2025 (12) TMI 688 - AAR - Customs

AAR classifies lithium cell parts, confirms concessional customs duty under Serial 314, N/N. 45/2025-Cus, IGCR Rules 2022

The AAR held that cathode-coated foils and anode-coated foils, being parts suitable solely/principally for use with lithium-ion accumulators, are ... Classification of goods to be imported which are in the nature of parts, sub-parts, inputs or Raw Material/Products - appropriate classification/CTH for the parts, sub- parts, inputs or raw materials/Products to be imported by the Applicant given the composition and end use of the subject parts, sub-parts, inputs or raw materials/Products - given that the goods are used in the manufacture of the final product (Lithium-ion cells), then eligible to avail the benefit of the concessional rate of Basic Customs Duty under Sr. No. 523A of N/N. 50/2017-Cus dated 30.06.2017 or not. Classification of Cathode coated foil - HELD THAT:- There is no specific heading in the Tariff for classification of the goods viz. 'coated electrode films', the Rule 2(a) of Section XVI is not applicable in this case. Therefore, the classification necessarily flows from Note 2(b) which provides that 'parts which are suitable for use solely or principally with a particular kind of machine are to be classified along with that machine, save for those expressly directed to certain specified headings'. It is observed that Lithium-ion cells, being electric accumulators, are covered under Heading 8507 and the subject goods, by virtue of their dedicated function and design, meet the test of being parts suitable for use solely/principally with accumulators - the cathode-coated foils merit classification under CTI 8507 90 90. Classification of Anode coated foil - HELD THAT:- The impugned goods are not mere articles of carbon of the generic kind contemplated in Heading 8545. Rather, they are highly specialised copper foils coated with an anode-active graphite material, engineered to precise electrochemical standards and intended exclusively for incorporation as the negative electrode in lithium-ion accumulators. Their design, composition, and intended use leave no ambiguity regarding their sole or principal use with accumulators of Heading 85.07. In such circumstances, Section Note 2(b) to Section XVI becomes determinative. This Note requires that parts suitable for use solely or principally with a particular machine are to be classified along with that machine, where specifically provided otherwise. Since the goods are not covered under any specific heading of Chapters 84 or 85 in terms of Note 2(a), classification is guided by Note 2(b), which directs such parts to Heading 8507 - the anode-coated foils merit classification under CTI 8507 90 90 as 'Parts of electric accumulators - Other. Classification of Separator (microporous film) - HELD THAT:- The Tariff itself recognises 'separators' under CTI 8507 90 10, described as 'Accumulator cases made of hard rubber and separators.' The description is broad enough to encompass separators of materials other than hard rubber, as the entry groups accumulator cases and separators together without restricting the latter to any particular composition. The instant product, being a purpose-built microporous film designed solely for use in lithium-ion accumulators, squarely falls within the ambit of this sub- heading. It is clearly not classifiable as a generic plastic article nor under any other heading of Chapters 84 or 85, as its essential character is derived from its exclusive function as a separator for accumulators. Accordingly, applying Section Note 2(b) read with the statutory text of Heading 8507 and sub-heading 8507 90 10, it is concluded that the goods are appropriately classifiable under CTI 8507 90 10 as 'Parts of electric accumulators, Accumulator cases made of hard rubber and separators.' Classification of LC breaker (cell protection device) - HELD THAT:- Heading 8536 covers 'electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits,' and includes, by way of enumeration, switches, relays, fuses, surge suppressors, plugs, sockets, lamp-holders, connectors and junction boxes, for voltages not exceeding 1,000 volts'. The HSN Explanatory Notes to this heading also elaborate that circuit- protective devices, including those employing thermal or over-current protection mechanisms, fall within its scope. The LC Breaker, as described, is an independent protective apparatus designed to interrupt current flow in the event of unsafe operating conditions. It performs this function autonomously and is not a passive component of an accumulator - the product cannot be brought within Heading 8507, which pertains to electric accumulators and parts thereof. Heading 8507 is limited to the electrochemical and mechanical components essential to accumulator construction (such as plates, separators and cases) and does not extend to active electrical protective devices. The LC Breaker is a distinct electrical apparatus that interacts with, but does not form an integral part of the accumulator; it protects the circuit rather than participating in the electrochemical storage process. Accordingly, by application of General Interpretative Rule 1, read with the statutory text of Heading 8536 and the relevant HSN Notes, the LC Breaker is appropriately classified under CTI 8536 30 00, covering 'Other apparatus for protecting electrical circuits.' I therefore conclude that the LC Breaker merits classification under 8536 30 00. Eigibility for Sr. No. 523A of N/N. 50/2017-Cus., (superseded by N/N. 45/2025 -Customs dated 24.10.2025) - HELD THAT:- Having regard to the wording of Serial No. 314, its chapter-neutral ambit, the purpose sought to be achieved, and the functional role of the goods under consideration, it is concluded that the benefit of N/N. 45/2025-Customs dated 24.10.2025 is available to all four items, subject to strict compliance with Condition No. 3 of the Notification (IGCR, 2022 procedure) and actual end-use in the manufacture of lithium-ion cells falling under tariff item 8507 60 00. The above goods, being parts/sub-parts/inputs/raw materials for use in the manufacture of lithium-ion cells (CTI 8507 60 00), are eligible for benefit of Serial No. 314 of Notification No. 45/2025-Customs dated 24.10.2025 subject to compliance with Condition No. 3 (IGCR Rules, 2022) and verification of end-use. The benefit shall have no effect after the 31st March, 2026. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the advance ruling application was maintainable in view of a prior investigation by the Directorate of Revenue Intelligence concerning the applicant's imports. (2) What is the correct tariff classification, under the First Schedule to the Customs Tariff Act, 1975, of cathode coated foils used in the manufacture of lithium-ion cells. (3) What is the correct tariff classification of anode coated foils used in the manufacture of lithium-ion cells. (4) What is the correct tariff classification of separator (microporous polymer film) used in the manufacture of lithium-ion cells. (5) What is the correct tariff classification of LC breaker (cell-circuit protection device) used in lithium-ion cell applications. (6) Whether the above goods, so classified, are eligible for exemption from basic customs duty as 'parts, sub-parts, inputs or raw materials for use in manufacture of Lithium-ion cells' under the relevant customs exemption notification, subject to compliance with the prescribed end-use conditions and procedures. 2. ISSUE-WISE DETAILED ANALYSIS (1) Maintainability in light of DRI investigation Legal framework (as discussed) The Court considered the second proviso to Section 28-I(2) of the Customs Act, 1962, which bars admission of an advance ruling application where the 'same question' of law or fact is pending or has been decided in any proceeding in the applicant's own case under the Act. Interpretation and reasoning The DRI Hyderabad Zonal Unit had examined the applicant's imports of parts of lithium-ion batteries with reference to the applicable rate of IGST under Notification No. 01/2017-Integrated Tax (Rate), particularly as to the proper serial number and Schedule for levy of IGST under Section 3(7) of the Customs Tariff Act, 1975. The Court noted that: (a) The DRI correspondence and clarification from DRI HZU expressly confirmed that the investigation was 'not about/against HSN classification of imported goods', but confined to verification of IGST rate and alleged short payment; the goods had already been treated as parts of accumulators under subheading 8507 90. (b) The term 'wrong classification' in the DRI communication was used in the context of misapplication of entries under the IGST rate notification, not as a dispute over tariff heading under the Customs Tariff Act, 1975. (c) The applicant had voluntarily deposited the differential IGST and no show cause notice or adjudication on classification under the Customs Tariff Act had been initiated; no proceeding was pending on tariff classification or on customs exemption notification issues. (d) The advance ruling application sought determination of: (i) tariff classification under the First Schedule to the Customs Tariff Act; and (ii) eligibility to customs exemption under a customs notification, which are distinct from determination of IGST rate entries under the GST rate notification. On this basis, the Court distinguished between: - 'Classification' for purposes of selecting the correct HSN-based entry under the IGST rate notification (a rate issue); and - Tariff classification under the Customs Tariff Act and eligibility to a customs exemption notification (a customs assessment/exemption issue). As the questions before DRI and before the Authority were not identical in law or fact, the statutory bar in the second proviso to Section 28-I(2) was held inapplicable. Conclusions The application was held to be maintainable; no 'same question' under Section 28-I(2) was pending or decided in DRI proceedings, and the Authority proceeded to rule on merits. (2) Classification of cathode coated foil for lithium-ion cells Legal framework (as discussed) The Court applied General Rules for Interpretation (GRI), particularly Rule 1, and Section XVI Note 2 of the Customs Tariff Act, 1975: - Heading 8507: 'Electric accumulators, including separators therefor...'; subheading 8507 90: 'Parts'; 8507 90 90: 'Other'. - Section XVI Note 2(b): parts suitable for use solely or principally with a particular kind of machine are to be classified with that machine, where not specifically covered by another heading under Note 2(a). Interpretation and reasoning The goods were described as aluminium current-collector foils uniformly coated with cathode active material (with binder and additives), imported in roll/slit form and only slit to the required width before cell assembly. The films already possessed the electrochemical properties of a cathode and were exclusively used as cathodes in lithium-ion accumulators. The Court found: (a) No specific tariff heading existed in Chapters 84 or 85 for such 'coated electrode films.' Hence, Section XVI Note 2(a) (classification in a specific heading) did not apply. (b) The goods were engineered and dedicated for sole/principal use as cathodes in lithium-ion cells, and thus were parts suitable for use solely or principally with accumulators of heading 8507. (c) Under Section XVI Note 2(b), such parts must be classified along with the machine, i.e., under heading 8507, and specifically as 'parts' under subheading 8507 90. (d) Within subheading 8507 90, there was no more specific eight-digit entry for cathodes other than the residual category 8507 90 90 'Other'. Conclusions Cathode coated foils are classifiable as parts of electric accumulators under tariff item 8507 90 90. (3) Classification of anode coated foil for lithium-ion cells Legal framework (as discussed) The Court considered: - Heading 8545: 'Carbon electrodes, carbon brushes, lamp carbons, battery carbons and other articles of graphite or other carbon, with or without metal, of a kind used for electrical purposes'; subheading 8545 19 00 (other electrodes). - Heading 8507 and Section XVI Note 2 (particularly Note 2(b)). - HSN Explanatory Notes to headings 8507 and 8545, and the general principles that parts suitable solely/principally for a given machine are to be classified with that machine, where no specific heading under Note 2(a) exists. Interpretation and reasoning The goods were copper foils coated with graphite-based anode active material (about 74% graphite, 26% copper), imported in rolls, then only slit to required width and used exclusively as negative electrodes (anodes) in lithium-ion cells. The applicant argued for classification under heading 8545 19 00 as graphite electrodes based on predominant graphite content and HSN Note descriptions of carbon electrodes. The Court, considering both the applicant's submissions and the Commissionerate's view, reasoned that: (a) Heading 8545 covers generic 'articles of graphite or other carbon' of a kind used for electrical purposes, such as furnace electrodes, carbon brushes, lamp carbons, and conventional battery carbons, not highly specialised, machine-specific accumulator electrodes integrated on metal current collectors. (b) The anode coated foil is a sophisticated copper foil carrying active anode material, designed and manufactured exclusively for use as the negative electrode in lithium-ion accumulators. It is not a mere generic carbon article of heading 8545. (c) There is no dedicated tariff heading in Chapters 84 or 85 specifically covering such lithium-ion anode-coated foils; hence Note 2(a) is inapplicable. (d) In substance and in use, the goods are parts suitable for use solely or principally with lithium-ion accumulators of heading 8507. Under Section XVI Note 2(b), they must be classified with that machine. (e) HSN Explanatory Notes to heading 8507 also recognise electrodes as parts of accumulators, supporting classification as accumulator parts rather than generic carbon electrodes. Conclusions Anode coated foils are classifiable as parts of electric accumulators under tariff item 8507 90 90, and not under heading 8545. (4) Classification of separator (microporous polymer film) for lithium-ion cells Legal framework (as discussed) The Court considered: - Heading 8507, subheading 8507 90 10: 'Accumulator cases made of hard rubber and separators'. - Possible competing heading 3921 for other plastic films. - Section XVI Note 2(a) and (b). - HSN Explanatory Notes to heading 8507, which recognise separators, including those in roll form merely cut into rectangles and meeting precise technical specifications, as accumulator parts. Interpretation and reasoning The goods were microporous separator films comprising polyethylene, boehmite and PVDF, imported in jumbo rolls, then slit to required width and used to separate anode and cathode in lithium-ion cells, allowing ion transport while preventing electrical short-circuits. They are purpose-built for accumulator use and critical for cell safety and function. The Court found: (a) The product is not a generic plastic film of heading 3921; its essential character lies in its specific electrochemical function as a separator in accumulators. (b) No specific heading in Chapters 84 or 85, other than those for accumulator parts, covers such specialised separators; thus, Note 2(a) does not divert classification away from parts of accumulators. (c) The goods are suitable for use solely/principally with lithium-ion accumulators of heading 8507; therefore, under Section XVI Note 2(b), they must be classified with the machine. (d) The tariff itself provides a specific subheading 8507 90 10 for 'Accumulator cases made of hard rubber and separators.' The wording is broad; while 'cases' are restricted to hard rubber, there is no material limitation for 'separators'. Hence, separators of other materials, including polymeric films, are covered. (e) HSN Explanatory Notes and the cited tribunal decisions (Exide Industries Ltd.; Amara Raja Batteries Ltd.) support treating separators in roll form as accumulator parts under heading 8507, provided they meet technical specifications and are ready for use as separators after simple cutting/slitting. Conclusions Separator microporous films are classifiable as accumulator separators under tariff item 8507 90 10. (5) Classification of LC breaker (cell-circuit protection device) Legal framework (as discussed) The Court considered: - Heading 8536: 'Electrical apparatus for switching or protecting electrical circuits... for a voltage not exceeding 1,000 volts'; subheading 8536 30 00: 'Other apparatus for protecting electrical circuits'. - Heading 8507 (electric accumulators and parts thereof). - HSN Explanatory Notes to heading 8536, which include circuit-protective apparatus (including thermal and over-current protection devices). Interpretation and reasoning The LC breaker was described as a protective electrical device used in secondary-cell circuits to interrupt current under abnormal thermal or over-current conditions. It is an active, independent apparatus operating in low-voltage circuits, providing safety protection. The Court reasoned that: (a) The essential function of the LC breaker is protection of electrical circuits, not electrochemical energy storage. (b) Heading 8507 is confined to accumulators and their inherent electrochemical/mechanical parts (electrodes, separators, cases etc.) and does not extend to separate, active electrical-protection apparatus. (c) The LC breaker is an electrical apparatus of the kind described in heading 8536: it protects circuits for voltages not exceeding 1,000 V. (d) It is not specifically described under subheadings for 'fuses' or 'automatic circuit breakers'; it therefore falls under the residual protective category in 8536 30 00 'Other apparatus for protecting electrical circuits'. (e) By GRI 1 and the text of heading 8536, classification under 8536 30 00 best reflects the product's nature and function. Conclusions The LC breaker is classifiable under tariff item 8536 30 00 as 'other apparatus for protecting electrical circuits' and not as a part of accumulators under heading 8507. (6) Eligibility for exemption as parts/inputs for manufacture of lithium-ion cells Legal framework (as discussed) The Court examined: - Earlier Serial No. 523A of Notification No. 50/2017-Cus. and its supersession by Notification No. 45/2025-Customs dated 24.10.2025. - Serial No. 314 of Notification No. 45/2025-Customs: providing 'NIL' BCD to 'Parts, sub-parts, inputs or raw materials for use in the manufacture of Lithium-ion cells falling under tariff item 8507 60 00', applicable to goods 'of any chapter', subject to: * Compliance with Condition No. 3 - following the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (IGCR, 2022); and * A sunset clause that the exemption has no effect after 31 March 2026. - The principle laid down in Commissioner of Customs v. Rupa & Co. Ltd., that while exemption notifications are to be construed strictly, interpretation should not defeat the object and purpose of the exemption. Interpretation and reasoning The Court noted that: (a) All four products-cathode coated foils, anode coated foils, separator films, and LC breakers-are inputs/components directly used in the manufacture of lithium-ion cells classifiable under 8507 60 00. (b) The first three items are core electrochemical parts of the cell architecture; the LC breaker forms part of the protection circuitry at cell level. All fall within the broad functional description 'parts, sub-parts, inputs or raw materials for use in the manufacture of Lithium-ion cells'. (c) The exemption entry is chapter-neutral; tariff classification does not restrict eligibility so long as the goods are used in manufacturing lithium-ion cells of tariff item 8507 60 00 and IGCR procedural conditions are followed. (d) Having classified the goods as 8507 90 90 (cathode coated foil), 8507 90 90 (anode coated foil), 8507 90 10 (separators), and 8536 30 00 (LC breaker), none is excluded by the wording of Serial No. 314, which explicitly extends to goods 'of any chapter'. (e) In line with the principle in Rupa & Co. Ltd., an interpretation that recognises all functionally indispensable inputs in lithium-ion cell manufacture is consistent with the evident objective of incentivising domestic production of such cells. (f) The exemption remains conditional: the importer must comply with IGCR, 2022 procedures and end-use must be verified to be in manufacture of lithium-ion cells (8507 60 00); further, the benefit is time-bound till 31 March 2026. Conclusions (a) Cathode coated foils (8507 90 90), anode coated foils (8507 90 90), separator films (8507 90 10), and LC breakers (8536 30 00) are all 'parts, sub-parts, inputs or raw materials for use in manufacture of Lithium-ion cells falling under tariff item 8507 60 00' within the meaning of Serial No. 314 of Notification No. 45/2025-Customs. (b) These goods are eligible for 'NIL' basic customs duty under Serial No. 314, subject to: * strict compliance with Condition No. 3 (IGCR Rules, 2022); * verification of actual end-use in manufacture of lithium-ion cells classifiable under 8507 60 00; and * the exemption being effective only up to 31 March 2026.