2025 (6) TMI 374 - AT - Customs

Rejection of classification of the imported goods self-assessed by the appellant under different Customs Tariff Item - whether Blower Filter Water Valve Assembly Control Panel Module JCBHP and Thermostat are classifiable as parts of air conditioner under CTI 8415 90 00 as claimed by the department or are classifiable under CTI 8414 59 30 CTI 8421 39 90 CTI 8481 10 90 CTI 8538 10 90 and CTI 9032 10 10 as claimed by the appellant? - HELD THAT - The Notes to Section XVI provides certain rules which need to be applied while classifying any goods under Section XVI. Note 2 to Section XVI provides that parts of machines which by themselves are goods of Chapter 84 or 85 would be classified in their respective headings. The same is supported by the HSN Explanatory Notes to CTH 8415 which state that parts of air-conditioning machines have to be classified in accordance with Note 2(a) of Section XVI. Thus even though the goods are parts of air conditioners they would continue to be classified under their respective headings in terms of Note 2(a) of Section XVI for the reason that the goods are themselves goods of Chapter 84. Resort to Note 2(b) to Section XVI can be taken only when the goods cannot be classified by the application of Note 2(a). This view is supported by the HSN Explanatory Notes to CTH 8415. The Supreme Court in M/S. SECURE METERS LTD. VERSUS COMMISSIONER OF CUSTOMS NEW DELHI 2015 (5) TMI 241 - SUPREME COURT observed that Note 2(b) would apply only when Note 2(a) is not applicable. The Supreme Court also held that Note 2(b) would apply only if the items in question are not specifically classifiable under their respective headings. Blowers - HELD THAT - By application of Note 2(a) to Section XVI and HSN Explanatory Note to CTH 8414 that blowers are correctly classifiable under CTI 8414 59 30. The Principal Commissioner has rejected the contention of the appellant for the reason that CTI 8414 59 30 covers only industrial blowers and therefore the blower imported by the appellant cannot be covered under this entry. The Principal Commissioner was not justified in this arriving at this conclusion. CTI 8414 59 30 reads as industrial fans and blowers . It therefore covers two separate categories of productions namely industrial fans and blowers . Blowers would therefore have to be treated as separate category of goods and not as industrial blowers. Filters - HELD THAT - CTH 8421 reads as follows Centrifuges including centrifugal dryers; filtering or purifying machinery and apparatus for liquids or gases . It would be seen that CTI 8421 39 90 covers various kinds of machinery or apparatus which are used for filtering or purifying gases. The filters imported by the appellant are used for filtering of gases in automobiles air-conditioners - the appellant was therefore justified in classifying filters under CTI 8421 39 90. Water Well Assembly - HELD THAT - Water Well Assemblies imported by the appellant control the flow of coolant (liquid) in the cabin heating system of the vehicle. The product functions like a tap. It is therefore specifically covered under CTH 8481 and would fall under CTI 8481 80 90. Thermostat - HELD THAT - CTH 9032 covers automatic regulating or controlling instruments and apparatus. Note 7(a) to Chapter 90 states that all the instruments or apparatus used for automatically controlling the temperature by constantly or periodically measuring the actual value shall be classified under CTH 9032. In the present case the product thermostat is an automatic regulating or controlling instrument/apparatus. Thus by virtue of Note 7(a) to Chapter 90 the correct classification would be CTI 9032 10 10 which covers thermostat used for refrigeration and air conditioning appliances and machinery. Control Panel - HELD THAT - CTH 8538 covers parts suitable for use solely or principally with the apparatus of headings 8535 8536 or 8537. The product in dispute is an injection moulded plastic plate used in the assembly of control panel. Once assembled it forms the outer cover of the control panel. The control panel is classifiable under CTH 8537. Since the plastic case of the control panel has indications of the control panel and is meant to be used solely or principally with it it deserves to be classified under CTH 8537. Therefore the imported goods would fall under CTH 8538 and more particularly under CTI 8538 10 90. Module JCBHP - HELD THAT - CTH 9032 covers automatic regulating or controlling instruments and apparatus. The product is connected with air conditioner and is a device to control temperature automatically in the vehicle. Thus this product would be classifiable based on its function namely to control the temperature automatically in the vehicle. It would therefore be classifiable under CTI 9032 10 10. Conclusion - The classification adopted by the appellant for the goods was correct and the order passed by the Principal Commissioner for reassessment goods under CTI 8415 90 00 as parts of air conditioner cannot be sustained. The differential basic custom duty with interest could not have been levied upon the appellant. The impugned order dated 17.03.2021 passed by the Principal Commissioner is accordingly set aside and the appeal is allowed.

Summary

The principal issue considered by the Tribunal is the correct classification of certain imported goods-namely Blower, Filter, Water Valve Assembly, Control Panel, Module JCBHP, and Thermostat-under the Customs Tariff Act, 1975. The core legal questions are:

• Whether the disputed goods are classifiable as parts of air conditioners under Customs Tariff Item (CTI) 8415 90 00, as contended by the department, or under various other CTIs (8414 59 30, 8421 39 90, 8481 10 90, 8538 10 90, 9032 10 10) as claimed by the appellant;
• The applicability and interpretation of Note 2(a) and Note 2(b) to Section XVI of the Customs Tariff in the classification of parts of machines;
• The extent to which the HSN Explanatory Notes and precedents guide classification in cases where goods are parts of machines but also goods in their own right under Chapter 84 or 85;
• Whether the classification claimed by the appellant, which was self-assessed and accepted initially, can be revisited and whether estoppel applies;
• The correctness of the Principal Commissioner's order imposing differential customs duty with interest and rejecting the appellant's classification;
• Whether interest and penalty provisions under the Customs Act apply to IGST demands under the Customs Tariff.

Issue-wise Detailed Analysis

1. Classification of Disputed Goods under Customs Tariff

The legal framework revolves around the Customs Tariff Act, 1975, specifically the First Schedule, Chapter 84 and 85, and the General Notes to Section XVI. The classification is governed by the General Rules for Interpretation of the Import Tariff and Notes to Section XVI, particularly Note 2(a) and 2(b).

Note 2(a) mandates that parts which are goods included in any headings of Chapter 84 or 85 (except certain specified headings) must be classified in their respective headings. Note 2(b) applies to other parts suitable for use solely or principally with a particular kind of machine and directs their classification with the machines of that kind.

The appellant contended that the disputed goods are themselves goods under various CTIs of Chapter 84 or 85 and thus fall squarely under Note 2(a). The department argued that the goods are specific parts of automobile air conditioners and, since the appellant classified them under "others" categories within those headings, Note 2(a) does not apply; hence, Note 2(b) requires classification under CTI 8415 90 00 as parts of air conditioners.

The Tribunal examined the HSN Explanatory Notes and relevant precedents, including the Supreme Court decision in Secure Meters Ltd., which clarified that Note 2(b) applies only if Note 2(a) is inapplicable. The Tribunal emphasized that goods which are themselves goods of Chapter 84 or 85 must be classified under their respective headings, even if they are parts of a machine. Resort to Note 2(b) is only when classification under Note 2(a) is not possible.

2. Classification of Individual Goods

The Tribunal scrutinized the technical characteristics and use of each disputed good:

• Blower: A centrifugal radial blower comprising blower wheels, motor, housing, designed to deliver large volumes of air at low pressure. It is used in vehicles with or without air conditioning and is classified under CTI 8414 59 30 ("industrial fans and blowers"). The Tribunal rejected the Principal Commissioner's reasoning that this heading covers only industrial blowers, noting that the heading explicitly includes "blowers" as a separate category from industrial fans.
• Filter: A multi-fibre paper cotton or engineered material filter used to filter gases in automobile air conditioners, correctly classifiable under CTI 8421 39 90 ("filtering or purifying machinery and apparatus for gases"). The Tribunal relied on the HSN Explanatory Notes confirming that gas filters are covered under this heading.
• Water Valve Assembly: A device controlling coolant flow in vehicle cabin heating, functioning like a tap. It falls under CTI 8481 80 90 ("taps, cocks, valves and similar appliances for pipes, boiler shells, tanks, vats or like"). The Tribunal noted that even specialized valves for particular machines remain in this heading.
• Thermostat: An automatic regulating instrument preventing evaporator freezing by controlling compressor voltage supply, classifiable under CTI 9032 10 10 ("thermostats used for refrigeration and air conditioning appliances and machinery"). Note 7(a) to Chapter 90 supports this classification.
• Control Panel: An injection moulded plastic plate forming the outer cover of a control panel, classifiable under CTI 8538 10 90 ("parts suitable for use solely or principally with the apparatus of headings 8535, 8536 or 8537").
• Module JCBHP: A device connected to the air conditioner performing automatic temperature control, effectively functioning as a thermostat, classifiable under CTI 9032 10 10.

The Tribunal held that these goods are goods in their own right under Chapter 84 or 85 and are not merely generic parts to be subsumed under the heading for parts of air conditioners.

3. Interpretation of Note 2(a) and Note 2(b) to Section XVI

The Tribunal emphasized the sequential application of Notes 2(a) and 2(b). Note 2(a) applies first and requires classification of parts that are themselves goods under Chapter 84 or 85 in their respective headings. Note 2(b) applies only if Note 2(a) is inapplicable, i.e., when the parts are not goods of Chapter 84 or 85 themselves.

The Principal Commissioner's reliance on the fact that the appellant's classification was under "others" categories was found to be insufficient to displace Note 2(a). The Tribunal clarified that the classification under "others" does not negate the applicability of Note 2(a) if the goods are themselves goods of Chapter 84 or 85. The Tribunal cited the Supreme Court's ruling in Secure Meters Ltd. and the Tribunal's own precedent in Intec Corporation, which confirm this principle.

4. Application of Law to Facts and Treatment of Competing Arguments

The appellant's detailed technical descriptions and functional analysis of the goods supported classification under their respective CTIs. The department's argument that the goods are parts of automobile air conditioners and therefore classifiable under CTI 8415 90 00 was rejected on the ground that mere use in air conditioners does not override the specific classification under Note 2(a).

The Tribunal found the Principal Commissioner erred in holding that the headings claimed by the appellant were not specific because they were under "others" categories. The Tribunal held that the headings, even if "others," are specific enough to cover the goods, especially when the goods are themselves goods of Chapter 84 or 85.

Regarding estoppel, the Tribunal noted that classification is a question of law and estoppel does not apply to classification matters, allowing the appellant to contest the classification despite earlier self-assessment.

On the issue of interest and penalty, the Tribunal did not uphold the differential duty demand and interest imposed by the Principal Commissioner, implicitly rejecting the department's claim to levy interest on IGST under the Customs Tariff in absence of machinery provisions.

5. Final Conclusions

The Tribunal concluded that the appellant's classification of the disputed goods under CTIs 8414 59 30, 8421 39 90, 8481 80 90, 8538 10 90, and 9032 10 10 was correct. The Principal Commissioner's order classifying all goods under CTI 8415 90 00 as parts of air conditioners was set aside. Consequently, the demand for differential customs duty with interest was quashed.

Significant Holdings

"Note 2(a) to Section XVI provides that parts which are goods included in any of the headings of Chapter 84 or 85 (other than certain specified headings) are in all cases to be classified in their respective headings."

"Note 2(b) would apply only if the items in question are not specifically classifiable under their respective headings."

"The headings claimed by the appellant, although under 'others', are specific enough to cover the goods as they are themselves goods of Chapter 84 or 85."

"Merely by virtue of being used in air conditioners, the goods do not merit classification under CTI 8415 90 00."

"The classification claimed by the appellant was correct and the differential basic customs duty with interest could not have been levied."

"Estoppel does not apply to classification matters."

The Tribunal's decision establishes the principle that classification of parts which are themselves goods under Chapter 84 or 85 must be governed by Note 2(a), and only when such classification is not possible should Note 2(b) be applied. The ruling clarifies the application of Section XVI Notes and HSN Explanatory Notes in classification disputes involving parts of machines, particularly automobile air conditioning components.