TaxTMI 
TaxTMI 
2010 (7) TMI 42
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.... is a wholly owned subsidiary of Harley-Davidson Singapore Pte. Ltd. The applicant proposes to import parts / components of motorcycles from Harley-Davidson Group of Companies and their vendors located in different countries for assembly of Harley-Davidson brand of motorcycles in India. The said parts are proposed to be packed into motorcycle kits. In general all the parts, components and sub assemblies required to build a standard order quantity of motorcycles would be shipped together. The vehicles would be assembled in India by fastening the various components together in a predefined sequence of operations. The operators will use a combination of hand tools (wrenches, sockets, screw drivers, etc.) and power tools (electric or pneumatic wrenches, nut drivers, drills, guns etc.) in assembling the vehicles. No other process such as machining, fabrication, stamping etc is proposed to be undertaken with respect to imported parts and components. Routine quality checks would be performed during the assembly operations and motorcycles would be released for distribution after final vehicle inspection. 2. Motorcycles imported by the applicant are claimed to be covered under Custom Tari....
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....e of the developing industry practice of outsourcing of manufacturing operations, the literal meaning of the expression 'completely knocked down' cannot be adopted since it would not only be unviable but also unworkable. 6. The applicant has filed the copy of an opinion tendered by the Automotive Research Association of India (ARAI) vide their letter No. AP: X/09-10/II-1260/073 dated 29th December, 2009. This letter is in response to a letter dated 26th November, 2009 from the applicant company. The ARAI in their letter dated 29th December, 2009 have observed as follows:- 'On perusal of documentation, our views are as under: 1. The Assembly Description and the supporting documentation covers mainly five vehicle models, namely Sportster, VRSC, Dyna, Softail and Touring. 2. The assembly kits for these vehicle models consist of following sections. * Mid Assembly Rear Assembly * Intermediate Sub-Assembly * Front Assembly * Final Vehicle Dress up Each assembly/section is further knocked down into sub-assemblies or parts/components as the case may be. It appears that Engines are packed as complete unit. Similarly Wheel Rims and Tyres are also included as integrated assemblies. ....
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.... proposed to be imported are in Semi Knocked Down condition and not in Completely Knocked Down condition. 9. On behalf of the Department it has also been stated that the duty structure applicable to motor vehicles is in accordance with the 'AUTO POLICY', a vision document published by the Ministry of Heavy Industries and Public Enterprises in March, 2002 with a view to establish a globally competitive automotive industry in India. As per Para 8.1 of the policy 'The incidence of import tariff will be fixed in a manner so as to facilitate development of manufacturing capabilities as opposed to mere assembly without giving undue protection;....' It was submitted that it is in accordance with this policy that while lifting the import restrictions in accordance with the World Trade Organisation (WTO) obligations, the Government has prescribed three different rates of duty depending upon the degree of manufacturing activity required to be carried out on the imported items. While fully assembled motorcycles which did not require any manufacturing operation after their import were subjected to import duty of 100% ad valorem (basic), motorcycles imported in a Completely Knocked Down form....
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....tative list of parts, components and sub assemblies to be imported for the manufacture of two models of Harley-Davidson motorcycles in India, namely 'Sportster-XL883N' and 'Softail-FLSTC'. The applicant vide its letter dated 25th June, 2010 submitted another list of components, parts and sub assemblies for the model Softail-FLSTC since the list of components submitted with the applicant.s letter dated 16th June, 2010 for this model contained an inadvertent error. Copies of the lists of components, parts and sub assemblies of the aforesaid two models of motorcycles have been taken on record and made available to the Departmental Representatives. The Ruling is accordingly based on the list of components, parts and sub assemblies now submitted by the applicant and not on the basis of bill of materials annexed to the application. 11. The rate of duty to be levied on the motorcycle kits proposed to be imported by the applicant would depend on the scope of the expression 'Completely Knocked down (CKD) unit'. The exemption Notification does not provide a definition of Completely Knocked down unit. Even the Explanatory Notes to the Harmonized System of Nomenclature reportedly do not provi....
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....nt that CKD implies articles disassembled to such a degree that they cannot be further dismantled into components/parts. A note has also to be taken of the industry practice in the manufacture of motor vehicles. There are no instances of manufacturers undertaking manufacture of each and every component part required for assembly of a motor vehicle in their own factories. With continuous R & D efforts, a greater degree of specialization than ever before is being achieved in the manufacture of components/ parts. For example Bosch is a well known brand for manufacture of spark plugs nozzles etc. for motor vehicles. It cannot be expected that Bosch would supply spark plugs in a completely unassembled form to a motor vehicle manufacturer so as to comply with the definition of CKD as proposed by the Department. Even in India it is an accepted fact that indigenous manufacturers of motor vehicles undertake the manufacture of key components/parts (such as car bodies, engines, transmission assembly etc.) within their own facility. There are several ancillary units who manufacture hundreds of other components and sub assemblies required in the manufacture of a complete motor vehicle. Apparent....
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.... true that there are no definitions of the terms 'CKD' and 'SKD' in the Customs Act or Rules framed thereunder. But from the material furnished by the applicant for comparison of CKD and SKD, it appears that the components for the CKD vehicle are procured from the suppliers who supply to main BMW production facility at the CKD location and approximately 1400 single parts and body parts are transported to the CKD country. In the case of SKD, the vehicles are completely built up in a main BMW production facility in Germany and subsequently certain components are disassembled; the partially disassembled vehicles are mounted on transport skids and shifted to the respective countries where the disassembled components are fitted. The reports of the expert, as may be seen, refer to Annexure - III as CKD unit. The notification does not use the term 'SKD'. The Notification for purposes of concessional duty refers to two categories: (i) imported as completely knocked down (CKD) Unit dutiable 15%; and (ii) imported in any other form 60%.The reports of the expert do not mention that the car is not imported in completely knocked down (CKD) unit. What they say is that some parts of the car are i....
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....hey have serious objection to the engine transmission assembly being treated as a component for complying with the condition of CKD import. It was stated that the engine and the transmission assemblies should be imported separately for being considered as CKD units to be eligible for the exemption. It was pointed out that the engine and transmission assembly constitutes about 50% to 60% of the value of the motorcycle and an import of these two items assembled as a single part would render the motorcycle out of the scope of CKD. In support of the aforesaid contention, the Department referred to the Entry No. 345 as it existed on 1st March, 2002 when the Notification No. 21/2002-Cus was first issued. It was pointed out that there was an explanation in the said Entry which clarified that 'if the engine & gear box assemblies are installed in the body assembly of vehicle, then such vehicle shall be deemed as a completely built up unit' This Entry was amended by Notification No. 26/2003-Cus dated the Ist March, 2003 when the concept of Completely Knocked Down units was introduced and consequently the explanation deleted. It was sought to be conveyed that the engine and transmission assem....
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....article out of scope of Serial No. (1) and put it in Serial No. (2). For example any import of a motorcycle which has been assembled abroad and is spilt up into 8-10 sub assemblies (without being spilt up completely into individual identifiable basic sub assemblies) would be out of Serial No. (1) and be covered in Serial No. (2). 17. The 'Auto Policy' referred to by the Department cannot control the operation of a statutory notification. Further, it is difficult to say that in the instant case, there will be no manufacturing activity in India. 18. In view of the above observations the ruling with reference to the question raised in the application is given as follows:- Question: Whether in the facts and circumstances of the present case, the import of motorcycle in the form of components, parts and sub-assemblies, proposed to be imported by the applicant, would constitute import of motorcycles in Completely Knocked Down form and as such would be eligible for concessional rate of basic customs duty at the rate of 10% provided under Entry 345 of Notification No. 21/2002-Cus, dated 1st March 2002(as amended)? The import of motorcycles 'Sportster-XL883N' and 'Softail-FLSTC' in the ....