2024 (6) TMI 1454 - AAR - Customs

Classification of goods intended to be imported - Menthol Scented Sweet Supari and Flavoured and Coated Illaichi - to be imported under the CTH-0802 80 or under CTH-2106 90? - HELD THAT - These processes as described and carried out on the subject products are essential for the preparation of the subject goods as mouth freshener and goods after subjecting to such processes cannot be ordinarily used for any other purpose. There is nothing on record to dispute claim of the applicant. The betel nut products commonly known as supari is covered under sub-heading 2106 90 30 of this chapter. Applicant has relied upon C.B.I. C. Circular No. 163/19/2021-GST dated 6th October 2021 for their claim to the classification of scented sweetened supari. Since the product under consideration is Flavoured and coated Illaichi (Cardamom) which applicant has claimed to be edible product in terms of supplementary note 5(b) of the chapter 21 of the Customs Tariff Act 1975 examination of relevant CTHs under chapter 21 is essential. Applicant has referred to the C.B.I.C. Circular No. 163/19/2021-GST dated 6th October 2021 issued based on the recommendations of the GST Council in its 45th meeting held on 17th September 2021 for clarifying classification aspects of the scented sweet supari and flavoured coated illaichi. It is found that both the products will be subjected to the processes before their importation and hence it is pertinent to consider the contents of the CBIC circular noted earlier in view of the provisions of the Section 3(7) of the Customs Tariff Act 1975. In the instant case menthol scented sweet supari does not contain lime katha (catechu) and tobacco. It will specifically contain menthol. Due to carrying out of such processes this product is not classifiable under Chapter 8 of the Customs Tariff Act 1975. On the background of contending classifications relevant chapter notes supplementary notes CBIC Circular referred above explanations in the IGST Rate Notification amended from time to time and the Section 3(7) of Customs Tariff Act 1975 instant product - betel nut product known as supari -menthol scented and sweet - is more appropriately classifiable as a betel nut preparation under chapter 21 i.e. CTH 2106 9030 than in any of the headings under Chapter 8. CBIC circular legally supports this view. Conclusion - Menthol Scented Sweet Supari merits classification under CTI 2106 90 30 and Flavoured and coated Illaichi merits classification under CTI 2106 90 99 of the First Schedule to the Customs Tariff Act 1975.

Summary

The core legal questions considered in this ruling pertain to the proper classification under the Customs Tariff Act, 1975 of two imported products: "Menthol Scented Sweet Supari" and "Flavoured and Coated Illaichi." Specifically, the issues involve whether these products should be classified under Chapter 8 (nuts and dried fruits) or Chapter 21 (miscellaneous edible preparations), with attendant implications for applicable customs duty and integrated goods and services tax (IGST). The questions also extend to the applicability of relevant supplementary notes, tariff entries, prior advance rulings, and circulars issued by the Central Board of Indirect Taxes and Customs (CBIC), including the binding nature of prior rulings and the interpretation of the term "preparation" versus "processed" products. Additionally, the ruling addresses the applicant's request to add multiple ports of import for the same classification ruling previously granted for another port.

The first issue concerns the classification of Menthol Scented Sweet Supari. The applicant contends that this product, a betel nut-based mouth freshener prepared by subjecting raw dried betel nuts to various processes including impurity removal, polishing, sterilization, cutting, roasting, and addition of menthol and sweetening agents (but excluding lime, katha, and tobacco), should be classified under tariff item 2106 90 30 as a "Betel nut product known as Supari" within Chapter 21. The applicant relies on Supplementary Note 2 to Chapter 21, which defines "betel nut product known as Supari" as any preparation containing betel nuts but not containing lime, katha, or tobacco, irrespective of other ingredients such as cardamom or menthol. The applicant also refers to a prior advance ruling by the same authority and a CBIC circular clarifying GST classification and rates for such products.

The department, represented by the Customs Commissionerate of Indore, argued that the bulk cutting sweet supari is essentially processed betel nut retaining its original identity and thus should be classified under Chapter 8, specifically under CTH 0802 80 (areca nuts), rather than Chapter 21. The department distinguished between "processing" (cleaning, drying, cutting, roasting, flavoring) and "preparation" (a distinct new product with a different identity, such as mouth fresheners). They relied on the Supreme Court judgment in Crane Betel Nut Powder Works and a CESTAT decision, which held that addition of flavoring agents does not alter the essential character of betel nut, thus supporting classification under Chapter 8.

The applicant rebutted by emphasizing that the product is a preparation involving multiple raw materials and processes that permanently alter the original betel nut's character, creating a new product classifiable under Chapter 21. They cited the binding nature of the prior advance ruling in their own case, as upheld by the Bombay High Court, which clarified that advance rulings are binding only on the parties and cannot be overridden by other decisions unless challenged. The applicant also highlighted subsequent judicial pronouncements distinguishing the present case from the Supreme Court's Crane judgment, noting that the latter dealt with Central Excise law and not Customs Tariff classification, and that the Customs Tariff includes a specific entry for supari under Chapter 21, which takes precedence over the general entry for nuts under Chapter 8.

The Court examined the legal framework applicable to classification. Section 3(7) of the Customs Tariff Act, 1975 mandates that imported articles are liable to integrated tax at rates corresponding to GST on like articles supplied domestically, linking customs classification to GST classification. The Court reviewed Chapter notes and supplementary notes to Chapters 8 and 21, CBIC Circular No. 163/19/2021-GST dated 6th October 2021, and relevant tariff entries. Chapter 8 permits partial rehydration or treatment of dried fruits or nuts only to the extent that the product retains its original character. The extensive processing described for the sweet supari, including roasting, flavoring, and blending, was found to exceed mere preservation or appearance improvement and thus did not support classification under Chapter 8.

Conversely, Chapter 21 covers miscellaneous edible preparations not elsewhere specified, including food preparations and betel nut products known as supari under tariff item 2106 90 30. The supplementary notes to Chapter 21 explicitly include betel nut products prepared without lime, katha, or tobacco, even if containing cardamom or menthol, and clarify that such preparations are distinct from raw nuts. The Court found the applicant's product fits squarely within this description and is consistent with the CBIC GST circular classifying scented sweet supari under 2106 90 30 with GST at 18%.

The second issue concerns the classification of Flavoured and Coated Illaichi (cardamom). The applicant described this product as green cardamom seeds subjected to impurity removal, bacterial killing, separation, and coating with aromatic spices, silver leaf, artificial sweeteners, and packaging for use as a mouth freshener. The question was whether this product should be classified under Chapter 9 (spices, including cardamom under heading 0908) or under Chapter 21 as a value-added food preparation under tariff item 2106 90 99.

The Court analyzed Chapter 9's provisions, which classify spices and mixtures thereof, allowing classification under Chapter 9 only if the product retains the essential character of the spice. The addition of other substances does not affect classification if the essential character is retained; otherwise, the product falls outside Chapter 9. The Court noted that the flavoured and coated illaichi is a value-added product, distinct from raw cardamom, and is intended for direct consumption or after processing as a mouth freshener. The CBIC GST circular explicitly classifies such flavoured and coated cardamom products under Chapter 21, tariff item 2106 90 99, with GST at 18%.

Applying the legal framework, the Court found that the flavoured and coated illaichi does not retain the essential character of raw cardamom and therefore does not fall under Chapter 9 but rather under Chapter 21 as a food preparation not elsewhere specified. The Court relied on the supplementary notes, CBIC circular, and tariff entries to support this classification.

Regarding the applicant's request to add multiple ports (Durgapur ICD, Tughalkabad ICD, Pithampur ICD, and Mundra Port) for import of these products under the same classification ruling previously granted for Nhava Sheva Port, the Court noted that no appeal had been filed against the original ruling and that the department had not submitted any opposition to the addition of ports. The Court found no legal impediment to allowing the addition of ports for the same classification ruling.

The Court also addressed the binding nature of prior rulings and judicial decisions. It emphasized that advance rulings are binding on the parties under Section 28J of the Customs Act, 1962, and that the applicant's prior ruling remains authoritative in the absence of any challenge or appeal. The Court distinguished the Supreme Court's Crane Betel Nut Powder Works judgment as pertaining to Central Excise law and not controlling on Customs Tariff classification, especially given the specific tariff entries and supplementary notes under the Customs Tariff Act. The Court also cited the principle that a case is an authority only for what it decides and cannot be extended beyond its facts by logical deduction.

In conclusion, the Court ruled that "Menthol Scented Sweet Supari" merits classification under tariff item 2106 90 30 as a betel nut product known as supari within Chapter 21, and "Flavoured and Coated Illaichi" merits classification under tariff item 2106 90 99 as a food preparation not elsewhere specified within Chapter 21. The Court allowed the addition of the requested ports for import under the same classification. The ruling is consistent with the relevant statutory provisions, supplementary notes, CBIC circulars, and judicial precedents, and affirms the binding nature of the prior advance ruling in the applicant's favor.

Significant holdings include the following verbatim excerpts:

"By virtue of application of Section 3(7) of the Customs Tariff Act, 1975 'any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty percent as is leviable under Section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India...'"

"In view of supplementary Note 2 of Chapter 21 of Schedule 1 of the Customs Tariff Act, 1975 read with Para 7 of the C.B.I. & C. Circular No. 163/19/2021-GST, dated 6th October, 2021 ... the scented sweetened supari merits classification under CTH 2106 90 30."

"The flavoured and coated illaichi is a value-added product ... distinctly different from illaichi or cardamom classifiable under Chapter 9 ... same merits to be classified under Tariff Heading 2106 and more particularly under CTI 21069099 (other)."

"There cannot be a situation where same product is subjected to levy of basic customs duty under one CTH and levy of IGST under another CTH of the Customs Tariff Act, 1975."

"A case is only an authority for what it decides."

"The classification of the said product has to be only under Chapter 21 and not Chapter 8."

These holdings establish the core principles that classification must be consistent across customs and GST regimes, that specific tariff entries and supplementary notes prevail over general entries, and that the nature of the product as a preparation versus a processed raw material is determinative for classification under the Customs Tariff Act. The ruling clarifies the application of these principles to the products in question and confirms the binding effect of prior advance rulings.