CUSTOMS AUTHORITY FOR ADVANCE RULINGS

5th FLOOR, NDMC BUILDING, YASHWANT PLACE, SATYA MARG,

CHANAKYAPURI,

NEW DELHI-110021

[Email: cus-advrulings.del@gov.in]

In

Application No. VIII/CAAR/Delhi/Shreedhra/05/2022/2022/5366-5372

M/s Shreedhra Agro LLP, 106, Nilgiri Apartment, 09 Barakhamba Road, New Delhi, PIN-110001 a limited Iiability Partnership IEC No. AEKFS4439K and PAN- AEKFS4439K (M/s Nitin Gupta, Designated Partner of the LLP) has filed an application dated 04.02.2022 seeking advance ruling under section 28-H of the Customs Act, 1962 before the Customs Authority for advance Rulings, New Delhi (hereinafter referred as CAAR. New Delhi). On scrutiny of the application. it as found to be in order as per CAAR Regulations, 2021 and the application was accordingly registered under serial No. 05/2022 dated 08.02.2022.

2. The applicant, vide the aforesaid application, has sought ruling by CAAR, New Delhi on the question of classification of "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". Whereas, on scrutiny of the application it was found that the applicant has not sought ruling on the determination of origin of goods in terms of regulations notified under the Customs Tariff Act 1975 and matters relating thereto. Therefore, the scope of this application is limited to the classification of goods described by the applicant as "preparation of Scented & Flavoured and or Sweetened Betel Nut".

3. The applicant in his application, has discussed the process of preparation and value addition of areca nut to obtain the goods proposed to be imported as under:-

3.1 There are many varieties of scented suparis. Dried areca nuts are broken into bits, blended with flavour mixture and packed. The favouring of supari varies with region and is a closely guarded secret. In South India. scented supari is made from kalipak like batlu. Spices and synthetic favours are added. instead of raw spices. Now-a-days, rose essence as well as menthol is used for easy blending. These are usually packed in butter paper. Scented supari popular in north and central India is of two types: the one made from chali and the other from kalipak. Saccharin is used for sweetening the suparis. Additives such as colour and flavour are added to improve the taste and appearance. Plastic strips are used for convenient packing of scented suparis. Tin and aluminium pouches are used for bulk packing of scented supari.

3.2 The applicant is planning to import a product, which is a preparation of Betel Nut, known in India as supari or chewing supari or flavored supari. The manufacturing process has been detailed out in the application. The process starts with the raw betel nut which is plucked from the tree. It is cleaned, dried and then de-husked. The processing consists of de-husking; cutting the soft nuts into pieces, boiling the cut pieces with water or diluting extract from previous boiling. Thereafter, those are cut into small pieces. Sweetener and/or flavors are then mixed in the finally cut betel nut. The final product is, thereafter, packed in bags for being transported. Such products are known as Chewing Supari in India.

4. The applicant has, also submitted their view point on issues on which the advance ruling has been sought, which is summarized as under:-

4.1 While referring to Chapter 8 of the CTH and its General Notes, the applicant has explained that: - "The heading 081 1 or 0812 identify certain processes carried on fruits and nuts for preservation, or for enhancing its appearance. It is submitted that the processes carried out by the applicant is neither for preservation nor for enhancing appearance. It is for the purpose of making those products as per choice of the consumers."

4.2 Further, it may be seen that the items covered under Chapters 1 to 5 include goods of animal origin including milk and eggs. The products under reference will not fall under these headings as the same do not contain product of animal origin. Similarly, the goods covered under Chapters starting with 6 to 14 are either plain fruits or nuts or vegetables etc. and not preparations thereof. Chapter 15 covers fats and oils. Chapter 16 covers preparation of meats, fish. Chapter 17 covers sugar or sugar confectionary, Chapter 18 covers cocoa products and 19 covers preparations of cereals, flour starch or milk. According to the applicant, the products under reference are, therefore, not classifiable under any of the chapters from 1 to 19 of the HSN and corresponding headings in the Customs Tariff Schedule. Chapter 20 covers preparation of vegetables, fruits, nuts or other parts of plants and chapter 21 covers miscellaneous edible preparations.

4.3 Also, heading 20 01 of the Customs Tariff covers vegetable, fruit, nut etc. which are prepared or preserved by vinegar or acetic acid, heading 20 02 covers tomatoes, 20 03 covers mushrooms and truffles, 20 04 & 20 05 covers other vegetables and heading 20 06 covers vegetables, fruits, nuts, fruit peels and other parts of plants preserved by sugar. Heading 20 07 covers products like jam/jelly/marmalade etc. and 20 08 covers inter alia nuts which are otherwise prepared or preserved.

4.4 However, Chapter 21 covers miscellaneous edible preparations. Supplementary Notes in this Chapter are in addition to what the HSN has. As these supplementary notes are specific to the Customs Tariff of India, those have to be preferred even in comparison with the HSN.

4.5 Supplementary Note 2 refers specifically to betel nut product known as supari and the heading 2106 90 30 specifically covers this item. It is an admitted fact that the goods to be imported is a betel nut product. The manufacturing process will show that the basic raw material for making the preparation is Betel Nut. Thereafter, sugar and other condiments such as fragrances are added to make it acceptable to the users as an edible substance. Had it contained any one of the ingredients given Supplementary Note 1, such as lime, katha and/or tobacco, the same could have been classified under heading 2106 90 20. However, as none of the ingredients as mentioned in Supplementary Note 1 to Chapter 21, the product cannot be classified under heading 2106 20 90.

4.6 The products sought to be imported are known as supari/chewing supari or flavored supari. It is ready to eat.

5. ICD Tughlakabad Commissionerate vide its letter dated 29.03.2022 and 25.04.2022 has submitted its detailed comments, which were shared with the applicant. In its letter dated 29.03.2022, they have drawn the attention towards the supplementary Note 2 to 21, wherein it is mentioned that "Betel nut product blown as Supari" means any preparation containing betel nuts, but not containing any one or more of the following ingredients, namely lime, katha (catechu) and tobacco whether or not containing any other ingredients such as cardamom, copra or menthol''. Thereafter, specific comments were sought from the ICD, Tughlakabad Commissionerate. In their comments dated 25.04.2022, it is inter-alia, mentioned as under:-

5.1 That the preparation of betel nuts falls under Chapter 21 and the whole nut, even split or ground doesn't fall under this chapter and are classifiable under CTH 0802. When the betel nut undergoes the processes where in, it doesn't lose its original character of supari, it doesn't amount to the manufacture of a new product and there is no process of adding or mixing cardamom, copra, menthol, spices, sweetening agents or any such ingredients other than lime, katha or tobacco to the betel nut, in any form; hence the items API Supari, Chikni Supari and Unflavoured supari shall be covered under CTH 0802.

5.2 Further, the 'preparations based upon betel nut' are the goods obtained after adding or mixing cardamom, copra, menthol, spices, sweetening agents or any such ingredients other than lime, katha or tobacco to betel nut, in any form, and such products shall only be covered under CTH 2106. The ltem 'flavored supari' which contains flavoring material like spices or mulethi would alone be appropriately classified under CTH 2106.

5.3 The GST Council in its 45th meeting held on 17.09.2021 at Lucknow made some clarifications regarding GST rates and classification of goods. Based on the recommendations of GST council and the said meeting it was held that 'scented sweet supari' falls under tariff item 2106 90 30 as "Betel nut product'' known as "supari" and attracts GST rates of 18% vide entry at Sr. No. 23 of Schedule III of notification No. 1/2017-Central Tax(Rate) dated 28.06.2017.

6. Following the due procedure, a personal hearing in this matter was fixed on 11.05.2022. The authorized representative for the applicant, Shri B.K. Singh, attended the personal hearing on the said date and submitted that the applicant is considering import of 'Scented & Flavored and Sweetened Supari', to be sold under B2B and B2C mode in India. He re-iterated the earlier submissions of the applicant, including the process of manufacturing of the above item, the earlier rulings of the erstwhile authority and the GST Council's clarification regarding GST rates & classification in its 45th meeting.

6.1 Mr. Singh supported the applicant's claim that the above product is classifiable under Chapter 21 and not Chapter 8. He stated that Supplementary Note 2 refers specifically to Betel Nut Product known as Supari and the heading 2106 90 30 specifically covers the item under consideration.

6.2 Subsequently, the evolution of indirect taxation statute in India was explained to the authorized representative by the Authority and it was pointed out that the Customs tariff is broadly aligned with the HSN and international classification systems. Therefore, even as the recommendation of GST Council is noted, which does not explain the reasons for the said recommendation; it is felt that in determining the classification of flavored supari, vis-a-vis unflavoured Supari/API supari at stage of import, the question should be answered essentially following the Customs tariff and HSN.

6.3 In this regard, the previous rulings of CAAR, New Delhi in case of betel nuts were referred to and it was emphasized that what is required to be determined is whether "the process of cutting or slicing, mixing of food starch and in the instant case flavoring and sweetening agents, do change the substantive character of the betel nuts such that, the products lose their characteristics as betel nut and become preparations of betel nut".

7. Mr. Singh subsequently sought time of 10 days to present additional submissions on the matter, which were received on 23.05.2022. In the said submissions he added that the issue regarding "whether classification of imported products will be considered as preparation of areca nut/betelnut or will be simply areca nut" received attention of the Central Government, and in particular the Central Board of Excise & Customs (now Central Board of Indirect Taxes and Customs)- when a company called Crane Betel Nut approached Hon'ble Supreme Court to claim that the scented or sweetened supari should be classified under heading 08 of the Central Excise tariff, which was identical to Customs Tariff, as the processes by them did not amount to "PREPARATION". which was required to be proven for classification of such product; under heading 2106. Needless to say that the rate of duty was much higher under heading 2106 for the reason that while heading 08 of the CE Tariff included only agricultural products, heading 2106 covered preparation of certain agricultural products. Para 30 of the said order Of the Hon'ble Supreme Court is reproduced below"

"30. In our view, the process of manufacture employed by the appellant-company did not change the nature of the end product, which in the words of the Tribunal, was that in the end product the 'betel nut remains a betel nut The said observation of the Tribunal depicts the status of the product prior to manufacture and thereafter. In those circumstances, the views expressed in the D.C.M. General Mills Ltd. (supra) and the passage from the American Judgment (supra) become meaningful. The observation that manufacture implies a change, but every change of not manufacture and yet every change of an article is the result of treatment, labour and manipulation is apposite to the situation at hand. The process involved in the manufacture of sweetened betel nut pieces does not result in the manufacture of a new product as the end product continues to retain its original character though in a modified form.

CRANE BETEL NUT POWDER WORKS versus COMMR. OF CUS. & C. EX. TIRUPATHI reported in 2007 (210) E.L.T. 171 (S.C.). "

7.1. To overcome this situation and to tax such products of betel nut under heading 2106 of the Central Excise, the Government amended the chapter notes of tariff item 21 by adding Supplementary Notes in the said chapter of the Central Excise. These amendments/inclusions were made in the budget of year 2008. The supplementary note 2 was inserted in chapter 21 of the Central Excise Tariff which reads as below:-

"Supplementary Notes

1 Not relevant

In this Chapter betel-nut product known as Supari means any preparation containing betel-nuts but not containing lime, katha (Catechu) and tobacco whether or not containing any other ingredients, such as cardamom, copra or menthol."

Surprisingly, identical addition was also carried out in the Customs tariff by adding Supplementary Notes in Tariff Item 21.

7.2 If the intention of the Government was to consider preparation of betel nut as defind in Supplementary Note 2 of Central Excise tariff only for the purpose of charging Central Excise duty (as it then was), there was no need to incorporate similar Supplementary note in customs tariff chapter 21. Having done so, the intention of the Government was clear that they wanted to include all types of preparation of betel as covered under Supplementary Note 2 of chapter 21 of the Customs Tariff also.

7.3 The only issue to be decided in this case is whether the addition of flavour or menthol and/or sweetening agent will turn the betel nut into a preparation of betel nut.

7.4 In the case of Commissioner of Central Excise Vs. Phil Corporation reported in 2008 (223) E.L.T. 9 (S.C.), 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 observed in para 31:

"31. In deciding the case of this nature, 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. "

7.5 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.

7.6. The first requirement is that the imported product should be known as Supari in the Indian market. This was made clear by the Authority for Advance Ruling in the case of Excellent Betel Nut and subsequent rulings in Oliya Steel and Isha Exim. The second requirement is that it should be a preparation of betel nut. What would be called a preparation is also mentioned in the Supplementary Note 2 of Chaplet 21. The Note explains that the preparation may or may not include certain condiments, such as cardamom, copra or menthol.

7.7. The applicant in this case has explained in great detail as to what will be added to the betel nut after cutting it into smaller pieces. Such processes are part of preparation, as has been explained by the Hon'ble Supreme Court in the case of Commissioner vs. Phil Corporation (Supra). Mere roasting was considered as preparation. In the instant case, the betel nut has to go through various processes as mentioned in our application including addition of flavor, menthol and/or sweetner.

7.8 To cap it all, recently the Ministry of Finance vide Circular No. 163/19/2021-GST dated 06th October 2021 has clarified, that (in item no.7 at internal page 4 of the Circular) scented Supari falls under tariff item 2106 90 20. It may not be binding on the Authority, but any other opinion will result in strange situation when, if such products are imported, the Customs may classify it under Chapter 8 for the purpose of Customs Duty and for the purpose of additional duty of Customs (equivalent to the GST), the same will be classified under heading 21. The entire system of aligning the two Tariffs will be thrown away or ignored.

8. In view of the same, finding that the application is valid in terms of the provisions of the Customs Act and the CAAR Regulations, 2021. having heard the applicant, and recognizing the importance of timely pronouncement of rulings. I proceed to examine the question on merits.On the basis of the submissions of the applicant, along with the cited reference to the ruling of the erstwhile AAR. there are two contending entries in the CTH for the goods for which ruling for classification has been sought, viz. sub-heading 2106 90 30 and sub-heading 0802 80 90.

Therefore, it would be useful to carefully consider the two competing tariff entries and the guidance relating thereto.

8.1 Chapter 8. which covers Edible fruit and nuts; peel of citrus fruit or melons includes, inter alia, the following Note 3: -

'3. Dried fruits or dried nuts of this Chapter may be partially rehydrated or treated for the following purposes: a. For additional preservation or stabilization (for example, by moderate heat treatment, sulphuring, the addition of sorbic acid or potassium sorb ate);

b. To improve or maintain their appearance (for example, by the addition of vegetable oil or small quantities of glucose syrup), provided that they retain the character of dried fruit or dried nuts.'

In the Chapter 8, areca nuts, whole, split, ground, and two residuary sub-headings are accommodated under 0802 8010, 20, 30, 90, and 0802 90 00, respectively.

8.2 On the other hand, Chapter 21 covers miscellaneous edible preparations. The relevant Supplementary Note 2 to the said Chapter lays down that,

'In this Chapter "betel nut product known as Supari" means any preparation containing betel nuts, but not containing any one or more of the following ingredients, namely; lime, katha (catechu) and tobacco whether or nut containing any other ingredients, such as cardamom, copra, menthol.'

In this Chapter, the related entry, with respect to betel nuts, is the sub-heading 21 06 90 30, i.e., betel nut products known as supari.

9. Further, since the question relates to classification of goods proposed to be imported, guidance of the Harmonized Commodity Description and coding system of the World Customs Organization, to India is a signatory, would be useful. It is seen that with respect to Chapter 8, the HSN prescribes the following as general guidelines:-

'Fruit and nuts of this Chapter be sliced, chopped, shredded, stoned, pulped, grated, peeled or shelled.

The addition of Small quantities of sugar does not affect the classification of fruit in this Chapter.

10. On perusal of the advance rulings given by the erstwhile AAR, New Delhi, which have been referred to by the applicant, I find that case of M/S Excellent Betelnut Products Pvt. Ltd. do cover the said goods, i.e., 'preparation of Scented & Flavoured and/or Sweetened Betel Nut', involved in the present proceedings; and in this ruling, the erstwhile AAR has concluded that the said product merits classification under sub-heading 2106 90 30. I find that in reaching this conclusion, AAR has been of the view that on account of the positive language of the Supplementary Note 2 to Chapter 21, it is not necessary for betel nut (supari) to undergo a change of character, for it to be classified under Chapter 21. I also find that the AAR had considered the contention of the department that, the said goods merit classification under Chapter 8, but rejected the same. However, while doing so, the erstwhile AAR did not make any comment on the implications of the Chapter Note 3 to Chapter 8 on the processes that raw betel nuts were subjected to, to obtain the said goods. Further, AAR was of the opinion that the decision of the Hon'ble Supreme Court in the case of M/S. Crane Betel Nut Powder Works reported at 2007 (210) E.L.T. 171 (S.C.) has no application in the facts of the cases before them. It is my considered opinion that in order to arrive at the appropriate classification of the said goods, originating from raw green fresh betel nut, a more comprehensive view needs to be taken than in the aforesaid M/S Excellent Betelnut case, as has been done by CAAR, Mumbai in the case of M/S. Samreen International Pvt. Ltd. (Ruling No. CAAR/Mum/ARC/3/2021 dated 15th of March, 2021) and this Authority in the case of M/S Dry Nut Enterprises (Ruling No. CAAR/Del/Dry Nut/01/2021 dated 16th March, 2021 and referred to in M/S Vaibhav Enterprises Ruling No. CAAR/Del/Vaibhav/21/2021 dated 21th October 2021).

11 . I note that this Authority as well as CAAR, Mumbai have in several cases consistently ruled that, various betel nut/ areca nut items, including goods described as "preparation of Scented & Flavoured and/or Sweetened Betel Nut" covered by the present application, are classifiable under Chapter 8, more specifically sub-heading 0802 80.

12. In the present application, an effort has been made to distinguish the other betel nut items, such as 'API Supari, Boiled Supari Chikni Supari, and Unflavoured Supari' from 'Scented & Flavoured and/or Sweetened Betel Nut . I lie learned advocate has specifically referred to the views of the concerned Principal Commissioner of Customs, ICD, Tughlakabad advising that the scented sweet supari would fall under Chapter 21, heading 2106. Both the applicant and the concerned Principal Commissioner of Customs have referred to the clarification pursuant to 45th meeting of the GST Council held on 17.09.2021, wherein it was held that 'Scented Sweet Supari' would fall under GST tariff item 2106 90 30, The concerned Principal Commissioner of Customs has specifically opined that "since, the betel nut which has undergone the processes where it does not lose its original character of supari, it does not amount to manufacture or a new product and there is no process of adding or mixing cardamom, copra, menthol, spices, sweetening agents or any such ingredients other than lime, katha (catechu) or tobacco to betel nut. in any form, hence the items 'API Supari, Chikni Supari and Unflavoured Supari shall be covered under CTH 0802." However, holding that further classification of betel nut under CTH 2106 or CTH 0802. depends upon the nature and further processing of the betel nut, the Principal Commissioner of Customs has cited the decision of the GST Council that Scented Sweet supari would fall under tariff item 2106 90 30.

13. In view of the above, the basic question before me is to consider my previous rulings, as also the rulings of CAAR, Mumbai, in so far as they relate to the goods described as "preparation of Scented & Flavoured and/or Sweetened Betel Nut" in view' of the aforesaid decision of GST Council. In my previous rulings, I had noted that 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. I had 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, 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.

14. It is the contention of the applicant that due to the processes that the raw betel nuts have been subjected to. the goods have become preparations of betel nuts. In fact, the learned advocate emphasizes that even roasting of betel nut, being an irreversible process, would make roasted betel nut a preparation, fit to be covered under the scope of aforesaid Supplementary Note 2 to Chapter 21. In view of plethora of case laws cited in the previous advance rulings, I would not belabor the obvious inconsistency between the said argument and the provisions of the Customs Tariff Act, read with the HSN.

15. In the case of Scented & Flavoured and/or Sweetened supari, the question to be answered is whether the addition of special flavouring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21. In this regard, the judgment of the Hon'ble Supreme Court of India in the case of M/S crane Betel Nut Powder and of the CESTAT, Chennai in the case of M s Azam Laminators Pvt. Ltd. [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 NizamPakku (in Tamil)/Betel Nut (in English), the Hon'ble CESTAT held the resultant product classifiable under sub-heading 0802 90 19 of Central Excise Tariff and not under 2106 90 30 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 goods, meaning in the present case betel nut would continue to remain betel nut and not become preparation of betel nut.

16. I have carefully perused the decision of the GST Council regarding classification of scented sweet supari holding the same classifiable under tariff item 2106 90 30. However, the said decision does not detail the reasons for arriving at the same, leaving me handicapped in either distinguishing the same under GST law with classification under the Customs Tariff Act, or consider it adequate and substantive enough to change my previous rulings. Noting that in determining the classification of flavoured supari/betel nut at importation stage, the question should be answered following the Customs Tariff Act and HSN, read with relevant judicial pronouncements.

17. In view of the above, I rule that '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.

(Vijay Singh Chauhan)

Customs Authority for Advance Rulings, New Delhi