Custom, Excise & Service Tax Tribunal
Hyundai Motor India Limited vs Chennai- Port Import on 21 October, 2024
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Customs Appeal No.40029 of 2024
(Arising out of Order-in-Original No. 103200/2023 dated 29.9.2023 passed by the
Commissioner of Customs (Import), Chennai)
Hyundai Motors India Ltd. Appellant
Irungattukottai
Sriperumbudur, Chennai - 602 105.
Vs.
Commissioner of Customs Respondent
Chennai II Commissionerate
Custom House, No. 60, Rajaji Salai
Chennai - 600001.
With
Customs Miscellaneous Application No. 40495/2024
in
Customs Appeal No. 40143/2024
(Arising out of Order-in-Original No. 103953/2023 dated 11.12.2023 passed by the
Commissioner of Customs (Import), Chennai)
Hyundai Motors India Ltd. Appellant
Irungattukottai
Sriperumbudur, Chennai - 602 105.
Vs.
Commissioner of Customs Respondent
Chennai II Commissionerate
Custom House, No. 60, Rajaji Salai
Chennai - 600001.
And
Customs Appeal No. 40337/2024
(Arising out of Order-in-Original No. 103200/2023 dated 29.9.2023 passed by the
Commissioner of Customs (Import), Chennai)
Commissioner of Customs Appellant
Chennai II Commissionerate
Custom House, No. 60, Rajaji Salai
Chennai - 600001.
Vs.
Hyundai Motors India Ltd. Respondent
Irungattukottai
Sriperumbudur, Chennai - 602 105.
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C/40029/2024 & 2 Ors.
APPEARANCE:
Shri M. Manickam, Advocate for HMIL
Shri P. Narasimha Rao, Commissioner (AR) for Revenue
CORAM
Hon'ble Shri P. Dinesha, Member (Judicial)
Hon'ble Shri M. Ajit Kumar, Member (Technical)
Final Order Nos.41308 to 41310/2024
Date of Hearing : 30.07.2024
Date of Decision: 21.10.2024
Per M. Ajit Kumar,
Appeal Nos. C/40029/2024 and C/40143/2014 are filed by
Hyundai India Ltd. and Appeal No. C/40337/2024 is filed by the
department against the impugned orders.
2. M/s. Hyundai Motor India Limited, Kanchipuram (hereinafter also
referred to as "HMIL"), are engaged in the manufacture of passenger
motor cars, under the brand name of "Hyundai". They import various
parts and accessories of passenger motor cars through Chennai ports.
2.1 Intelligence developed by the Directorate of Revenue Intelligence
(DRI), allegedly indicated that HMIL was resorting to misclassification
of various goods imported for manufacture of automobiles, in order to
avail undue benefit of BCD exemption vide Notification No. 152/2009-
Customs dated 31/12/2009 as amended. They visited HMIL's premises
and made enquiries. Thereafter, HMIL vide their letter dated
10/02/2020 informed DRI that they have reviewed the classification
adopted in respect of certain Bills of Entry (BE), details of which were
also given, and had found that the classification assigned by them was
not consistent in some of the cases with the nature of the products and
as the Country of Origin (COO) Certificates with the inconsistent codes
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C/40029/2024 & 2 Ors.
had already been filed, they intend approaching the suppliers to revise
the HS codes and issue the COO for the respective Bills of Entry
retroactively as provided under the India-Korea CEPA. Further, the
importer also informed the voluntary payment of differential duty and
interest, in respect of some products and attached a copy of TR-6
challan paid at Chennai Customs.
2.2 Two Show Cause Notices (SCN) were issued to HMIL. SCN No.
56/2023 dated 14/06/2023 mainly for ECU's, for a differential duty of
Rs 59.93 Crores was confirmed by Order-in-Original (OIO) No.
103953 / 2023 dated 04/12/2023. A second SCN No. Gr.5/05/2022
dated 06/10/2022, was issued for a differential duty of Rs 38.62
Crores, which pertained to 15 items imported and cleared through 195
No.'s of finally assessed Bills of Entry and was confirmed by OIO
No.103200/2023 dated 29/09/2023. Aggrieved by these orders the
rival parties are before us on different grounds.
3. Shri M. Manickam, Ld. Counsel appeared for HMIL. and Shri P.
Narasimha Rao, Ld. Commissioner (AR) appeared for the respondent-
department. The averments made are discussed along with the
specific issues raised by the parties.
4. We have heard the rival parties and have carefully gone through
the appeals filed by both the parties.
4.1 We find that OIO 103200/2023 dated 04/10/2023, covers 24
items. However, the demand of Rs 38,62,17,880/- relates to 15 items
only, pertaining to 195 finally assessed BE's, of which HMIL had
accepted 11 items as classified by the department, before the AA. For
4 items i.e. (a) Camshaft Assembly (b) Oil Control Valve Assembly (c)
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C/40029/2024 & 2 Ors.
PIO AVN Audio and (d) Computer Bracket Assembly/ ECU, covered by
115 finally assessed BE's, they have not accepted the findings in the
impugned order, for the following reasons;
(a) Camshaft Assembly. The dispute is between CTH 84831091
(HMIL) and CTH 84831099 (revenue). They have accepted the
classification as per the impugned order but hold that the goods are
eligible for exemption since the COO Certificate is at 6 digit level and
covers the imported goods.
(b) Oil Control Valve Assembly. They have contested the
classification of the goods adopted in the OIO.
(c) PIO AVN Audio. They have accepted the classification of the
goods as done in the OIO but have claimed eligibility for exemption for
the said CTH under another Sl. No. of the exemption notification.
(d) Computer Bracket Assembly/ ECU. They have contested the
classification of the goods adopted in the OIO.
The remaining 9 items pertain to provisionally assessed BE's. Though
the goods have been classified no demand has been raised on the same
as these items are still provisional, HMIL has hence not replied to the
classification of these goods.
4.2 OIO 103953/2023 dated 11/12/2023, covers 13 items.
However, the demand of Rs 59,93,89,450/- relates to 5 items only
covered by 118 BE's which were finally assessed, of which HMIL does
not accept the classification of any item as classified by the
department. 4 of these 5, are ECU's with different part numbers and 1
is a ECU Coding System. No separate examination and discussion has
been made for the ECU Coding System. HMIL paid the duty amount of
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C/40029/2024 & 2 Ors.
Rs.59,56,35,048/- for the period from 04/03/2020 to 11/03/2022
during the investigation vide TR6 challan dated 05/04/2022. The
remaining 8 items pertain to provisionally assessed BE's. Though the
goods have been classified no demand has been raised on the same as
these items are still provisional, HMIL has hence not replied to the
classification of these goods.
5. We now take up the issues under dispute jointly for discussion
and resolution. The main issues involved are whether,
A) the classification of the goods pertaining to provisionally
assessed BE's has been done without the authority of law.
B) it is legal and proper on the part of the AA in not confiscating and
imposing a redemption fine in respect of the impugned goods
provisionally assessed and cleared under a bond and in not imposing a
penalty on the assessee.
C) the impugned goods are eligible for benefit of concessional rate
of BCD, based on the COO Certificate as per a Bilateral Free-Trade
Agreements (FTA), even after re-classification and hence no demand
of duty is sustainable.
D) the redetermination of classification of Oil Control Valve (OCV)
Assembly is legal and proper.
E) the re-determination of classification of the other 13 imported
items i.e. Vacuum Assembly; Water Pump Assembly; Cap Sealing;
Case Assembly Timing Chain; Nut Flange; Nut Washer; Oil Seal; V-
Ribbed Belt; Junction Box; Piston and Piston Assembly; Connecting Rod
Assembly; Camshaft Assembly; PIO AVN Audio is legal and proper.
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C/40029/2024 & 2 Ors.
F) the imported PIO AVN Audio is appropriately classifiable under
CTH 8526 9190 and is eligible for the benefit of concessional rate of
BCD @ Nil in terms of Serial No.1389 (I) of Notification No. 46/2011
Customs dated 01.06.2011, instead of claimed Serial No.1390 (I).
G) the re-determination of classification of the imported Computer
& Bracket Assembly / Electronic Control Unit (ECU) is legal and proper.
H) the "relevant date" as defined under Section 28 of CA 1962, is
the date of clearance of the imported ECU, whereby part of the demand
is outside the ambit of two years normal period pertaining to goods
covered by Order-in-Original dated 11/12/2023 and is unsustainable.
I) there is no suppression of facts or wilful misstatement of facts
hence demand and confirmation of duty liability beyond the normal
period of 2 years from the date of import as per Order-in-Original dated
04/10/2023 is unsustainable and no fine on the goods or penalty on
the individual can be imposed.
6) Whether the classification of the goods pertaining to
provisionally assessed BE's has been done without the
authority of law.
6.1 HMIL has stated that the impugned orders have decided the
classification of goods which were provisionally assessed. The Final
Assessment in such cases has to be carried out in terms of Section
18(1A) of the CA 1962 read along with Customs (Finalisation of
Provisional Assessment) Regulations, 2018. The impugned order
demands differential duty only on finally assessed BE's and the findings
and conclusions with respect to the said BE's alone are relevant for the
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C/40029/2024 & 2 Ors.
purpose off appeal. Hence the confirmation of the classification of
provisionally assessed goods in the impugned order is bad in law.
6.2 Per Contra revenue has stated that in the subject case some Bills
of Entry were assessed provisionally pending SVB decision under
section 18 of CA 1962. AA has only changed the wrong classification to
proper classification considering the untruthful declarations made by
HMIL, under section 46 of the CA 1962 while clearing the said goods
under self-assessment procedure. Section 18 of the CA 1962 is without
prejudice to the provisions of section 46 ibid. Hence no prejudice is
caused to the importer in this regard and their plea be dismissed as
untenable as assessment under section 2(2) of the CA 1962 includes
re-assessment also. The AA has only appropriately classified the said
goods without demanding any duty arising out of the changed
classification against the provisionally assessed Bills of Entry and
leaving the same to finalisation proceedings.
6.3 We find that classification of goods under the Customs Tariff is a
part of assessment. Assessment of duty involves the determination of
the dutiability of exim goods. It involves determining the import
permissibility in terms of the EXIM policy and any other laws regulating
imports/exports, determining the classification and duties leviable on
the goods on import - (Basic, Additional, Anti-dumping, Safeguards
etc.). Permissibility of various benefits of duty-free clearances under
different schemes or applicability of any exemption notification
benefits, checking the quantity and value of the goods (where the
duties are assessable on value basis) etc. The determination of
dutiability hence creates special rights and liability and should not be
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C/40029/2024 & 2 Ors.
finalised in a piece meal manner. Neither the Customs Act nor the
Customs (Finalisation of Provisional Assessment) Regulations, 2018,
support such a procedure. However, the action of piece meal finalizing
the classification of provisionally assessed goods has led to the
department filing an appeal on the non-confiscation of the goods and
non-imposition of fine and penalty, which shall be examined
separately. We feel that the fiinalisation of classification of
provisionally assessed BE's without concluding the dutiability of the
imported goods is not proper in law and merits to be set aside. The
classification of the said goods can be done at the time of finalizing the
provisional assessment, without being prejudiced by the findings in the
impugned order.
7. Whether it is legal and proper on the part of the AA in not
confiscating and imposing a redemption fine in respect of the
impugned goods provisionally assessed and cleared under a
bond and in not imposing a penalty on the assessee.
7.1 HMIL is of the opinion that goods which are assessed
provisionally cannot be confiscated as their assessment has not been
completed and their liability determined. Further the Provisional
Assessment was resorted only on the grounds of determination of
valuation by the department. According to them it is relevant to read
Regulation 4 (1) of the Customs (Finalisation of Provisional
Assessment) Regulations, 2018, in a harmonious manner with
Section 18 (1) (c) of the CA 1962 along with the Customs
(Provisional Duty Assessment) Regulations, 2011. Regulation 4
(1) of the Customs (Finalisation of Provisional Assessment)
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C/40029/2024 & 2 Ors.
Regulations, 2018 reads that "where the provisional assessment is
ordered by the Proper Officer of Customs for the reasons that...". They
have emphasised the words "for the reasons that". Bond conditions
executed are based on the reasons determined by the proper Officer.
No other external matter can be brought to alter the Bond conditions.
In the impugned issue, the Bond was executed only with respect to
determination of value of the goods supplied by related parties and not
for any other purposes, hence, re-determination of classification by the
AA is not only contrary to the provisions of CA 1962, but also against
the spirit of Article 265 of the Constitution of India.
7.2 Revenue has relied on CESTAT Larger Bench, decision in
Collector of Central Excise Vs P.M.T Machine Tools 1991 (55) ELT
592 (Tribunal) and Hon'ble High Court of Madras in case of Collector
of Central Excise, Madras Vs India Tyre & Rubber Co Ltd [1997
(94) ELT 485 (Mad)] wherein it is held that when provisional
assessment is made it should be treated as provisional for all purposes
and not necessarily provisional in respect of particular grounds only.
Hence it was open to the AA to finalise the classification. Further being
a prominent and established manufacturer of Automobiles they are well
aware of the classification of the goods. It is observed that goods which
are having specific Tariff Heading/ Item were deliberately mis-
classified by the importer under different tariff Heading/ Item with
intention to evade applicable Customs duty. Although HMIL had cleared
the goods they had executed a bond and HMIL had bound themselves
to pay the deficiency, if any, between the duty as may be finally
assessed and the duty provisionally assessed. In the case of M/s.
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C/40029/2024 & 2 Ors.
Weston Components Ltd. v. Commissioner of Customs, New
Delhi [2000 (115) E.L.T. 278 (S.C.)], the Hon'ble Apex Court has taken
the view that redemption fine can be imposed even in the absence of
the goods as the goods were released to HMIL on an application made
by them and on their executing a bond. Since the goods were released
on a bond the position is as if the goods were available. Hence the
goods should have been confiscated under section 111(m) of CA 1962,
a redemption fine imposed under section 125 ibid along with a penalty
under section 112(a) ibid.
7.3 We find that before goods can be confiscated, fine and penalty
imposed, the procedures laid down in the Act must be complied
with. The submission put forward by revenue does not address the core
issue. An adjudication order should be the final decision in the dispute
resolution process as formulated in the Act/Rules/Instructions which
conclusively puts to rest all the rights and liabilities of the parties to
the lis. The seminal purpose is to avoid piece-meal adjudication. When
assessment has not been completed and the classification of the goods
has itself been finalised prematurely and irregularly the question of
confiscation or imposition of fine on the goods or penalty on persons
would not arise.
7.4 In the circumstances of this case, there could be no question of
confiscation, penalty or interest till after final assessment, otherwise
there could be a situation whereby the goods are later alleged to have
been undervalued or later being involved in some other blame worthy
act and be subject to further rounds of similar piece-meal penal
proceedings. This is untenable. Penal proceedings being invoked
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C/40029/2024 & 2 Ors.
separately / sequentially on the same goods and persons for albeit
different reasons, first for classification then for valuation then for
violation of EXIM policy etc, is unreasonable and arbitrary. All facts and
issues that are so connected together to be part of a same transaction
should be decided together. Splitting up of the transaction into
separate disputes should not be resorted to as it is, likely to prejudice
the assessee. In remarks that are also relevant to the departments
appeal, it has been stated by the Hon'ble Supreme Court in the case of
Union Of India Vs Jesus Sales Corporation [1996 (83) E.L.T. 486
(S.C.) / 2002-TIOL-259-SC-CUS / 1996 (4) SCC 69] as under;
"4. . . Whenever an unfettered discretion has been exercised courts
have refused to countenance the same. That is why from time to time
courts have 'woven a network of restrictive principles' which the
statutory authorities have to follow while exercising the discretion
vested in them. This principle has been extended even when the
authorities have to exercise administrative discretions under certain
situations. Another well settled principle which has emerged during
the years that where a statute vests discretion in the authority to
exercise a particular power, there is an implicit requirement that it
shall be exercised in a reasonable and rational manner free from
whims, vagaries and arbitrariness."
7.5 We note that a Coordinate Bench of this Tribunal in the case of
Lan Esenda Ltd. Vs. Commissioner of Customs, Mumbai [2005
(192) ELT 305 (Tri.- Mumbai)] held that the penalties imposed before
finalisation of assessment cannot sustain. A similar view has also been
taken by a Coordinate Bench of this Tribunal in M/s. Shell India
Markets Private Limited Vs Commissioner of Customs, Chennai
[2024 (3) TMI 1189 - CESTAT CHENNAI]. The judgment relied upon
the case of AS Syndicate (Warehousing) P. Ltd. Vs Commissioner
of Customs (Port) [2009 (12) TMI 609-CALCUTTA HIGH COURT)]
wherein the Hon'ble High Court had held that there could be no
question of confiscation, penalty or interest till after final assessment.
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C/40029/2024 & 2 Ors.
Hence based on the legal issue as discussed and the precedential value
of the above judgments the appeal of revenue in this regard must fail.
8. Whether the impugned goods are eligible for benefit of
concessional rate of BCD, based on the COO Certificate as per a
Bilateral Free-Trade Agreements (FTA), even after re-
classification and hence no demand of duty is sustainable.
8.1 HMIL has stated that to avail the preferential tariff benefit based
on the Country of Origin, three substantive conditions, such as,
minimum regional value addition, substantial manufacturing process
and change of nomenclature of the product and change of sub tariff
heading of the resultant product other than that of the inputs, have to
be met along with various procedural criteria such as, submission of
original COO Certificate document issued by the Competent Authority,
disclosure of fact in the said certificate, etc. In the impugned case,
both substantive criteria and procedural criteria are met by them to
the satisfaction the Proper Officer at the Country of Import with respect
to the impugned goods and thus the benefit of concessional rate of
BCD granted at the time of import was just, proper, legal and correct
and cannot be denied.
8.2 Per contra revenue is of the view that once there is a discrepancy
between the classification of the goods as in the COO certificate and that
assessed, benefit under 46/2011-Cus and under 152/2009-Cus is
correctly denied for the goods by rejecting the Country-of-Origin
Certificate. They have referred to CESTAT, Principal Bench, New Delhi
decision in case of Holyland Marketing Pvt Ltd Vs Commissioner
of Customs (Import), ICD, Tuglakabad vide Final Order No 51574 /
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C/40029/2024 & 2 Ors.
2023 dated 30/11/2024 wherein a Coordinate Bench of this Tribunal
held that imported goods namely "Canned Pineapple Slices" are
correctly classifiable under CTH 0804 instead of declared CTH 08119010
and benefit of Notification under Notification no 46/2011-Cus dated
01/06/2011 [Import from ASEAN Countries] was denied because of
wrong classification of the impugned goods.
8.3 We find that international treaties are entered into between
Sovereign contracting States for providing "preferential tariff
treatment" to goods imported by participating countries, from each
other, in accordance with a trade agreement. There is a prima facie
presumption that Parliament does not intend to act in breach of
international law, including therein a specific treaty obligation. This is
because the Directive Principles of State Policy as enshrined in Article
51 of the Indian Constitution enjoin the State to endeavor, inter alia, to
foster respect for international law and treaty obligations. This is also
seen to be diligently followed in CBIC's Instruction No. 19/2022-
Customs, dated 17/08/2022, wherein Customs officials were
instructed to give Free Trade Agreements an overriding treatment over
Customs (Administration of Rules of Origin under Trade Agreements)
Rules, 2020 (CAROTAR in short) wherever CAROTAR is inconsistent
with FTA. Relevant portion is reproduced below.
"3.2 In continuation of the same, field formations are sensitized by
drawing attention again to section 28DA [Customs Act, 1962]. It is
emphasized that its sub-section (3) empowers the proper officer to
ask the importer to furnish further information, consistent with the
trade agreement, in case the proper officer has reasons to believe
that the country-of-origin criteria have not been met. Similarly, its
sub-section (4) enables the proper officer, where the importer fails to
provide the requisite information for any reason, to cause further
verification consistent with the trade agreement. Moreover, in the
Rules [CAROTAR], the rule 8 (3) states - "In the event of a conflict
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between a provision of these rules and a provision of the Rules of
Origin, the provision of the Rules of Origin shall prevail to the extent
of the conflict." (Sentence underlined to add emphasis. Highlighted
words added for clarity)
"Preferential tariff treatment" has also been defined under CAROTAR
to means allowing preferential rate of duty to goods imported into India
in accordance with a trade agreement.
8.4 The issue has also been examined by the Hon'ble Andhra High
Court in Mahadev Metaliks Pvt. Ltd. Vs Union of India. [(2016)
331 ELT 424)], and it was held;
"28. . . . . One should not lose sight of the fact that FTA settlement
negotiated between two independent Nations and the adherence to
respective countries solemn promises is of utmost importance to the
bilateral trade between the two Nations."
Section 5(1) of the Customs Tariff Act, 1975, empowers the Central
Government to issue a Notification so as to make Rules for determining
if any article is a produce or manufacture of such foreign country. This
benefit is extended through a Notification issued in accordance with the
powers conferred by sub-section 1 of Section 25 of the CA 1962, which
provides a preferential rate for payment of BCD for the goods
concerned. In accordance with the framework of the Notification, COO
Certificate issued by the Competent Authority at the country of export,
contains the classification of the goods as per the Harmonized System
number of the importing Party.
8.5 The COO Certificate is to be submitted to the Proper Officer of the
importing country and upon verification and satisfaction of the contents
contained therein, the Proper Officer of Customs extends the benefit of
preferential rate for payment of BCD. The Rules of Origin are
comprehensive in nature which contains the complete operative
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mechanism on various substantive and procedural aspects for
determination of the origin criteria of the imported product.
8.6 HMIL submits that, for example, in the Impugned Order the
validity, or the genuineness of the Certificate submitted by HMIL at the
time of import of PIO AVN Audio is not quashed or denied. In the
Impugned Order, the only observation is that at the time of import, in
the Country-of-Origin Certificate, the CTH was mentioned as 852712/
852721, whereas as per the Impugned Order the appropriate
classification is 8526 9190 and the said CTH is not mentioned in the
certificate, and because of this, the Impugned Order seeks to deny the
benefit of exemption. They hold that the substantial conditions
required to be satisfied to avail the benefit of Country of Origin has
been complied with. Further they submit that Rule 13 of the Customs
Tariff (Determination of Origin of Goods) under the Preferential
Trade Agreement between the Governments of Member States
of the Association of South East ASEAN Nations (ASEAN) and
the Republic of India, Rules, 2009 [Herein after referred to as
'Rules of 2009'] deals with issuance of AIFTA Certificate of Origin.
Para 7(c) of Annexure III to the said Rule states that in cases where
an AIFTA Certificate of Origin is not accepted by the Customs Authority
of the importing party, such AIFTA Certificate of Origin shall be marked
accordingly in box 4 and the original AIFTA Certificate of Origin and
shall be returned to the Issuing Authority within a reasonable period
but not exceeding two months, duly notifying the grounds for the denial
of preferential tariff treatment. No such action has been taken by the
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Customs department in this case and hence the benefit cannot be
denied.
8.7 We find that the Government of India signed an Agreement on
Trade in Goods Under the Framework Agreement of the
'Comprehensive Economic Co-operation between the Republic of India
and the Association of Southeast Nations (ASEAN)' in the year 2009. A
lot of thought has gone into framing the policy for the benefit of trade
and industry in the participating Countries. As per the said international
agreement preferential tariff treatment was agreed to be accorded by
India in respect of imports of specified goods, provided certain
conditions are fulfilled. One such condition was that the goods imported
under a Trade Agreement are required to be covered under a
Certificate of Origin issued by the Designated Authority of the exporting
country. When the Rules of 2009 are comprehensive in nature and
contain the complete operative mechanism on various substantive and
procedural aspects for facilitating preferential tariff treatment for goods
covered by AIFTA, the said Rules would have to be diligently followed
before any concession is sought to be denied to goods, coming within
the ambit of the Agreement. Otherwise, the whole procedure set out
in the 2009 Rules would be rendered redundant and it would upset the
certainty of duty that had been notified by the agreement, for the
benefit of trade and industry.
8.8 When an importer produces a COO Certificate which covers the
imported goods, it has to be considered as substantive and conclusive
evidence of being goods as declared and duty concession as eligible
should be allowed, in the normal course, as the concession originates
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from an international treaty entered between the contracting States of
which India is a signatory. In case the concession is felt to be not eligible
then the department has to take recourse to the provision of the Rules
of 2009 and follow the procedure set out there in. When the Customs
Department of the importing Country does not take any action as
provided for in Paras 7, 16 and 17 of Annexure III to the Rules of 2009
it cannot then question the concession from payment of duty as eligible
as per the COO Certificate. As per Para 7, in case the AIFTA Certificate
of Origin is not accepted by the Customs Authority of the importing
party it shall be returned to the Issuing Authority within a reasonable
period but not exceeding two months, duly notifying the grounds for
the denial of preferential tariff treatment. As per para 16 the importing
party may request a retroactive check at random and/or when it has
reasonable doubt as to the authenticity of the document or as to the
accuracy of the information regarding the true origin of the goods in
question or of certain parts thereof. In case of reasonable doubt as to
the authenticity or accuracy of the document, the Customs Authority
of the importing party may suspend provision of preferential tariff
treatment while awaiting the result of verification. As per Para 17 if the
importing party is not satisfied with the outcome of the retroactive
check, it may, under exceptional circumstances, request verification
visits to the exporting party.
8.9 In the present case Revenue has not demonstrated that they have
taken any steps as required by paras 7, 16 and 17 of Annexure III ibid
and have thereby wrongfully sought to deny the exemption. In its
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judgment in Noble Import Pvt Ltd. Vs Union of India [2017 (349)
E.L.T. 44 (A.P.)], the Hon'ble Andhra High Court held as under;
"19. It is only after a retroactive check is conducted, and the concerned
authorities are satisfied that the Certificate of Origin cannot be
accepted, are they entitled, thereafter, to pass an adjudication order
under the Customs Act. Without conducting a retroactive check, in
terms of Clause 16(a) of Annexure-III to the 2009 Rules, it was not open
to the 3rd respondent to pass an adjudicating order. The impugned
orders dated 30-10-2015, passed even before conducting a retroactive
check in terms of Clause 16(a), are without jurisdiction."
8.10 We find that Rule 5 of the CAROTAR allows, the Principal
Commissioner of Customs or the Commissioner of Customs, to disallow
the claim of preferential rate of duty without further verification, for the
reasons to be recorded in writing, where the importer relinquishes the
claim or the information and documents furnished by the importer and
available on record provide sufficient evidence to prove that goods do
not meet the origin criteria prescribed in the respective Rules of Origin.
However, the present issue does not involve a dispute on the origin
criteria, but only on the classification of the goods and is hence not
applicable.
8.11 Thus, while the Customs department can after following the due
process change the classification of the imported goods as per the
domestic laws, it cannot deny "preferential rate of duty" (which has been
defined under CAROTAR to mean rate at which customs duty is charged
in accordance with a trade agreement), to the goods covered by a valid
COO Certificate issued as per an international treaty obligation, that
satisfies the conditions of a notification issued under Section 25 of the
CA 1962, unless the classification had been challenged successfully as
provided for in the Rules of 2009. Hence the action taken by the AA in
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denying concessional rate of duty for the goods by rejecting the
Country-of-Origin Certificate is untenable and merits to be set aside.
8.12 The decision of the Tribunal in Holyland Marketing (supra) is
distinguished in as much as the case involved suppressing the non-
frozen character of the impugned goods, in order to avail the benefit of
the Notification. Fraud vitiates all transactions and the decision in that
case has been arrived at accordingly, hence it is distinguished.
9. Whether the redetermination of classification of Oil
Control Valve (OCV) Assembly is legal and proper.
9.1 HMIL submits that the Oil Control Valve (OCV) is a critical
component used in engine that is fitted with "Variable Valve
Technology (VVT)". It has its own casing and is placed outside the
engine. OCV regulate the supply of engine oil to a designated VVT hub,
to advance or retard the timing by altering the Cam shaft angle position
and is specifically covered under the category of valves under CTH
8481. The OCV increases the efficiency and performance of internal
combustion engines. However, the efficient working of the VVT
solenoid is very important for the efficient working of the engine.
Although OCV is a valve it is not an inlet valve or exhaust valve to the
engine and has specific functions which helps achieve fuel efficiency,
reduce exhaust gases and enhance engine performance. Only inlet or
exhaust valve to engine is classifiable as parts of engine and all other
valves are classifiable under CTH 8481.8090. As per the HSN
Explanatory Notes, taps, cocks, valves etc., remain under CTH 8481,
even if supplied for use on a particular machine or apparatus or on a
vehicle or aircraft. HSN also further states that CTH 8481 covers taps,
20
C/40029/2024 & 2 Ors.
cocks, valves and similar appliances to regulate the flow of fluids,
liquids, viscous or gaseous. No Country-of-Origin benefit of exemption
from payment of BCD was availed and duty under merit @ 7.5% was
paid at the time of import for the imported OCV Assembly even though
the OCV Assembly were imported from Korea. Therefore, it is
submitted that the redetermination of classification of the imported Oil
Control Valve Assembly under CTH 84099111 instead of declared CTH
8481, may be quashed and set aside and the classification sought and
adopted at the time of import may be held as proper and correct.
9.2 Revenue states that the said goods are specifically made to be
used as a part of engine to improve its efficiency. As such, the said
goods are not classifiable under CTH 8481 as the said heading is for
valve used in pipes, boilers etc. The classification under CTH 8708 is
also not correct as the said heading is for other parts and accessories
of Motor vehicles. As the goods are specifically used with parts of
engines, it is pertinent to refer to CTH 8409 which is for parts suitable
for use solely or principally with the engines of heading 8407 or 8408.
Under CTH 8409, there are specific tariff entries for valve, inlet and
exhaust. From the working / functions of the said goods, the correct
classification for the said goods is CTH 84099111 / 840999911
depending upon the type of engine.
9.3 We find that the legal position involved in such a situation has
been stated by the Hon'ble Supreme Court in the case of O.K.Play
(India) Ltd. v. CCE, Delhi [2005 (180) ELT 300 (SC)] wherein it
was held that apart from the HSN Explanatory Notes, and the Rules of
Interpretation, functional utility, design, shape and predominant usage
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C/40029/2024 & 2 Ors.
have also got to be taken into account while determining classification
of an item - these are more important than names used in trade or
common parlance. Relevant portion is cited below;
"6. Before dealing with the issue of classification, certain points are
required to be clarified.
7. In the case of A. Nagaraju Brothers v. State of Andhra Pradesh
reported in [1994 (72) E.L.T. 801], it has been held by this Court that
no one single universal test can be applied for correct classification.
There cannot be a static parameter for correct classification.
8. Further, the scheme of the Central Excise Tariff is based on
Harmonized System of Nomenclature (for short "HSN") and the
explanatory notes thereto. Therefore, HSN along with the
explanatory notes provide a safe guide for interpretation of an Entry.
9. Further, equal importance is required to be given to the Rules of
Interpretation of the Excise Tariff. Under Rule 3(a), it is provided that
the heading which provides a specific description shall be preferred
to a heading having a more general description. For example, in the
case of "toys" referred to in the HSN Heading and the Tariff Heading,
the description refers to reduced size model of an Article used by
adults. This test helps us to understand the difference between "toys"
and "furniture".
10. Lastly, it is important to bear in mind that functional utility,
design, shape and predominant usage have also got to be taken into
account while determining the classification of an item.
11. The afore stated aids and assistance are more important than
the names used in the trade or common parlance in the matter of
correct classification." (emphasis added)
Therefore, HSN along with the explanatory notes provide a safe guide
for interpretation of an Entry. As per the HSN Explanatory Notes, taps,
cocks, valves, etc., remain under heading 84.81 even if specialized for
use on a particular machine or apparatus, or on a vehicle or aircraft.
Hence the cryptic conclusion in the impugned order that 'CTH 8481 as
the heading suggests is for valve used in pipes, boilers etc' is not
correct. However, the HSN explanatory notes state that certain
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C/40029/2024 & 2 Ors.
machinery parts which incorporate a complete valve, or which regulate
the flow of a fluid inside a machine although not forming a complete
valve in themselves, are classified as parts of the relative machines,
for example, inlet or exhaust valves for internal combustion engines
(heading 84.09), slide valves for steam engines (heading 84.12),
suction or pressure valves for air or other gas compressors (heading
84.14), pulsators for milking machines (heading 84.34) and non-
automatic greasing nipples (heading 84.87). 11.4 OCV is a device
which as described by HMIL, as having its own casing. It is placed
outside the engine and works according to the oil pressure to regulate
the flow of engine oil and thus alter the rotation of the camshaft. It is
not a simple inlet valve or exhaust valve to the engine. As stated in
the impugned order, controlled by the ECU, the OCV receives electrical
signals, instructing it to adjust the oil flow as required, in accordance
with current driving conditions. As per the Explanatory Notes Heading
84.81 includes devices designed to regulate the pressure or the flow
velocity of a liquid or a gas. Valves remain in this heading even if
specialized for use on a particular machine or apparatus, or on a vehicle
or aircraft. This being so the department has not been able to discharge
their burden of proof on the merits of classification the impugned goods
under CTH 8409.9111 / 8409.99911 (depending upon the type of
engine) and thus HMIL's classification of the goods cannot be disturbed.
10. Whether the re-determination of classification of the
other 13 imported items i.e. Vacuum Assembly; Water Pump
Assembly; Cap Sealing; Case Assembly Timing Chain; Nut
Flange; Nut Washer; Oil Seal; V-Ribbed Belt; Junction Box;
23
C/40029/2024 & 2 Ors.
Piston and Piston Assembly; Connecting Rod Assembly;
Camshaft Assembly; PIO AVN Audio is legal and proper.
10.1 HMIL has stated that they do not accept the classification of the
goods mentioned above as done in the impugned order. No detailed
arguments are seen made in furtherance of their stand.
10.2 Revenue has stated that the importer vide reply letter dated
27/06/2023 and 12/07/2023 inter alia accepted classification changes
as proposed by the department of all the 13 items listed above. In the
case of Camshaft Assembly and PIO AVN Audio, HMIL has accepted the
classification and only challenged the issue pertaining to the eligibility
of the goods to duty exemption. They cannot now resile from their
consent given and the appeal for change in classification of the said
goods may be rejected.
10.3 We find that HMIL has after admitting to the classification of the
above 13 goods vide their letter dated 27/06/2023 and 12/07/2023
before the Original Authority, as pointed out by revenue above, made
a feeble attempt to reverse their earlier acquiescence, now before us.
The normal rule is that in any litigation the rights and obligations of
the parties are adjudicated upon as they obtain at the commencement
of the lis. When allegations of facts are admitted before the Original
Authority, there was no need for him to prove what was admitted and
orders have come to be passed. The Tribunal has an inherent power to
prevent the right of appeal being abused by an appellant who keeps
back till the stage of appeal, points of law or fact which he could have
raised before the lower authority, without showing any reason and thus
places the other side at a disadvantage. Persons with good causes of
24
C/40029/2024 & 2 Ors.
action should pursue the remedy with reasonable diligence at every
available opportunity. When a person even by tacit or passive
acceptance or by implied consent to an act, when he has a duty to
speak or oppose / deny a fact or law, does not do so, with full
knowledge of its consequences, then he cannot exercise that right at a
later stage. The doctrine of non-traversal, as per Order VIII Rule 5 of
the Code of Civil Procedure (CPC), in the case of civil litigation asserts
that any factual averment in a plaint, if not specifically denied by the
defendant, is deemed admitted. The legal issue that non-traverse
would constitute an implied admission has been examined with
approval by the Hon'ble Apex Court in Tek Bahadur Bhujil vs Debi
Singh Bhujil And Ors. (AIR 1966 SC 292 / AIR 1966 SUPREME COURT
292) and Lohia Properties Pvt. Ltd., Tinsukia Vs Atmaram
Kumar, (1993 (3) SCALE 453 / (1993) 4 SCC 6 / AIRONLINE 1993 SC
562). In this case HMIL has in fact given consent in writing to the
classification of the above goods as suggested by revenue in the SCN
and cannot go back at this stage. Hence except for Oil Control Valve
Assembly and Computer & Bracket Assembly ( ECU), which has been
contested elaborately by HMIL and is dealt with separately, in the case
of the goods mentioned above the classification remains as determined
in the impugned order and the appeal in this regard is rejected.
11. Whether the imported PIO AVN Audio is appropriately
classifiable under CTH 8526 9190 and is eligible for the benefit
of concessional rate of BCD @ Nil in terms of Serial No.1389 (I)
of Notification No. 46/2011 Customs dated 01.06.2011, instead
of claimed Serial No.1390 (I).
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C/40029/2024 & 2 Ors.
11.1 HMIL has stated that the item PIO AVN Audio were imported from
Vietnam and they availed the BCD exemption benefit @ Nil in terms of
Customs Notification No. 46/2011, whereas, in the SCN, it was alleged
that the goods were imported from Republic of Korea and alleged that
they had wrongly availed the BCD exemption benefit @ Nil in terms of
Customs Notification No. 152/2009 and thus the allegations are
contrary to the facts available on record and hence, there is no
application of mind, and the Original Authority has exceeded the scope
and ambit of the SCN by confirming the duty liability by denying the
BCD exemption benefit @ Nil in terms of Customs Notification No.
46/2011, which was not a part of allegations proposed in the SCN.
Further it was stated that in their reply to the SCN they had
categorically submitted to the Original Authority about their acceptance
of the proposed reclassification of the imported PIO AVN Audio under
CTH 8526 9190. The said tariff entry also finds a place at Serial
No.1389 (I) of the same Customs Notification No. 46/2011 for the
benefit of Preferential Basic Customs Duty (BCD) @ Nil and hence the
impugned order denying them duty concession is not legal and proper
and merits to be set aside.
11.2 Revenue, per contra opines that mere non mention of Notification
no 46/2011-Cus in the SCN will not vitiate the demand as the Bills of
Entry under Notification no 46/2011-Cus have also been considered for
arriving at duty differential and the SCN issuing Authority being the
same as AA has correctly denied the benefit of Notification no 46/2011-
Cus in his findings at para No. 18,19,21.22,22,23 & 25 refers to the
said notification and denies the benefit at para 36 in the O-I-O. The
26
C/40029/2024 & 2 Ors.
entire exercise of change of classification and differential duty
computation in respect of finally assessed BE's has been done
meticulously in the SCN with denial of benefit of Notification No
152/2009 and 46/2011-Cus, the AA has only brought out the implied
fact of duty difference arising out of denial of benefit of Notification
46/2011-Cus to the fore by making it explicit at para 36 ( b ) of O-I-O
and confirming the differential duty demand as per SCN. Hence there
is no irregularity on the part of Adjudication Order dated 04/10/2023.
11.3 We have examined the matter and agree with revenue that mere
non mention of Notification no 46/2011-Cus in Show-Cause Notice will
not vitiate the demand, if otherwise correctly imposed. We are fortified
in our views by the principle laid down by the Hon'ble Supreme Court
in the case of JK Steel Vs Union of India [1978 (2) E.L.T. (J355)],
and also in the case of Sanjana Vs Elphinestone Spinning &
Weaving Mills [1978 (2) E.L.T. (J399)], that the mere mentioning of
a wrong provision of law would not vitiate the SCN.
11.4 As regards HMIL's plea that PIO AVN Audio are appropriately
classifiable under CTH 8526 9190 and are eligible for the benefit of
concessional rate of BCD @ Nil in terms of Serial No.1389 (I) of
Notification No. 46/2011 Customs dated 01/06/2011, instead of
claimed Serial No.1390 (I). We have already stated that once the COO
Certificate covers the imported goods which satisfies the requirement
of the exemption notification and is not challenged and modified as per
the procedure established by the Rules of 2009, the benefit of
concessional duty cannot be denied. Further, there is nothing brought
out in the SCN to show that the certificate was fraudulently obtained
27
C/40029/2024 & 2 Ors.
so as to taint its acceptability. The said goods are hence eligible for
BCD concession @ Nil rate as initially claimed at the time of import,
i.e. prior to their re-classification.
12. Whether the re-determination of classification of the
imported Computer & Bracket Assembly / Electronic Control
Unit (ECU) is legal and proper.
12.1 HMIL submits that the impugned order No 103953/2023 dated
11/12/2023, covers 8 different types of ECU's. 7 of these BE's were
assessed provisionally when imported and are yet to be finalised and
the matter is pre-mature. Hence their reply is restricted to the finally
assessed Electronic Control Unit (ECU), mentioned in the bills of entry
as Computer Bracket Assembly as described in the consigners invoice.
We find that 4 of the ECU's dealt with in order No 103953/2023 have
different part numbers and 1 is an ECU Coding System. However, all
of them have been examined collectively. Similarly, OIO 103200/2023
dated 04/10/2023, also covers Computer Bracket Assembly / ECU
among other goods. We examine the issue accordingly.
12.2 As per HMIL the impugned Computer & Bracket Assembly / ECU
is a device that controls all the electronic features in a car. This may
range from fuel injection to maintaining perfect cabin temperature to
controlling braking and suspension. ECU is a hardware embedded with
software. It operates much like the BIOS does in a computer and
controls all the electronic features in a car. While the basic working
principle of engine operation is still based on combustion, the process
is now controlled by the ECU. The ECU acts as a receiver of inputs and
compares these inputs with the programmed optimum levels and
28
C/40029/2024 & 2 Ors.
accordingly sends the output signal to control/ regulate the respective
parameters of the parts. The imported ECU is hence a Programmable
Process Controller.
12.3 Basically, various chips and microprocessors are integrated like
in a Central Processing Unit (CPU) of a computer along with operative
software, having definite program and interactive mechanism. The CPU
of the impugned ECU works in conjunction with the various sensors
attached and located in different parts of the car, for carrying out the
defined specific function of (1) Engine Control Mechanism, (2)
Transmission Control Mechanism (3) Body Control Mechanism (BCM)
(4) Signal Control mechanism (SCM) and (5) Fuel Control Mechanism
(FCM) Safety Air Bag Control Mechanism etc. It is hence a device pre-
programmed along with software and interacts with various sensors to
enable stability, safety, speed, optimal performance, fuel efficiency,
regulating and minimizing the harmful gas emissions, providing
notifications and signals in the Audio Video Navigation Telematic
(AVNT) of the vehicle. HMIL submits that the Ministry of Road
Transport & Highways, Government of India, in accordance with the
Central Motor Vehicles Rules, has prescribed Automotive Industry
Standards (AIS). Clause 3.5.4 defines Engine Control Unit and it means
the on-board computer that controls the engine or engines of the
vehicle. On account of the definition given by the Automobile Research
Association of India (ARAI), the ECU is declared in the Bills of Entry as
Computer Bracket Assembly or Electronic Control Unit. Further for all
the cars manufactured in the factory, the Type Approval Certificate has
to be issued by the Automobile Research Association of India (ARAI)
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C/40029/2024 & 2 Ors.
which refers to the Marks and Numbers of the Electronic Control Unit.
As such, the ECU is a functional apparatus having a definite
independent function and standardization by the International
Standardization Organization (ISO).
12.4 The Ld Counsel further stated that;
A) The classification of Computer Bracket Assembly/ ECU was dealt
with by two SCN's and connected OIO's. As per SCN dated 06/10/2022,
Computer Bracket Assembly/ ECU was sought to be classified under
the CTH 8537, however the impugned order has travelled beyond the
SCN and classified the goods under a completely new CTH i.e. 8708.
This is highly irregular and since the change in classification was made
vide OIO No 103200/2023 dated 04/10/2023 which was outside the
SCN the said order merits to be set aside on this ground itself.
B) The Central Board of Excise and Customs (CBEC) vide Central
Excise Order No. 49/3/97-CX dated 09.05.1997, issued in terms
of Section 37B of Central Excise Act, 1944, in consultation with the
Department of Electronics, had inter alia clarified that there are 2 types
of Programmable controllers, and these are, Programmable Logic
Controller (PLC) and Programmable Process Controller (PPC). While the
former is classifiable under heading 85.37 the latter is classifiable
under heading 90.32. Departmental officers are bound by Boards
instructions.
C) The expert opinion dated 05/08/2022 rendered by IIT Madras,
confirmed that the imported ECU sample is a specific purpose
Algorithm based Electronic Controller and neither a Programmable
Logic Controller nor a Programmable Process Controller nor a
30
C/40029/2024 & 2 Ors.
Proportional Integral Derivate Controller (PID). Hence it is evident that
the impugned goods are a category of automatic Controllers and have
a specific function.
D) Both the CBEC order and the expert opinion given by IIT agree
that the impugned goods are Controllers. The ECU which are
Programmable Process Controllers are classifiable under Chapter 90
and are specifically excluded from Section XVII in terms of Section Note
2 (g) to the said Section of the Customs Tariff. Explanatory Notes to
CTH 9032 only excludes Programmable logic Controllers of CTH 8537
however the impugned order itself has ruled out that the classification
of the imported ECU under CTH 8537. Hence the impugned ECU which
is a Programmable Process Controllers is correctly classifiable under
CTH 9032.
E) As per Para 'O' under HSN Explanatory Notes to CTH 8708,
Safety Airbags with inflater system are specifically covered under CTH
8708 9500, but the Air bag Control Unit being an Electronic Controller
(used for inflating the Airbags) is excluded from CTH 8708 9500 as per
the above exclusion clause. Hence the confirmed classification of
imported ECU under CTH 8708 based on sole and principal use with
Vehicles of 8702 to 8704 is not correct and hence not substantiable.
F) As per part II to Explanatory notes to CTH 9032, Electronic
Automatic Controller controls non-Electric quantities such as
revolutions per minute, torque, traction force, level, pressure, flow or
temperature. Automatic regulators of heading 90.32, consist
essentially of the following devices:
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C/40029/2024 & 2 Ors.
(i) A measuring device (sensing device, converter, resistance probe,
thermocouple, etc.) which determines the actual value of the variable
to be controlled and converts it into a proportional electrical signal.
(ii) An electrical control device which compares the measured value
with the desired value and gives a signal (generally in the form of a
modulated current).
(iii) A starting, stopping or operating device (generally contacts,
switches or circuit breakers, reversing switches or, sometimes, relay
switches) which supplies current to an actuator in accordance with the
signal received from the control device. Even though, Electronic
Automatic Controller has to have all the 3 components (Measuring
Device, Control Device, a starting, stopping or operating Device), but
even if one of them is not there also i.e., Measuring Device or a
starting, stopping or operating Device, then also it is still to be
classified in this heading i.e., 9032 89 as incomplete automatically
controlling instruments or apparatus.
G) The impugned ECU's are Controllers with a specific function
covered by heading CTH 9032 which covers 'Automatic regulating or
controlling instruments and apparatus'. Whereas CTH 8708 is a
residual entry. It is a settled position of law that the maxim "generalia
specialibus non derogant" is applicable.
H) The impugned goods satisfy Note 7 under to Chapter 90 which
specifically covers CTH 9032. Revenue has disagreed with this view
because the 'desired value' is not a constant in the impugned goods
and is hence stated to be absent, taking the goods outside the said
heading. The Ld. Counsel stated that 'desired value' does not mean a
32
C/40029/2024 & 2 Ors.
fixed/static/constant value but a dynamic value. The desired value
refers to an output value that is already fed in the preprogrammed
software embedded in the microprocessor for a combination of inputs
that are received by ECU at that point of time. As long as the ECU
ensures that the set or the targeted goals or levels are achieved based
upon the input, for obvious reason, the output ensures that the desired
value is achieved and maintained for that input conditions, which may
not necessarily be maintained at a fixed value but are continuously
adjusted based on changing conditions.
I) They had been importing the Computer Bracket Assembly / ECU
from 1999 onwards and in two instances, the classification sought
under CTH 9032 was disputed by the Department. On both occasions,
the Department proposed reclassification of the imported Computer
Bracket Assembly (ECU) under CTH 8708. The Commissioner of
Customs (Appeals), Custom House, Chennai, vide Orders-in-Appeal
No's. 301 & 302/2013 both dated 28.02.2013 had held that the
imported item is an automatic regulating or controlling apparatus
classifiable under CTH 9032. Similarly, an Order-in- Original No.
755/2018 dated 17.12.2018 passed by Deputy Commissioner of
Customs, ACC, Chennai, classified the imported items under CTH 9032
and not under CTH 8708. The matters were reviewed and found just,
legal, proper and correct and thus the matter had attained finality.
Hence, the imported ECU is appropriately and rightly classifiable under
CTH 9032.
12.5 The Ld. Counsel for HMIL referred to the following judgments to
supports their stand classifying ECU's under chapter 90;
33
C/40029/2024 & 2 Ors.
a) In the case of EACOMS Controls India Limited v. Collector
of Customs, New Delhi (1999 (109) ELT 805) the Hon'ble Tribunal
had held that the imported Transducers are classifiable under the
category of Electronic Control Systems under CTH 9032.
b) In the case of IFB Industries Ltd v. Commissioner of
Customs, Goa (2001 (131) ELT 213 (Tri-Kol)), the Tribunal had held
that the Imported Programmer for use in the washing machines is to
be classified under CTH 903289
c) In the case of Commissioner of Customs, ICD, New Delhi v.
Keihin Penalfa Ltd (2002 (154) ELT 680 (Tri-Del)), it was held by the
Tribunal that the Electronic Fuel Injection Module imported by the
Importer was held to be classified under CTH 8543. However, the same
was reversed by the Hon'ble Supreme Court of India (2012 (278) E.L.T.
578 (S.C.) and held that the imported item is covered under the ambit
of Electronic Automatic Regulators, and it falls under sub-heading
903289.
d) HMIL submits that in the case of Commissioner of Customs,
Bangalore v. N.I. Systems India (P) Ltd. (2010 (256) ELT (173),
the Hon'ble SC of India determined the classification of PXI Controllers
and held that the principal function of Controllers is to execute control
algorithms, for real time monitoring and for controlling devices,
processors or systems.
e) In the case of Larsen & Toubro Limited v. Commissioner of
Central Excise, Mumbai (2011 (270) ELT 385 (Tri-Mum), the
Tribunal had held that Programmable Process Controller is classifiable
under CTH 9032.
34
C/40029/2024 & 2 Ors.
f) In the case of Crompton Greaves Limited v. Commissioner
of Central Excise, Nashik (2017 (7) GSTL 124), the Tribunal had
held that the Advance Variable Speed Drive Controller had to be
classified under CTH 9032 under the category of Automatic Regulating
or Controlling Equipment.
g) In the case of Jain Irrigation Systems Ltd v. Commissioner
of Customs, ACC, Imports, Mumbai (2018 (363) ELT 190 (Tri-
Mum), the Imported decoders were held to be classifiable under CTH
9032.
12.6 Per Contra Revenue has stated that ECU's are commercially
known as part of motor vehicle manufactured by HMIL. They are
electronic goods containing;
I) Core: Microcontroller
II) Memory: RAM/ROM/CPU
III) Communication Links: Controller Area Network (CAN) and
III) Embedded Software: Boot S/W
The input factors/quantities received by Electronic Control Units are
different from the factors/quantities controlled by them. ECU does not
automatically regulate or control any of the variables of liquids or gases
mentioned in the said Note No. 7(a) or electrical non-electrical
quantities mentioned in point 7(b) in such manner as mentioned
therein.
12.7 The Ld AR has taken us through the impugned order and further
stated that;
A) As per note 7 of Chapter 90 Automatic Controllers or Regulators
falling under CTH 9032 are intended for use in automatic control
35
C/40029/2024 & 2 Ors.
systems which are designed to bring a quantity, electrical or non
electrical, to and maintain it at a desired value. It hence appears that
the only function of automatic regulating or controlling instruments is
to maintain the measured variable at a predetermined 'desired value'
stabilised against disturbances. The output of ECU is not on 'desired
value' as the same is generated dynamically based on the varying input
data received by it.
B) Both Note 2(f) i.e. "Electrical Machinery or Equipment (Chapter
85)" or 2(g) i.e. "Articles of Chapter 90", to Section XVI, which
excludes the said goods from the expressions "parts" and "parts and
accessories" ibid, do not apply to the impugned goods, because they
are (i) not electrical machinery or equipment, which convert
mechanical energy into electrical energy and vice versa. ECU compares
the input signals received from various sensors and the same is
analysed with algorithms/programs stored in microprocessor available
within it to process and compare the constantly varying input data with
the programmed software instructions (numeric of formulae) stored in
the memory of ECU and calculate the revised output value in the form
of pulse/analog/digital signals (non-desired value not a pro determined
value) which is passed on to remotely mounted actuators, valves and
other parts for desired functions, and (ii) they are not classifiable under
Chapter 90 for reasons stated in para (A) above.
C) ECU are solely and principally used in the motor vehicle
manufactured by HMIL and commercially known as part of motor
vehicle. They are assigned with specific part numbers. They are not
capable of being marketed independently for use otherwise than in
36
C/40029/2024 & 2 Ors.
motor vehicles. As per a reading of Note 3 to Section XVII when any
part or accessory can fall in Section XVII as well as in another Section,
its classification has to be determined by its sole or principal use. This
is in line with the judgment of the Hon'ble Supreme Court in M/s G.S
Auto International Ltd Vs Collector of C. EX. Chandigarh 2003
(152) ELT 3 (S.C) and M/ s. Cast Metal Industries Pvt. Ltd., 20l5
(325) E.L.T. 471 (S.C.).
D) ECU is not more specifically included elsewhere in the
Nomenclature including under CTH 8537. They are hence correctly
classifiable under CTH 8708.9900.
E) He stated that HMIL reliance on 0-I-A's 301 & 302 of 2013 of
Chennai Custom House for classification of ECU under CTH 903289 is
not valid for the reason that the relevant O-I-O numbers 645 and 646
of 2011 pertaining to the O-I-A dated 28-2-2013 relied upon by HMIL
as a settled principle of classification for the subject ECU / COMPUTER
BRACKET ASSEMBLY under CTH 9032 is not tenable because a perusal
of the O-I-O Nos 645 and 646 of 2011 reveals that the duty involved
was Rs 3758/- & Rs 45,026/- respectively. By virtue of low monetary
value as per litigation policy Circular No. 390/Misc/163/2010-JC (8-
2011) dated 17th August, 2011 read with Circular 390-
Misc/163/2010-JC (6-2013) dated 03-Jun-2013, the Commissioner
(Appeal) Order dated 28-2-2013 appears to be falling under low appeal
category on monetary grounds (Rs 5,00,000/- limit for appeal to
CESTAT) and hence has got no precedence value and hence HMIL's
reliance on the same is untenable. Further, in taxation matters
principle of res judicata is not applicable as observed by Coordinate
37
C/40029/2024 & 2 Ors.
Bench of this Hon'ble Tribunal in Final Order No 40526 / 2024 dated 6-
5-2024 in case of M/s Sai Balaji Fancy Store Vs Commissioner.
12.8 We find at the outset that HMIL has responded to the classification
of only one group of the 8 type of ECU's i.e the Computer Bracket
Assembly / ECU along with ECU Coding system, the classification of all
of which was commonly finalised in the impugned orders. As discussed
above we agree that piece meal adjudication should not be done of an
issue and that the classification of goods that have been provisionally
assessed can be finalised by the Proper Officer, along with other issues,
if any, while finalizing the assessment and without being influenced by
the discussions in the impugned order in this regard. We hence limit
ourself to examining the finally classification of Computer Bracket
Assembly / Electronic Control Unit (ECU), inclusive of ECU Coding
System, the assessment of which is not provisional.
12.9 The dispute pertains to the classification of the impugned goods
as per CTH 9032 under the category 'Automatic regulating or
controlling instruments and apparatus' (HMIL) or CTH 8708 as 'Parts
and accessories of the motor vehicle of heading 8701 to 8705'
(revenue). As stated by the Apex Court in O.K.Play (India) Ltd.
(supra) that apart from the HSN Explanatory Notes, and the Rules of
Interpretation, functional utility, design, shape and predominant usage
have also got to be taken into account while determining classification
of an item - these are more important than names used in trade or
common parlance. Further as stated in Union of India Vs Garware
Nylons Ltd. reported in 1996 (87) E.L.T. 12 (S.C.), the burden of proof
38
C/40029/2024 & 2 Ors.
is on the taxing authorities to show that the particular case or item in
question, is taxable in the manner claimed by them.
12.10 It is seen that the CPU of the impugned ECU works in
conjunction with the various sensors attached and located in different
parts of the car, for carrying out the defined specific function of (1)
Engine Control Mechanism, (2) Transmission Control Mechanism (3)
Body Control Mechanism (BCM) (4) Signal Control mechanism (SCM)
and (5) Fuel Control Mechanism (FCM) Safety Air Bag Control
Mechanism etc. It is hence a device pre-programmed along with
software and interacts with various sensors to enable stability, safety,
speed, optimal performance, fuel efficiency, regulating and minimizing
the harmful gas emissions, providing notifications and signals in the
Audio Video Navigation Telematic (AVNT) of the vehicle.
12.11 We find that as per SCN dated 06/10/2022, Computer
Bracket Assembly/ ECU was sought to be classified under the CTH
8537, however the impugned order has classified the goods under a
completely new CTH i.e. 8708. We find that the Hon'ble Supreme Court
in Commissioner of Central Excise, Nagpur Vs Ballarpur
Industries Ltd. [2007 (215) E.L.T. 489 (S.C.),] had held, it is well
settled that the show cause notice is the foundation in the matter of
levy and recovery of duty, penalty and interest and that all allegations
to be met by the respondent have to be clearly spelt out in it, so that
the respondent can make a proper defense of his case. Since the
classification of ECU under CTH 8708, which is a substantial charge,
was not alleged in the SCN dated 06/10/2022 the subsequent
confirmation of demand and related action taken against the said
39
C/40029/2024 & 2 Ors.
goods in the OIO fails and merits to be set aside on this ground above.
However, since the classification of Computer Bracket Assembly/ ECU's
as per SCN dated 14/06/2023 incorporates the classification of the said
goods under CTH 8708 and is confirmed under the said heading vide
OIO 103953/2023 dated 11/12/2023, the said order is examined
below.
12.12 It is HMIL's contention that the imported ECU is a
Programmable 'Process' Controller falling under Chapter 90 as it
automatically controls processes not machines and is not a
Programmable Controller which might control an assembly line or a
conveyor belt system (8537). The CBEC vide Central Excise Order No.
49/3/97-CX dated 09/05/1997 (supra), issued in terms of Section 37B
of Central Excise Act, 1944, in consultation with the Department of
Electronics, had inter alia clarified that programmable process
controllers are specifically classifiable under CTH 9032 and not under
CTH 8537. As per this order, there are 2 types of Programmable
controllers and these are, Programmable Logic Controller (PLC) and
Programmable Process Controller (PPC). While the former is classifiable
under heading 85.37 the latter is classifiable under heading 90.32.
Departmental officers are bound by Boards instructions, especially that
issued under Section 37B of Central Excise Act, 1944. Hence if the
impugned ECU are found to be Programmable Process Controllers
rather than Programmable Logic Controller, they are classifiable under
Chapter 90 and are specifically excluded from Section XVII in terms of
Section Note 2 (g) to the said Section of the Customs Tariff.
40
C/40029/2024 & 2 Ors.
12.13 The show cause notice has relied upon an expert opinion dated
05/08/2022 rendered by IIT Madras, which states that the ECU,
provides output value generated dynamically based on the varying
input data received by it. That the imported ECU sample is a specific
purpose Algorithm based Electronic Controller and not Programmable
Process Controllers. It is an electronic unit and is essential and integral
component of motor vehicle. The opinion hence while accepting the
ECU to be a category of controller holds it in the common parlance to
be an integral component of motor vehicle. The impugned orders, also
while stating that the impugned goods are "Programmable controllers"
has ruled out classification of the goods under CTH 8537. The dispute
in the impugned orders is also limited to headings 9032 and 8708.
12.14 The impugned ECU has a separate identifiable/ individual
function of its own, as an automatic regulating and controlling
electronic apparatus that helps the automobile achieve optimal
performance in different parameters and is different from the main
electrical machine i.e. the engine. The Type Approval Certificate issued
by ARAI refers to the Marks and Numbers of the Electronic Control Unit
thus acknowledging it as a functional apparatus having a definite
independent function. The Hon'ble Supreme Court Commissioner Of
Income-Tax, Bombay Vs. I.B.M. World Trade Corporation -
[1981] 130 ITR 739 (BOM) has cited the dictionary meaning of
'apparatus' as under;
"8. Now, the meaning of the word "apparatus" given in the Random
House Dictionary is:
1. a group or aggregate of instruments, machinery, tools, materials
etc., having a particular function or intended for a specific use.
2. any complex instrument or machine for a particular purpose."
41
C/40029/2024 & 2 Ors.
Further the Apex Court in the case of Commissioner Of Customs,
New Delhi Vs C-Net Communication (I) Pvt. Ltd, [2007 AIR SCW
6208, 2007 (12) SCC 72], held that the word 'apparatus' would
certainly mean the compound instrument or chain of series of
instrument designed to carry out specific function or for a particular
use. The term "apparatus" has been defined by the Court of
International Trade (U.S.) and its predecessor court as a combination
of articles and materials which are intended, adapted, and necessary
for the accomplishment of some purpose. In ITT Thompson
Industries, Inc. v. United States [3 CIT 36 (1982)] the Court held;
Webster's Third New International Dictionary (1963 ed.)
defines the term "apparatus" as follows (at 102):
apparatus * * *
2 a: a collection or set of materials, instruments, appliances,
or machinery designed for a particular use * * *
b: any compound instrument or appliance designed for a
specific mechanical or chemical action or operation * * *
The word "apparatus" is defined by the Century Dictionary
as:
* * * an equipment of things provided and adapted as a
means to some end; especially a collection, combination, or
set of machinery, tools, instruments, utensils, appliances,
or materials, intended, adapted, and necessary for the
accomplishment of some purpose, such as mechanical work,
experimenting, etc.; as, chemical philosophical, or surgical
apparatus.
Funk Wagnalls Standard Dictionary (International Edition,
1963) defines apparatus: A complex device or machine for
a particular purpose.
The ECU being a combination of equipment and by its specific
functions, hence satisfies the definition of being an apparatus. As per
Rule 3(a) to the General Rules of Interpretation of the Customs Tariff,
it is provided that the heading which provides a specific description
42
C/40029/2024 & 2 Ors.
shall be preferred to a heading having a more general description. CTH
8708 is a residual entry covering various 'parts and accessories' when
compared to CTH 9032 which covers 'Automatic regulating or
controlling instruments and apparatus'. In Santhosh Maize &
Industries Ltd. Vs State of Tamil Nadu [(2023) 385 ELT 814 /
(2023) 7 TMI 191 (Supreme Court)], it was held that the law is well
settled that if in any statutory rule or statutory notification two
expressions are used one in general words and the other in special
terms under the rules of interpretation, it has to be understood that
the special terms were not meant to be included in the general
expression; alternatively, it can be said that where a statute contains
both a general provision as well as a specific provision, the latter must
prevail. Hence prima facie ECU's appear to be covered by Chapter 90
rather than Chapter 87 of the Customs Tariff.
12.15 We find that Para 'O' under HSN Explanatory Notes to CTH 8708,
reads as under.
(0) Safety Airbags of all types with inflater system (e.g. Driver-
side airbags. passenger-side airbags to be installed in door panels
for side-impact production or airbags to be installed in the ceiling of
the vehicle for extra production for the head) and parts thereof. The
inflater systems include the ignitor and propellant in a container that
directs the expansion of gas into the airbag. The Heading excludes
remote sensors or electronic controllers as they are not considered
to be parts of the inflater system.
Thus, even though, Safety Airbags with inflater system are specifically
covered under CTH 8708 9500, the Air bag Control Unit being an
Electronic Controller (used for inflating the Airbags) is excluded from
CTH 8708 9500 as per the above exclusion clause. Hence the confirmed
classification of imported ECU under CTH 8708 based on sole and
43
C/40029/2024 & 2 Ors.
principal use with Vehicles of 8702 to 8704 is not an absolute principle
in classification of goods.
12.16 Revenue has drawn attention to Note 7 to Chapter 90 to state
that the said heading covers instruments and apparatus that
automatically control certain parameters and maintain it at a desired
value This value according to revenue is a constant value which the
impugned machine fails to meet. The said Note reads as under;
"7. Heading 90.32 applies only to:
a. Instruments and apparatus for automatically controlling the flow,
level, pressure or other variables of liquids or gases, or for
automatically controlling temperature, whether or not their operation
depends on an electrical phenomenon which varies according to the
factor to be automatically controlled, which are designed to bring this
factor to, and maintain it at, a desired value, stabilised against
disturbances, by constantly or periodically measuring its actual
value; and
b. Automatic regulators of electrical quantities, and instruments or
apparatus for automatically controlling non-electrical quantities the
operation of which depends on an electrical phenomenon varying
according to the factor to be controlled, which are designed to bring
this factor to, and maintain it at, a desired value, stabilised against
disturbances, by constantly or periodically measuring its actual
value." (emphasis added)
12.17 We find that the impugned order while interpreting 'desired
value' has held to be a 'predetermined desired value'. While
interpreting a statute there is no place for intendment. One must go
by the plain language used. The Hon'ble Supreme Court in Union of
India Vs Hansoli Devi reported in (2002) 7 SCC 273 held that it is a
cardinal principle of construction of a statute that when the language
of the statute is plain and unambiguous, the court must give effect to
the words used in the statute. Besides, in a taxing Act one has to look
merely at what is clearly said and there is no room for any intendment.
44
C/40029/2024 & 2 Ors.
In a taxing statute nothing is to be read in, nothing is to be implied,
one can only look fairly at the language used.
12.18 Controllers play an important role in modern automobiles.
The task of a Controller is to continuously compare and adapt the
current value(s) of a system to some possibly changing desired
value(s). What has been mentioned in Note 7 to Chapter 90 is 'desired
value' and not 'set value' or 'specified value' or 'predetermined desired
value'. One of the meanings of 'desired' as per the Oxford English
Dictionary is "That is longed for, wished, or wanted". As per the web
site dictionary.com 'desired' means, "1. yearned or wished for;
coveted. 2. deemed correct or proper; selected; required:". The word
has a broad meaning and in the present context covers a functional or
technical requirement and cannot be read restrictively. Unlike in the
case of an industrial machine doing fixed processes the desired value
in an automobile is an optimum operating value and is not constant. It
depends on the requirement of a working automobile at a point of time,
so as to ensure that it operates within desired parameters. This could
depend on the specific requirements of the process being done by the
machine at that point of time. For example, when the driver of a car
accelerates the automobile, the engine controller computes the
appropriate amount of fuel as well as the best point in time for injection
and ignition suitable for that velocity and the external environment
which the automobile has to negotiate etc. Similarly, while going uphill
as contrasted with going downhill, speeds, difficulty angles, conditions
etc all vary and the desired values required to keep the vehicle safe
and stable will not be a constant and will depend on a host of dynamic
45
C/40029/2024 & 2 Ors.
factors. The goal of process control is to maintain consistency,
efficiency, and safety among other things. Automatic control is
concerned with maintaining process variable i.e. temperature,
pressure, flow, acceleration, brake etc. at the desired operating value
at a given time, automatically. Processes are dynamic in nature,
changes are always occurring and if action is not taken to optimise the
process function, the important process variable related to safety,
production quality, and production rate may get compromised. In
short, the desired value in automobiles is computed dynamically at a
specific point of time and not by any static point of reference. The
'desired value' in an automobile is an optimum operational value for a
particular set of conditions which may differ from static 'set values' or
'specified value' as they are commonly understood in the industrial
machine parlance. Hence, in terms of the classification of controllers
made in CBEC order dated 09/05/2007 (supra) the impugned ECU's
are programmable process controllers classifiable under heading
90.32.
12.19 As per the impugned order ECU are solely and principally
used in the motor vehicle manufactured by HMIL and commercially
known as a part of motor vehicle. They are assigned with specific part
numbers. They are not capable of being marketed independently for
use otherwise than in motor vehicles. The OIO does not discuss as to
why the impugned goods are considered as 'Parts and accessories of
the motor vehicle of heading 8701 to 8705' falling under CTH 8708 and
not as an "instrument" or "apparatus" under CTH 9032, more so when
the goods of Chapter 90 cover "instrument" or "apparatus" and are
46
C/40029/2024 & 2 Ors.
excluded from the definition of 'parts' under Section XVII. We have
discussed earlier that the goods satisfy the definition of 'apparatus' as
has found approval in judgments of the Hon'ble Supreme Court. Just
because the goods have been assigned numbers for ease of
identification do not make them car parts, in terms of the Customs
Tariff. The Hon'ble Supreme Court in Commissioner Of Customs,
New Delhi Vs C-Net Communication (I) Pvt. [2007 AIR SCW 6208,
2007 (12) SCC 72] extensively quoted from the Canadian Tribunal
decision in York Barbell Company Limited Vs Canada [(DMNRCE),
AP-90-161, [1991] CITT No 43] which listed the following criteria as
being relevant in determining whether a product is a part: (1) the
product is essential to the operation of another product; (2) the
product is a necessary and integral component of the other product;
(3) the product is installed in the other product; and (4) common trade
usage and practice. In Deputy Commissioner Vs Union Carbide
India Ltd. [(1976) 38 STC 198 (KER)], the Kerala High Court after
referring to some of the leading decisions of the Allahabad High Court
held as follows :
"The principle which can be drawn from the above decisions appears
to be that a thing is a part of the other only if the other is incomplete
without it. A thing is an accessory of the other only if the thing is not
essential for the other but only adds to its convenience or
effectiveness." (emphasis added)
No such test has been examined and satisfied before classifying the
goods as parts under CTH 8708 and hence the discussion is incomplete
to that extent. Therefore it is difficult to hold that the goods have been
comprehensively examined and classified.
47
C/40029/2024 & 2 Ors.
12.20 In the case of Intel Design Systems (India) Pvt. Ltd.
Vs Commr. of Cus. & C. Ex. 2008-TIOL-18-SC-CX the Hon'ble
Supreme Court held that parts falling under CTH 87 would should fulfil
both the conditions (1) they must be identifiable as being suitable for
use solely or principally for vehicles falling under Chapter 87 and (2)
they must not be excluded by the provisions of Section Note XVII.
Hence if it is found that the impugned goods are a 'part' of the motor
vehicle and if also for argument sake, condition (1) is said to be
satisfied the impugned goods still do not satisfy condition (2) to remain
under Section XVII. Again in Commissioner of Central Excise Vs
Uni Products India Limited [2020 (372) E.L.T. 465 (S.C.), the issue
before the Hon'ble Supreme Court was whether "Carpets and Other
Textile Floor Coverings" of CTH 5703 covers 'car matting' or whether
they would be classified as "Parts and accessories of the motor vehicles
of headings 8701 to 8705" under CTH 8708. The ratio spelled out by
the Hon'ble Supreme Court in its judgment was:
a. Section Notes and Chapter Notes are of utmost importance to
determine classification.
b. According to HSN Explanatory Note to Section XVII, all following
three conditions must be fulfilled to classify any product as parts or
accessories namely (a) They must not be excluded by the terms of
Note 2 to Section XVII, and (b) They must be suitable for use solely
or principally with the articles of Chapters 86 to 88; and (c) They must
not be more specifically included elsewhere in the Nomenclature.
c. The most specific description shall be preferred to headings
providing a more general description as per Rule 3(a) to GI Rules.
d. Even though HSN Explanatory Notes have persuasive value only,
but the level or quality of such persuasive value is very strong, as
observed in numerous judgments.
12.21 The decision makes it clear that the articles of CTH 9029
cannot be regarded as "parts and accessories" of motor vehicles
48
C/40029/2024 & 2 Ors.
classifiable under CTH 8708, even if they are principally designed for
use with motor vehicles. In Commissioner of Central Excise Vs
Carrier Aircon Ltd. [2006 (199) E.L.T. 577 (S.C.)], the Hon'ble
Supreme Court has held that end use to which the product is put to
cannot be determinative of the classification of the product.
12.22 The impugned order further holds that as per a reading of
Note 3 to Section XVII when any part or accessory can fall in Section
XVII as well as in another Section, its classification has to be
determined by its sole or principal use. First of all Note 3 to section
XVII states that, references in Chapters 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. 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 of
accessory. Hence the note deals with goods which answers to a
description in two or more of the headings of the Chapters falling under
Section XVII and not between goods which answers to a description in
two or more of the headings of the different Sections as wrongly
stated in the impugned order. The impugned order has referred to the
judgment of the Hon'ble Supreme Court in (i) M/s G.S Auto
International Ltd Vs Collector of C. EX. Chandigarh 2003 (152)
ELT 3 (S.C) which pertained to classification of goods falling under
Sections XV and XVII. The Hon'ble Court as per a conjoint reading of
the Notes of both the Sections stated that the test to be applied is
whether the goods are suitable for use solely or primarily with articles
49
C/40029/2024 & 2 Ors.
of Chapter Heading Nos. 87.01 to 87.05 or else they would be
classifiable as "parts of general use". The classification in this case is
with respect to goods falling under Sections XVII and XVIII, which has
a separate set of Section / Chapter and HSN Explanatory Notes and
the ratio of the said case is not applicable. (ii) M/ s. Cast Metal
Industries Pvt. Ltd., [20l5 (325) E.L.T. 471 (S.C.)], has drawn on
the ratio of the judgment in G.S Auto International. Further the
judgment dealt with the classification of door handles and hinges for
automobiles under competing CTH 8302.00 or 8708.00 and the Hon'ble
Court held that to determine the applicability of the item under
particular head, the test of commercial identity of the goods would be
the relevant test and not the functional test. Further the common
meaning of a tariff term is a question of law to be decided by the
appropriate authority, while the determination of whether a particular
item fits within that meaning is a question of fact. The facts in this case
are different from that of the judgments cited above further the
classification of the goods is between Chapters 85 and 90 and are
governed by Section and Chapter Notes that are not in pari materia.
These judgments are hence distinguished both on fact and law.
12.23 In Hari Khemu Gawali Vs Deputy Commissioner of
Police, Bombay and another [AIR 1956 SC 559], a Constitution
Bench of the Apex Court stated:
"It has been repeatedly said by this Court that it is not safe
to pronounce on the provisions of one Act with reference to
decisions dealing with other Acts which may not be in pari
materia."
50
C/40029/2024 & 2 Ors.
The same would also be applicable for judgments on the classification
of goods covered by Section / Chapter Notes which are not pari
materia.
12.24 Classification of goods are to be done as per the Statute
enacted in this behalf. In its judgment in Hameed Joharan (D) And
Ors Vs Abdul Salam (D) By Lrs. And Ors, [AIR 2001 SUPREME
COURT 3404 / 2001 (7) SCC 573] the Hon'ble Court stated as under
"...We consider it proper to say, as we have already said in other
cases, that judgments of courts are not to be construed as statutes.
To interpret words, phrases and provisions of a statute, it may
become necessary for Judges to embark into lengthy discussions but
the discussion is meant to explain and not to define. Judges interpret
statutes, they do not interpret judgments. They interpret words of
statutes their words are not to be interpreted as statutes. In London
Graving Dock Co. Ltd. v. Horton, [1951 AC 737-761], Lord
MacDermott observed : The matter cannot, of course, be settled
merely by treating the ipsissima verba of Wills. J., as though they
were part of an Act of Parliament and applying the rules of
interpretation appropriate thereto. This is not to detract from the great
weight to be given to the language actually used by that most
distinguished Judge."
12.25 We find that the HSN Explanatory Notes under Section
XVII explains the scope of the terms "parts and accessories" for the
purpose of Section XVII as below:
"(III) PARTS AND ACCESSORIES
It should be noted that Chapter 89 makes no provision for parts (other
than hulls) or accessories of ships, boats or floating structures. Such
parts and accessories, even if identifiable as being for ships etc., are
therefore classified in other Chapters in their respective headings.
The other Chapters of this Section each provide for the classification
of parts and accessories of vehicles, aircraft or equipment
concerned. It should, however be noted that these headings apply
only to those parts or accessories which comply with all three of the
following conditions:
a. They must not be excluded by the terms of Note 2 to this Section
( see Paragraph (A) below),
b. They must be suitable for use solely or principally with the articles
of Chapter 86 to 88 (see paragraph (B) below, and
c. They must not be more specifically included elsewhere in the
Nomenclature (see paragraph (C ) below:
51
C/40029/2024 & 2 Ors.
(A) Parts and accessories excluded by Note 2 to Section XVII This
Note excludes the following parts and accessories, whether or not
they are identifiable for as for the articles of this Section.
...
(8) Instruments and apparatus of Chapter 90, including those used on certain vehicles such as:
. . . ."
They clearly exclude instruments and apparatus of Chapter 90 from the scope of the terms "parts and accessories". Further the goods are excluded by the terms of Note 2 to the Section and are more specifically included elsewhere in the Nomenclature. While there are a number of factors which have to be taken into consideration for determining the classification of a product, while dealing with goods which answers to a description in two or more of the headings, the heading having the more specific description will have the 'first claim' for examining the Section/ Chapter/ HSN Explanatory Notes for its suitability. Further as stated by the Hon'ble Supreme Court in Commissioner of Central Excise, Aurangabad Vs M/S Videocon Industries Ltd. [2023 (384) E.L.T. 628 (S.C.)] that when goods are excluded from a particular chapter, the "pull in" through a note must be narrowly construed as otherwise, the basis of exclusion would be defeated.
12.26 The Ld. AR has drawn attention to the Order of a Coordinate Bench at New Delhi in M/s Continental Automotive Systems India Private Ltd Vs Commissioner of Customs, Delhi [2024 ( 3 ) TMI-CESTAT New Delhi], wherein it was held that ECU in that case was not a regulator of electrical quantity nor was it an instrument or apparatus for regulating non-electrical quantities which depend on electrical phenomenon. Merely because ECU is a chip which 52 C/40029/2024 & 2 Ors.
analyses the data (and through any chip electricity flows), the function of ABS or it's part ESCS (manufactured by the HMIL) or it's further sub- part ECU (imported by HMIL) do not, qualify as automatic regulator of electrical quantities and instruments or apparatus for automatically controlling non-electrical quantities the operation of which depends on electrical phenomenon. Accordingly, the Principal Bench, dismissed the Appeals and upheld the Order of the Adjudicating Authority wherein the goods were classified under CTI 8708 9900. We find that ECU is a generic name. It is not unique to motor vehicles and is used in domestic machines like refrigerators, washing machine, dish washers etc. and also in industrial machines. Even in motor vehicles there are known to be between 1 to more than 70 ECU's. They include body control modules for the door, seat, power lock, airbag, air condition system etc. and powertrain control modules which includes anti-lock brake system (ABS), engine control unit, transmission control unit etc. Each ECU performs separate functions as per the machine and mechanism it is a part of and is not comparable to another. Hence the classification of each ECU for the purpose of assessment as per the Tariff must be considered separately. The issue in the said judgment was whether the ECU which was a printed circuit board imported by HMIL to be used in the manufacture of Electronic Stability Control Systems which are used by manufacturers of automobiles in Anti-Lock Braking Systems or Electronic Braking Systems, was classifiable under CTI 9032 8910 as claimed by HMIL or under CTI 8708 9900 as per revenue. We find that the dispute in this case is distinguished in as much as HMIL in that case had imported a printed circuit board which is a part of the Anti-Lock 53 C/40029/2024 & 2 Ors.
Braking System of cars. It is thus a part of a part of a motor vehicle. Central ECU's are commonly known as the engine's "brain." It is a rugged solid block item which is positioned outside the engine and as per the discussions above has been found to be an apparatus with an independent function which though not essential for the functioning of an IC engine adds to its effectiveness. In Bhavnagar University Vs Palitana Sugar Mills Pvt. Ltd [2003(2) SCC 111], the Apex Court observed;
"It is well settled that a little difference in facts or additional facts may make a lot of difference in the precedential value of a decision".
A similar view was taken by a Larger Bench of this Tribunal at paras 25, 26 and 27 of its decision in The Ramco Cements Ltd. Vs. CCE, Puducherry [2023 (12) TMI 1332 -CESTAT Chennai LB]. As discussed the goods in the impugned case are not comparable, and the judgment in Continental Automotive (supra) is hence distinguished. 12.27 Based on the discussion above we find that the department has not discharged the burden of proof to show that the ECU, is taxable in the manner claimed by them under CTH 8708 9090 and hence the classification as adopted by HMIL must prevail.
13. Whether the "relevant date" as defined under Section 28 of CA 1962, is the date of clearance of the imported ECU, whereby part of the demand is outside the ambit of two years normal period pertaining to goods covered by Order-in-Original dated 11/12/2023 and is unsustainable.
13.1 HMIL submits that in the course of investigation, they had paid the differential duty 'under protest'. In the Impugned Order, the duty 54 C/40029/2024 & 2 Ors.
liability was confirmed for the period of 2 years' time from the date of payment of duty under protest. For the purpose of determination of period of limitation, the "relevant date" as defined under explanation 1(a) of Section 28 has not been taken into account and on proper application of law, it is evident that either partial or full demand is outside the ambit of two years period. As such, demand and confirmation of duty liability are beyond the normal period of 2 years from the "relevant Date" (Clearance date of the imported goods), hence, part of the demand may be held as unsustainable and unacceptable. It is submitted that the Impugned Order has confirmed duty liability for 118 finally assessed Bills of Entry and out of the 118 finally assessed Bills of Entry, for 53 Bills of Entry, the demand is after the period of 2 years, hence, not protected under Section 28 (1) of the Customs Act, 1962. Therefore, only with respect to remaining 65 Bills of Entry out of 118 finally assessed Bills of Entry, the demand notice was issued within the time limit of two years.
13.2 Revenue has stated that during the course of investigation by DRI, the importer as per section 28(1)(b) of CA 1962 on their own ascertainment has voluntarily paid duty differential duty and intimated the same before the issuance of SCN on 14/06/2023. Hence section 28(3) of Customs Act, 62 will come into play. The CA 1962 does not have a provision to pay duty 'under protest' and no special provision exists under section 28 for such payment. Therefore, the relevant date for issuance of SCN has to be computed from the date of receipt of information of duty payment as stipulated under section 28(3) read with explanation given for relevant date under section 28(11) of the 55 C/40029/2024 & 2 Ors.
Customs Act,1962. Since duty is paid voluntarily under protest by importers on 31/03/2022 during the course of investigation the said date is the relevant date under Explanation-1 (d) to Section 28(11) of the Customs Act 1962 read with section 28(3) as found by the AA at para 84.1 of O-I-O. 13.3 We find that 'any duty' referred to in section 28(1)(a) is wide enough to cover demand of all types of duty under CA 1962 whether the assessments were correctly done or not. Section 28(3) ibid states that when the amount paid under clause (b) of sub-section (1) falls short of the amount actually payable, then, the proper officer shall proceed to issue the notice as provided for in clause (a) of that sub- section in respect of such amount which falls short of the amount actually payable in the manner specified under that sub-section and the period of two years shall be computed from the date of receipt of information under sub-section (2). Hence the said 'relevant date' has to be understood as per section 28(3) read with Explanation-1 (d) to section 28(11) under of the Customs Act 1962. This being so the "relevant date" cannot begin from the date of clearance of the imported ECU's and must be calculated from the date of receipt of information under sub-section (2) of section 28.
14. Where there is no suppression of facts or willful misstatement of facts hence demand and confirmation of duty liability beyond the normal period of 2 years from the date of import as per Order-in-Original dated 04/10/2023 is unsustainable and no fine on the goods or penalty on the individual can be imposed.
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C/40029/2024 & 2 Ors.
14.1 HMIL avers that there is no specific allegation nor have specific details been adduced in the said Show Cause Notice's regarding suppression of facts. The entire issue is mere redetermination of classification of the imported items and there is no mis-declaration of description or value or any other information at the time of filing the Bills of Entry. Hence the question of invoking suppression of facts for demanding duty for the extended period, confiscation of goods or imposition of fine and penalty does not arise and merits to be set aside in the impugned orders.
14.2 We find that OIO 103953/2023 dated 12/12/2023 at para 85.2 and 85.3 states the reason for invoking sections 111 (m) for confiscation of the goods and 112(a) and 114(AA) of CA 1962 for penalising HMIL. The burden of the charge is that HMIL while filing the bills of entry had subscribed to a declaration as to the truthfulness of their contents. Further under the self-assessment procedure onus is on the importer to ensure that they declare the correct description, classification, applicable rate of duty, value and correctly and claim the benefit of notifications if any in respect of the imported goods while presenting the bill of entry. However the importer has failed to comply with the same. A similar discussion is seen at paras 30, 31 and 32 of OIO No 103200/2023 dated 04/10/2023.
14.3 We find that this is a case where the allegation of suppression has been made only because the Ld. Adjudicating Authority does not agree with some of the classification of the imported goods made by HMIL who in respect to some goods have agreed to change the classification made after DRI started its investigation and have paid 57 C/40029/2024 & 2 Ors.
the differential duty involved. This has led to the conclusion that HMIL has failed to comply with the procedures as set out in the CA 1962. However, it is settled law that the extended period cannot be invoked when the case involves a genuine interpretative issue, which is not merely an excuse given by HMIL who has short paid duty due to a change in classification of the imported goods. HMIL has referred to the decisions of Commissioner of Customs (Appeals), Custom House, Chennai, which had held that the imported item is an automatic regulating or controlling apparatus classifiable under CTH 9032 as stated at para 12.4 above. They have also referred to a few judgments that supports their stand classifying ECU's under chapter 90, which is listed at para 12.5 above. In such a situation HMIL is not involved in a blame worthy act hence no mis-declaration or suppression of facts can be alleged and the impugned goods cannot be confiscated and subject to a fine nor can a penalty be imposed on him. This view has also been held by the Apex Court in Northern Plastic Ltd. v. Collector of Customs & Central Excise [1998 (101) E.L.T. 549 (S.C.)]. The extended period of demand can be evoked when there is an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section. As stated by the Apex Court in Uniworth Textiles Ltd. v. Commissioner of Central Excise, Raipur [2013 (288) E.L.T. 161 (S.C.)], that the 'Act contemplates a positive action which betrays a negative intention of willful default', which is not the case that has been made out here. The demand if any will hence have to be confined to the normal period with applicable interest. As regards the imposition of redemption fine, the 58 C/40029/2024 & 2 Ors.
Hon'ble Supreme Court in Asstt. Collector v. Bussa Overseas and Properties Pvt. Ltd. [2004 (163) E.L.T. A160 (S.C.)], dismissed the SLP against the judgment and order dated 04/08/1992 of the Bombay High Court in Bussa Overseas and Properties Pvt. Ltd. v. C.L. Mahar, Asstt. Collector [2004 (163) E.L.T. 304 (Bom.)] The High Court had held that once the imported goods are cleared for home consumption they cease to be 'imported goods' as defined in Section 2 of the Customs Act, 1962 and are consequently not liable to confiscation. The Hon'ble Supreme Court again in Commissioner Vs Finesse Creation Inc. [2010 (255) E.L.T. A120 (S.C.)], dismissed the SLP filed by Commissioner of Customs (Import) against the Judgment of the High Court of Bombay in Commissioner Vs Finesse Creation Inc [2009 (248) E.L.T. 122 (Bom.)]. The High Court had distinguished the Apex Court decision in case of Weston Components Ltd. (supra), while holding that concept of redemption fine arises in the event the goods are available and are to be redeemed, and if goods are not available, there is no question of redemption of goods. In any case HMIL has not been found committing a blame worthy act and the demand has been restricted to the normal period. Hence the appeal filed by Revenue is rejected. No question of confiscation, fine and penalty hence arises. We hold accordingly.
15. Having regard to the discussions we modify the impugned orders as below.
(1) SCN No. 56/2023, dated 14/06/2022; OIO 103953/2023, dated 04/12/2023.
A) We hold that the 7 imported ECU items, which were cleared through provisionally assessed Bills of Entry have been decided 59 C/40029/2024 & 2 Ors.
prematurely by the impugned order. The fiinalisation of classification of provisionally assessed BE's by piece-meal penal proceedings without concluding the dutiability of the imported goods is not proper in law and is set aside. The classification of the said goods can be done at the time of finalizing the provisional assessment, without being prejudiced by the findings in the impugned order.
B) The appeal filed by revenue pertaining to the confiscation of goods provisionally assessed under a bond and confiscation / imposition of redemption fine on the goods and a penalty on the assessee, fails. C) The department has not discharged the burden of proof to show that the ECU, is taxable in the manner claimed by them under CTH 8708 9090 and hence the classification as declared by HMIL must prevail. The goods are hence eligible for benefit of Notification No. 46/2011, dated 01/06/2011 as claimed.
D) As per the facts of this case, the 'relevant date' has to be understood as per section 28(3) read with Explanation-1 (d) to section 28(11) under of the Customs Act 1962. This being so the "relevant date" cannot begin from the date of clearance of the imported ECU's and the two years period must be calculated from the date of receipt of information under sub-section (2) of section 28. (2) SCN No. Gr.5/05/2022, Dated 06/10/2022; OIO N0. 10320/2023 dated 04/10/2023.
A) We hold that the 9 items, which were cleared through provisionally assessed Bills of Entry have been decided prematurely by the impugned order. The fiinalisation of classification of provisionally assessed BE's by piece-meal penal proceedings without concluding the 60 C/40029/2024 & 2 Ors.
dutiability of the imported goods is not proper in law and merits to be set aside. The classification of the said goods can be done at the time of finalizing the provisional assessment, without being prejudiced by the findings in the impugned order.
B) It is settled law that the extended period cannot be invoked when the case involves a genuine interpretative issue, which is not merely an excuse given by HMIL, who has short paid duty due to a change in classification of a few of the imported goods as above. Some of the disputed classification of goods, covered by the impugned orders, have been found by us to be correctly classified. Demand and confirmation of duty liability, if any, beyond the normal period of 2 years from the relevant date, is not sustainable.
C) The classification proposed for Electronic Control Unit (ECU) as per the SCN was under CTH 8537 whereas the impugned order has finalised the classification under CTH 8708 9090 which is beyond the allegations and proposal made in the SCN and hence merits to be set aside. The goods are hence eligible for benefit of Notification No. 46/2011, dated 01/06/2011 as claimed.
D) PIO AVN Audio were imported from Vietnam and availed the BCD exemption benefit @ Nil in terms of Customs Notification No. 46/2011, whereas, in the SCN, it was alleged that the goods were imported from Republic of Korea and had wrongly availed the BCD exemption benefit @ Nil in terms of Customs Notification No. 152/2009. However, the wrong quoting of a notification benefit in the SCN is a minor error and is not fatal to the OIO. Hence HMIL plea for quashing this part of the impugned order is rejected.
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C/40029/2024 & 2 Ors.
E) HMIL has not disputed that PIO AVN Audio are appropriately classifiable under CTH 8526.9190. They are eligible for the benefit of concessional rate of BCD @ Nil in terms of Serial No.1389 (I) of Notification No. 46/2011 Customs dated 01/06/2011, instead of claimed Serial No.1390 (I) claimed by them and hence merits to be granted. However, even without reference to this legal issue, which is acceptable, we have already stated that once the COO Certificate covers the imported goods and is not challenged and modified as per the procedure established by the Rules of 2009, the benefit of concessional duty as per the cited notification cannot be denied. F) The department has not been able to discharge their burden of proof on the merits of classification of Oil Control Valves under CTH 8409.9111 / 8409.99911 (depending upon the type of engine) and thus HMIL classification of the goods under CTH 8481.8090 cannot be disturbed.
G) As regards Camshaft Assembly, HMIL have accepted the classification as per the impugned order as discussed we hold that the goods are eligible for exemption since the COO Certificate at 6 digit level covers the imported goods.
H) The re-determination of classification of the 13 items imported i.e. Vacuum Assembly; Water Pump Assembly; Cap Sealing; Case Assembly Timing Chain; Nut Flange; Nut Washer; Oil Seal; V-Ribbed Belt; Junction Box; Piston and Piston Assembly; Connecting Rod Assembly; Camshaft Assembly & PIO AVN Audio, has been consented to before the Original Authority in writing as suggested in the SCN and cannot be resiled at this stage. Hence in the case of the stated goods 62 C/40029/2024 & 2 Ors.
the classification remains as determined in the impugned order and the appeal in this regard is rejected.
I) In the absence of any suppression of facts / wilful mis-statement of facts, the impugned goods imported and cleared with or without a bond cannot be subject to confiscation, hence no penalty and redemption fine can be imposed on the ground of wrong classification. (3) As per the facts and law discussed above, all impugned goods covered by a COO Certificate, as required by the conditions of the relevant notification, under which exemption is claimed, are eligible for preferential rate of duty irrespective of the subsequent change in classification, if any.
(4) The impugned order is partly modified as above. HMIL is eligible for consequential relief, if any, as per law. The appeals filed by HMIL and Revenue are disposed of as above.
(Order pronounced in open court on 21.10.2024)
(M. AJIT KUMAR) (P. DINESHA)
Member (Technical) Member (Judicial)
Rex