TMI Blog2005 (10) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... ehicle; (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 the CKD Unit and with the assembly of seats, which will be procured locally, the parts would constitute a complete car. There are some parts, which could be taken as component form while there are other parts which could be termed as SKD form. It is true that there are no definitions of the terms CKD and SKD in the Customs Act or Rules framed thereunder. But from the material furnished by the applicant for comparison of CKD and SKD, it appears that the components for the CKD vehicle are procured from the suppliers who supply to main BMW production facility at the CKD location and approximately 1400 single parts and body parts are transported to the CKD country. In the case of SKD, the vehicles are completely built up in a main BMW production facility in Germany and subsequently certain components are disassembled; the partially disassembled vehicles are mounted on transport skids and shifted to the respective countries where the disasse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , JCDR, ORDER Somnath Pal, Member 1. M/s. Bayerische Motoren Werke Aktiengesellschaft (in short BMW AG ), a German Company, having its registered Office at Petuelring 130, 80788 Munich, Germany (hereinafter referred to as the applicant), has filed an application seeking advance ruling under Section 28H of the Customs Act, 1962. The Applicant along with its joint venture partner BMW Holding BV, a Company incorporated under the laws of The Netherlands, having its registered office at 5 Laan van Vredenoord, 2289 DA Rijswijk ZH, The Netherlands, proposes to set up a joint venture to establish a facility in India for assembly of certain models of high-end BMW motor cars. For this purpose they have identified BMW India Private Limited as the proposed joint venture company in India in which they will acquire shares. The list of items to be imported into India and the Assembly Manual have been furnished by the applicant as Annexure-III to their application. 2. The question which has been raised by the applicant for an advance ruling from this Authority reads as under : Whether the import of car parts, listed at Annexure III, would be considered as import of completely knocked down ( CKD ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ARAI that with the fixture of seats, which would be procured from within the country, the parts covered by Annexure-III, when assembled, would become a complete motor car. According to the applicant, before going over to the language of a Notification, the classification issue is to be decided and by application of Interpretative Rule 2(a) it is clear that the parts proposed to be imported as per Annexure-III, when assembled, would definitely acquire the essential character of a motor car and hence would be classifiable under 8703 of the Customs Tariff Act, 1975. Reliance was placed on the certificate issued by SGS, Germany GMBH, dated 2-8-2005 in support of their contention. The ld. Counsel took us through various paragraphs of the Hon ble Supreme Court s decision in Collector of Customs, Bangalore v. Maestro Motors Limited and also of the Tribunal decision in the case of Commissioner of Customs, Indore v. Hindustan Motors Limited. The appeal filed by M/s. Hindustan Motors Ltd. against the aforesaid decision of the Tribunal has also been dismissed by the Hon ble Supreme Court, he added. Citing in particular the observations of the Apex Court in Maestro s case, the ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication No. 21/2002-Cus. appears to be applicable in this case if the report/view dated 5-9-2005 of ARAI (along with any forthcoming clarification) is accepted or taken as the proposed items/materials to be imported as completely knocked down (CKD) unit. In this context he has also referred to the Hon ble Supreme Court s judgments in the case of H.M.M. Ltd. v. Collector, S.G. Glass Works Pvt. Ltd. v. Collector of Central Excise and Customs, Nagpur and C.C., Kolkata v. Rupa Co. Ltd. on the interpretation of exemption notification. The verbal submissions were confirmed by ld. Jt. CDR in his written note submitted to the Authority. 9. As the use of the expression by and large in the report of ARAI created some doubt in the mind of the Authority as to whether it implies that certain parts are in semi-knocked-down form, a clarification to this effect was sought from ARAI. In response, Director, ARAI has stated that there are some parts in the total list which could be taken as component form while there are other parts which could be termed as SKD form. He has further indicated that from the analysis carried out by the ARAI and the discussions held with BMW, it was learnt that they were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is whether the car parts listed in Annexure-III would be eligible for the concessional rate of customs duty of 15% under sub-clause (1) of Entry 344 relating to Tariff Heading No. 8703 of the First Schedule to the Customs Tariff Act, 1975 (for short Tariff Act), of the Notification No. 21/2002-Cus., dated 1-3-2002 as amended by Notification No. 11/2005-Cus., dated 1-3-2005. This notification, as we find, is a general exemption notification covering various items falling under different Tariff/Chapter Headings of the Customs Act. In the limited context before us, we are concerned only with Sl. No. 344 of the said general exemption notification. In order to appreciate the point raised before us, it is necessary to reproduce the relevant portion of the notification which reads as follows : In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 17/2001-Customs, dated the 1st March, 2001 [G.S.R. 116 (E), dated the 1st March, 2001], the Central Government, being satisfied that it is necessary in the public interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption Notification itself the Central Government through this Notification exempts the goods of the description specified in Column (3) of the Table . and falling within the Chapter, heading or sub-heading of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the corresponding entry in column (2) of the said Table, when imported into India . . From the description of the goods specified in column (3) against Sl. No. 344 of the notification, it is clear that the exemption is available to motor cars and other motor vehicles principally designed for the transport of persons (other than those of Heading No. 87.02), including station wagons and racing cars, new, which have not been registered anywhere prior to importation. Sub-clause (1) and sub-clause (2) specify the form in which such motor cars or other motor vehicles are to be imported in order to get the concessional rate of duty corresponding to either sub-clause (1) or sub-clause (2). As the position stands at present, the motor cars or other motor vehicle as specified in the description of the goods mentioned above would enjoy a lower rate of customs duty namely 15% if imported as completely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for legal purposes, classification 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 following provisions : 2.(a) 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. It is sufficient to note at this stage that the General Rules for Interpretation lay down the principles which would govern the classification of goods in the First Schedule to the Tariff Act. Rule 2(a) embodies the principle that an incomplete or unfinished article will fall to be classified under the same heading in the First Schedule which refers to the complete and finished article, provided, as presented, the incomplete or unfinished article has the essential character of the complete or finis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fuel-efficient motor car of engine capacity not exceeding 1000 cubic centimeters , subject to fulfilment of certain conditions as specified in the Notification. The original Adjudicating Authority held that the imported components being complete cars in CKD packs had the essential character of the finished product and as such the consignments were to be treated as motor cars and not components and thus denied the benefit of the exemption Notification which were only for components. Both the Commissioner (Appeals) and the CEGAT however held that the goods were component parts and not motor cars and accordingly extended the benefit of Notification to the said goods. While deciding the appeal filed by the Collector of Customs, the Hon ble Supreme Court observed that the question for consideration are whether the CKD packs imported into the country could be considered to be motor cars and not components and secondly, whether M/s. Maruti Udyog Ltd. are entitled to the benefit of Notification No. 29/83. On careful consideration of the facts of the case the Hon ble Supreme Court made the following observations :- It is settled law that to avail the benefit of a notification a party must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Notification No. 72/93 which exempted components and parts of motor vehicles falling within Chapter 87 of the First Schedule to the Customs Tariff Act, 1975 and goods specified in column (3) of the Table annexed to the Notification. Referring to their decision in the earlier part of the judgment in Maruti s case, the Hon ble S.C. observed that as already set out in that decision, such components are nothing but cars in knocked down condition and applying Interpretative Rule 2(a) such components are to be classified as cars. On the question as to whether M/s. Maestro Motors Ltd. is entitled to the benefit of the Notification No. 72/93, the Hon ble S.C. referring to its view in Maruti s case, reiterated that a Notification has to be interpreted in accordance with the language used in the Notification. Where the language is clear and unambiguous an interpretation which does not tally with the language cannot be given. The wording of the Notification No. 72/93 being very clear, it is only components and parts which fall within Chapter 87 are to be exempted and not components in CKD packs which were actually being imported. In this context, the Hon ble S.C. made the following obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they cannot be said to be components and parts, the reference was to the classification of the imported goods for both the aforesaid purposes. This is made clear in the observations of the Hon ble S.C. little later in the same para when it pointed out that If the exemption is granted with reference to the Tariff Heading, then those goods must be classified in the same manner both for purposes of payment of customs duty as well as for purposes of exemption/benefit under that Notification. However, when the wording of a Notification specifically exempts an item, then the exemption will apply to that item even though for purposes of classification it may be considered to be something else. On this principle, it was held by the Hon ble S.C. that M/s. Maestro Motors Ltd. were not entitled to the benefit of the Notification. 19. The important legal propositions which flow from the above observations of the Hon ble Supreme Court in the two decisions are :- (i) A Notification has to be interpreted in terms of the language used in the Notification. Where the language is clear and unambiguous an interpretation which does not tally with the language cannot be given. (ii) If in the notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sub-clause (2) as the case may be. The question that however arises is whether an incomplete or unfinished motor car as in the case before us, which has acquired essential character of a complete or finished motor car, would also be covered by the description of the goods given in this Sl. No. and get the benefit of exemption, if imported either as a CKD unit or in any other form. Undoubtedly, for purposes of payment of customs duty, such incomplete or unfinished motor car would be classified as complete or finished car by applying Interpretative Rule 2(a). In this context, the following observation of the Hon ble S.C. in Maestro s case becomes relevant- When a Notification exempts goods falling within the First Schedule to the Customs Tariff Act, 1975, then the goods must be classified in the same manner both for purposes of payment of customs duty as well as for purposes of exemption/benefit under the Notification. However if the wording of the Notification shows that an item is specifically exempted then the exemption will apply to that item even though for purposes of classification it may be considered to be something else . By this principle, such goods should also be cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pended to Sl. No. 344 of the Notification to define the scope of these expressions used therein. So, we would refer to the ordinary meaning ascribed to the expression Motor Car and Motor Vehicle in the dictionaries/encyclopedia. These are :- The New Oxford American Dictionary. Motor car n 1. dated or Brit. an automobile 2. a self-propelled railroad vehicle used to carry railroad workers Motor vehicle n. a road vehicle powered by an internal combustion engine; an automobile. Automobile n. a road vehicle, typically with four wheels, powered by an internal combustion engine and able to carry a small number of people The New International Webster s Dictionary Thesaurus of the English Language Motor car n. An automobile Motor vehicle 1. Any vehicle operated by a motor or engine. 2 A vehicle adapted to be pulled by another, as a trailer Automobile n. A self-propelled vehicle; specifically, one driven by an internal-combustion engine or storage battery and independent of rails or tracks; a motorcar. v.i. biled, bil-ing to ride in or drive an automobile- adj. 1. Self-propelling. 2. Of or for automobiles. The New Shorter Oxford - English Dictionary Motor car (a) = CAR 6; (b) US a rail car f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scientific and Technical Terms - Fifth Edition Motor vehicle. Any automotive vehicle that does not run on rails, and generally having rubber tyres. Car See automobile. Automobile. A four-wheeled, trackless, self-propelled vehicle for land transportation of as many as eight people. Also known as car. It would therefore appear that the expressions motor car and motor vehicle , as commonly perceived and understood, mean complete and finished motor car or motor vehicle and not their incomplete or unfinished forms. 22. Even in Customs Act, 1962 there is no definition given of motor car or motor vehicle. However the term vehicle has been defined in Section 2(42) to mean conveyance of any kind used on land and includes a railway vehicle . The term conveyance has also been defined in Section 2(9) as including a vessel, an aircraft and a vehicle . These definitions also do not give any impression contrary to or different from the common perception. We have however noticed that motor car and motor vehicle have been defined in the Motor Vehicles Act, 1988. As per Section 2(26), motor car means any motor vehicle other than a transport vehicle, omnibus, road-roller, tractor, motorcycle or inva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Notification cannot be interpreted in a manner so as to include incomplete or unfinished motor car or other motor vehicle also within its ambit. 24. A plea has been taken by the applicant before us that Interpretative Rule 2(a) is implicit in the language of description of goods specified in column 3 of Sl. No. 344 of the Notification. Framers of the Notification, it is submitted, had Rule 2(a) in mind while drafting the description column. This line of agreement, it is felt, is not convincing. First of all, general exemption notifications are issued under Section 25(1) of the Customs Act, 1962 which, empowers the Central Government, if it is satisfied that it is necessary in the public interest to do so, to exempt generally either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be specified in the notification goods of any specified description from the whole or any part of duty of customs leviable thereon. What is supreme is the satisfaction of the Central Government that goods of any specified description deserve to be exempted in public interest. The exemption may be full or partial. Description of the goods to be exempted are speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an approach does not appear to be consistent and hence not supportable. 25. Other judgments and the Board s Circular No. 55/95-Cus., dated 30-5-1995 cited by both the sides are not found directly relevant to the issues under consideration and hence not discussed here. 26. Summing up therefore, it is ruled that the goods proposed to be imported by the applicant are not covered by the main text of the description of goods specified in column (3) against Sl. No. 344 of the Notification No. 21/2002-Cus., dated 1-3-2002 as amended by Notification No. 11/2005, dated 1-3-2005 and hence the benefit of exemption under the said Notification is not available to the goods in question. In view of the above finding, the question of deciding whether sub-clause (1) or (2) in the column (3) would be attracted in the applicant s case, does not arise. 27. Pronounced in the open Court of the Authority on this 28th day of October, 2005 Sd/ (Somnath Pal) Member Ruling per : Justice S.S.M. Quadri and B.A. Agrawal, Member 28. We have perused the ruling drafted by the learned Member of the Authority - Mr. Somnath Pal. After succinctly stating the facts and the contentions urged before us, he framed the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant has furnished a list of parts which they propose to import (Annexure-III) they have not explicitly stated whether these parts if assembled would form a completely built unit of car (except seats). This is a technical aspect which needs to be certified by independent technical agencies/institutions. Such a technical certificate should also indicate whether any other parts are required and whether the components need to be subjected to further working operation for completion into a finished car. Apart from the above, if the importer is able to establish that the items listed in Annexure-III enclosed with the application would form a complete motor car of the specified model and if all those individual items are imported as one consignment in the same unassembled state as indicated in the said Annexure, then such imports would be considered as Motor Cars in completely knocked down (CKD) condition. Such imports would be covered by Sl. No. 344 of the Notification No. 21/2002 dated 1-3-2002 . 33. It is common ground that the contention of the applicant that the exemption notification applies to the goods is not disputed by the Commissioners in their comments. Indeed, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner accepts the position stated by the applicant, it would be a futile exercise to probe an aspect which is not put in issue by the Commissioner as it would result in sheer waste of time of the Authority. It is only when the Commissioner joins issue with the applicant either on facts or law and it is necessary to determine the same to pronounce a ruling on the question set forth in the application, the Authority has to determine the same. Be that as it may, inasmuch as the learned Member has recorded his finding that the description of the goods in Col. (3) of the Sr. No. 344 of the exemption otifycation cannot be interpreted so as to include incomplete or unfinished motor car or other motor vehicles within its ambit, it has become necessary for us to express our opinion on that issue. 34. The point is whether Rule 2(a) of the General Rules of Interpretation of the First Schedule to the Tariff Act (referred to in this ruling as the interpretative rules ) applies in interpreting the exemption notification. The relevant part of the interpretative rules reads thus : GENERAL RULES FOR THE INTERPRETATION OF THIS SCHEDULE Classification of goods in this Schedule shall be governed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words in bracket. The difference, it may be pointed out, is in respect of the following : the motor cars : (i) shall be new; (ii) shall not have been registered anywhere prior to importation; and (iii) the concessional rate of duty is 15% if imported as completely knocked down (CKD) unit; and 60% if imported in any other form. 38. It has been stated above that interpretative Rule 2(a) requires that any reference in a heading to an article shall be understood as : (i) a reference to that article incomplete and unfinished subject to the condition that the incomplete and unfinished article has the essential character of the complete and finished article and (ii) a reference to that article complete or finished when presented unassembled or disassembled. It follows that in the light of the Rule 2(a), the term motor cars in Heading 8703, both in the Schedule as well as in the exemption notification, would be understood as motor cars including incomplete or unfinished motor cars provided they have the essential character of the complete or finished motor cars whether presented unassembled or disassembled. This is because the exemption notification contains both the heading number and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations of the Hon ble Supreme Court, in that case : if, by virtue of Interpretative Rules, for purposes of the First Schedule to the Customs Tariff Act, 1975 the imported goods are not considered to be components and parts, then for purposes of this Notification also they cannot be said to be components and parts. ............ When a Notification exempts goods falling within the First Schedule to the Customs Tariff Act, 1975, then the goods must be classified in the same manner both for purposes of payment of customs duty as well as for purposes of exemption/benefit under that Notification. However if the wording of the Notification show that an item is specifically exempted then the exemption will apply to that item even though for purposes of classification it may be considered to be something else. . In other words when, in a Notification, the exemption is with reference to an item in the First Schedule to the Customs Tariff Act, 1975, then the Interpretative Rules would equally apply to such Notification. In such cases, if they are not components and parts for the purposes of payment of customs duty they would not be components and parts even for the purposes of the Notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The goods would be apparently chargeable to Basic Customs duty @ 60% as motor cars imported in any other form under Sl. No. 344(2) of the Notification contrary to the claim of the applicant. 44. 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 the CKD Unit and with the assembly of seats, which will be procured locally, the parts would constitute a complete car. There are some parts, which could be taken as component form while there are other parts which could be termed as SKD form. It is true that there are no definitions of the terms CKD and SKD ..... X X X X Extracts X X X X X X X X Extracts X X X X
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