TaxTMI 
TaxTMI 
2026 (5) TMI 381
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....present case pertains to the period from 20.03.2018 to 31.12.2021. The impugned order confirms a demand of Rs.56,45,12,083/- under Section 28(4) of the Customs Act, 1962, out of which Rs.49,48,07,057/- pertains to the extended period and Rs.6,97,05,026/- pertains to the normal period. Further, redemption fine of Rs.16,00,00,000/- has been imposed under Section 125 of the Act and penalty of Rs.56,43,93,553/- has been imposed under Section 114A of the Act along with applicable interest. 2. The facts briefly stated are that intelligence was gathered by the Directorate of Revenue Intelligence (DRI), Mumbai Zonal Unit, that M/s Ampere Vehicles Pvt. Ltd. (AVPL), holder of IEC No. 0408011092, was importing e-scooters/ebikes in completely knocked down (CKD) condition-with preassembled motors and controllers but not mounted on a body-while classifying them under as parts under Chapter Tariff Heading 8714. DRI believed the goods should instead fall under Heading 8711 (complete e-scooters/e-bikes) in terms of Rule 2(a) of the General Rules of Interpretation, thereby attracting higher rate of duty. 3. In August 2018, AVPL's promoters transferred ownership and management control to M/s Gr....
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.... not previously registered) specifies: 10% duty for CKD kits with engine, gearbox, and transmission not pre-assembled; 30% where any of these are pre-assembled but not mounted on a body; 60% for imports in any other form (excluding high-capacity motorcycles); and 75% for motorcycles with engine capacity of 800 cc or more. 8. Notification No. 50/2017-Cus (Sr. No. 531) was amended by Notification No. 26/2018-Cus dated 12.02.2018, revising the duty rates for new motorcycles (including mopeds and similar vehicles not previously registered). The revised rates were: 15% for CKD kits where the engine, gearbox, and transmission are not pre-assembled; 20% where any of these components are in pre-assembled form but not mounted on a body; and 50% for imports in any other form. 9. Subsequently, Notification No. 03/2019-Cus dated 29.01.2019 further amended Notification No. 50/2017-Cus by excluding electrically operated vehicles from Sr. No. 531 and introducing a new Sr. No. 531A specifically for electrically operated motorcycles (including mopeds). Under this new entry, the duty structure provides: 10% BCD for knocked-down kits with all necessary components (such as battery pack, motor, c....
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.... as battery pack, motor, controller, charger, power control unit, energy monitor contactor, brake system, and electric compressor in disassembled form not mounted on chassis; 15% BCD where these components were preassembled but not mounted on chassis or body; and 50% BCD for imports in any other form. 14. From 30.01.2019, where an e-bike/e-scooter was imported in CKD condition with pre-assembled key components such as motor, motor controller, charger, power control unit, energy monitor, brake system, and electric compressor not mounted on the chassis, it was considered liable to 15% BCD under the applicable entry. This rate was subsequently revised to 25% BCD with effect from 01.04.2020 vide Notification No. 01/2020 dated 02.02.2020. 15. Thereafter, significant changes were introduced through the Finance Bill 2022, implemented via Notification No. 2/2022-Cus dated 01.02.2022, which substituted Entry 531A of Notification No. 50/2017-Cus. Under the revised entry for electrically operated vehicles, imports are classified as follows: (1) CKD kits (incomplete or unfinished) containing necessary components for assembling a complete vehicle, including battery pack, motor, m....
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....such as motor and controllers not mounted on the body), as done by M/s GEMPL (earlier AVPL), are summarized as follows: - i. Under Notification No. 50/2017 dated 30.06.2017 (up to 11.02.2018), the rate was 60% under Sr. No. 531(2).' ii. Under Notification No. 26/2018 dated 12.02.2018 (up to 28.01.2019), the rate was 50% under Sr. No. 531(2). iii. Under Notification No. 03/2019 dated 29.01.2019 (up to 31.03.2020), the rate was 15% under Sr. No. 531A(1)(b). iv. Under Notification No. 01/2020 dated 02.02.2020 (effective 01.04.2020 to 31.01.2022), the rate was 25% under Sr. No. 531A(1)(b). v. Under Notification No. 02/2022 dated 01.02.2022 (from 01.02.2022 onwards), the rate is 15% under Sr. No. 531A(1)(a). 20. It is further noted that the example provided in the HSN Explanatory Notes to Rule 2(a) of the General Rules of Interpretation-where a bicycle without an engine and tyres is still classified as a bicycle- is relied upon by the Department to contend that such goods may be classifiable under Heading 8711; however, applicability of the said principle to the present facts is examined in the findings.. 21. According to the HSN Explan....
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....It appeared to the Department that the pattern of imports adopted by the Appellant, including import of various components through different consignments, required examination to determine whether the provisions of Rule 2(a) of the General Rules for Interpretation were attracted. 26. Evidence collected during the investigation further showed that purchase orders covered all parts required to assemble complete electric scooters, proforma invoices described supplies as CKD sets of electric scooters, and Bills of Lading referred to the goods as "Electric Bike CKD" classifiable under Heading 871160 (electric scooters/bikes), rather than Heading 8714 applicable to parts of such vehicles. 27. It was alleged that the Appellant did not undertake any research and development or design of e-bikes in India, as the models were procured as ready-made designs from Chinese suppliers. The assembly of e-scooters/e-bikes from CKD kits involved no manufacturing or complex process, with minimal use of local components and negligible value addition. The CKD kits were imported specifically for assembling complete e-scooters/e-bikes rather than for sale of parts in the domestic market. 28. It wa....
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....te vehicles corresponding to the quantities mentioned in the proforma invoices. Batteries and chargers, although not included in the proforma invoices for supplied kits, were separately imported from foreign suppliers such as Phylion Battery Co. Ltd. and Xupai Power Co. Ltd. 33. The Department has alleged that the Appellant adopted this modus operandi to evade customs duty, despite being aware that it was only assembling CKD kits and not undertaking any manufacturing activity in its factory. 34. In CBIC Circular No. 179/11/2022-GST dated 03.08.2022, it is stated as under: - "electrically operated vehicle including three wheeled electric vehicle means vehicle that runs solely on electrical energy derived from an external source or from electrical batteries. Therefore, the fitting of batteries cannot be considered as a concomitant factor for defining a vehicle as an electrically operated electric vehicle. 2.4 It is also pertinent to state that the WCO's HSN Explanatory notes have also not considered batteries to be a component, whose absence changes the essential character of an incomplete, unfinished or unassembled vehicle. 2.5 Also, the HSN explanat....
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....amendment. 39. He identified the persons from M/s GEMPL who gave such instructions as Shri Subash, Shri Ganesh, or more recently Shri Govind, and speculated that he may have been directed to treat and declare the goods as "parts," despite the Bills of Lading indicating CKD imports of complete electric scooters. 40. Regarding the Import General Manifest (IGM), the CHA admitted that they should have either followed the description in the IGM or sought its amendment, but instead relied on the invoice and packing list as per instructions from M/s GEMPL (earlier AVPL). This indicates that M/s GEMPL actively collaborated with the Customs House Agent and freight forwarder to ensure that Bills of Entry for CKD imports of escooters were wrongly described as "parts and components of electric scooters" instead of their correct classification as complete CKD units. 41. It was further observed that M/s GEMPL did not carry out any research, development, or design of the e-bikes in India. The company sourced existing e-scooter models from Chinese manufacturers, obtained approvals from ARAI for Indian market suitability, and then imported all required components for assembly. Shri Arun Ku....
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....mbled or disassembled" include those assembled using simple fixing methods such as screws, nuts, bolts, riveting, or welding, provided only assembly operations are involved. The complexity of assembly is irrelevant, but the components must not undergo any further processing to reach the finished state. Accordingly, when such parts are merely assembled through a simple process, the Department contends that they acquire essential character of an e-bike/e-scooter. 47. Further, Rule 2(a) of the General Rules of Interpretation provides that any reference to an article includes incomplete or unfinished forms of that article, provided it possesses the essential character of the complete or finished product, and also includes complete or finished articles presented in unassembled or disassembled form. Thus, even unfinished or incomplete goods are classifiable under the relevant heading if they retain the essential characteristics of the complete article. 48. The HSN Explanatory Notes for Chapter 87 reiterate that an unassembled or incomplete vehicle is to be classified as the corresponding complete or finished vehicle if it possesses the essential character of the latter under Genera....
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....nt increase in local procurement for key components of models such as Reo, Zeal, and Magnus. This included frames, batteries, body parts, motors, rear-view mirrors, and footrests sourced from domestic vendors. 54. The identified local suppliers included Shushant Industries and Elkayem Auto Ancillary Pvt. Ltd. for frames; Ralson India Ltd and Metro Tyres for tubeless tyres; JMJ Industries for body parts such as side panels; Laxmi Balaji Automotive Products for pillion footrests and battery boxes; Fiem Industries Ltd for headlights; and Suprajit Industries Ltd for rear-view mirrors. 55. From January 2022 onwards, M/s GEMPL began procuring major components such as frames, motors, handlebars, and body parts from domestic suppliers. Since these constitute essential parts without which an e-scooter cannot achieve its essential character, imports made from 2022 onwards were excluded from the differential duty computation. 56. However, for the period 2018 to 2021, it appeared that the company imported almost all major components while locally sourcing only minor items such as tyres, screws, nuts, and bolts. Critical components including the motor, controller, converter, body parts....
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....ne IGM (38 cases), reinforcing the systematic nature of such splitting. 61. The Department has alleged that M/s GEMPL mis-declared imports as "parts of e-bikes" instead of "e-bikes in CKD condition" for multiple reasons. First, under the FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles) scheme, subsidies were available only to manufacturers; declaring imports as complete CKD e-bikes would have placed them outside the definition of a manufacturer, making them ineligible for such benefits. Second, CKD e-bikes attracted a higher customs duty compared to parts. Third, declaring goods as complete e-bikes would have resulted in loss of Basic Customs Duty (BCD) exemptions available on specific components like DC motors, controllers, and chargers. 62. The Department relies on import data to support the above allegations that the company imported nearly all components required to assemble complete e-bikes. It was only from 2021 onwards that the company began sourcing some critical components locally for certain e-scooter models. 63. The Department has also placed reliance on Board Circular dated 05.12.1997 to contend that Rule 2(a) would apply where essential....
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....eived from the battery). iv. The body or the frame (the exo-skeleton onto which all other parts are affixed). c. If Completely Knocked Down (CKD) kits are imported consisting of the body/frame (steel and plastic parts), motor, controller, and converter, the kits are deemed to have the essential characteristics of an e-scooter/ebike. d. From statements recorded under Section 108 of the Customs Act, 1962, proforma invoices, and Bills of Lading, it appeared that M/s. GEMPL had been importing CKD kits that included a pre-assembled motor, controller, battery (in some cases), and frame assembly. e. Step-by-step details of the modus-operandi adopted by M/s. GEMPL in the importation and assembly of the CKD (Completely Knocked Down) kits for all models of e-scooters/e-bikes is as follows: 1. The goods were purchased based on Purchase Orders specifying the supply of all parts of electric scooters in CKD condition. 2. The goods were supplied in CKD condition, as evident from the Proforma Invoices and the Bills of Lading. 3. Vehicles available in China were chosen and imported, and no designing or R&D was conducted in India. ....
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....d as a bike in CKD condition under Chapter heading 8711.In the instant case, all the "essential parts were imported", as evidenced by Proforma Invoices, Commercial Invoices, Packing Lists, and statements of various M/s. GEMPL employees. j. M/s. GEMPL committed a fraud intentionally after proper planning and devised a modus operandi deliberately. They sought to cleverly take shield of the clause 'as presented' in Rule 2(a) of General Rules for Interpretation of the Import Tariff" by: 1. Importing the e-scooter/e-bike in CKD (Completely Knocked Down) kit in different consignments; and 2. Mis-classifying the goods under various Customs Tariff Items (CTI) as 'parts' to evade Customs duties. k. M/s. GEMPL deliberately mis-stated facts in declarations to evade Customs duty leviable under Chapter heading 8711 (for vehicles) and instead mis-classified the imported goods under Chapter heading 8714 (as parts of electric scooters). The locally-procured parts (e.g., tyres, fasteners, mirrors, footrest, manuals, tool kits) are minor parts, easily replaceable, and do not impact or alter the essential character of the imported CKD kits as e-scoo....
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....d. (Now M/s. GEMPL). 2. Shri. Subash Iyappan (Former Manager, Supply Chain Management of M/s. GEMPL). 3. Shri. Arun Kumar Kandhan (Assistant General Manager, Supply Chain Management, M/s. GEMPL). 4. M/s. Seven Seas Global Express Logistics Pvt. Ltd. t. The correct Basic Customs Duty (BCD) chargeable on the imported e-bikes/e-scooters (in the condition they were imported) is as follows: i. 50% from 12.02.2018 to 28.01.2019. ii. 15% from 29.01.2019 to 31.03.2020. iii. 25% from 01.04.2020 to 31.12.2022. The above allegations have been contested by the Appellant and are examined in detail in the findings below. 70. Based on the above investigation, Show Cause Notice dated 17.03.2023 was issued to M/s. Graves Electric Mobility Pvt. Ltd. (Earlier known as M/s. Ampere Vehicles Pvt. Ltd.) with the proposals to (i) re-classify the impugned imported goods under CTI 87116020 instead of instead of classifying the imported goods in the respective CTIs of each part of an e-bike/e-scooter and or parts of electric scooters under CTH 8714; (ii) confiscate the impugned imported goods having total assessable ....
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....ential component of the electric vehicle which is never imported in the same consignment with other parts and components. Therefore, in terms of the decision, Commissioner of Customs (Port) Kolkata vs. M/s. Twinkle Tradecom Private Limited, [2024 (5) TMI 472 - CESTAT KOLKATA], the impugned order is unsustainable. 76. The Ld. Advocates further submitted that the impugned Order has noted that vide Circular No. 179/11/2022-GST dated 03.08.2022, it can be understood that an electric vehicle retains its classification even in the absence of a battery. In this regard, Appellant submitted that circulars are not binding on courts as administrative circulars and government clarifications cannot override judicial decisions. 77. Referring to the decision in Commissioner of Customs, New Delhi vs. Sony India Ltd., [2008 (231) ELT 385 (S.C.)], the Ld. Advocates argued that the sine qua non for the application of GRI 2(a) is that any imported article "as presented", must have the essential character of the complete or finished article. Admittedly, in the present case, batteries are never imported along with the other components. Therefore, as presented, the goods do not have essential chara....
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....ppellant. 82. The issues for consideration in this appeal are: - i. Whether impugned goods imported by Appellant should be considered as individual parts/components classifiable under Chapters 73, 84, 85, 87, 90 as declared by importer, or as complete e-bikes in CKD condition classifiable under CTI 8711.6020, as held by LAA. ii. In case the goods are classifiable under CTI 8711.6020, whether the demand of duty should be limited to the normal period or the demand of duty should cover extended period also, as done by the LAA. iii. whether the order of confiscation of impugned goods is correct or not. iv. whether the order of imposition of penalties on Appellant and Co-appellants is correct or not. 83. Before proceeding to examine the issues framed above, it is necessary to note that the narration in the preceding paragraphs primarily reflects the allegations in the show cause notice and the findings in the impugned order. The same are required to be independently evaluated on the basis of statutory provisions, judicial precedents and facts on record, without being influenced by the conclusions drawn by the adjudicating authority." 84. On a....
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....à-vis the number of batteries available. In the absence of such correlation or quantification, the allegation that the imported goods constituted complete kits is wholly unsubstantiated and rests merely on assumptions. This fundamental evidentiary gap strikes at the root of the Department's case. 86. The Learned Counsel for the Appellant has strongly contended that the very foundation of the Department's case is flawed, inasmuch as Rule 2(a) can be invoked only when the goods, "as presented" in a particular consignment, possess the essential character of a complete article. In support of this proposition, reliance has been placed on the judgment of the Hon'ble Supreme Court in Commissioner of Customs vs. Sony India Ltd., reported in 2008 (231) E.L.T. 385 (S.C.), wherein it has been categorically held that classification must be determined on the basis of the goods as presented at the time of import and not on the basis of any intended assembly or post-importation activity. The Learned Counsel further submitted that in the present case, the imports were admittedly made through multiple Bills of Entry at different points of time and, therefore, the Department's attempt to a....
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....y establishes that even at the level of the same vessel or IGM, the imports do not constitute a complete kit. The concept of "essential character" under Rule 2(a) presupposes that the goods, as presented, must have the identity of the complete article, even if incomplete. However, the data on record demonstrates the exact opposite-what is imported are disparate, unconnected parts spread across multiple consignments, with critical components such as the battery (which is the sole source of propulsion in an electric vehicle) frequently absent. The absence of such indispensable components renders it impossible to attribute the identity of a complete electric vehicle to the imported goods. The Department's approach of selectively aggregating components across time and consignments to artificially reconstruct a complete product is contrary to the settled principle that classification must be based on goods as presented. Therefore, the essential character test is not satisfied either factually or legally, and the very foundation of invoking Rule 2(a) stands vitiated. 90. The Learned Authorized Representative for the Revenue, on the other hand, has argued that the pattern of imports....
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....for classification. 92. We find that the reliance placed by the Department on the CBIC Circular dated 27.02.1997 and subsequent clarifications is misplaced and legally untenable in the facts of the present case. The Circular proceeds on a generalized assumption that where essential components of a vehicle are imported, the same may be treated as a complete article under Rule 2(a), even if certain parts are missing. However, as already discussed, the factual matrix in the present case, as evidenced from the Bills of Entry analysis, clearly demonstrates that even the so-called "essential components" are not imported together, either in the same consignment or even within the same Import General Manifest or in a period of time which is reasonable. Most essential part i.e., Battery packs were not imported along with these so-called CKD kits. Thus, the foundational requirement for invoking the Circular itself is not satisfied. 93. It is well settled that Circulars issued by the Board are binding on the Department but cannot override the statutory provisions or the settled principles of classification under the Customs Tariff. The Hon'ble Supreme Court in Commissioner of Central Ex....
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....anatory Notes to Chapter 87 to contend that the absence of certain components does not affect the applicability of Rule 2(a). However, such reliance is misconceived and cannot be sustained in the facts of the present case. The said approach fails to appreciate the fundamental distinction between conventional vehicles and electric vehicles. In the case of electric vehicles, the battery is not merely a component but constitutes the primary source of propulsion, analogous to the engine in an internal combustion engine vehicle. This position is also recognised in the statutory scheme itself, as evident from Entry 531A of Notification No. 50/2017-Cus. dated 30.06.2017, wherein the battery pack is specifically identified as one of the essential components of a CKD kit of electric vehicles. Further, we find that the Tribunal in Commissioner of Customs vs. Twinkle Tradecom Pvt. Ltd., 2024 (5) TMI 472 (CESTAT Kolkata), has held that in the absence of battery, the imported goods cannot be said to possess the essential character of a complete electric vehicle. In view of the above, the absence of battery in the present case is a decisive factor which negates the applicability of Rule 2(a). Th....
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....reated as complete articles under Rule 2(a). The Appellant has submitted that the activities undertaken by them after import go far beyond mere assembly and cannot be termed as "screwdriver technology" as alleged by the Department which remains uncontroverted. According to the appellant, these involve significant technical input and value addition, particularly as critical components like batteries are sourced separately and integrated post-import, that the imported goods cannot be regarded as complete or near-complete vehicles, and the Department's reliance on the concept of "screwdriver technology" is misplaced. However, in the present case, the appellant has admitted that all the components were assembled except for Battery packs, tyres, mirrors, etc., which were procured locally. We find there is no major working operations on the imported goods at least in the initial two to three years. No finding is required to be given on this as the essential test has failed for invoking Note Rule 2(a). 100. We also find that the entire case of the Department is premised on an inference drawn from the pattern of imports and post-importation assembly. However, such an approach is contrar....
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....be invoked in cases involving bona fide classification disputes. 102. During the course of hearing, the Learned Counsel for the Appellant brought to our notice that the Department had, in fact, issued two separate Show Cause Notices covering substantially overlapping periods on the very same issue. It was submitted that the first Show Cause Notice was issued invoking only the normal period of limitation and has already been adjudicated, against which an appeal is presently pending before this Tribunal, whereas the second Show Cause Notice, issued subsequently, invokes the extended period of limitation and is still pending adjudication. Though this aspect was not brought on record by the Appellant at the earlier stages of hearing, once placed before us, it assumes considerable significance. The issuance of the earlier Show Cause Notice on the same set of facts clearly demonstrates that the Department was fully aware of the nature of imports, the classification adopted by the Appellant, and the entire factual matrix surrounding the transactions. In such circumstances, the subsequent allegation of fraud, suppression or wilful misstatement, for the purpose of invoking the extended p....
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....trating that complete kits existed at any point in time. 105. We find that the law in this regard is well settled by the Hon'ble Supreme Court in Nizam Sugar Factory vs. Commissioner of Central Excise, 2006 (197) E.L.T. 465 (S.C.) (para 9), wherein it has been categorically held that once the Department is in possession of the relevant facts, it is not open to them to invoke the extended period repeatedly on the same set of facts by alleging suppression. The principle laid down therein squarely applies to the present case. The issuance of successive Show Cause Notices on identical facts, first invoking the normal period and thereafter invoking the extended period, clearly negates the allegation of suppression. In such circumstances, the invocation of extended period is legally impermissible. CONFISCATION AND REDEMPTION FINE: 106. Coming to the issue of confiscation and imposition of redemption fine, we find that the Revenue has placed reliance on the judgment of the Hon'ble Madras High Court in M/s. Visteon Automotive Systems vs. Commissioner of Customs (CMA No. 2857 of 2011 dated 11.08.2017) to justify imposition of redemption fine. However, we find that such reliance is ....