Supreme Court Classifies Anardana: Customs Duty Dispute Resolved (2022)

Introduction

Date of the Judgment: 11th July 2022

Citation: Civil Appeal Nos. 2360-2376 of 2009

Judges: Sanjiv Khanna, J. and Bela M. Trivedi, J.

Are dried pomegranate seeds, known as “anardana,” to be taxed as dried fruit or as seeds used for sowing? The Supreme Court of India recently addressed this question, resolving a dispute between customs authorities and importers. The core issue revolved around whether anardana should be classified under the Customs Tariff Act, 1975, as a dried fruit, attracting a higher duty, or as seeds, which have a lower duty. The judgment was delivered by a two-judge bench comprising Justice Sanjiv Khanna and Justice Bela M. Trivedi, with Justice Sanjiv Khanna authoring the opinion.

Case Background

M/s. D.L. Steels imported two consignments of ‘anardana’ from Pakistan on December 15, 2005, and March 9, 2006. The importers classified the goods under tariff sub-heading 1209.99.90, which attracts a basic customs duty of 5% plus a 2% education cess. Customs authorities, however, argued that the goods should be classified under sub-heading 0813.40.90, which carries a basic customs duty of 30% plus a 2% education cess. The customs authorities contended that since fresh pomegranates fall under Heading 0810, the dried seeds of the fruit should fall under Heading 0813, which covers dried forms of items under Headings 0807 to 0810.

Timeline:

Course of Proceedings

The Assistant Commissioner, Rail Cargo, Amritsar, issued a show-cause notice on March 27, 2006, stating that since fresh pomegranates fall under Heading 0810, dried pomegranate seeds should be classified under Heading 0813. The adjudicating authority confirmed a differential duty of Rs. 82,136 and imposed a penalty of Rs. 82,000 on the respondent through an assessment order dated May 31, 2006. Similar orders were passed against other respondents. The Commissioner (Appeals), Central Excise, Jalandhar, allowed the first appeals, noting that the goods were derived from a type of pomegranate not consumed as a fresh fruit and that the Import Policy specified that “import of pomegranate seeds will be free” under sub-heading 1209.99.90. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) dismissed the Revenue’s appeal, citing a certificate from Dr. Y.S. Parmar University of Horticulture and Forestry, Solan, stating that the goods do not fall under Heading 0813. The CESTAT observed that the goods are understood in trade parlance as seeds, not dried fruits, and that the Import Policy classified the goods under sub-heading 1209.99.90. The Revenue then appealed to the Supreme Court.

Legal Framework

The core of this case involves the interpretation of the Customs Tariff Act, 1975, which adopts the Harmonized System of Nomenclature (HSN). The HSN is a system developed by the World Customs Organization to classify goods for international trade. The Act uses the HSN codes, though some entries do not have assigned codes. The HSN is governed by the International Convention on the Harmonised Commodity Description and Coding System, adopted in 1983 and enforced in 1988. The HSN has over 5000 commodity groups structured into 21 Sections and 97 Chapters, further divided into four and six-digit sub-headings. India uses an eight or more digit coding system with the first six digits being the HSN code.

Classification under the HSN is done by placing goods under the most apt and fitting sub-heading. This involves selecting the appropriate Chapter, Heading, and sub-heading. Each of the 97 Chapters contains Chapter Notes, General Notes, and Explanatory Notes. There are also six General Rules of Interpretation (GRI) applicable to the entire system. GRI 1 states that titles of Sections, Chapters, and sub-Chapters are for ease of reference only and have no legal bearing on classification. Classification is to be done according to the terms of the Headings and any relative Section or Chapter Notes. Only if there is a conflict, the subsequent GRIs are to be used. GRI 3 provides for classification when goods are classifiable under two or more Headings, preferring the most specific description. GRI 6 states that the classification of goods in the sub-headings of a Heading shall be determined according to the terms of those sub-headings and any related Notes.

The relevant sections are:

• Chapter 8: Edible Fruit and Nuts; Peel of Citrus Fruit or Melons
• Heading 08.10: Other fruit, fresh.
• Heading 08.13: Fruit, dried, other than that of headings 08.01 to 08.06; mixtures of nuts or dried fruits of this Chapter.
• Chapter 12: Oil seeds and Oleaginous Fruits; Miscellaneous Grains, Seeds and Fruit; Industrial or Medicinal Plants; Straw and Fodder
• Heading 12.09: Seeds, fruit and spores, of a kind used for sowing.
• Heading 12.11: Plants and parts of plants (including seeds and fruits), of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal or similar purposes, fresh or dried, whether or not cut, crushed or powdered.
• Chapter 9: Coffee, Tea, Mate and Spices
• Heading 09.09: Seeds of anise, badian, fennel, coriander, cumin or caraway; juniper berries.
• Heading 09.10: Ginger, saffron, turmeric (curcuma), thyme, bay leaves, curry and other spices.

Arguments

Appellant’s Arguments:

• The customs authorities contended that since fresh pomegranates fall under Heading 0810, the dried seeds of the fruit, ‘anardana’, should fall under Heading 0813.
• They argued that Heading 0813 covers dried forms of all items under Headings 0807 to 0810.
• They argued that the Explanatory Notes to sub-heading 0810.90 expressly include pomegranates. Therefore, dried pomegranate would fall under sub-heading 0813.40.

Respondents’ Arguments:

• The importers argued that ‘anardana’ is made from wild pomegranates, which are not consumed as a fresh fruit, unlike the pomegranates covered under Heading 0810.
• They contended that the goods should be classified under sub-heading 1209.99, which covers seeds of a kind used for sowing.
• They relied on the Import Policy, which specifies that “import of pomegranate seeds will be free” under sub-heading 1209.99.90.
• They presented a certificate from Dr. Y.S. Parmar University of Horticulture and Forestry, Solan, stating that ‘anardana’ is a dried product of local ‘daru’ (wild pomegranate), which is different from the pomegranate used for fresh fruit purposes.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether dried pomegranate seeds, domestically known as ‘anardana’, should be classified under Heading 0813 of the Tariff entries issued under the Customs Tariff Act, 1975, or under Heading 1209.

Treatment of the Issue by the Court:

Authorities

The Court considered the following authorities:

Judgment

The Supreme Court held that ‘anardana’ should be classified under Heading 1209 of the Customs Tariff Act, 1975, as seeds of a kind used for sowing, and not under Heading 0813 as dried fruit. The Court considered the arguments and authorities presented by both sides and concluded that the classification of ‘anardana’ as seeds was more appropriate based on its nature and usage.

How each authority was viewed by the Court:

• Dunlop India Ltd. v. Union of India and Ors. (1976) 2 SCC 241 and Commissioner of Central Excise, New Delhi v. Connaught Plaza Restaurant Private Ltd., New Delhi (2012) 13 SCC 639: The Court relied on these cases to emphasize that words in a taxing statute must be construed in consonance with their commonly accepted meaning in trade and popular parlance.
• Collector of Central Excise, Kanpur v. Krishna Carbon Paper Company, (1989) 1 SCC 150: The Court cited this case to note that the common parlance test is not applicable when there is an artificial definition or special meaning attached to the word in a statute.
• HPL Chemicals Ltd. v. Commissioner of Central Excise, Chandigarh (2006) 5 SCC 208, Parle Agro Pvt. Ltd. v. Commissioner of Commercial Taxes, Trivandrum (2017) 7 SCC 540, Union of India & Ors. v. Garware Nylons Ltd. & Ors. (1996) 10 SCC 413: The Court relied on these cases to reiterate that the onus is on the Revenue to establish that the item in question falls in the taxing category they claim.
• Section 2(n) of the Spices Board Act, 1986: The Court referred to this section to highlight that pomegranate seeds are recognized as a spice under the Spices Board Act.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Nature of ‘Anardana’: The Court accepted the finding that ‘anardana’ is a dried product of wild pomegranate, which is different from the pomegranate consumed as a fresh fruit. This distinction was crucial in determining that it should not be classified as a dried fruit under Heading 0813.
• Common Parlance: The Court emphasized that the term ‘edible’ should be construed using the principle of common parlance. It noted that ‘anardana’ is not commonly understood as a dried fruit but rather as a seed used for culinary and medicinal purposes.
• Import Policy: The Court noted that the Import Policy specifically includes pomegranate seeds under sub-heading 1209.99.00, which further supported the classification under Heading 1209.
• Usage: The Court observed that ‘anardana’ is primarily used as a condiment and in Ayurvedic medicine, which aligns with the classification of seeds used for sowing.

Sentiment Analysis:

Fact:Law Ratio:

The court placed a higher emphasis on the factual aspects of the case, particularly the nature of ‘anardana’ and its common usage, while also considering the legal provisions and interpretations.

Logical Reasoning:

The Court’s reasoning was based on a step-by-step analysis, starting from the nature of the product, moving to its common understanding, and finally aligning with the relevant policy and usage.

The Court considered the alternative interpretation that ‘anardana’ could be classified as a dried fruit under Heading 0813, but rejected it because ‘anardana’ is derived from wild pomegranates, which are not consumed as fresh fruit. The Court also considered the fact that ‘anardana’ is primarily used as a condiment and in Ayurvedic medicine, which is not consistent with the classification of dried fruits under Heading 0813. The Court concluded that the classification of ‘anardana’ as seeds under Heading 1209 was more appropriate.

The Supreme Court’s decision was based on the following reasons:

• The Court accepted the finding that ‘anardana’ is a dried product of wild pomegranate, which is different from the pomegranate consumed as a fresh fruit.
• The Court emphasized the common parlance understanding of ‘anardana’ as a seed, not a dried fruit.
• The Court noted that the Import Policy specifically includes pomegranate seeds under sub-heading 1209.99.00.
• The Court observed that ‘anardana’ is primarily used as a condiment and in Ayurvedic medicine, which aligns with the classification of seeds used for sowing.

The Court quoted the following from the judgment:

• “The word ‘edible’ as per Webster’s New International Dictionary means “fit to be eaten as food; eatable; esculent.” The Concise Oxford English Dictionary defines edible as “fit to be eaten”.”
• “The finding of the CESTAT is that wild pomegranates from which ‘anardana’ is made are different from the pomegranate fruit.”
• “The submission of the learned counsel for the Respondent is correct that when the Revenue challenges the classification made by the assessees, the onus is on the Revenue to establish that the item in question falls in taxing category as claimed by them.”

There were no dissenting opinions in this case.

Key Takeaways

• ‘Anardana’ will be classified under Heading 1209 of the Customs Tariff Act, 1975, as seeds of a kind used for sowing, attracting a lower customs duty.
• The judgment clarifies the distinction between wild and cultivated pomegranates for customs classification purposes.
• The decision highlights the importance of common parlance and trade usage in interpreting tax statutes.
• The judgment reinforces that the onus is on the Revenue to prove a different classification when challenging the classification made by the assessee.

Directions

The Supreme Court did not give any specific directions, but observed that the Revenue should take a considered policy decision after examining the data and ascertaining the views of the trade associations on the classification of ‘anardana’ or by fixing a specific customs duty. The Court also stated that until such an exercise is undertaken, the classification as determined by the CESTAT may be continued to avoid confusion and litigation.

Specific Amendments Analysis

There are no specific amendments discussed in the judgment.

Development of Law

The ratio decidendi of the case is that ‘anardana’, being derived from wild pomegranates and primarily used as a condiment and in Ayurvedic medicine, should be classified under Heading 1209 as seeds of a kind used for sowing, and not under Heading 0813 as dried fruit. This judgment clarifies the classification of ‘anardana’ and reinforces the importance of common parlance and trade usage in interpreting tax statutes. This decision also reinforces the principle that the burden of proof lies on the Revenue when challenging the classification made by the assessee. There is a change in the previous position of law where the Revenue was trying to classify ‘anardana’ as dried fruit.

Conclusion

The Supreme Court dismissed the appeals by the Revenue and upheld the decision of the CESTAT, thereby classifying ‘anardana’ under Heading 1209 of the Customs Tariff Act, 1975, as seeds of a kind used for sowing. The Court emphasized that ‘anardana’ is derived from wild pomegranates, not consumed as fresh fruit, and is primarily used as a condiment and in Ayurvedic medicine. The judgment provides clarity on the classification of ‘anardana’ and reinforces the principles of common parlance and trade usage in interpreting tax statutes.