Factory-clearance classification of drive-away chassis and deduction of differential duty governed re-quantification of demand.

Classification turned on the condition in which the goods left the factory: drive-away chassis that still required rear body fabrication were not complete motor vehicles and were treated as chassis fitted with engines under Heading 87.06, not as motor vehicles under Heading 87.03. The absence of a conventional chassis frame did not change that character because the goods retained the essential functional features of a chassis and became a vehicle only after further fabrication. On valuation, the differential duty confirmed was deductible from the assessable value, so the demand had to be re-quantified by the lower authority.

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Issues: (i) Whether drive-away chassis cleared from the factory were classifiable as motor vehicles principally designed for the transport of persons under Heading 87.03, or as chassis fitted with engines under Heading 87.06. (ii) Whether the differential duty confirmed was required to be deducted from the assessable value and the demand re-quantified.

Issue (i): Whether drive-away chassis cleared from the factory were classifiable as motor vehicles principally designed for the transport of persons under Heading 87.03, or as chassis fitted with engines under Heading 87.06.

Analysis: Classification had to be determined on the condition in which the goods left the factory. The drive-away chassis were not complete motor vehicles when cleared, as the rear portion of the body was left to be fabricated by the customer. The incomplete structure could not be treated as a finished motor vehicle for transport of persons. The Tribunal held that the absence of a separate traditional chassis frame did not alter the character of the goods, because the essential functions of a chassis were present and the goods were capable of conversion into a vehicle only after further body fabrication. The goods therefore answered the description of chassis for vehicles of Heading 87.03 and not complete motor vehicles under Heading 87.03.

Conclusion: The goods were classifiable under Heading 87.06 and not under Heading 87.03, against the assessee and in favour of Revenue.

Issue (ii): Whether the differential duty confirmed was required to be deducted from the assessable value and the demand re-quantified.

Analysis: The Tribunal accepted that, in computing assessable value, the differential duty now confirmed was deductible from the total realisation, following the applicable larger bench principle relied upon in the decision cited before it. The demand therefore required fresh computation by the lower authority.

Conclusion: The demand was required to be re-quantified after deduction of the differential duty, in favour of the assessee.

Final Conclusion: The classification dispute was decided for Revenue, but the matter was sent back for re-quantification of the demand after allowing deduction of the differential duty from the assessable value.

Ratio Decidendi: Goods are to be classified on the basis of their condition as cleared from the factory, and incomplete goods that do not answer the description of a complete motor vehicle may fall under the chassis entry even if they possess the essential functional features of a chassis.

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