N.V.K. Mohamed Sultan Rowther And Sons vs. The Additional Commissioner Of CGST And Central Excise

Held

The Court held that the process applied to the betel nuts by the petitioner does not result in the loss of their essential character as betel nuts. The Court relied heavily on the Supreme Court's decision in Crane Betel Nut Powder Works Vs. Commissioner of Customs & Central Excise, Tirupathi and Another. In that judgment, the Supreme Court held that the process of cutting betel nuts into small pieces and adding essential/non-essential oils, menthol, sweetening agent, etc., did not result in a new and distinct product having a different character and use. The Court found this decision squarely applicable to the present case. Furthermore, the Court noted a previous order in W.P.No.17090 of 2022, which quashed a similar show cause notice on merits, also citing the Crane Betel Nut Powder case and emphasizing that there was no change in the tariff item or character of the product. The Court adopted the same approach. Consequently, the impugned show cause notice was quashed. The operative direction was to quash the show cause notice and allow the writ petition.

Facts

The petitioner, N.V.K. Mohamed Sultan Rowther & Sons, manufactures and supplies branded and scented areca/betel nuts under the brand name “Roja Pakku”. The tax period in question is from July 2017 to March 2023. The petitioner classified their goods under Chapter 8 of the Customs Tariff Act, 1975, specifically entry 0802, which attracts a 5% GST levy. The respondent, The Additional Commissioner of CGST and Central Excise, Madurai, contended that the correct classification should be under Chapter 21 of the Customs Tariff Act, specifically Serial No. 23 of Notification No. 1/2017, which attracts an 18% GST levy. The respondent's stand is that the processing of the betel nuts by the petitioner changes their character, making them fall under Chapter 21, despite the deletion of the specific entry for 'betel nut product known as supari' from Serial No. 23 with effect from 15.11.2017. The petitioner challenges the show cause notice issued by the respondent.

Key Issues

1. Whether the processing of betel nuts by the petitioner, involving sundrying, cleaning, breaking into smaller pieces, mild heating with vegetable oil, and addition of sugar, saccharine, glycerine, spices, and menthol, results in a loss of their essential character as betel nuts, thereby necessitating classification under Chapter 21 of the Customs Tariff Act instead of Chapter 8. Petitioner's arguments: The petitioner argued that the process applied does not change the essential character of the betel nuts, citing the Supreme Court decision in Crane Betel Nut Powder Works Vs. Commissioner of Customs & Central Excise, Tirupathi and Another, which held that similar processes did not result in a new and distinct product. They also relied on a previous High Court order in a similar case (W.P.No.17090 of 2022) concerning Azam Laminators Private Limited, which quashed the show cause notice on merits based on the Crane Betel Nut Powder case and the fact that the product's tariff item and character remained unchanged. Respondent's arguments: The respondent contended that the processing of the betel nuts leads to a change in character, justifying classification under Chapter 21, even after the specific mention of 'betel nut product known as supari' was removed from Serial No. 23 of Notification No. 1/2017. They relied on Note 3 to Chapter 8 of the Customs Tariff Act, implying that treatments beyond preservation or stabilization might alter the character.