2025 (6) TMI 1025 - HC - Customs

Classification of imported roasted areca nuts - whether areca nuts are roasted areca nuts so as to be classifiable under CTH 2008 19 20 or are merely dried areca nuts and could be classified under CTH 080280? - HELD THAT - This Court in examining the classification of roasted areca nuts finds that as a matter of fact there is no definition of roasted given in the Custom Tariff Act. As far as Chapter 08 is concerned it speaks of process like chilling or steaming boiling drying and provisionally preserving. It is important to note that although the said chapter contains the entry of areca nuts at 0802 80 and consists of whole split ground and other forms but the description of these items has to be understood in the form it assumes after the process as mentioned under the said chapter is undertaken on them. That is to say the end product obtained by the process mentioned in this chapter becomes significant for its classification. It has been rightly held by the CAAR that there is a marked difference between the processes of moderate heat treatment dehydrating/drying referred in chapter 8 and processes of dry-roasting oil-roasting and fat-roasting referred in Chapter 20. This Court finds that roasting is a process used for bringing in to existence roasted nuts and finds that the processes mentioned in chapter 8 do not cover roasting process. Further this court cannot be oblivious to the fact that roasting as submitted by the importer by virtue of letter dated 04.06.2024 issued by ANL(S) Trading services Pte Ltd. Singapore is carried out using roasting ovens due to which betel nuts are roasted in the range of 150 degrees Celsius then cooled in room temperature and the cycle is repeated until the moisture content is less than 6%. This clearly indicates that the roasting is much more than mild heat treatment. Even in the generally understood meaning of the terms it is understood that roasting involves severe heat treatment and is different from moderate heat treatment as well as dehydration. Thus drying and roasting cannot be equated and both the process are diametrically different. It can be safely concluded that a doubt always existed in the mind of the department relating to the tariff entry of roasted areca nuts otherwise there was no occasion nor any need for issuance of the recent notification dated 02.04.2025 wherein the department was compelled to clarify and specify in clear terms that roasted areca nuts are not covered under ITC (HS) Code 2008 19 20 as they are specifically covered under 08028090. The roasted areca nuts have been rightly classified under Tariff Entry 2008 19 20. Whether the commodity imported by the importer/petitioner are roasted areca nuts so as to be classifiable under CTH 2008 19 20 or are merely dried areca nuts and could be classified under CTH 080280? - HELD THAT - In the present case the very conduct of the department in drawing the samples behind the back of the importer and not providing them with the sealed samples and test memo by taking shelter of Section 144 of the Customs Act 1962 cannot be countenanced. Further the rules specifically provides the importer for applying for re-testing in case they are not satisfied with the first test report this court fails to understand as to how the department cannot be satisfied with any test report in the first place. The act of the department apparently seems to be motivated and suspicious in not providing the impugned letter dated 27.12.2024 in the first instance and then not taking the importer in confidence while sending for re-testing if at all re-testing was permissible by the state as per the rules. Time and again this Court has held that in a welfare state the power and function of the executive should be above suspicion like the Caesar s wife. The State is expected to be impartial unbiased and lead the way in adhering to legal and ethical standards. In the context of sample drawing for analysis and testing the state should ensure that samples are collected and analysed according to established procedures preserving their integrity and reliability. This includes drawing samples in a manner that avoids tampering contamination or alteration and ensuring that the analytical methods used are valid and reliable. The lackadaisical attitude of the department in not following the established guidelines relating to drawing samples and sending for testing cannot be given concession to in any manner. Apparently it seems the department indiscriminately drew samples and sent to testing Centre at its own whims and wanted to keep the importer at bay during the pendency of the Appeal filed by them against the advance ruling relating to classification of roasted areca nuts . The act of the department in relying on a test report which could not have been carried out in the first place also seems to be ill-founded. Thus the seizure of the commodity roasted areca nuts apparently seems to be motivated and driven by mala fide and cannot be allowed to be sustained. Conclusion - i) Roasting is a distinct process from drying or moderate heat treatment involving severe heat causing chemical and physical changes and hence roasted nuts fall under Chapter 20 not Chapter 8. ii) The release of the imported roasted areca nuts under CTH 2008 19 20 is directed quashing the seizure. Appeal allowed.

Summary

The core legal questions considered by the Court revolve around the classification and characterization of imported "roasted areca nuts" under the Customs Tariff Act, 1975, specifically:

(i) Whether the Customs Authority for Advance Ruling (CAAR) correctly classified "roasted areca nuts" under Customs Tariff Heading (CTH) 2008 19 20 (Chapter 20) as opposed to CTH 080280 (Chapter 8).

(ii) Whether the actual imported commodity corresponds to "roasted areca nuts" as claimed by the importer, or merely "dried areca nuts" as contended by the department, thus affecting classification and applicable duties.

Regarding the first issue on classification, the Court examined the relevant legal framework under the Customs Act, 1962 and Customs Tariff Act, 1975, including the provisions relating to advance ruling (Sections 28E to 28J of the Customs Act). The Court noted that advance ruling is a mechanism designed to provide clarity and certainty on classification and tax liability prior to importation or exportation, allowing importers/exporters to plan accordingly and avoid litigation.

The CAAR had ruled that "roasted areca nuts" fall under Chapter 20, specifically CTH 2008 19 20, which covers "other roasted nuts and seeds." This ruling was based on an examination of the process described by the importer's overseas supplier, involving husking, drying, and roasting at temperatures between 130-150^0C, repeated until moisture content was below 6%. The CAAR distinguished roasting from drying or moderate heat treatment, emphasizing that roasting involves severe heat causing fundamental chemical and physical changes, including a charred appearance, whereas drying is primarily moisture removal.

The Court relied on the CAAR's detailed reasoning, which referred to Chapter Notes and HSN Explanatory Notes, and judicial precedents including the Supreme Court's decision in Alladi Venkateshwarlu (AIR 1978 SC 945) that the commonly accepted meaning of terms should guide classification. The CAAR and the Court noted that Chapter 20 excludes goods prepared by processes specified in Chapters 7, 8, or 11, which include drying and boiling, but not roasting. The Court also considered a recent ruling of the Madras High Court upholding classification of roasted areca nuts under CTH 2008 19 20, which reinforced the distinction between roasting and drying processes and the application of the specific tariff heading.

The department's arguments challenging the advance ruling were that the ruling was based solely on a process description letter from a third party (Singapore-based supplier) rather than the actual Indonesian supplier, and that the imported nuts underwent only moderate heat treatment permissible under Chapter 8. The department contended that the classification should be under Chapter 8, which covers dried nuts, including areca nuts, and that the process described did not produce the charred appearance associated with roasting. Further, the department pointed to packaging differences and the absence of laboratory testing at the advance ruling stage as flaws.

The Court rejected these contentions, holding that the advance ruling is based on the process described for the proposed import and that the ruling binds the parties unless there is a change in law or facts. The Court found that the importer's process description was sufficient and that the ruling was not required to be based on empirical testing at that stage. The Court also dismissed the technical objection regarding the third-party letter, noting that the bill of entry identified the supplier as the Singapore company and described the goods as roasted areca nuts, thus negating the department's argument.

Consequently, the Court upheld the CAAR's classification of roasted areca nuts under CTH 2008 19 20, dismissing the department's appeals challenging the advance ruling.

Regarding the second issue on whether the imported commodity was indeed "roasted areca nuts" or merely "dried areca nuts," the Court examined the competing laboratory test reports and procedural compliance in sample collection and testing. The department relied on test reports from the Central Revenue Control Laboratory (CRCL), New Delhi, which indicated moisture content around 7% and classified the commodity as dried areca nuts unfit for human consumption. In contrast, the importer relied on earlier and subsequent reports from M/s Fare Labs Pvt. Ltd., Gurgaon, showing moisture content around 3.4-3.9% and classifying the commodity as roasted areca nuts fit for human consumption.

The Court scrutinized the sampling and testing procedures, noting guidelines issued by the Central Board of Excise and Customs (dated 18/07/2017) and the Food Safety and Standards Authority of India (dated 12/07/2022). These guidelines require samples to be drawn in the presence of the importer or their representative, prompt communication of test results, and that re-testing can only be requested by the importer within a specified time. The Court found that the department had violated these procedural safeguards by drawing samples without the importer's presence, not providing sealed samples or test memos, and conducting re-tests without importer's application or consent. Further, the department's re-testing was delayed beyond prescribed timelines and was conducted by the same laboratory (CRCL) rather than an independent referral lab as required.

The Court emphasized the principle that the State, as a welfare entity, must act impartially and adhere strictly to legal and ethical standards, especially in matters involving sample testing and enforcement actions. The department's failure to follow established procedures undermined the reliability and fairness of the adverse test reports it relied upon.

On the merits of the test reports, the Court found the earliest test report from Fare Labs, conducted promptly and in conformity with guidelines, to be the most reliable. The Court observed no valid grounds to discredit this report in favor of the later CRCL reports, which were procedurally flawed. The Court also noted that the Food Safety and Standards (Import) Regulations, 2017, require importer's consent for re-testing, which was absent here.

Given these findings, the Court concluded that the imported commodity was "roasted areca nuts" as claimed by the importer and was rightly classified under CTH 2008 19 20. The department's seizure of the goods was held to be mala fide and unsustainable. The Court accordingly quashed the seizure memo and directed release of the goods subject to treatment by Gamma Irradiation Process to ensure fitness for consumption, acknowledging the lapse of six months since importation.

Significant holdings and principles established include:

- The advance ruling mechanism under the Customs Act is designed to provide binding, prior clarity on classification based on the process described by the importer, without mandatory requirement of empirical testing at that stage.

- Roasting is a distinct process from drying or moderate heat treatment, involving severe heat causing chemical and physical changes, and hence roasted nuts fall under Chapter 20, not Chapter 8.

- Specific tariff entries prevail over general entries; since roasted areca nuts are specifically classified under CTH 2008 19 20, they cannot be subsumed under the general dried nuts category of Chapter 8.

- The HSN Explanatory Notes and judicial precedents are authoritative guides for tariff classification.

- The State must strictly adhere to procedural safeguards in sample collection and testing, including importer's presence and consent for re-testing, to uphold principles of natural justice and reliability of evidence.

- Test reports obtained in violation of prescribed guidelines and without importer's consent cannot be relied upon to deny classification or justify seizure.

- The benefit of doubt in taxing statutes goes in favor of the importer where ambiguity exists.

In conclusion, the Court dismissed the department's appeals challenging the advance ruling and allowed the writ petition filed by the importer, directing release of the imported roasted areca nuts under CTH 2008 19 20, quashing the seizure and underscoring adherence to procedural fairness and correct classification principles.