2026 (1) TMI 571 - AAR - Customs

Classification of CKD/SKD air-conditioner parts as same tariff subheading as finished units; prior AAR ruling extended three years

Dominant issue: Whether CKD/SKD parts of air-conditioning machines are classifiable under the same tariff subheading as the finished units. ... Classification of imported goods - application for advance ruling to extend its validity for another three-year term or passing fresh rulings - Classification Of Air conditioners to be imported in CKD/SKD condition under CTSH 84151010 Or other CTSHs - classification of finished Condenser or evaporator i.e. Heat Exchange Unit (HEX) - imported separately or in CKD/unassembled form under a separate invoice/bill of entry - availing the FTA benefits provided under India-Thailand FTA(ITFTA) and ASEAN-Indian FTA(AIFTA) - Interpretation of Law - HELD THAT:- As per the GRI 2(a) to the Customs Tariff Act 1975, the CKD/SKD parts proposed to be imported by MEI are all classifiable under CTSH 84151010 (or) 84158110/90 (or) 84148210/90 as the case may be depending upon whether the installation is ductable or non- ductable. Because, as per the HSN explanatory notes, the classification of the Air conditioning machines under various sub-headings of tariff heading 8415 is mainly based on its design for fitting in wall, floor, ceiling or window and whether or not a 'duct' is required for installation of the subject Air conditioners. It is a well settled law that when an article (complete or finished) is classifiable under a particular tariff heading or sub-heading, then the CKD/SKD parts of that article even in incomplete or unfinished condition are also required to be classified under the same heading/sub- heading. The only conditions to be satisfied are that it should have the essential character of the finished article and all the parts are to be presented together before customs for clearance. Applicant submitted that they have been importing the mentioned goods based on the rulings of the CAAR and would continue to do so for few more years till their factory, being established in India, is fully operational. Since, the validity of the rulings have expired, they filed the instant application for advance ruling to extend its validity for further period or passing fresh rulings. The Central Board of Indirect Taxes and Customs (CBIC) in its circular No.55/95-Cus dated 30.5.1995 (F. No.528/42/95-Cus.(TU) had reiterated the fact that the field officers should consider the provisions of GIR 2(a) while classifying the goods imported in CKD/SKD form. There is plethora of case laws in support of the classification of the goods in CKD/SKD under the tariff heading relevant to the complete or finished goods. It is therefore prayed that the honourable Advance ruling authority may be pleased to pass orders classifying the CKD/SKD parts of the Air conditioners under the relevant tariff sub-headings as demonstrated Application for advance ruling to extend its validity for further period or passing fresh rulings - The issue of classification in respect of which the applicant has approached this authority through the present application already stands adjudicated and disposed by the then competent Authority vide Advance Ruling [2023 (4) TMI 16 - CUSTOMS AUTHORITY FOR ADVANCE RULINGS, NEW DELHI] As there is no change in the product, it unnecessary and redundant to re- examine or deliberate upon the questions raised in this application on merits, as the issue has already been conclusively decided by the then competent Authority. Accordingly, hold that the Advance Ruling pronounced by this Authority vide Ruling [2023 (4) TMI 16 - CUSTOMS AUTHORITY FOR ADVANCE RULINGS, NEW DELHI] shall continue to be valid, and operative for a further period of three years from the date of this order. Issues: (i) Whether air-conditioners imported in CKD/SKD sets (excluding capacitors) and presented together for clearance are to be treated as complete air-conditioners and classified under heading 8415 or appropriate sub-headings; (ii) Whether CKD/SKD parts of air-conditioners imported and presented separately under different bills of entry are classifiable as parts of air-conditioners under 84159000 by virtue of Section Note 2(b) of Section XVI; (iii) Whether parts of Heat Exchange Units (HEX) imported in CKD/SKD condition and assembled separately are classifiable under 84199090 or as parts of air-conditioners under 84159000.Issue (i): Whether CKD/SKD sets (excluding capacitors) presented together acquire the essential character of an air-conditioner and are classifiable under heading 8415 or relevant sub-headings.Analysis: The interpretation applies Rule 1 and Rule 2(a) of the General Rules of Interpretation to the Customs Tariff Act, 1975 and relevant Section/Chapter notes to determine classification. Rule 2(a) permits incomplete or unassembled articles to be treated as the complete article when, as presented, they have the essential character of the finished article. The applicable tariff entries for air-conditioning machines and parts under heading 8415 govern the sub-heading allocation based on design and installation characteristics. The Authority observed that the facts and product description are identical to those previously decided and that CKD/SKD sets containing all essential components (except non-essential capacitors) meet the essential-character test.Conclusion: In favour of Assessee — CKD/SKD sets (excluding capacitors) presented together are to be classified as complete air-conditioners under heading 8415 or the appropriate sub-heading.Issue (ii): Whether CKD/SKD parts presented separately under different bills of entry are classifiable as parts of air-conditioners under 84159000 by application of Section Note 2(b) of Section XVI.Analysis: Section Note 2(a) and 2(b) of Section XVI and the suitability-for-use test were applied. Parts that are goods identifiable under specific tariff sub-headings remain classifiable under those sub-headings; other parts that are suitable for use solely or principally with air-conditioners are classifiable with the machines of that kind under 84159000. Authority also relied on prior ruling on identical facts and consistent case law recognizing the suitability/sole or principal use principle.Conclusion: In favour of Assessee — CKD/SKD parts presented separately are classifiable as parts of air-conditioners under 84159000 where they are suitable for use solely or principally with air-conditioners, subject to items separately classifiable under other specific headings.Issue (iii): Whether parts of Heat Exchange Units (HEX) imported in CKD/SKD condition assembled separately are classifiable under 84199090 or as parts of air-conditioners under 84159000.Analysis: The Section/Chapter notes and the suitability-for-use test determine whether HEX parts are to be treated as parts of air-conditioners. Where HEX or its parts are specifically designed and used solely or principally for air-conditioners, they fall under 84159000 as parts of air-conditioners; standalone finished HEX units may be classifiable under their own sub-heading such as 841950 or 84199090 when imported and presented independently not as parts of air-conditioners. The Authority treated these legal tests consistently with its prior ruling on identical facts.Conclusion: In favour of Assessee — Parts of HEX imported in CKD/SKD condition and intended solely or principally for use in air-conditioners are classifiable under 84159000; standalone HEX units retain separate classification where applicable.Final Conclusion: The Advance Ruling previously pronounced on identical issues is continued and extended for a further three years from the date of this order, confirming the classification outcomes described above and preserving the legal effect of the earlier ruling.Ratio Decidendi: Where CKD/SKD parts, as presented, possess the essential character of the finished article, Rule 2(a) of the GRI requires classification as the complete article; parts suitable solely or principally for a particular machine are to be classified with that machine under the applicable Section/Chapter notes.