2023 (2) TMI 673 - AAR - Customs

Classification of import goods - preparation of Scented Flavoured and/or Sweetened Betel Nut imported from Vietnam, Thailand or any other country having the description as given in the body of application - whether the addition of flavor or menthol and/or sweetening agent will turn the betel nut into a preparation of betel nut? - to be classified under 0802 80 of the First Schedule to the Customs Tariff Act or not? HELD THAT - In the case of COMMISSIONER OF CUSTOMS CENTRAL EXCISE, GOA VERSUS PHIL CORPORATION LTD. 2008 (2) TMI 3 - SUPREME COURT , the issue was whether roasted/salted ground nut and other nuts are classifiable under Tariff Heading 08 or under Heading 20. After discussing the issue in great detail, the Hon ble Apex Court held that the courts have to make serious endeavour to ascertain spirits and intention of the Parliament in enacting these provisions and once the legislative intention is properly gathered, then the bounden duty and obligation of the courts is to decide the cases in consonance with the legislative intention of the Parliament. In the instant case, the intention of the Parliament is obvious when they inserted Supplementary Note 2 in the Customs Tariff in the year 2008. The Authority has to ascertain whether the product intended to be imported is covered by the said Supplementary Note of Chapter 21. The basic raw material for Scented Flavoured and/or Sweetened Betel Nut is raw betel nut, which is classifiable under Chapter 8, more specifically sub-heading 0802 80. 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, this item has 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 goods being considered as preparation of betel nut , that would make them classifiable under Chapter 21 by virtue of Supplementary Note 2 of Chapter 21. At this juncture, it is important to mention that the goods covered by the present application are prima facie Scented Flavoured and/or Sweetened Betel Nut and not preparation of Scented Flavoured and/or Sweetened Betel Nut , as submitted by the applicant; and the question posed for ruling is whether the said Scented Flavoured and/or Sweetened Betel Nut are covered by the scope of expression preparation containing betel nuts .. in Supplementary Note 2 to Chapter 21. The decisions in the case of Scented Flavoured and/or Sweetened supari, M/s. Crane Betel Nut Powder Works 2007 (3) TMI 6 - SUPREME COURT and M/s. Azam Laminators Pvt. Ltd. 2019 (3) TMI 782 - CESTAT CHENNAI clearly imply that addition of flavouring agents do not change the character of the goods, meaning in the present case betel nut would continue to remain betel nut and not become preparation of betel nut. Thus, Scented Flavoured and/or Sweetened Betel Nut merit classification under Chapter 8, more specifically 0802 80 of the First Schedule to the Customs Tariff Act.

Summary

Issues Involved:
1. Classification of "preparation of Scented & Flavoured and/or Sweetened Betel Nut."
2. Applicability of Supplementary Note 2 to Chapter 21 of the Customs Tariff.
3. Consideration of previous rulings and judicial pronouncements.
4. Impact of GST Council's recommendations on classification.

Detailed Analysis:

1. Classification of "preparation of Scented & Flavoured and/or Sweetened Betel Nut":
The applicant sought an advance ruling on the classification of "preparation of Scented & Flavoured and/or Sweetened Betel Nut" imported from Vietnam, Thailand, or any other country. The product involves processes such as cleaning, drying, de-husking, cutting, boiling, and adding sweeteners and flavors. The applicant argued that the product should be classified under Chapter 21, specifically sub-heading 2106 90 30, as it fits the description of a betel nut product known as supari.

2. Applicability of Supplementary Note 2 to Chapter 21 of the Customs Tariff:
Supplementary Note 2 to Chapter 21 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 applicant contended that their product meets this definition and should be classified under Chapter 21.

3. Consideration of previous rulings and judicial pronouncements:
The Authority referred to previous rulings, including those of the erstwhile AAR and CAAR, Mumbai, which classified similar products under Chapter 8, specifically sub-heading 0802 80. The Authority noted that the processes applied to the betel nuts do not change their substantive character, and thus, they remain classified as betel nuts under Chapter 8. The Authority also considered the Supreme Court's decision in the case of Crane Betel Nut Powder Works, which held that the processes applied to betel nuts did not result in a new product, and the end product retained its original character as betel nut.

4. Impact of GST Council's recommendations on classification:
The GST Council's 45th meeting clarified that "scented sweet supari" falls under Tariff Item 2106 90 30, attracting an 18% GST rate. However, the Authority noted that the GST Council's recommendation did not provide detailed reasons for this classification. The Authority emphasized that the Customs tariff should be aligned with the HSN and international classification systems, and judicial pronouncements should guide the classification at the importation stage.

Conclusion:
The Authority ruled that "Scented & Flavoured and/or Sweetened Betel Nut" merits classification under Chapter 8, specifically sub-heading 0802 80 of the First Schedule to the Customs Tariff Act. The decision was based on the processes applied to the betel nuts not altering their substantive character, previous judicial pronouncements, and the alignment of the Customs tariff with the HSN and international classification systems.