Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2015 (12) TMI 482

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... rpretation of Tariff are applicable only if all components intended to make a final product presented at same time for customs clearance. - In fact they are not even likely to be imported at same time and require further manufacture by different local third party vendors. Tariff Item 8703 is in respect of "Motor Cars and other Motor Vehicles etc." Note 2 to Section XVII, which also covers 'vehicles' gives a list of 11 articles, where expressions 'parts' and 'parts and accessories' do not apply. Further, Note 3 to Section XVII states that references in Chapter 86 to 88 to 'parts' or 'accessories' do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those chapters. Note further mentions that a part or accessory which answers to a description in two or more of the headings of those chapters is to be classified under that heading which corresponds to the principal use of that part or accessory. Therefore, in order for an article to fall under headings covered by Section XVII, those parts or accessories should comply with all conditions - The import of components / parts/ sub-assemblies by the applicant will not be classified .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... dia with the import of Completely Built Units (CBUs) of motor vehicles from BMW Group Companies outside India and assembly of motor vehicles from imported CKD kits (with the exception of seats which were locally procured) at its Chennai plant. TILL FEBRUARY, 2011- IMPORT OF MOTOR VEHICLES IN CKD KITS: At the start of the business, since the business was at a nascent and low volume stage, applicant chose to import the motor vehicles in CKD form and undertaking assembling of the motor vehicles from such imports at its plant in Chennai. The only exception was the vehicles seats which were locally manufactured in India by a local third party vendor. Since the Government allowed import of motor vehicles in CKD form at concessional rate of Basic Customs Duty of 15% [applicable to motor vehicle if imported as CKD unit] being covered by Serial No. 344 for Customs Tariff Heading No. 8703 of Notification No. 21/2002-Cus., dated 1-3-2002, as amended by Notification No. 11/2005-Cus., dated 1-3-2005 and the Customs Notification during the relevant period did not provide for any definition of CKD, the applicant filed for a ruling before this Authority to attain certainty on applicable duty st .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ured, for assembly at its Chennai plant. FROM 1 JANUARY 2015-NEW ACTIVITY OF IMPORT (LOCALISATION MODEL): Effective from January 2015, the applicant has moved to an entirely new business model i.e. the localization model, whereby in addition to seats and wiring harness, 6 critical parts/components/sub-assemblies of the car are being localized resulting in more than 40% of the value of the motor vehicle being locally sourced from approved third party vendors in India. Further, the applicant is importing the balance parts/components/sub-assemblies from BMW Group Companies located outside India. 3. Applicant further submits that BMW Group is committed to the Indian market and supports Government of India's Make in India initiative; that this is clearly evident from the localization model started by the applicant from January 2015. It is noticed that the Government of India's Make in India initiative inter-alia envisages increase in indigenous manufacturing sector growth, which will result in imports reduction and thus saving precious foreign currency reserves. Further, creating additional jobs is also expected. 4. Applicant has raised the following questions in .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... l components / parts / sub-assemblies listed above and accordingly, in terms of Circular F. No. 528/128/97-Cus-TRU dated 05.12.1997, the imports proposed will not reflect the essential characteristics of the motor vehicle and hence the imported goods will be liable to be classified as per the respective classification without invoking Rule 2(a) of the Interpretative Rules; that analogy can also be drawn from the Circular No. 666/57/2002-CX. dated 25.09.2002 wherein it was clarified that sub-assembly or assembly of air conditioning machines not having essential charter of complete air-conditioning machines to be considered as parts. 8. It is further submitted by the applicant that as per HSN explanatory notes (v), (vi ) and (vii) to Rule 2 (a), Rule 2(2) of the Interpretative Rules is applicable in cases where - a) only assembly operations are involved irrespective of the complexities of the assembly methods for assembly an article imported in unassembled form; and b) components themselves should not been subjected to any further working operations for completion into finished state. 9. While concluding submissions to this issue, applicant submits that the local third pa .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... es as the applicant appeared to have availed ineligible Customs duty benefit for such imports from the period 01.3.2011 to 11.4.2013; that as regards the imports made from 19.4.2013, it is noticed that all the parts / components, except gear-boxes, were procured from the applicant's own entities in Germany, South Africa and the U.S.; that gearboxes alone are imported from non-BMW sources, viz. M/s ZF, Germany and M/s Aisin, Japan for the different models of cars assembled at the Chennai Plant; that the applicant proposes to import substantial number of parts / components / sub-assemblies from their own group entities (BMW Group companies) for their car manufacturing activities in India. Remainder of the parts / components / sub-assemblies [viz. (i) engine (along-with engine and transmission unit) (ii) axel assembly (iii) exhaust systems (iv) cooling module (v) heating, ventilation and air conditioning unit and (vi) door panels are proposed to be sourced from local third party vendors; that since 19.4.2013, applicant's activity of import is more of less on similar lines, i.e. substantial number of parts / components / sub-assemblies are being imported either from the applica .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 8702 Motor Vehicles for the Transport of Ten or More persons, including the Driver. 13. Notification No. 21/2002-Customs dated 01.03.2002 was amended vide Notification No. 12/2012-Customs dated 17.03.2012. This notification inter-alia exempts goods of description specified in column (3) of the Table below and falling within the Chapter, heading, sub-heading or tariff item as specified in the corresponding entry in column (2) of said Table, when imported into India. Relevant entry S. No. 437 reads as under; S.No Chapter or Heading or sub-heading or tariff item Description of goods Standard rate Additional rate Condition No. (1) (2) (3) (4) (5) (6) 437. 8703 Motor cars and other motor vehicles principally designed or the transport of persons(other than those of heading 87.02), including station wagons and racing cars, new, which have not been registered anywhere prior to importation, if im .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... anufactured or purchased locally, it would be difficult to take the view that the essential characteristics of a motor car has been achieved without these parts. 16. HSN explanatory notes to Rule 2(a) of the Interpretative Notes further provide as under: (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 the reasons such as requirements or convenience of packing, handling or transport; (VI) This rule also applies to incomplete or unfinished articles presented unassembled or disassembled provided that they are to be treated as complete or finished article by virtue of first part of this rule; (VII) For the purpose of this rule, articles presented unassembled or disassembled means articles the components of which are to be assembled either by means of fixing devices (screws, nuts, bolts etc.) or by riveting or welding, for example, provided only assembly operations are involved. No account is to be taken in that regards of the complexity of assembly method. However, the components shall not .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... cation and before this Authority is classification issue. Therefore, it is concluded that the said Order-in-Original is neither the subject matter before this Authority nor directly related to the issue of proposed activity of the applicant. 19. Further, Revenue submits that applicant has not submitted any documents supporting any domestic manufacturing of the parts for car like engines, gear box etc., therefore the term localization model does not translate into domestic manufacturing; that stated local third party vendors appear to import basically items which are relevant to BMW cars only; that these imports made by local third party vendors and applicant converge in the manufacture of BMW cars by the applicant. It is further submitted by the Revenue that third party vendors appear to be mere extension of the applicant; that local third party vendors do not function independently as they import only items relevant to BMW cars; that the fact remains that the common thread of all activities is the manufacture of BMW cars under the leadership and control of the applicant; that BMW AG hold the intellectual property rights for BMW engines and therefore there is absolute control by .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... endors) are manufacturing said critical parts/components/sub-assemblies, which has not been refuted by the Revenue. We also agree with the submission of the applicant that merely because for engines, the IPR is with BMW AG, to contend that the localization is not taking place in India, is incorrect plea taken by the Revenue. It is reiterated that third party local vendors are independent suppliers, who primarily import raw materials / components from independent overseas suppliers ( with the exception of engine parts); that these third party vendors thereafter undertake manufacturing activity in India, pay Central Excise duty and sell finished goods to the applicant for manufacture of motor vehicles. Revenue alleges that third party vendors appear to be extension of the applicant as they import and manufacture items which are relevant to BMW cars only. It is to be observed that there is nothing irregular in local third party vendors importing and manufacturing such items, as it is their business decision-specially when, these third party vendors are reportedly renowned global suppliers and have their own independent factories. Therefore, the allegations leveled by Revenue that thir .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... chines Pvt. Ltd., Bangalore vs. Collector of Customs, Bangalore 1990 (49) ELT 640 (SC) wherein it was inter-alia held that the goods imported were fully finished copiers in SKD/CKD form and as such there was a mis-declaration that the imported goods were only parts of the copiers. Hon'ble Supreme Court in this case observed as under; The intention and purpose of the import policy was to give incentive and encouragement to the new entrepreneurs establishing small scale industries and in the first phase to import 62% of the components of the copiers and the balance of 38% was to be manufactured by them indigenously. According to the import policy this percentage of 62% was to be reduced in the subsequent years. The import policy was not meant for such entrepreneurs who instead of importing 62% of the components, imported 100% of the components of a fully finished and complete goods manufactured by a foreign country. It is an admitted position that fully finished plain paper copiers were a prohibited item for import and thus the device adopted by the company in the present case was a complete fraud on the import policy itself. Apart from the above circumstances in our view the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... t the applicant has entered into any fictitious arrangement to evade Customs duty. It is noticed that the Hon'ble Supreme Court in case of Commissioner of Customs, New Delhi vs. Sony India Ltd 2008 (231) ELT 385 (SC) distinguished the judgment in case of Phoenix International Ltd and observed that all parts were imported in Phoenix case by two units in same container, unlike in Sony India Ltd case. It was also held that Rule 2(a) of Rules of Interpretation of Tariff are applicable only if all components intended to make a final product presented at same time for customs clearance. The judgment of Hon'ble Supreme Court in Sony India Ltd., is more applicable to the case before us as components / parts / assemblies for manufacture of motor vehicle are not likely to be imported in same container. In fact they are not even likely to be imported at same time and require further manufacture by different local third party vendors. 28. Second question on which ruling sought is; If the import of components / parts / sub-assemblies by the applicant will not be classified as motor vehicle or as CKD kits, whether the applicants imports will be classified under their respective hea .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates