TMI Blog2010 (7) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... rts and sub assemblies as per the lists filed by the applicant would constitute import of motorcycles in Completely Knocked Down form provided the engine and the transmission assemblies are designed to be housed and are so assembled in a single housing. – Eligible for concessional rate of duty - AAR/ Cus-1/ 03/2010 - AAR/Cus/02/2010 - Dated:- 27-7-2010 - Mr. Justice P.V.Reddi (Chairperson) Mr. J.K.Batra (Member) Mr. J. Khosla (Member) Applicant: M/s H-D Motor Company India Private Limited, 1105 Ashoka Estate, 24,Barakhamba Road, New Delhi 110001 Commissioner concerned: 1. Commissioner of Customs, Inland Container Depot, Tughlakabad, New Delhi -110020 2. Commissioner of Customs (General Muland CFS), New Custom House, Ballard Estate, Mumbai - 400 001 3. Commissioner of Customs (Import), Jawahar Lal Nehru Custom House, Nhava Sheva, District Raigad, Maharashtra - 400 707 Present for the applicant: Mr. Joseph Vellapally, Senior Advocate and M/s Manish Mishra-Advocate, Rahul Jena-Advocate, Kabir Bogra-Advocate and Ragvesh Singh-Advocate with him Mr. Pete Petersen III Company's Representative Present for the Commissioner: Sh. S.K.Panda,Jt. CDR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles (including mopeds) and cycles fitted with an auxiliary motor, with or without side cars, and side cars, new, which have not been registered anywhere prior to importation,- (1) if imported as completely knocked down(CKD)unit 10% (2) if imported in any other form 60% 5. The applicant has observed that the term 'completely knocked down' is not defined under the Customs Law or any other Indian Laws. In the circumstances it is relevant for the applicant to ascertain whether the manner in which it proposes to import motorcycles would constitute an import as a completely knocked down unit so as to qualify for the concessional rate of duty in the aforesaid entry. Under the present industry practice only key components/parts are manufactured by the motor vehicle manufacturers in their own facility; most of the other components/parts are outsourced for manufacture by the ancillary units. All components/parts required to be assembled to manufacture a motorcycle are proposed to be imported from H-D Group Companies into India in a knocked down condition in the form of motorcycle kits. The applicant has submitted that it would import motorcycl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e description of Entry No. 345 of the Notification is identical to the description of Entry No. 344, the motorcycle kits imported by the applicant would be eligible to claim the concessional rate of duty applicable to CKD kits 8. The Commissioners of Customs have submitted that as the expression itself implies, 'Completely Knocked Down' refers to items which cannot be dismantled any further into parts/components. The applicant has proposed to import a large number of assemblies or sub assemblies which can admittedly be dismantled further into various components; therefore, these cannot be categorized as goods in a Completely Knocked Down condition. The views expressed by ARAI have also been contested by the Commissioners. It has been contended that the opinion of ARAI confirms that the imported goods are sub assemblies or assemblies and therefore CKD condition could not have been inferred. During the course of arguments, the Department has even questioned the competence of ARAI to give an opinion on the expression CKD since the organization is mandated only to certify on issues related to homologation of vehicles and other such matters as per the Motor Vehicles Rules. It has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcycle kit in the form it is proposed to be imported by the applicant can be said to be imported as a Completely Knocked Down unit to be eligible for the concessional rate of duty of 10% under Notification No. 21/2002-Cus. In the application filed by the applicant there was no clarity regarding the manner in which the motorcycle kit would be imported except the reference to annexures pertaining to Bills of Material, assembly process overview and pictures of motorcycles submitted to ARAI for the purpose of seeking their advice. On a clarification being sought by the Commissioner of Customs, CFS, Mulund, regarding the list of components, sub assemblies and the form and packing in which these were intended to be imported, the applicant vide its letter dated 19.04.2010 provided additional details. Since the matter was again raised by the Department during the course of oral argument, this Authority asked the applicant to furnish the details relating to the items that are going to be imported in an illustrative case. Following these directions the applicant submitted further details vide its letter dated 16th June, 2010. The applicant has 40 individual models of motorcycles distributed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Completely knocked down (CKD) Fully disassembled item (such as an automobile, bicycle, or a piece of furniture) that is required to be assembled by the end user or the reseller. Goods are shipped in CKD form to reduce freight charged on the basis of the space occupied by (volume of) the item. Source: www.businessdictionary.com/definition/completely-knoc . . 4. Complete knocked down (CKD), Complete knocked down (CKD) is a complete kit needed to assemble a vehicle. It is a common practice among automakers, as well as bus and rail vehicle manufacturers, to sell knocked down kits to their foreign affiliates in order to avoid high import taxes and/or receive tax preferences for providing local manufacturing jobs. An incomplete kit is known as SKD or Semi Knocked Down. Both types of KDs are collectively referred to within the auto industry as KDX or Knocked-down export, while cars assembled in the country of origin and exported whole to the destination market are known as BUX, or Built-UP Export. Source: http://en.wikipedia.org/wiki/Complete_knock_down From the aforesaid information though it is obvious that the expression 'Completely Knocked Down' finds its usage in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Bayerische Motoren Werke (BMW) reported in 2006 (193) ELT 138(AAR). Though the said ruling was with reference to import of components, parts or sub assemblies of motor vehicles, the ruling did discuss import of motor vehicle kits in CKD form viz-a-viz SKD form. There may be difference in the facts of the present case with regard to nature of sub assembly/assembly but in principle we do not find any major deviation. It would be worthwhile to re-produce para 44 of the said ruling:- '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 component form while there are other parts which could be termed as SKD form. (3) on the basis of the analysis carried out by ARAI and the discussions held with BMW, it was learnt that seats would be manufactured locally and then installed in the vehicle; (4) inasmuch as without seats the vehicle could not be treated as complete, the words 'by and large' have been used. From the perusal of these reports, the position that emerges is that parts listed in Annexure-III to the application represent th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have proposed to import several sub assemblies for being assembled into a motor car. These sub assemblies were definitely capable of being further dismantled into components. Yet the Authority ruled that in view of the report of ARAI, the items in Annexure -III represent Completely Knocked Down unit of motor cars. The department has not pointed any material differentiating features in the case of the present applicant. No case is made out to differ with the view already taken by the Authority in the preceding case. The learned Advocate for the applicant has submitted that despite the ruling given by the Authority in BMW case as far back in 2005, the Government has thought it prudent not to change the text of the notification thereby confirming the interpretation of the expression CKD given by the Authority in BMW case. 13. During the course of arguments the Department objected to the engine and transmission assembly of the motorcycle being treated as a component part of the CKD kit. It was observed that in the lists provided by the applicant vide letters dated 16th June, 2010 and 25th June, 2010, 'engine and transmission' have been shown together as a single component description ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s separate identifiable parts of a motor vehicle and therefore they can be classified as a component of Completely Knocked Down unit only if these are imported separately. However, if these two assemblies are designed to be housed in a single housing and are so assembled, the engine and transmission assembly is generally referred to as an 'engine assembly' only and merits to be treated as a component for the purposes of CKD units. For the matter of record it may be mentioned that in the list of components, parts and sub assemblies in Annexure III of the application filed by BMW, (which has been made the basis of its plea by the applicant in this case) the engine assembly and the transmission assembly have been indicated as two separate assemblies. 16. As stated earlier, it has been contended by the Department that in case Serial No. (1) is interpreted to include sub assemblies as has been sought by the applicant, Serial No. (2) of the Entry 345 will be rendered redundant. As noted in the preceding paragraphs we are unable to be persuaded to accept Department's view that 'Completely Knocked down' would refer to components of an article which cannot be dismantled further. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a common single housing. Accordingly Ruling is given on this 27th day of July, 2010. Sd/- (J.Khosla) Member Sd/- (J.K.Batra) Member Per P.V.Reddi, J. The term 'completely knocked down condition' is a term of brevity which has no definite connotation. Its parameters cannot be defined with certainty either by taking recourse to dictionaries or scientific terminology. We have two apparently contradictory opinions of experts which itself exposes the difficulty in assigning a clear and precise meaning to it. To put it in straight language, it is a loose and nebulous expression used to describe a state of things concerning the article which it qualifies. 'Completely knocked down' (CKD) and 'Semi knocked down' (SKD) are the two expressions that are distinctly used. The difference between 'complete' and 'semi' is a difference in degree. The distinction is often thin. The example of a motor cycle unit in a semi-knocked down condition has been given by the learned Member. In the absence of a definition or a definite connotation, we must understand the said expression (CKD) in a practical sense, without adopting an extreme view that the import should take place ..... X X X X Extracts X X X X X X X X Extracts X X X X
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