2022 (3) TMI 560 - AAR - Customs

Customs Authority rules CKD kits as motor vehicles under heading 8703, subject to 30% duty rate

M/s Volvo Auto India Private Limited Versus Principal Commissioner of Customs, Bangaluru and Commissioner of Customs, Chennai

The CKD kits were classified under heading 8703 by the Customs Authority for Advance Rulings (CAAR), as they had the essential characteristics of motor ... Classification of goods - partially assembled vehicles, described by the applicant as Completely Knocked Down (CKD) kits of vehicles - classifiable under Customs Tariff Entry 8703 and eligible for exemption under Serial No. 437(1) of the Notification No. 12/2012-Cus. dated March 17, 2012 or not - HELD THAT:- In the instant case, the applicant has stated that they will be importing kits of passenger cars and it is also settled, if all the parts are presented in knocked down condition and they have the essential character of a complete article, they have to be assessed as complete article, in terms of said rule 2(a) of GIR. In the present case, the motor vehicles are initially assembled at site to a substantive extent for thorough verification and testing, albeit with few missing components. It is held that at this stage the vehicles have acquired the essential characteristics of motor vehicle to merit classification under heading 8703. Their subsequent disassembling and import in such disassembled form as a kit, will not change the essential character of the goods. Therefore, these disassembled parts of motor vehicles, with specified missing parts, will be classified as the motor vehicles under heading 8703, noting that they are principally designed for the transport of persons, numbering less than ten persons. C.B.E.C. Circular F. No. 528/128/97Cus-TRU, dated 5-12-1997, wherein explaining the scope of said Rule 2(a), it is mentioned that engine, gear box, chassis, transmission assembly system, body/cab suspension system, axle front and rear are among the parts or components or sub-assemblies, considered most essential to bring into effect a finished motor car. Whether the vehicle kits being imported by the applicant would be covered under sub-category 1 as Completely Knocked Down kit or under sub-category 2 as motors cars in any other form, and if under sub-category 1, whether under 1(a) or 1(b), attracting effective rate of BCD of 15% or 30% respectively? - HELD THAT:- Further sub-categorisation under the aforesaid notification and eligibility for the lowest rate of 15% duty is based on the state of assembly of three critical parts/components of car, namely engine, gearbox and transmission mechanism. It is found that the applicant has clearly stated that the CKD kits include pre-assembled engine and gear-box, which has also been accepted by the concerned Commissioners of Customs - the CKD kits will fall under sub-category 1(b) and attract effective rate of BCD of 30%, being ineligible of the lower rate of 15% since the engine and gear-box are being imported in pre-assembled condition. The CKD kits, as described by the applicant and presented together as a kit merits classification under heading 8703 - the CKD kits are eligible for 30% rate of BCD under notification No. 50/2017-Cus. dated 30.06.2017, since they are covered under S.No.526(1)(6). Issues Involved:1. Classification of CKD (Completely Knocked Down) kits under Customs Tariff Entry 8703.2. Eligibility for exemption under Serial No. 437(1) of Notification No. 12/2012-Cus. dated March 17, 2012.3. Applicability of Notification No. 50/2017-Cus. dated 30.06.2017.4. Effective rate of duty applicable to CKD kits.Detailed Analysis:1. Classification of CKD Kits under Customs Tariff Entry 8703:M/s VAIPL filed an application seeking advance ruling on whether CKD kits imported by them are classifiable under Customs Tariff Entry 8703. The application was initially processed by the Authority for Advance Rulings (AAR) and later transferred to the Customs Authority for Advance Rulings (CAAR) due to regulatory changes.The scrutiny revealed that the application had lapsed as no ruling was given within the mandated three months. However, the applicant reaffirmed their interest in obtaining a ruling, and the application was revalidated.The Commissionerates provided differing opinions on the classification. The Bangalore Commissionerate stated that CKD kits fall under CTH 8703 if they satisfy rule 2(a) of the General Rules of Interpretation of Import Tariff. Conversely, Chennai-II Commissionerate opined that the kits should be classified under CTH 8708, as they are not marketable or roadworthy.Upon examination, it was determined that the kits, consisting of various parts and sub-assemblies, including pre-assembled engines and gearboxes, have the essential characteristics of motor vehicles. Therefore, they are classified under heading 8703, as per rule 2(a) of the General Rules for Interpretation of Import Tariff.2. Eligibility for Exemption under Serial No. 437(1) of Notification No. 12/2012-Cus. dated March 17, 2012:The applicant sought exemption under Serial No. 437(1) of Notification No. 12/2012-Cus. The Bangalore Commissionerate opined that the conditions for exemption were not met as the engine and gearbox were in pre-assembled condition. Similarly, the Chennai-II Commissionerate stated that the kits did not qualify for exemption as they were not complete vehicles.The CAAR noted that the relevant notification had been replaced by Notification No. 50/2017-Cus. The applicant confirmed that they had been importing CKD kits and paying BCD at 30% under the new notification.3. Applicability of Notification No. 50/2017-Cus. dated 30.06.2017:The applicant confirmed that they had been importing CKD kits since September 2017 and paying BCD at 30% under Notification No. 50/2017-Cus. The CAAR examined the relevant entry (S. No. 526) in the notification, which distinguishes between CKD kits with pre-assembled components and those without.The CAAR determined that the kits imported by the applicant, including pre-assembled engines and gearboxes, fall under sub-category 1(b) of the notification, attracting a 30% BCD rate.4. Effective Rate of Duty Applicable to CKD Kits:The CAAR examined the question of the effective rate of duty applicable to the CKD kits. The applicant's CKD kits include pre-assembled engines and gearboxes, which are not mounted on a chassis or body assembly. Therefore, they fall under sub-category 1(b) of S. No. 526 in Notification No. 50/2017-Cus, attracting a 30% BCD rate.The CAAR relied on the General Rules for Interpretation of Import Tariff and relevant case laws to conclude that the CKD kits merit classification under heading 8703 and are eligible for a 30% BCD rate under the new notification.Conclusion:1. The CKD kits merit classification under heading 8703.2. The CKD kits are eligible for a 30% BCD rate under Notification No. 50/2017-Cus, as they fall under S. No. 526(1)(b).