TaxTMI 
TaxTMI 
2010 (7) TMI 42
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.... M/s H-D Motor Company India Private Limited, the applicant, 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 im....
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....vidson's motorcycles assembly lines in United States. The applicant has further submitted that because 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....
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....erent from the facts provided by the applicant. An opinion from a Chartered Engineer has been submitted pointing out that the goods 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 oper....
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.... of each motorcycle would vary depending upon the design and features of the specific motorcycle models. The applicant submitted a representative 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 prov....
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....unassembled or disassembled, these definitions are silent on the degree of assembly of the article. It is difficult to accept the proposition put forth by the Department 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 facili....
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.... the parts would constitute a complete car. There are some parts, which could be taken as component form while there are other parts which could be termed as SKD form. It is 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 ....
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....n behalf of the Department that apart from other objections raised by them regarding the scope of expression Completely Knocked down in the exemption Notification No. 21/2002, they 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, 20....
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.... the trade would get covered in the description of Serial No. (1) of Entry No. 345. However, any integration which violates the basic identifiable sub assembly criterion would take the 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 custom....