2022 (2) TMI 630 - AAR - Customs

Classification of goods - goods namely, API supari, chikni supari, unflavoured supari, and flavoured supari - to be classified under Chapter 21, more specifically under sub-heading 2106 90 30 or not - whether the arguments of applicants that the products intended for import by them 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? - HELD THAT - Reliance placed in the Hon ble Supreme Court in COMMISSIONER OF SALES TAX, LUCKNOW VERSUS DS. BIST AND OTHERS 1979 (9) TMI 168 - SUPREME COURT wherein it was 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 CRANE BETEL NUT POWDER WORKS VERSUS COMMR. OF CUS. C. EX., TIRUPATHI 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 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 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 applicant. Therefore, in respect of the products API supari, chikni supari, unflavoured supari, and flavoured supari, it is held that their correct classification is Heading 0802 of the First Schedule to the Customs Tariff Act, 1975 - application allowed.

Summary

Issues Involved:
1. Classification of API supari, chikni supari, unflavoured supari, and flavoured supari.
2. Applicability of Chapter 21 versus Chapter 8 of the Customs Tariff.
3. Binding nature of previous rulings by the erstwhile Authority for Advance Rulings (AAR).
4. Consideration of judicial discipline and equity in classification.

Detailed Analysis:

1. Classification of API supari, chikni supari, unflavoured supari, and flavoured supari:
The primary ingredient in all four products is raw areca nut/betel nut. The processes involved for each product include:
- API supari: Removal of large impurities, boiling, mixing food starch, drying, polishing, and packaging.
- Chikni supari: Same as API supari plus slicing into small pieces.
- Unflavoured supari: Removal of impurities, polishing, cutting, blowing weightless particles, gravity separation, roasting, metal detection, and packaging.
- Flavoured supari: Same as unflavoured supari plus sterilizing and flavouring with spices or perfumes.

2. Applicability of Chapter 21 versus Chapter 8 of the Customs Tariff:
The applicant contended that these products should be classified under Chapter 21, specifically sub-heading 2106 90 30. However, the Commissioner of Customs argued that the processes undertaken (cleaning, boiling, starching, garbling, etc.) fall under Note 3 to Chapter 8, thus meriting classification under Chapter 8. The ruling referenced the Supreme Court's decision in D.S. Bist and Ors., which held that agricultural produce retains its character despite processing. The Calcutta High Court's decision in Killing Valley Tea Co. and the Supreme Court's observations in M/s. Crane Betel Nut Powder Works also supported this view, emphasizing that the processing did not result in a new and distinct product.

3. Binding Nature of Previous Rulings by the Erstwhile Authority for Advance Rulings (AAR):
The applicant argued that the doctrine of judicial discipline required following the AAR's previous decisions, which classified similar products under Chapter 21. However, the ruling clarified that the AAR's decisions were binding only on the applicant and the customs officers at the concerned port of import. The CAAR, constituted under Section 28EA, is not bound by the AAR's rulings, which were not binding on other ports or customs authorities.

4. Consideration of Judicial Discipline and Equity in Classification:
The applicant cited the Kamlakshi Finance judgment, arguing for judicial discipline. However, the ruling noted that the AAR's decisions were not binding precedents for the CAAR. The Supreme Court's decision in Mahim Patram Pvt. Ltd. emphasized that in a taxing statute, one must adhere strictly to the words of the statute, leaving no room for equitable construction. Thus, the advance rulings obtained by other importers were applicable only to them and not to the applicant.

Conclusion:
The ruling concluded that the processes undertaken on the raw areca nuts did not significantly alter their character, and thus, the products should be classified under Chapter 8, specifically Heading 0802. This classification aligns with the Supreme Court's and CESTAT's decisions in similar cases. Consequently, the products API supari, chikni supari, unflavoured supari, and flavoured supari do not merit classification under sub-heading 2106 90 30 of Chapter 21. The benefit of the exemption under Notification No. 50/2017-Cus. is not available for these products.