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2005 (10) TMI 548
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....o set up a joint venture to establish a facility in India for assembly of certain models of high-end BMW motor cars. For this purpose they have identified BMW India Private Limited as the proposed joint venture company in India in which they will acquire shares. The list of items to be imported into India and the Assembly Manual have been furnished by the applicant as Annexure-III to their application. 2. The question which has been raised by the applicant for an advance ruling from this Authority reads as under : "Whether the import of car parts, listed at Annexure III, would be considered as import of completely knocked down ('CKD") unit, eligible to the concessional rate of customs duty of 15% being covered by Entry 344 of CTH No. 8703 (1) of Notification No. 21/2002-Cus., dated March 1, 2002 as amended by Notification No. 11/2005-Cus., dated 1-3-2005?" 3. The technical aspect involved in the above question, is whether car parts listed in Annexure-III of the application would truly represent completely knocked down (CKD) unit of a BMW 3-Series (E-90) motor car. This being so, the Authority asked the authorized representatives of the applicant as well as of the Com....
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....ld be classifiable under 8703 of the Customs Tariff Act, 1975. Reliance was placed on the certificate issued by SGS, Germany GMBH, dated 2-8-2005 in support of their contention. The ld. Counsel took us through various paragraphs of the Hon'ble Supreme Court's decision in Collector of Customs, Bangalore v. Maestro Motors Limited and also of the Tribunal decision in the case of Commissioner of Customs, Indore v. Hindustan Motors Limited. The appeal filed by M/s. Hindustan Motors Ltd. against the aforesaid decision of the Tribunal has also been dismissed by the Hon'ble Supreme Court, he added. Citing in particular the observations of the Apex Court in Maestro's case, the ld. Counsel submitted that if in a notification exemption is granted with reference to tariff items in the First Schedule to the Customs Tariff Act, 1975, then same Rules of Interpretation must apply. In that case the goods will be classified even for the purposes of the notification, as they are classified for purposes of payment of customs duty. In other words, the applicant's plea is that the parts in question proposed to be imported as CKD unit, being classifiable as a motor car under Tariff Heading 8703 by virtue....
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....on of exemption notification. The verbal submissions were confirmed by ld. Jt. CDR in his written note submitted to the Authority. 9. As the use of the expression "by and large" in the report of ARAI created some doubt in the mind of the Authority as to whether it implies that certain parts are in semi-knocked-down form, a clarification to this effect was sought from ARAI. In response, Director, ARAI has stated that there are some parts in the total list which could be taken as component form while there are other parts which could be termed as SKD form. He has further indicated that from the analysis carried out by the ARAI and the discussions held with BMW, it was learnt that they were going to manufacture the seats locally and then install the same in the vehicle. As such, one cannot take the vehicle as complete without seat. That is why the words "by and large" have been used. He has also clarified that to their knowledge, there are no specific guidelines prescribed for defining CKD and SKD kits. 10. A copy of the clarification received from ARAI, Pune in their letter dated 22-9-2005 was forwarded to the applicant and to the Commissioners concerned for their objections, i....
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....fferent Tariff/Chapter Headings of the Customs Act. In the limited context before us, we are concerned only with Sl. No. 344 of the said general exemption notification. In order to appreciate the point raised before us, it is necessary to reproduce the relevant portion of the notification which reads as follows : "In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 17/2001-Customs, dated the 1st March, 2001 [G.S.R. 116 (E), dated the 1st March, 2001], the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods of the description specified in column (3) of the Table below or column (3) of the said Table read with the relevant List appended hereto, as the case may be, and falling within the Chapter, heading or sub-heading of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the corresponding entry in column (2) of the said Table, when imported into India, - (a) from so much of the duty of customs lev....
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....ified in Column (3) of the Table "...." and falling within the Chapter, heading or sub-heading of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the corresponding entry in column (2) of the said Table, when imported into India....". From the description of the goods specified in column (3) against Sl. No. 344 of the notification, it is clear that the exemption is available to motor cars and other motor vehicles principally designed for the transport of persons (other than those of Heading No. 87.02), including station wagons and racing cars, new, which have not been registered anywhere prior to importation. Sub-clause (1) and sub-clause (2) specify the form in which such motor cars or other motor vehicles are to be imported in order to get the concessional rate of duty corresponding to either sub-clause (1) or sub-clause (2). As the position stands at present, the motor cars or other motor vehicle as specified in the description of the goods mentioned above would enjoy a lower rate of customs duty namely 15% "if imported as completely knocked down (CKD) unit" whereas it will attract higher rate of customs duty of 60% "if imported in any other fo....
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....dings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions : 2.(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled." It is sufficient to note at this stage that the General Rules for Interpretation lay down the principles which would govern the classification of goods in the First Schedule to the Tariff Act. Rule 2(a) embodies the principle that an incomplete or unfinished article will fall to be classified under the same heading in the First Schedule which refers to the complete and finished article, provided, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. 14. The two issues which therefore need critical examinatio....
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....ot exceeding 1000 cubic centimeters", subject to fulfilment of certain conditions as specified in the Notification. The original Adjudicating Authority held that the imported components being complete cars in CKD packs had the essential character of the finished product and as such the consignments were to be treated as motor cars and not components and thus denied the benefit of the exemption Notification which were only for components. Both the Commissioner (Appeals) and the CEGAT however held that the goods were component parts and not motor cars and accordingly extended the benefit of Notification to the said goods. While deciding the appeal filed by the Collector of Customs, the Hon'ble Supreme Court observed that the question for consideration are whether the CKD packs imported into the country could be considered to be motor cars and not components and secondly, whether M/s. Maruti Udyog Ltd. are entitled to the benefit of Notification No. 29/83. On careful consideration of the facts of the case the Hon'ble Supreme Court made the following observations :- "It is settled law that to avail the benefit of a notification a party must comply with all the conditions of th....
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....hich exempted components and parts of motor vehicles falling within Chapter 87 of the First Schedule to the Customs Tariff Act, 1975 and goods specified in column (3) of the Table annexed to the Notification. Referring to their decision in the earlier part of the judgment in Maruti's case, the Hon'ble S.C. observed that as already set out in that decision, such components are nothing but cars in knocked down condition and applying Interpretative Rule 2(a) such components are to be classified as cars. On the question as to whether M/s. Maestro Motors Ltd. is entitled to the benefit of the Notification No. 72/93, the Hon'ble S.C. referring to its view in Maruti's case, reiterated that a Notification has to be interpreted in accordance with the language used in the Notification. Where the language is clear and unambiguous an interpretation which does not tally with the language cannot be given. The wording of the Notification No. 72/93 being very clear, it is only components and parts which fall within Chapter 87 are to be exempted and not components in CKD packs which were actually being imported. In this context, the Hon'ble S.C. made the following observation "if, by virtue of Inte....
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....be components and parts, the reference was to the classification of the imported goods for both the aforesaid purposes. This is made clear in the observations of the Hon'ble S.C. little later in the same para when it pointed out that If the exemption is granted with reference to the Tariff Heading, then those goods must be classified in the same manner both for purposes of payment of customs duty as well as for purposes of exemption/benefit under that Notification. However, when the wording of a Notification specifically exempts an item, then the exemption will apply to that item even though for purposes of classification it may be considered to be something else. On this principle, it was held by the Hon'ble S.C. that M/s. Maestro Motors Ltd. were not entitled to the benefit of the Notification. 19. The important legal propositions which flow from the above observations of the Hon'ble Supreme Court in the two decisions are :- (i) A Notification has to be interpreted in terms of the language used in the Notification. Where the language is clear and unambiguous an interpretation which does not tally with the language cannot be given. (ii) If in the notification ....
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....sub-clause (1) or sub-clause (2) as the case may be. The question that however arises is whether an incomplete or unfinished motor car as in the case before us, which has acquired essential character of a complete or finished motor car, would also be covered by the description of the goods given in this Sl. No. and get the benefit of exemption, if imported either as a CKD unit or in any other form. Undoubtedly, for purposes of payment of customs duty, such incomplete or unfinished motor car would be classified as complete or finished car by applying Interpretative Rule 2(a). In this context, the following observation of the Hon'ble S.C. in Maestro's case becomes relevant- "When a Notification exempts goods falling within the First Schedule to the Customs Tariff Act, 1975, then the goods must be classified in the same manner both for purposes of payment of customs duty as well as for purposes of exemption/benefit under the Notification. However if the wording of the Notification shows that an item is specifically exempted then the exemption will apply to that item even though for purposes of classification it may be considered to be something else". By this principle, such goods sho....
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....o 'explanation' has been appended to Sl. No. 344 of the Notification to define the scope of these expressions used therein. So, we would refer to the ordinary meaning ascribed to the expression 'Motor Car' and 'Motor Vehicle' in the dictionaries/encyclopedia. These are :- The New Oxford American Dictionary. Motor car n 1. dated or Brit. an automobile 2. a self-propelled railroad vehicle used to carry railroad workers Motor vehicle n. a road vehicle powered by an internal combustion engine; an automobile. Automobile n. a road vehicle, typically with four wheels, powered by an internal combustion engine and able to carry a small number of people The New International - Webster's Dictionary & Thesaurus of the English Language Motor car n. An automobile Motor vehicle 1. Any vehicle operated by a motor or engine. 2 A vehicle adapted to be pulled by another, as a trailer Automobile n. A self-propelled vehicle; specifically, one driven by an internal-combustion engine or storage battery and independent of rails or tracks; a motorcar. - v.i. biled, bil-ing to ride in or drive an automobile- adj. 1. Self-propel....
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....e passengers. The van is a type of commercial vehicle that has been adapted for personal use. Variations of these body types have been developed for special purposes. McGraw-Hill - Dictionary of Scientific and Technical Terms - Fifth Edition Motor vehicle. Any automotive vehicle that does not run on rails, and generally having rubber tyres. Car See automobile. Automobile. A four-wheeled, trackless, self-propelled vehicle for land transportation of as many as eight people. Also known as car. It would therefore appear that the expressions "motor car" and "motor vehicle", as commonly perceived and understood, mean complete and finished motor car or motor vehicle and not their incomplete or unfinished forms. 22. Even in Customs Act, 1962 there is no definition given of motor car or motor vehicle. However the term "vehicle" has been defined in Section 2(42) to mean "conveyance of any kind used on land and includes a railway vehicle". The term "conveyance" has also been defined in Section 2(9) as including "a vessel, an aircraft and a vehicle". These definitions also do not give any impression contrary to or different from the common percep....
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.... in The Motor Vehicles Act cannot be taken to interpret this expression used in the exemption notification issued under the Customs Act or in the Customs Tariff Act. 23. It therefore appears that the description of the goods specified in column (3) of the Sl. No. 344 of the Notification cannot be interpreted in a manner so as to include incomplete or unfinished 'motor car' or 'other motor vehicle' also within its ambit. 24. A plea has been taken by the applicant before us that Interpretative Rule 2(a) is implicit in the language of description of goods specified in column 3 of Sl. No. 344 of the Notification. Framers of the Notification, it is submitted, had Rule 2(a) in mind while drafting the description column. This line of agreement, it is felt, is not convincing. First of all, general exemption notifications are issued under Section 25(1) of the Customs Act, 1962 which, empowers the Central Government, if it is satisfied that it is necessary in the public interest to do so, to exempt generally either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be specified in the notification goods of any specified description from the whol....
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....an exemption Notification specifically exempting such components, by not applying Rule 2(a) and even when such exemption notification is not available, the same goods would enjoy the benefit of exemption under a Notification if in force, which exempts motor cars, by applying Rule 2(a). Such an approach does not appear to be consistent and hence not supportable. 25. Other judgments and the Board's Circular No. 55/95-Cus., dated 30-5-1995 cited by both the sides are not found directly relevant to the issues under consideration and hence not discussed here. 26. Summing up therefore, it is ruled that the goods proposed to be imported by the applicant are not covered by the main text of the description of goods specified in column (3) against Sl. No. 344 of the Notification No. 21/2002-Cus., dated 1-3-2002 as amended by Notification No. 11/2005, dated 1-3-2005 and hence the benefit of exemption under the said Notification is not available to the goods in question. In view of the above finding, the question of deciding whether sub-clause (1) or (2) in the column (3) would be attracted in the applicant's case, does not arise. 27. Pronounced in the open Court of the Authority on t....
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....oms duty of 15% being covered by Entry 344 of CTH No. 8703(1) of Notfn. No. 21/2002 Cus., dated March 1st, 2002 as amended by Notification No. 11/2005-Cus., dated 1-3-2005." 32. The Commissioner, Customs (Airport & Air Cargo) and Commissioner, Customs (Port Export), Chennai submitted separate comments which may be summarized as follows : "In the instant case, although the applicant has furnished a list of parts which they propose to import (Annexure-III) they have not explicitly stated whether these parts if assembled would form a completely built unit of car (except seats). This is a technical aspect which needs to be certified by independent technical agencies/institutions. Such a technical certificate should also indicate whether any other parts are required and whether the components need to be subjected to further working operation for completion into a finished car. Apart from the above, if the importer is able to establish that the items listed in Annexure-III enclosed with the application would form a complete motor car of the specified model and if all those individual items are imported as one consignment in the same unassembled state as indicated in ....
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....the Commissioner if the same is beneficial to him and in the absence of any material to rebut the presumption of regularity it will not be permissible for us to deny to the applicant the benefit of the plea of the Commissioner. Further, it will also be both indecorous and presumptuous to brush aside the plea of the Commissioner in proceedings before the Authority for no valid reason. Where the Commissioner accepts the position stated by the applicant, it would be a futile exercise to probe an aspect which is not put in issue by the Commissioner as it would result in sheer waste of time of the Authority. It is only when the Commissioner joins issue with the applicant either on facts or law and it is necessary to determine the same to pronounce a ruling on the question set forth in the application, the Authority has to determine the same. Be that as it may, inasmuch as the learned Member has recorded his finding that the description of the goods in Col. (3) of the Sr. No. 344 of the exemption otifycation cannot be interpreted so as to include incomplete or unfinished motor car or other motor vehicles within its ambit, it has become necessary for us to express our opinion on that issu....
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.... station wagons and racing cars, new, which have not been registered anywhere prior to importation (1) If imported as completely knocked down (CKD) unit $[15%] (2) if imported in any other form 60% ..... ..... ..... ..... ..... ..... $ Substituted by Notification No. 11/2005-Cus., dated 1-3-2005. 37. Now it may be noticed that against Sr. No. 344 of the Exemption Notification, in col. (2) Heading 8703 is noted and the description of goods given in col. (3) is verbatim the same as in Heading 8703, quoted above, except for the words in bracket. The difference, it may be pointed out, is in respect of the following : the motor cars : (i) shall be new; (ii) shall not have been registered anywhere prior to importation; and (iii) the concessional rate of duty is 15% if imported as completely knocked down (CKD) unit; and 60% if imported in any other form. 38. It has been stated above that interpretative Rule 2(a) requires that any reference in a heading to an article shall be understood as : (i) a reference to that article inco....
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....CKD packs were exempted, therefore, exemption would apply to those components even though for purposes of payment of duty, the components were classifiable as cars. But in the second case, Notification 72/93 exempted components and parts falling under Chapter 87 and not components in CKD packs which were in fact imported. Reiterating its view in Maruti's case the Hon'ble Supreme Court observed that a notification had to be interpreted in accordance with the language of the notification and it was held that components and parts must be considered to be components and parts for purposes not just for exemption but also for payment of customs duty. We may with advantage refer to the relevant observations of the Hon'ble Supreme Court, in that case : "if, by virtue of Interpretative Rules, for purposes of the First Schedule to the Customs Tariff Act, 1975 the imported goods are not considered to be components and parts, then for purposes of this Notification also they cannot be said to be components and parts. ............ When a Notification exempts goods falling within the First Schedule to the Customs Tariff Act, 1975, then the goods must be classified in the same manner both....
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....are some parts in the total list, you have provided, which could be taken as component form, while there are other parts, which could be termed as SKD form. From the analysis carried out by us and the discussions held with BMW, it was learnt that they were going to manufacture the seats locally and then install the same in the vehicle. You will agree, one cannot take the vehicle as complete without seat. That is why the words "by and large" have been used." 43. After a copy of the said clarification of the expert was communicated to the Commissioners concerned, the Commissioner of Customs (Airport and Air Cargo), Chennai presented the following two points :- (1) The items in question would merit classification under CTH 87.03 as motor cars by virtue of Rule 2(a) and (2) The goods would be apparently chargeable to Basic Customs duty @ 60% as 'motor cars imported in any other form' under Sl. No. 344(2) of the Notification contrary to the claim of the applicant. 44. It may be noted from the clarification report that (1) there are no specific guidelines prescribed for defining CKD and SKD kits; (2) there are some parts in the Annexure which could be taken as com....