TaxTMI 
TaxTMI 
2025 (1) TMI 1700
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....ompanies Act, 1956. The Applicant is a leader in the heating, ventilation and air conditioning and refrigeration (HVACR) Sector. The Applicant manufactures scroll compressors, hermetic compressors, semi-hermetic compressors, condensing units, etc. The Applicant is now proposing to import the product 'Short Block Sub-Assembly', a sub- assembly of parts for using in the manufacture of its 'scroll compressors'. The scroll compressors so manufactured are for use in refrigerating and air conditioning appliances. 2.2 About Short Block Sub-Assembly: Short Block Sub-Assembly (hereinafter referred to as 'product') is a part of a scroll compressor used in air conditioning units and refrigerating appliances. Below is the image of the product that shall be imported by the Applicant: 2.3 The applicant stated that post import into India, the product will be fitted with certain parts (imported as well as procured locally) and undergo certain assembly and finishing processes in India. The image of the finished compressor manufactured in India is extracted below: 2.4 The Short Block Sub-Assembly (in as imported form) comprises of the following components: 2.5 The....
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....ng of the compressor. Below are the processes that are carried out in India by the Applicant to complete the compressor: 3. Applicants Interpretation of Law/Facts: 3.1 The applicant states that the classification of the goods imported into India is to be determined based on the General Rules of Interpretation (hereinafter referred to as the "GRI") set out in the Tariff. As per Rule 1 of the GRI, classification of the imported products shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the remaining Rules of the GRI. 3.2 The applicant further states that the Tariff is aligned, up to the 6-digit level, with the Harmonized System of Nomenclature ('HSN') issued by the World Customs Organization ('WCO'). It has been held by the Hon'ble Supreme Court in the case of Collector of Customs, Bombay vs. Business Forms - 2002 (142) ELT 18 that the HSN Explanatory Notes aid in the interpretation of the Headings of the Tariff and may be used as a safe guide for the same. 3.3 Compressors are classified under Heading 8414 of the Tariff. The re....
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.... 85.03, 85.22, 85.29, 85.38 and 85.48) are in all cases to be classified in their respective headings; (b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 84.79 or 85.43) are to be classified with the machines of that kind or in heading 84.09, 84.31, 84.48, 84.66, 84.73, 85.03, 85.22, 85.29 or 85.38 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 85.17 and 85.25 to 85.28 are to be classified in heading 85.17, and parts which are suitable for use solely or principally with the goods of heading 85.24 are to be classified in heading 85.29; (c) All other parts are to be classified in heading 84.09, 84.31, 84.48, 84.66, 84.73, 85.03, 85.22, 85.29 or 85.38 as appropriate or, failing that, in heading 84.87 or 85.48. 3.5 Classification of parts of goods of Chapter 84, is to be undertaken as per Section Note 2 to Section XVI of the Tariff, provided it is not excluded by Section Note 1. Section Note 1 to Section XVI is extracted below: "1. This Section does not cover: (a) tran....
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....ection XVI, parts which are goods included in any of the Headings of Chapter 84 or Chapter 85 are to be classified in their respective headings. Short Block Sub-Assembly is not specifically covered by any Headings of the Tariff- as it is not a single component, but is an assembly of components. Therefore, Section Note 2 (a) cannot be applied for classification of the product. 3.7 As per Note 2 (b) to Section XVI, parts which are solely or principally suitable for use with a particular machine, are to be classified under the same Heading as the particular machine. The Short Block Sub-Assembly is solely suitable for use in a compressor. The Short Block Sub-Assembly will be used for manufacturing the compressors. Therefore, on applying Note 2 (b), the imported Short Block Sub-Assembly will be classified as part of Compressor under Heading 8414, specifically under Tariff Item 84149011. 3.8 The product is not an incomplete or unfinished compressor on application of Rule 2(a) of GRI: GRI 1 states as follows: "1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the ....
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.... this Rule also apply to blanks unless these are specified in a particular heading. The term "blank" means an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into the finished article or part (e.g., bottle preforms of plastics being intermediate products having tubular shape, with one closed end and one open end threaded to secure a screw type closure, the portion below the threaded end being intended to be expanded to a desired size and shape). Semi-manufactures not yet having the essential shape of the finished articles (such as is generally the case with bars, discs, tubes, etc.) are not regarded as "blanks". (III) In view of the scope of the headings of Sections I to VI, this part of the Rules does not normally apply to goods of these Sections. (IV) Several cases covered by the Rule are cited in the General Explanatory Notes to Sections or Chapters (e.g., Section XVI, and Chapters 61, 62, 86, 87 and 90). RULE 2 (a) (Articles presented unassembled or disassembled) (V) The second part of Rule 2 (a) provid....
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....duct in India, to make the product into a compressor. 3.15 Substantial operations are done in India and substantial value addition is undertaken in India: Further, Short Block Sub-Assembly is for use in the manufacture of 'Scroll Compressor'. The scroll set is thus a vital part of the scroll compressor. This scroll set is not a part of the short block assembly, but rather procured separately or locally, and then assembled in India. Therefore, the essential component of the scroll compressor itself, i.e. the scroll set, does not form a part of the Short Block Sub-Assembly, and accordingly the Short Block Sub-Assembly cannot be said to possess the essential character of a compressor. 3.16 The Short Block Sub-Assembly constitutes only 59% of the total cost of materials involved in the finished Compressor. Materials worth 41% (27% imported separately + 14% procured locally) and services worth 33% are added in India to make the imported product into a Compressor. Thus, as substantial value addition is carried out in India, the imported product cannot be regarded to be Compressor in unfinished form. 3.17 With respect to the question of whether a particular unfinished art....
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....necessary. These were in addition to the turning, boring, squaring and dovetailing at the bottom. The appellants' letter No. Imp/S 76/51 dated 27-2-1979 addressed to the Appellate Collector, shows that post-importation operations for 71 hours in the case of 10 cwt. forging and 50 hours in the case of 5 cwt. forging were necessary, involving expenditure of about 20% of the price of the forgings. The learned Advocate has not controverted the arguments of the learned S.D.R. that without these operations ram cannot function and hydraulic operation is not possible. The forgings at the time of importation properly fell under Tariff Heading 73.04/06(2) C.T.A., 1975 read with item 26AA of C.E.T. for the purpose of countervailing duty. We, therefore, find that the original assessment was correct and the goods do not merit re-assessment as finished ram under Heading 84.45/48 in terms of Rule 2(a) of the Rules for Interpretation of the First Schedule to the Customs Tariff Act, 1975, as claimed by the appellants. In the result, we uphold the impugned order and dismiss the appeal as untenable." Thus, in light of the considerable amount of post-import operations conducted in the present c....
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....e, it is intended. If the article as such has only attained the shape similar to the finished article, then on the basis it cannot be argued that it has attained essential character of the finished product. The essential character is not imparted by the mere shape. The test is that the articles minor adjustments or by fitting some parts must perform the function for which it is intended. In the instant case, the casting so imported cannot be used as such in three wheelers. They cannot be fitted with some other parts and used in three wheelers. The number of process as referred to above has to be carried out. The article on importation only resemble with the finished articles. Mere resemble does not impart essential characters. The number of process are to be carried out, value addition is more than the double of the imported articles. It cannot therefore be argued that unmachined articles resembling like a finished article has attained essential character of the finished." Thus, even if, arguendo, the Short Block Sub-Assembly is considered to have the approximate shape of the finished compressor, the essential character cannot be determined on the basis of the shape alone. The q....
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..... 3.23 The product is subjected to further working operations. Numerous products/parts are added to imported product to make it complete compressor .: After import into India, the product shall be subject to further working operations which include testing, welding, assembly of various items, which is 33% of the value addition. Further, the post-importation activity also includes procurement of integral parts such as the scroll set, for fitment with the short block sub-assembly and completing into a scroll compressor. Thus, it cannot be said that mere assembly is undertaken to complete the product into a compressor. Reference is made to the Tribunal decision of M/s JH- Welltec Machines (India) Pvt. Ltd., & Others v. Commissioner of Customs (NS-I), 2023 (11) TMI 1087 - CESTAT MUMBAI, wherein it was held that when the post importation activities do not merely involve assembly of the imported goods, but involve procurement of the essential components/parts for ultimate manufacture of the finished article, Rule 2(a) is not applicable. The relevant portion of the decision is extracted below: "12.6 In the case in hand, the imported goods were not presented by the appellant in....
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....the subject import goods are Short Block Sub-Assembly - a Sub-Assembly of parts which are to be used in the manufacturing of 'Scroll Compressor' for refrigeration and air conditioning and merit classification under CTI 8414 90 11. They also informed that they have also effected the import of the said goods under CTI 841430 as per Suppliers Invoice which is already cleared by the Customs without any dispute. They further stated that they will provide the details of the said Bill of Entry in a Couple of days. They also submitted that the subject import goods comprise 59% of Value of the material cost and 41% value is constituted by the inputs domestically procured or inputs imported separately. They further submitted that there is issue to decide in the instant case as to whether the subject goods are parts of Compressor or can be classified as incomplete compressor. They contended that there is no other specific entry in CTH other than CTI 8414 90 11 . and that these are not the compressor in disassembled form. They contended that there is no other use of the said product other than (parts of) compressor in air conditioning. They relied upon GRI (1) - Section note, primarily....
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....the same Heading as the particular machine. The Short Block Assembly is solely suitable for use in a compressor. The Short Block Assembly will be used for manufacturing the compressors. Therefore, on applying Note 2 (b), the imported Short Block Assembly will be classified as part of Compressor under Heading 8414. 6.2.3 Short Block Assembly cannot be classified under Tariff Item 84143000 as it is not an incomplete or unassembled compressor. Integral parts of the compressor are imported separately and procured locally, and required to be fitted onto the Short Block Assembly: In order to manufacture the Scroll Compressor, the Applicant has to fit other parts and components onto the Short Block Assembly. The list of other components that shall be imported separately or procured locally and then fitted onto the Short Block Assembly. Out of the products that shall be assembled and added in India, the Scroll Set is one of the most key components of the compressor. A scroll compressor uses two spiral shaped scrolls, one fixed and one orbiting scroll to compress gas. The orbiting scroll connected to the crankshaft rotates against the fixed scroll, which creates gas pockets between the t....
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.... iv. End cap welding: The end caps are welded on high-tech welding machines using 'MAG' technology and the entire unit is hermitically sealed. The welding requires knowledge of this technology and the machine. v. Hi-Pot text, Burst Text and leak test: Various tests and checks are done to ensure the correct quality. During these tests, the person utilises high voltage current, high pressure dry air, and electronic sensors, which requires the person to possess knowledge of various potentiometers, pressure setting devices, gauges and sensors. vi. Dehydration & Powder Painting: This entire process is multistage & each stage needs to be critically controlled & maintained. For pre-treatment all chemical pointages, spray & purging pressures, air dryness & temperatures are required to be critically monitored & maintained. In 'dry-off' zone, IR baking zones, dehydration & cooling zones right temperatures & timings are to be monitored & maintained. All these parameters are of utmost importance to ensure right quality of dehydration & painting. vii Oil charge, final testing and packing: The compressor oil is charged and followed by dry air. Then f....
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....over time. Rule 2(a) is to be applied to the goods in the "as presented" condition. v. SBA is subjected to further working operations. Numerous products/parts are added to SBA to make it complete compressor. The post-importation activity also includes procurement of integral parts such as the scroll set, for fitment with the short block assembly and completing into a scroll compressor. Thus, it cannot be said that mere assembly is undertaken to complete the SBA into a compressor. Thus, the SBA does not have the essential character of the finished compressor and has to undergo various operations which are more than simple assembly operations. Therefore, SBA cannot be treated as akin to a complete or assembled compressor. 6.2.6 Various decisions have held that Rule 2(a) of GRI is not applicable when considerable post- importation operations or complex assembly operations are undertaken to give essential character of the finished product, and that Rule 2(a) is only applicable when all parts are presented together for assessment. In support of the above submissions, the Applicant places reliance on the following case laws: i. Motor Industries Co. Ltd. v. Assista....
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.... 7. Discussions and Findings 7.1 I have considered all the materials placed before me in respect of the classification of subject goods. I have gone through the submissions made by the applicant during the personal hearing. Therefore, I proceed to pronounce a ruling on the basis of information available on record as well as existing legal framework. 7.2 The applicant has sought advance ruling in respect of the following questions: a) Question: Whether the product in question i.e., Short Block Sub-Assembly in the present application is classifiable under Tariff Item 84149011 of the First Schedule to the Customs Tariff Act, 1975 (hereinafter referred to as 'the Tariff")? b) Question: Should the product in question in the present application be classifiable as a compressor in an incomplete / unassembled form under Tariff Item 84143000 of the Tariff? c) Question: If the product mentioned above is not classifiable under the Tariff Item as mentioned above, then what would be the correct classification of the above product under the Tariff? 7.3 At the outset, I find that the issue raised at the Sr. No. 08 in the CAAR-I form is squarely covered under....
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....onditioning systems to compress refrigerant gas. The scroll compressor operates using a unique mechanism involving two spiral-shaped scrolls: a stationary scroll and an orbiting scroll. Scroll compressors are important because they offer highly efficient, reliable, and quiet, making them ideal for a wide range of industrial and commercial applications. They also have a compact design and require minimal maintenance, making them cost-effective in the long run. 7.7.2 A scroll compressor actually consists of two scrolls or spirals. One scroll is moving, whereas the second one is fixed (attached to the compressor body). The first scroll orbits (rotates) in a path defined by its mating fixed scroll. The orbiting scroll is connected to the compressor's crankshaft. As a result of the scroll's movement, gas pockets are formed between the two scrolls. At the outer part of the scrolls, the pockets suck in gas and then move towards the center of the scroll, where the compressed gas is discharged. As the gas moves into the continuously smaller internal pockets, both its temperature and pressure are increased. Thus, a desirable discharge pressure is achieved by the motion of the comp....
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....mported in form of Short Block Sub-Assembly. I also find here that the sixth component i.e. the Scroll Set is not imported with the Subject goods i.e. Short Block Sub-Assembly. From here, I observe that if the product i.e. Short Block Sub-assembly is imported with Scroll Set, it would have constituted all the essential component of the compressor falling under Tariff Item 84143000 and would rightly be classifiable as the complete Compressor in CKD/SKD condition having met the criterion set under the GRI Rule 2(a) which states as under: "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." 7.9 However, since the product i.e. Short Block Sub-assembly does not have the scroll set, which rotate by drive transferred by crankshaft and compress the gas, the question remains whether th....
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.... having tubular shape, with one closed end and one open end threaded to secure a screw type closure, the portion below the threaded end being intended to be expanded to a desired size and shape). Semi-manufactures not yet having the essential shape of the finished articles (such as is generally the case with bars, discs, tubes, etc.) are not regarded as "blanks". (III) In view of the scope of the headings of Sections I to VI, this part of the Rules does not normally apply to goods of these Sections. (IV) Several cases covered by the Rule are cited in the General Explanatory Notes to Sections or Chapters (e.g., Section XVI, and Chapters 61, 62, 86, 87 and 90). RULE 2 (a) (Articles presented unassembled or disassembled) (V) The second part of Rule 2 (a) provides that complete or finished articles presented unassembled or disassembled are to be classified in the same heading as the assembled article. When goods are so presented, it is usually for reasons such as requirements or convenience of packing, handling or transport. (VI) This Rule also applies to incomplete or unfinished articles presented unassembled or disassembl....
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....omponent i.e. Scroll Set. The Scroll set is essential to the compressor's operation, and without it, the short block sub-assembly would not be able to function independently and would not perform compression because the basic mechanism for gas compression would be absent. 7.16 From the discussions above, I find that the Short Block Sub-Assembly includes most of the vital components. However, it does not include all components which together make the subject goods i.e. Short Block Sub-Assembly have the essential character of a scroll compressor as the Scroll set, which perform the compression function, is not part of the Short Block Sub-Assembly. Since the product i.e. Short Block Sub-Assembly lacks the essential character of a compressor, therefore, it would be classified as parts under CTSH 8414 90 and specifically under CTI 8414 90 11 as 'parts of gas compressors of a kind used in refrigerating and air conditioning appliances and machinery'. Needless to say, that if at the time of import, this Short Block Sub-Assembly is imported with Scroll Set, then it would merit classification under CTI 8414 30 00 as it would modify and upgrade the subject goods to goods having....