2026 (2) TMI 341 - AAR - Customs

Classification of knocked-down motor vehicle imports: Notification kit benefit denied as imports lack essential character of vehicles.

Imported motor vehicle components were held to be standalone goods that, individually or collectively as imported, did not possess the essential character ... Classification of motor vehicles - applicability of Notification No. 45/2025-Cus. (Entry No. 318) for knocked down / kit imports - essential character test for classifying incomplete or disassembled imports - General Rules of Interpretation (GRI) - Rule 2(a) (incomplete/unassembled goods and essential character) - General Rules of Interpretation (GRI) - Note 2 and Note 3 (exclusions and suitability for use solely or principally) - classification of parts under Heading 8708 versus specific headings for components - Issue of classification - HELD THAT:- In the instant case, the goods imported by the Applicant are individual/independent goods. The goods do not, neither individually nor collectively, as presented at the time of importation, possess the essential character of a complete motor vehicle. It is reiterated that the goods imported by the Applicant are standalone goods, imported at different points in time, and used in the manufacture of a vehicle. The goods are not unfinished, incomplete, unassembled or disassembled in a manner that goods imported, when put together, would result in a complete vehicle. Further, critical body parts are imported in an unwelded and unpainted condition, necessitating substantial manufacturing processes such as welding, painting and assembly, without which a motor vehicle cannot come into existence. Applicant proposes to manufacture and assemble a range of electric Sport Utility Vehicle ('SUV') models, including the VF6, VF7, VF3, VF5, VF9, VF8, Neiro Green and LIMO Green at its facility in Thoothukudi, Tamil Nadu. For undertaking the manufacturing and assembly of its electric vehicles, the Applicant intends to import goods classifiable under various Chapters including Chapter 39, 40, 73, 84, 85, 87, etc. of Tariff Act, at different points in time, and in varying quantities, depending on the packaging design and the manufacturing schedule/forecast. Upon importation in India, the goods will be used in manufacturing and assembly of electric vehicles at the Applicant's manufacturing facility. The Applicant may also import these components/products as spare parts to fulfill the after-sale requirement for the customers. Further, the goods will be imported as individual products, in varying quantities, unconnected, and at different points in time. Further, the imported goods may not be used simultaneously in the manufacture of a vehicle, as the imports would be received in mismatched quantities over different points in time, as per the production requirement, shipping time and packaging design. These goods proposed to be imported for use in manufacture of the electric vehicles, as per the Applicant, would be classified under the respective tariff heading, taxable at the applicable rates. Furthermore, the Applicant has expressed its intention to claim benefits under the relevant Free Trade Agreement with the exporting country basis the eligible HSNs, subject to compliance with the conditions stipulated therein. On account of position taken by the Commissionerate that classification is to be determined by application of the GRI, the applicant submitted that its existing practice of classification is strictly in consonance with the Tariff and the GRI. This stand of the applicant is aligned to the Department's stated position. During the hearing and further submissions, the Applicant has clarified that it is not requesting for a ruling under Question No. 1 in respect of the classification of individual items (2,870 products). The Applicant further submitted that the Authority may proceed to examine and decide Question No. 2 raised in the application and decide the applicability of the Notification. Though the applicant has clarified that it does not request Ruling on issue of classification but without deciding classification, applicability of Notification benefit cannot be decided. The goods imported by the Applicant are imported as standalone products, in mismatched and varying quantities, for use in the manufacture of electric vehicles in India. While some of these products are used to build/assemble sub-components of electric vehicles such as body of the electric vehicle, assembly, etc., other components are used in the manufacturing of electric vehicle. These goods are not subjected to any processing, modification, or assembly prior to their importation. Hence, the classification of these products is to be determined in terms of GIR, Tariff and relevant Section and Chapter Notes. Issue of applicability of Notification benefit - HELD THAT:- In the present case, the goods imported by the Applicant is not a kit in any manner as they are neither imported as a set/assembly nor in quantities that could be assembled as an electric vehicle. The goods are imported as individual units, at different points in time, as per the requirement. The goods imported are not tagged or earmarked for a particular unit. Also, the Applicant places orders with its foreign suppliers on a part-by-part basis for the import of individual inputs required for the assembly of the product. The goods imported by the Applicant require substantial work to be done upon in order to manufacture a vehicle. The fact that it takes 6-7 days to manufacture one car further fortifies the submission that the goods imported are not kits which can be assembled into a car. Also, since the body parts are unwelded and unpainted, it is impossible to assemble the same into a vehicle without undertaking extensive manufacturing processes involving welding, painting and other critical operations. The classification of these products is to be determined in terms of GIR, Tariff and relevant Section and Chapter Notes. The goods imported by the Applicant are individual/independent goods. The goods do not, neither individually nor collectively, as presented at the time of importation, possess the essential character of a complete motor vehicle. The goods imported by the Applicant are standalone goods, imported at different points in time, and used in the manufacture of a vehicle. The goods are not unfinished, incomplete, unassembled or disassembled in a manner that goods imported, when put together, would result in a complete vehicle. Further, critical body parts are imported in an unwelded and unpainted condition, necessitating substantial manufacturing processes such as welding, painting and assembly, without which a motor vehicle cannot come into existence. Thus, not classifiable under CTH 8703. Thus, the goods imported by the Applicant are not imported as a kit, either in complete or substantially complete form, nor do they impart the essential character of a vehicle at the time of import. Accordingly, the conditions stipulated under the Entry no. 318 of Notification No. 45/2025- Cus. dated 24.10.2025 are not fulfilled and the said Notification has no application to the present case. Hence, when the goods are not imported as a kit, the goods are not covered within the Notification. Issues: Whether individual goods imported at different points in time, being disjointed and disassembled, are eligible for concessional Basic Customs Duty at 15% under Entry No. 318 of Notification No. 45/2025-Cus. dated 24.10.2025 (i.e., whether the Notification applies to the applicant's imports).Analysis: The Authority examined the scope and text of Entry No. 318 and the conditions for concessional rates. Entry No. 318 applies only to electrically operated vehicles (CTH 8703) imported in an incomplete or knocked down form as a kit containing necessary components, parts or sub-assemblies for assembling a complete vehicle. Application of Rule 2(a) of the General Rules for Interpretation requires that the imported goods, 'as presented', possess the essential character of the finished article to be classified under Heading 8703. The Authority analysed the facts that the applicant imports standalone components at different points in time, in mismatched quantities, not tagged to specific units, and that many body parts are imported unwelded and unpainted requiring substantial manufacturing processes. The Authority also considered Section and Chapter Notes to Section XVII (including Note 2 exclusions) and relevant precedents emphasising that consignments presented at different times cannot be combined to invoke Rule 2(a) and that parts excluded by Section XVII must be classified under their respective headings. On the factual matrix before it, the Authority found that the imports are not presented as a kit nor do they, individually or collectively as presented, possess the essential character of a vehicle classifiable under Heading 8703.Conclusion: The conditions of Entry No. 318 of Notification No. 45/2025-Cus. dated 24.10.2025 are not fulfilled in the applicant's case; the individual products proposed to be imported are not eligible for the 15% concessional rate under that Entry.Final Conclusion: The Authority refrained from issuing any ruling on classification of the specific listed items (Annexure I) and held that classification of individual products shall be determined under the General Rules of Interpretation, the Tariff and relevant Section and Chapter Notes; independently, the Authority ruled that the concessional notification benefit under Entry No. 318 does not apply to the imports described.Ratio Decidendi: For concessional treatment under the Knocked Down kit entry, imported goods must, as presented, constitute a kit classifiable under Heading 8703 by having the essential character of the finished vehicle; standalone components imported in mismatched consignments at different times that do not, as presented, possess that essential character are not eligible for the notification benefit.