2022(04)LCX0240(AAR)

Fermenta Biotech Limited

decided on 11-04-2022

CUSTOMS AUTHORITY FOR ADVANCE RULINGS

NEW CUSTOM HOUSE, BALLARD ESTATE, MUMBAI - 400 001

E-MAIL: cus-advrulings.mum@gov.in

The 11^th of April,2022
Ruling Nos. CAAR/Mum/ARC/08/2022
in
Application No. CAAR/CUS/APPL/05/2022 - 0/o Commr.-CAAR-MUMBAI

Ruling

    M/s. Fermenta Biotech Ltd. (hereinafter, the applicant) situated at A-1501, Thane One, DIL Complex, Ghodbunder Road, Thane West, PIN- 400610 and having the IEC No. 0388076381, intends to import two different products, namely, Light Feed Oil or Distilled Fatty Acid and Heavy Feed Oil or Fatty Substance Mixture from Harting SA, Chile and are seeking classification of the same, as well as applicability of notification, if any, issued under sub-section (1) of section 25 of the Customs Act, 1962.

2. The applicant has made the following submissions along with the report of Harting SA, Chile:-

a) The applicant along with Harting S.A. are jointly evaluating the implementation of the Harticohl project in India,

b) Light Feed Oil (LFO) and Heavy Feed Oil (HFO) are both by-products from the Omega 3 oil industry and are major raw materials for the Harticohl project,

c) The raw materials of the Harticohl project comprises of by-product residues from the industrial Omega 3 oil refining process. LFO is produced as a by-product residue from the industrial oil refining process by hydrolytic splitting of oils and distillation. LFO is obtained as distilled fatty acids,

d) LFO is mainly composed of a mixture of monocarboxylic fatty acids and its composition is as under: –

a. Distilled fatty acids: Industrial monocarboxylic fatty acids

b. Mono-ethyl esters of long chain fatty acids

c. Cholesterol

Percentage range of constituents of LFO: –

e) LFO’s main components are monocarboxylic fatty acids obtained from the hydrolysis and distillation of oils. LFO is obtained as distilled fatty acids. As monocarboxylic fatty acids comprise the major fraction of LFO, the appropriate customs tariff heading should be 3823,

f) HFO is produced as a by-product residue from the industrial oil refining process by chemical trans-esterification of the oil with ethanol and distillation. HFO is mainly composed of a mixture of mono-ethyl esters of long chain fatty acids. HFO’ s composition is as under: –

(a) Mono-ethyl esters of long chain fatty acids

(b) Mixture of mono-, di- and tri-, fatty acid esters of glycerol

(c) Cholesterol

Percentage range of constituents of HFO: –

g) As mono-ethyl esters of long chain fatty acids and mixture of mono, di, tri, fatty acid esters of glycerol comprise the major fraction of FIFO, the proposed customs tariff by the applicant is 3824.

3. Personal hearing was held on 01.03.2022. S/Shri Arun Khedwal, GM; Jagdish Tamore and Nandkumar Tawade, attended the personal hearing on behalf of the applicant. No one represented the jurisdictional commissioner. The representatives of the applicant explained that the starting raw material for the products as fish oil oil derived from anchovies. It was pointed out to them that in their application, they have not mentioned anywhere that the basic feedstock is fish oil oil. The representatives were requested to submit full and correct facts in a rejoinder and supply test reports, if any, from the supplier.

4. The applicant submitted a rejoinder vide their letter dated 07.03.2022 making the following submissions: –

a) Cholesterol gives the products the essential character. The products being imported are sourced from fish oil (anchovy) or tallow. Distilled fatty acid is synonymous with LFO. Fatty substance mixture is synonymous with HFO,

b) The key starting material is fish oil oil which is obtained from fish species, mainly anchovy, primarily made up of triglycerides. In the process of production, the oil undergoes hydrolytic splitting of triglycerides into fatty acids and glycerol. The fatty acids are removed by distillation to yield distilled fatty acids, which can be used in industrial applications, among others. Tallow is fat obtained mainly from the belly fat of cattle, primarily made up of triglycerides,

c) This technology is unique and the applicant is the only company to use this technology in India. The main objective of the Harticohl project is production of cholesterol concentrates from by­products streams of the Omega 3 industry. The Omega 3 industry processes fish oil oil to obtain concentrates of Omega 3 fatty acids, mainly EPA (eicosapentaenoic acid) and DHA (docosahexaenoic acid), in the form of ethyl esters (mono-alkyl esters) and others. The main fish species used is anchovy. Other sources of fish oil oil are sardine, mackerel, pollock and menhaden. In the process of producing fish oil and fish meal, some of the fatty acids from the triglycerides are released by hydrolytic splitting. The average composition of fish oil is as below: –

d) For the Omega 3 industry, cholesterol and free fatty acids are considered impurities and are typically removed from the triglyceride oil to obtain a Refined Fish Oil (RFO) and the corresponding by-products or waste products,

e) Both the main by-products streams, i.e., LFO and HFO are starting raw materials for the Harticohl project. The pictorial representation of the process diagram of the Omega 3 manufacturing process is reproduced below:-

f) Fish oil oil (anchovy) is fed in the first step of the process with the purpose of obtaining a refined triglyceride oil free of cholesterol and free fatty acids (the impurities),

g) Step 1 is typically performed by distillation, where the main product is RFO (the triglyceride oil fraction) collected as a bottom stream, and a by-product distillate stream, comprising mainly distilled fatty acids and optionally, ethyl esters. This distillate stream is LFO.

h) Then, the RFO is fed in the second step of chemical reaction and is trans-esterified with ethanol in the presence of an alkali catalyst with the purpose of obtaining crude ethyl-esters (mono-alkyl ester). The following figure shows the chemical reaction equation of the trans-esterification:-

TG + α·EtOH → βcEE + χ·MG + δ·DG +ε·Glycerol

i) Step 2 is typically performed in a batch or continuous reactor, where the mainstream is a reaction mixture comprising mainly of crude ethyl-esters (mono-alky esters) and glycerol as the main by-product. Then, the crude ethyl-esters are fed in the third step of distillation with the purpose of obtaining one or more concentrates of ethyl-EPA and ethyl-DHA. Step 3 generates several by-product streams, one of them a light distillate of ethyl-esters (which can be admixed with LFO) and the heavy distilled stream of HFO.

5. I have gone through the application and subsequent submissions made by the applicant as well as relevant open source information. The applicant intends to import two different products, viz., LFO or Distilled Fatty Acid and HFO or Fatty Substance Mixture from Harting SA, Chile and are seeking classification of the same. They are proposing the customs tariff headings 3824 for HFO and 3823 for LFO.

5.1. The applicant has described the processes carried out on fish oil/tallow to obtain LFO and HFO. The first step in the process is distillation during which LFO is generated as a by-product. Further processes of trans-esterification and distillation result in the final product Omega 3 concentrates and the by-products of these processes, one of which is the HFO. It is the by-products of these processes which the applicant intends to import and describes as LFO and HFO, for whose appropriate classification entries, advance rulings have been sought.

5.2. I first take up the classification of the LFO. The classification of goods for customs is governed by the principles set forth in the General Rules of Interpretation (GIR). Rule 1 of GIR provides that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions, i.e., GIRs 2 to 6. In other words, if the goods to be classified are covered by the description of a heading and the section and chapter notes do not exclude classification in that heading, the heading would apply to the said goods.

5.3. Chapter 15 of the Customs Tariff Act, 1975 deals with “Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes”. The customs tariff heading 1504 includes within its ambit fats and oils and their fractions, of fish or marine mammals, whether or not refined, but not chemically modified. The general chapter note to chapter 15 of explanatory notes to the Harmonized System mentions that this chapter covers the following: –

(1) Animal or vegetable fats and oils, whether crude, purified or refined or treated in certain ways (e.g., boiled, sulphurised or hydrogenated),

(2) Certain products derived from fats or oils, particularly their cleavage products (e.g., crude glycerol),

(3) Compounded edible fats and oils (e.g., margarine),

(4) Animal or vegetable waxes,

(5) Residues resulting from the treatment of fatty substances or of animal or vegetable waxes.

5.3.1. Further, the notes to the heading 1504 mentions that the heading covers fats and oils and their fractions, derived from several varieties of fish (cod, halibut, menhaden, herring, sardines, anchovy, pilchard, etc.) or marine mammals (whales, dolphins, seals, etc.). The notes also mention that they are extracted from the body or liver of the fish or marine mammal or from waste thereof They usually have a characteristic fishy smell and a disagreeable taste, and vary in colour from yellow to reddish brown. It is also mentioned in the notes that the fats and oils derived from fish or marine mammals remain in this heading when refined, but are excluded if partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised (heading 15.16).

5.3.2. A perusal of the abovementioned notes reveals that fats and oil derived from fish or marine mammals, residues resulting from the treatment of fatty substance or of animal or vegetable waxes also merits classification under chapter 15. Sub-heading 1504 20 pertains to fats and oils and their fractions of fish, other than liver oils. In the matter under consideration, LFO or distilled fatty acid as named by the applicant, is a by-product of the process of distillation/refining the fish oil oil. It is fat derived from fish oil. It has not been chemically modified and is essentially a part of the fish oil. Therefore, it merits classification under sub-heading 1504 20 90 as “Others”.

5.3.3. Before forming the aforementioned opinion, I have given due consideration to the proposal of the applicant that the proposed classification for LFO would be heading 3823. Chapter 38 deals with “Miscellaneous chemicals products”. The title itself denotes that it is a grouping of residuary headings for those goods which cannot be more appropriately classified elsewhere. Further, heading 3823 deals with “Industrial monocarboxylic fatty acids; and oils from refining; industrial fatty alcohols.” The product LFO which is derived from fish oil oil does not appear merit classification under this heading because of the available specific classification entry 1504 20 and there is nothing in the relevant mandate of the said chapter or section notes of chapter 15 entries to take it out of the purview of Chapter 15 and classify it under a miscellaneous entry.

5.4. I now take up the classification of the second product, the HFO. This is again a by-product residue and is obtained in the process when refined fish oil/tallow oil undergo trans-esterification and distillation to derive the resultant product Omega 3 concentrate. The applicant has proposed classification under tariff entry 3824 for this product.

5.4.1. As already mentioned in the preceding paragraphs, chapter 15 of the first schedule of the Customs Tariff Act, 1975 deals with “Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes”. Further as mentioned at paragraph 5.3 above, the products derived from fats or oils and residues resulting from the treatment of fatty substance or of animal or vegetable waxes also merits classification under chapter 15. Further, it is also specifically mentioned in the notes to heading 1504 that the fats and oils derived from fish or marine mammals remain in this heading when refined, but are excluded if partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised (heading 15.16). This clearly indicates that when the fats and oils derived from fish oil oil undergoes the process of esterification, it merits classification under 1516.

5.4.2. Heading 1516 deals with “Animal or vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined, but not further prepared.” In the matter before me, HFO or fatty substance mixture, is a by-product of the process of refining of fish oil oil which has undergone processes of trans-esterification and distillation but not processed further. Therefore, HFO or fatty substance mixture merits classification under heading 1516 and specifically under sub-heading 1516 1000 as has been provided from in the notes to HSN (refer paragraph 6.4.1. above).

5.4.3. The proposed classification of this product under heading 3824 by the applicant does not appear to be correct. As already stated, chapter 38 deals with “Miscellaneous Chemical products”. The residuary chapter is meant for those goods which cannot be classified elsewhere. Heading 3824 deals with “Prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included. The product HFO which is derived from fish oil oil does not appear to merit classification under this chapter heading.

5.4.4 On the issue of eligibility for exemption under a notification issued under section 25(1) of Customs Act, 1962, it appears that Light Feed Oil classifiable under sub-heading 15042090 is not covered under any such notification. However, Heavy Feed Oil, classifiable under sub-heading 15161000 is covered under sr.no. 75 of the table appended to the notification no. 50/2017 Cus., dated 30.06.2017.

    To summarise, I rule that Light Feed Oil or Distilled Fatty Acid and Heavy Feed Oil or Fatty Substance Mixture merit classification under sub-headings 15042090 and 15161000, respectively, of the first schedule to the Customs Tariff Act, 1975. HFO, falling under sub-heading 15161000 is eligible for concessional rate of duty @ 30% adv. having been covered under sr.no. 75 of the table appended to the notification no. 50/2017 Cus., dated 30.06.2017, as amended.

(M.R. MOHANTY)            
Customs Authority for Advance Rulings,
Mumbai                   

F.No. CAAR/CUS/APPL/05/2022-O/o Commr-CAAR-MUMBAI                                                                                             Dated: 11.04.2022

This copy is certified to be a true copy of the order and is sent to: -

1. M/s Fermenta Botech Ltd, A-1501, Thane one, DIL Complex, Ghodbunder road, Thane(W)- 400610 Email: arun.khedwal@fermentabiotech.com

2. The Commissioner of Customs (Nhava Sheva I), Jawaharlal Nehru Customs House, Nhava Sheva, Tal Uran, District Raigad, Maharashtra - 400707 Email: commr-ns2@gov.in, Cus.Grp2CFMumbai2@icegate.gov. in

3. The Customs Authority for Advance Rulings, 5^th Floor, NDMC Building, Yashwant Place, Satya Marg, Chanakyapuri, New Delhi - 110021. Email: cus-advrulings.del@gov.in

4. The Principal Chief Commissioner of Customs, Mumbai Customs Zone-I, Ballard Estate, Mumbai -400001. Email: ccu-cusmuml@nic.in

5. The Chief Commissioner (AR), Customs Excise & Service Tax Appellate Tribunal (CESTAT), West Block-2, Wing-2, R.K. Puram, New Delhi - 110066.
Email: cdrcestat123@gmail.com,ccar. cestat-delhi@gov. n

6. The Member (Customs), Central Boards of Indirect Taxes & Customs, North Block, New Delhi-110001. Email: mem.cus-cbec@nic.in

7. The Commissioner (Legal), CBIC Offices, Legal/CX.8A, Cell, 5^th floor, Hudco Vishala Building, C-Wing, Bhikaji Cama Place, R. K. Puram, New Delhi — 110066. Email: anishgupta.irs@gov.in, commr.legal-cbec@,nic.in

8. The Webmaster, Central Boards of Indirect Taxes & Customs.
Email: webmaster.cbec@icegate.gov.in

9. Guard file.

(P. Vinitha Sekhar)          
Secretary,                
Customs Authority for Advance Rulings,
Mumbai.