, boiling of raw betel and addition of starch would be included under such processes - 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, which is considered to be sine qua non for a good to be classified in the latter Chapter. Flavoured supari - HELD THAT - The judgment of the Hon'ble Supreme Court of India in the case of was CRANE BETEL NUT POWDER WORKS VERSUS COMMR. OF CUS. C. EX., TIRUPATHI 2007 (3) TMI 6 - SUPREME COURT 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 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 preparations of betel nut. All the four goods, 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 80 90, and not under sub-heading 21069030, since the processes the raw betel nuts have been subjected to and addition of starch (and flavouring agents in the case of flavoured supari) are squarely covered by the scope of the Chapter Note 3 to Chapter 8. These processes are not substantive enough to render the goods with character of preparations of betel nut , sine qua non for being eligible for classification under sub-heading 2106 90 30. Having held that the four goods in question merit classification under heading 0802 80 90, it is held that in respect of the said goods, duty is chargeable with reference to tariff value, as prescribed by notification by the government.

Summary

Issues Involved:
1. Classification of imported betel nut products.
2. Determination of transaction value for customs duty.

Issue-wise Detailed Analysis:

1. Classification of Imported Betel Nut Products:

The applicant sought an advance ruling on whether the products 'API Supari (Boiled Supari)', 'Chikni Supari', 'Flavoured Supari', and 'Unflavoured Supari' should be classified under Customs Tariff Heading (CTH) 2106 90 30 as preparations of betel nut. The applicant argued that these products, derived from raw betel nuts through various processes, should be classified under Chapter 21 based on Supplementary Note 2 of Chapter 21, which defines "Betel Nut product known as Supari" as any preparation containing betel nuts but not containing lime, katha, or tobacco.

The Customs Authority examined the processes involved in making these products:
- API Supari (Boiled Supari): Boiling raw betel nuts, mixing with starch, drying, and polishing.
- Chikni Supari: Similar to API Supari but includes slicing.
- Unflavoured Supari: Removal of impurities, sterilization, cutting, and roasting.
- Flavoured Supari: Similar to Unflavoured Supari but includes flavoring.

The Principal Commissioner of Customs, ICD, Tughlakabad, and Commissioner of Customs, Ludhiana, provided their opinions. The Principal Commissioner agreed with the classification under Chapter 21 if the products did not contain lime, katha, or tobacco. However, the Commissioner of Customs, Ludhiana, argued that the products should be classified under Chapter 8 as they remain betel nuts even after processing.

The Customs Authority referred to previous rulings and judgments, including the Supreme Court's decision in Crane Betel Nut Powder Works, which held that processing betel nuts did not change their classification from Chapter 8 to Chapter 21.

The Authority concluded that the processes applied to the raw betel nuts (cleaning, preservation, and appearance enhancement) did not transform them into "preparations of betel nut" under Chapter 21. Therefore, the products retained their classification under Chapter 8, specifically under heading 0802 80 90.

2. Determination of Transaction Value for Customs Duty:

The applicant sought clarification on whether the invoice value from the overseas supplier should be accepted as the transaction value for customs duty purposes under section 14 of the Customs Act, 1962.

The Principal Commissioner of Customs stated that the value of imported goods should be determined based on section 14 of the Customs Act and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and that an advance ruling could not pre-determine the acceptance of the invoice value as the transaction value.

The Customs Authority referred to the Central Board of Indirect Taxes & Customs Tariff Notification No. 86/2019-Customs (N.T.) dated 29.11.2019, which prescribes tariff values for areca nuts under heading 080280. Since the products were classified under heading 0802 80 90, the Authority ruled that customs duty should be charged based on the tariff value prescribed by the notification.

Conclusion:

The Customs Authority for Advance Rulings concluded that:
1. The products 'API Supari (Boiled Supari)', 'Chikni Supari', 'Flavoured Supari', and 'Unflavoured Supari' are classified under heading 0802 80 90 of Chapter 8, not under sub-heading 2106 90 30 of Chapter 21.
2. The customs duty on these products should be determined based on the tariff value prescribed by the relevant notification under section 14 (2) of the Customs Act, 1962.