Custom, Excise & Service Tax Tribunal
Bmw India Pvt Ltd vs Chennai( Port Import) on 17 September, 2018
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Appeal No.C/40966/2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.: C/40966/2015
(Arising out of Order-in-Original No. 35113/2015 dated 13.02.2015
passed by the Commissioner of Customs (Imports), Chennai-V)
BMW India Pvt. Ltd. : Appellant
Vs.
Commissioner of Customs, Chennai-V : Respondent
Appearance:-
Shri Rohan Shah, Sr. Advocate
Shri Karthik Sundaram, Advocate,
Shri Kumar Visalaksh, Advocate
Shri Rahul Khurana, Advocate
Ms. Divya Jaskant, Advocate,
For the Appellant
Shri P.R.V. Ramanan, Special Counsel
Shri P. Hemavathy, Commissioner (A.R)
For the Respondent
CORAM:
Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon'ble Shri Madhu Mohan Damodhar, Member (Technical)
Date of Hearing: 04.05.2018
Date of Pronouncement: 17.09.2018
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Final Order No. 42430 / 2018
Per Bench
M/s. BMW India Pvt. Ltd. (hereinafter referred to as
'appellant') have been importing through Chennai Sea Port, goods
declared in the Bills of Entry as ‚BMW CARS IN CKD‛ classifying
them under Customs Tariff Heading (CTH) 8703. In these imports,
BMW claimed concessional rate of customs duty @ 10% under
clause (i) of Sl. No. 344 of Table appended to Notification 21/2011-
Cus. and sub-clause (1)(a) of Sl. No. 437of Notification 12/2012-Cus.
The Department took the stand that as the imported goods namely,
‚Engine Assembly‛ and the ‚Transmission Sub-assembly/Gear Box‛
were in a pre-assembled form, the appellant was not eligible to avail
the concessional rates provided in the said Notifications.
2. Accordingly, a Show Cause Notice dt. 26.08.2013 was issued to
the appellants inter alia demanding differential customs duty in
respect of CKD kits for motor cars imported during the period
24.03.2011 to 11.04.2013 and imports of motor cars in a form other
than CKD for the period 01.03.2011 to 23.03.2011. The Show Cause
Notice inter alia proposed demand of differential duty amounting to
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Rs. 757,61,37,381/- with interest thereon and imposition of penalties
under Sections 112(a) and 114A of the Customs Act, 1962.
3. In adjudication, the adjudicating authority vide the impugned
Order dt. 13.02.2015, inter alia concluded as follows :
(a) The subject 'engine assembly' and 'transmission assembly' in its
imported form constitutes a complete and functional pre-assembled
engine.
(b) The term 'sub-assembly' used in the phrase 'transmission sub-assembly'
is a misnomer by the importer (appellant) to suppress the fact that the
imported item actually constitutes a complete automatic
transmission/gearbox.
(c) The 'transmission sub-assembly' goods constitute complete and
functional 'automatic transmission'/automatic gearbox.
(d) The assignment of the UID and model no. for the subject goods in their
imported form clearly reflects their status as complete and functional
'automatic transmission'/automatic gearbox.
(e) The add-on products are merely for integrating the gearbox/engine
assembly with the car body and mounting the same on the chassis/body
of the car.
(f) Engine assembly in its imported form constitutes complete and
functional pre-assembled engine.
4. Based on these conclusions, the adjudicating authority
demanded differential customs duty of Rs. 7,04,67,90,260/-
in respect of 706 Bills of Entry with interest thereon,
penalty of Rs.696,44,66,115/- under Section 114A of the Act,
penalty of Rs. 3,00,00,000/- under Section 112(a) ibid.,
confiscation of the goods imported under provisionally
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assessed Bills of Entry under Section 111(m) and (o) ibid; however,
appellant was given option to redeem the same on payment of fine
of Rs. 3,00,00,000/- under Section 125(1) ibid. Aggrieved, appellants
are before this forum.
5. Hearing for the above appeal took place on several dates.
6. On behalf of the appellant, Ld. Sr. Advocate Shri Rohan Shah
took us through the history and chronology of events related to the
dispute in the present appeal as under :
i) Notification No.21/2002-Cus. was issued on1.3.2002 providing
for a 60% rate of Basic Customs Duty (BCD) for motor cars imported
as Completely Built Unit (CBU) and a 30% rate, if imported in any
other form.
ii) Notification No.26/2003-Cus., dated 1.3.2003 was issued,
which provided for a 25% rate of BCD for motor cars imported as
Completely Knocked Down (‚CKD‛) kit, and a 60% rate if imported
in any other form. However, no definition of CKD was provided for.
Notification No.18/2004-Cus., dated 12.1.2004 was issued, which
reduced the rate for CKD imports from 25% to 20%. Notification
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No.11/2005-Cus., dated 1.3.2005 was issued, which reduced the rate
for CKD imports from 20% to 15%.
iii) In the absence of a definition of CKD, and in order to obtain
certainty on the position qua its proposed imports, the appellant
applied for an Advance Ruling. The entire set of items imported by
the Appellant was submitted as Annexure-III to the Application.
Vide Order dated 28.10.2005, In Re: Bayerische Motoren Werke
Aktiengesellschaft, 2006 (193) ELT 138 (AAR), the question framed for
consideration was as follows :
‚Whether the import of car parts, listed at Annexure III would be
considered as import of completely knocked down (‚CKD‛) unit, eligible
to the concessional rate of customs duty of 15% being covered by Entry
344 of CTH No.8703 (1) of Notification No.21/2002-Cus., dated March
1,2002 as amended by Notification No.11/2005-Cus., dated 1.3.2005?‛
After considering the Report provided by the ARAI on the referred
issues, the Authority for Advance Rulings (‚AAR‛) was pleased to
hold as follows :
44. [ ]From the perusal of these reports, the position that emerges is
that parts listed in Annexure-III to the application represent the CKD
Unit and with the assembly of seats, which will be procured locally, the
parts would constitute a complete car. There are some parts, which could
be taken as component form while there are other parts which could be
termed as SKD form. It is true that there are no definitions of the terms
‚CKD‛ and ‚SKD‛ in the Customs Act or Rules framed thereunder.
But from the material furnished by the applicant for comparison of CKD
and SKD, it appears that the components for the CKD vehicle are
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procured from the suppliers who supply to main BMW production
facility at the CKD location and approximately 1400 single parts and
body parts are transported to the CKD country. In the case of SKD, the
vehicles are completely built up in a main BMW production facility in
Germany and subsequently certain components are disassembled; the
partially disassembled vehicles are mounted on transport skids and
shifted to the respective countries where the disassembled components
are fitted. The reports of the expert, as may be seen, refer to Annexure-
III as CKD unit. The notification does not use the term ‚SKD‛. The
Notification for purposes of concessional duty refers to two categories :
(i) imported as completely knocked down (CKD) unit dutiable 15%; and
(ii) imported in any other form 60%. The reports of the expert do not
mention that the car is not imported in completely knocked down (CKD)
unit. What they say is that some parts of the car are in SKD form,
thereby meaning, they can be further knocked down into components.
This, in our view, may not be a relevant factor because it is clear from the
report that Annexure-III represents completely knocked down unit of
motor cars. If that be so, the contention of the Commissioner that Sl. No.
344 (2) prescribing 60% duty would apply, cannot be accepted; the
applicable rate of duty would be 15%.(emphasis supplied)
Accordingly, on the basis of the expert report, the AAR ruled that
the imports by the Appellant would qualify as CKD, and would be
entitled to the lower rate of BCD.
(iv) The appellant commenced production of motor cars at its
Chennai plant after achieving certainty on the legal position qua
imported goods from the BMW AAR.
v) Notification No.20/2007-Cus., dated 1.3.2007 was issued,
which reduced the rate for CKD imports from 25% to 20%.
vi) As and when the appellant initiated imports of new models of
cars (5 series, XI Series and X3 Series), which were in the same state
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of disassembly as the 3 Series submitted before the AAR, the
appellant wrote to the department to obtain confirmation that the
benefit of the Customs Exemption Notification would continue to be
available. As and by way of illustration, the appellant addressed
letter dt.5.7.2010 seeking confirmation that the benefit of the lower
rate of BCD would be equally applicable to the X1 and X3 Series.
The Department responded vide letter dt. 23.7.2010 confirming that
the benefit of the Customs Exemption Notification can be extended
to the X1 and X3 Series, subject to first check examination.
vii) Thereafter, Harley-Davidson Motor Company, made an
application before the AAR seeking to claim CKD benefits even if
the engine and gearbox were mated / inter-connected in a single
unit, in a motor cycle (here, it must be noted that the language of the
exemption entries and the amendments thereto have always been
identical for motor cars and motor cycles). The AAR vide its Ruling
[In Re: H-D Motor Company India Pvt. Ltd., 2011 (270) ELT 432 (AAR)]
(‚H-D AAR‛) ruled that the CKD benefits are available even to an
engine and gearbox which were mated / inter-connected together in
a motor cycle. The Government raised serious objection to H-D's
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position qua a mated engine-transmission being eligible for the
CKD rate. The objections of the Government were overruled by the
AAR and the benefit of the CKD was extended even to an import
containing mated engine and transmission sub-assembly. The
terms ‚assembly‛ and ‚sub-assembly‛ appear to be used
interchangeably throughout the ruling of the AAR.
viii) Post the H-D AAR ruling, while the Government initiated the
process for a review of the said ruling, in the parallel the
Government also initiated interactions with the industry through
the Society and Indian Automobile Manufacturers (‚SIAM‛), inter
alia vide a meeting with SIAM on 6.12.2010, on a proposed
definition of CKD to be inserted in the Customs Exemption
Notification. In the review before the AAR, the Government framed
its issue as follows :
‚Apart from the aforesaid substantive argument, the Commissioner has made
several other points for seeking modification / rectification / amendment of the
advance ruling, such as :
[ ]
- To treat and classify a complete engine and transmission assembly/sub-
assembly as a 'component' is a serious error of law‛
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At this juncture, it is also important to notice that in the above issues
framed for review by the AAR, the Government itself uses the
words ‚assembly‛ and sub-assembly‛ interchangeably.
ix) Vide Order dated 18.2.2011 [Ref: In Re: H-D Motors Company
India Pvt. Ltd. - 2012 (277) ELT 113 (AAR)], the review of the H-D
AAR sought by the Government was rejected. On the same date,
SIAM submitted its proposal for a CKD definition to the Ministry of
Finance, which used the language of ‚inter-connected sub-
assemblies‛ to exclude mated sub-assemblies from the CKD rate.
x) Immediately post the rejection of the review of the HD-AAR,
and within less than a month, the Government introduced the new
definition of CKD under the Customs Exemption Notification with
effect from 1.3.2011. In the aftermath of the amendment, SIAM
wrote to the Government vide letter dt.1.3.2011, again stressing on
the need for the usage of the word ‚interconnected‛ in the first
exclusion clause of the CKD definition. SIAM also met with the
Government on 8.3.2011 to discuss the newly inserted definition.
xi) Meanwhile the Volkswagen Group India also wrote to the
Government seeking the following clarifications :
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1. That all operations not running as a kit basis are not affected by this change
2. Reading the Explanation and the memorandum together gives us an impression
that one is eligible to import all critical components including a pre-assembled
engine, gearbox, transmission mechanism as a CKD so long as these are not
installed on the chassis or body assembly.
3. If only the three critical components namely engine, gearbox and transmission
mechanism are imported as standalone subassemblies and not interconnected to
each other, the same should qualify for clearance as parts.
xii) The CBEC clarified as follows vide Instruction
F.No.354/38/2011-TUR, dated 11.3.2011 :
4. In view of the above, it is to inform you that while point nos.1 and 3 of the
interpretation of the new definition, as mentioned in your letter dated 4th March,
2011 are correct, the interpretation at point no.2 is not correct.
xiii) In view of the above, it was categorically stated that the
understanding set out at point no.3 was accurate, viz. that
standalone sub-assemblies would qualify for clearance as parts (i.e.
under the main clause of the CKD definition - ‚components, parts
or sub-assemblies for assembling a complete vehicle‛). It is further
submitted that point no.3 could not conceivably refer to non-CKD
imports, as such imports were separately dealt with at point no.1.
xiv) Further to the aforesaid developments, a further amendment
was made to the Customs Exemption Notification to alter the
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language in relation to the CKD definition, and to introduce a three-
tier-rate slab.
xv) Simultaneously, TRU Circular bearing no.B-1/3/2011-TRU
dated 25-Mar-2011 was also issued to clarify the import of the
aforesaid amendment. In this regard, a tabular correlation of the
clarifications issued qua each sub-clause of the CKD definition,
along with the corresponding rate.
xvi) Post the aforesaid amendment, the appellant continued the
imports of its CKD kits by availing the 10% rate of duty, after giving
prior intimation (vide letter dated 30.3.2011) to the Customs
Department of its intent to do so. The Department did not respond
to the appellant's letter dated 30.03.2011 nor did it seek any
clarification from the appellant post the said letter dated 30.03.2011.
xvii) The Customs Department, on a series of occasions from April
2011 to April 2013 (i.e. 20 times in 25 months), subjected the imports
of the appellant to a physical examination to determine whether or
not the goods were eligible for the exemption as claimed. On each
and every one of these occasions, the Customs Department
concluded that the appellant were eligible for the said exemption.
Brief extracts from the Bills of Entry, the Examination Order and
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Inspection Reports are set out in page 12, 13 of the written
submissions.
xviii) The appellant subsequently received the SCN dated 26.8.2013
and filed its reply dated 12.12.2013. Thereafter, the impugned
Order-in-Original No.35113/2015 dated 13.02.2015 was issued by the
respondent.
7. Ld. Senior Advocate also made various submissions on merits
which can be broadly summarised as under :
(i) The correct interpretation of the scheme of the relevant
exemption notifications is that the concessional rate of 10% customs
duty can be denied only if the engine and transmission are 'mated
or inter-connected' in the form as imported
(ii) It is well settled law, that whenever a court is called to
interpret an amended provision it has to bear in mind the history of
the provision, the mischief which the legislature attempted to
remedy, the remedy provided by the amendment and reasons for
providing such remedy. Reliance in this regard is placed on the
decisions of the Supreme Court in the case of State of Madras Vs K.M.
Rajagopalan - AIR 1955 SC 817.
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(iii) Taking resort to the 'mischief rule of interpretation' it is clear
that the purpose of the two March, 2011 amendments are only to
overcome the position in law set out in the AAR Ruling in the Harley
Davidson case, the amendments notifications should, therefore, be
read and interpreted in light of the same. Therefore, the finding in
the impugned order, that the argument that the said amendment
dated 24.03.2011 was also to overcome the effect of the Advance
Ruling in the case of M/s.H-D Motor Co. Pvt. Ltd. is without any
iota of documentary evidence, is without any sustainable basis in
fact or in law and is contrary to well settled principles of statutory
interpretation.
(iv) The term 'and' has been specifically inserted in the Exemption
Notification as a 'conjunctive' and full effect should be given to the
same whilst the 1st March, 2011 amendment used the expression
‚(a) a kit containing a pre-assembled engine or gearbox or transmission
mechanism‛ the 24th March, 2011 amendment specifically uses the
words ‚engine, gearbox and transmission mechanism not in a pre-
assembled condition‛. The word 'and' is used in the 24th March, 2011
Notification instead of the word 'or' in clause (a) of the customs
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exemption notification. Full effect therefore needs to be given to the
24th March, 2011 amendment and the use of the word 'and' in such
amendment, which term has been sued as a 'conjunctive' . The
introduction of the word 'and' was meant to address the concerns of
the automobile industry and to provide that the term 'pre-
assembled' refers to a situation where both engine and transmission
are in a mated condition prior to importation. It is clear that 'and' is
in the present context used a 'conjunctive' as the word 'or' has
specifically been substituted by the word 'and'. It is well settled law
that when 'and' is used as a conjunctive, the condition should be
read collectively and not disjunctively.
(v) Different clauses of an exemption notification should be
constructed harmoniously without rendering any of the provisions
otiose. Reliance in this regard is placed on the decision of the
Supreme Court in the case of Sultana Begum v. Prem Chand Jain
(1997) 1 SCC 373. It is further well settled law that the words in an
exemption notification have to be construed keeping in view the
said object and purpose of the exemption.
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(vi) There is, therefore, a need to adopt a harmonious and
purposive interpretation to make the notification workable, as
otherwise if clause (b) of Sr.No.344 of Notification No.31/2011 dt.
24.03.2011 (as amended from time to time) were to be read literally
without keeping in mind the objective of the notification, it would
lead to an incongruous situation where an engine alone though pre-
assembled but not combined with a gear-box and transmission
assembly would be under the rate of 10% under clause (a) but
would at the same time fall under 30% under clause (b). It is
submitted that it is settled law that in certain circumstances the
word 'or' should be read as 'and' when giving 'or' its natural
meaning would defeat the very object and intention of the provision
and lead to absurdity.
(vii) If clause (b) of the relevant Exemption Notification is read as
referring to ‚... with engine (and) gear box or transmission
mechanism in preassembled form but not mounted on a chassis or a
body assembly‛ which would attract a higher rate of 30%, then
there would be no incongruity or repugnance between clause (a)
and clause (b) as where the imports of engine, gearbox and
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transmission assembly when taken together are not in preassembled
condition the applicable duty rate would be 10% (basic customs
duty) under clause (a) and when in pre-assembled condition would
attract 30%, and, therefore this is the correct interpretation to be
adopted.
(viii) Therefore, in terms of the well settled rules of statutory
interpretation, the proper and correct construction of Exemption
Notifications is that :
a. Imports of engine sub-assembly or transmission sub-assembly
which are not mated / assembled together will qualify as CKD
imports entitled for the concessional rate of BCD at 10%.
b. Imports of engine and transmission assembly mated /
assembled together as a single assembly, but which is not
mounted on a chassis or a body assembly, will qualify as CKD
imports but be subject to a higher rate of BCD at 30%.
c. Imports of mated engine and transmission assembly which is
mounted on a chassis or a body assembly or a CBU will be
taxed at the highest rate of BCD at 60%.
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(ix) Imports made by the appellant are not of engine or
transmission in pre-assembled form for inter-alia the reasons that :
a) Various parts as listed and detailed herein, are added
onto the imported 'engine assembly' and transmission sub-
assembly' in the Chennai plant of the appellant including
various essential parts to make the engine and transmission -
complete and functional.
b) Towards making the imported 'engine assembly' and
transmission sub-assembly' complete and functional, various
processes in the nature of assembly operations are undertaken
at the Chennai plant of the appellant. The various processes
undertaken by the appellant are in the nature of assembly
operations wherein components are assembled either by
means of simple fixing devices (screws, nuts, bolt, etc.) or by
riveting or welding.
c) The processes are undertaken by trained and qualified
personnel using various capital goods at the Chennai plant of
the appellant.
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d) The entire control and functionality of the 'engine' and
'transmission' is based on software which is coded and flashed
onto the respective ECU's of the engine and the transmission
at the Chennai plant of the appellant.
e) Testing of the complete and functional engine and
transmission after (i) addition of various parts in India; and (ii)
flashing / coding of software into the ECU's of the engine and
transmission after incorporation and assembly into the
completed motor car happens in India at the Chennai plant of
the appellant.
(x) The finding in the impugned order that the 'engine assembly'
as imported by the appellant is complete and functional, and, the
parts added in India are only in the context of placing the
preassembled engine into its slot within the overall power train of
the fully assembled car is wholly contrary to the opinion of the
technical experts, whose reports specifically deal with this issue and
has been relied upon by the appellant but has not been controverted
by the Department by any other technical report.
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(xi) The factual position, that the 'automatic transmission' is made
complete and functional in the Chennai plant of the appellant, by
the various activities undertaken at the Chennai plant, is also
evident from the two technical reports of the experts which has been
relied upon by the appellant and has not been controverted by any
other technical report by the Department.
(xii) No reliance can be placed by the Department on the report of
Shri Ramesh Babu. The expert has issued the report remised on
incomplete facts and without fully understanding or analysing the
assembly operations undertaken by the appellant without even
visiting the Chennai plant of the appellant and without physically
observing the assembly operations undertaken at the said plant on
the imported 'engine' and 'transmission' sub assemblies. Dr. N.
Ramesh Babu, has not been offered for cross examination despite
many requests by the appellant. It is well settled law that when
cross examination of the expert is not afforded, then no reliance can
be placed on such expert report.
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(xiii) Submissions on Extended period of limitation
(a) Invocation of the ‚extended period of limitation‛ in the OIO is
erroneous and unsustainable inasmuch as there is no wilful or
deliberate non disclosure of correct information by the appellant.
The appellant has always kept the Department in the know-how of
the legal position followed by them. The Department has also
during the relevant period physically inspected various
consignments of imports declared to be in CKD form and approved
of the availment of the Exemption Notification by the appellant.
This position is evident from the following.
(b) The appellant on June 17, 2005 while filing the Applicaton for
Advance Ruling with the AAR submitted the complete list of parts
used in assembling the cars at the Chennai plant for 3 Series model
of cars in Annexure III (containing list of parts imported for
assembling the card model E 90 at their Chennai plant) of the
application. The department was party to the application and was
well represented before the AAR.
(c) The OIO itself at paragraph 11.10.2 (page 21 of the OIO0,
11.11.1 (page 22 of the OIO), 11.11.2 (page 22 of the OIO) and 12.3
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(page 36 of the OIO) clearly records that there has been no change in
the import pattern from the time of the AAR ruling in the
appellant's case to the period covered under the SCN. Therefore,
since the entire list of parts to be imported were furnished to the
department at the time of the AAR Ruling in 2005, and, details as
regards import of models were furnished to the Department at
different points in time, the Department was fully aware at all times
of the nature of imports made in CKD form as well as the level of
disassembly of such imports.
(d) The appellant itself post-introduction of the relevant
exemption notifications had specifically vide letter dated 30th March
2011 specifically informed the Department that the appellant would
continue to avail the concessional rate of duty under the exemption
notification namely 10%; and that the appellant was ready to
provide any clarification to the Customs Department on the subject
issue.
(e) The goods in question at the time of import during the period
March 2011 to April 2013 have on various occasions been physically
examined by the Customs Department and the benefit of the
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relevant exemption notification allowed after such physical
examination. The Inspection Report issued by CFS officer with
respect to the above Examination Reports obtained by the appellant
from the Customs Department clearly show that upon verification,
the CFS officer has held that consignment are in CKD kit form with
'engine, gearbox and transmission mechanism not in a pre-
assembled form'.
(xiv) Submission on penalty and interest and confiscation
(a) The extended period of limitation has wrongly been invoked
for the reasons set out hereinabove, there can be no levy of penalty
under section 114A of the Act on goods which have already been
cleared. In terms of Section 114A of the Act, penalty is attracted only
when short levy is caused by reason of collusion or wilful
misstatement or suppression of facts and that in the present case,
none of these circumstances exist as has already been set out herein
above. It is submitted that the appellant has not violated any
provision of the Act or the Rules there under as alleged or at all to
warrant the levy of penalty.
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(b) Furthermore, as the issue involved is only one of
interpretation of the provisions of the exemption notification, it is
well settled law that no penalty can be imposed in such a case.
(c) As the duty demand on the appellant is itself not sustainable
in light of the submissions set out hereinabove, there can be no
question of payment of any interest by the appellant under section
28AB of the Act.
(d) It is well settled law that provisions relating to confiscation
will only stand when misdeclaration is proved and if there is no
case of misdeclaration, confiscation cannot be made.
(e) It is well settled law that penalty can be levied in terms of
Section 112 (a) of the Act only when there are grounds for
confiscation of the goods in terms of Section 111 of the Act. In terms
of the submissions set out hereinabove, as there exists no grounds
for confiscation under Section 111 of the Act, no penalty under
section 112 (a) of the Act can be levied on goods which have been
assessed and provisionally cleared.
8. On behalf of the Revenue, Ld. Special Counsel
Shri. P.R.V. Ramanan also made oral and written submissions which
are summarized as under :
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(i) It is settled law that a Notification has to be interpreted in
accordance with the language of the Notification and there is no
scope for any addition or deletion or giving an extended meaning to
the expressions used in the Notification. There is, therefore, no
warrant to read the expression 'engine, gear box and transmission
mechanism not in a pre-assembled condition' to mean engine, gear
box and transmission mechanism which are 'mated or
interconnected'. This would certainly mean adding an expression to
give an extended meaning. Such an interpretation is not permissible.
(ii) As may be seen from the two Circulars issued by the CBEC,
extracted at Appendices 1 and 2, the legislative intent has all along
been to extend the concessional rate of duty to the imports in the
form of CKD kits, where all the parts and components including
engine, gearbox and transmission assembly are present in
completely knocked down condition. In other words, if any pre-
assembled engine, gearbox or transmission mechanism is imported
as a part of such unit, or if any of these three components are pre-
installed on the chassis or body assembly, the concessional rate of
duty will not be available. The claim that the Circular dated
24.03.2011 has accepted the representation of SIAM and clarified
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accordingly, is totally misconceived if you take into account the full
text of the aforesaid clarification.
(iii) Revenue would rely on the following case law in support of
the above submissions :
(a) 2005 (186) E.L.T. 263 (S.C.) - EXCON Bldg.Material Mfg.Co.Pvt. Ltd.
(b) 2011 (270) E.L.T. 465 (S.C.) - Saraswati Sugar Mills
(iv) Automatic gear box and auto transmission are synonymous
with each other. This fact has not been disputed by BMW. Hence,
the use of the word 'and' has to be read as 'or' because it would lead
to an absurdity if we adopt the appellant's interpretation since both
gearbox and transmission mechanism cannot be mated with an
engine.
(v) As may be seem from the letter dt. 18.02.2011, SIAM's
suggestion for incorporating a certain definition of 'CKD kit' was
not accepted as it was not in line with Government's policy. This is
evident from TRU letter dated 11.03.2011 - Para 3, reiterated by the
Circular dt. 24.03.2011. The AAR decision in Harley Davidson case
was rendered on 24.07.2010 and SIAM was requested to give their
suggestion on 06.12.2010. Thus, changes made w.e.f. 01.03.2011 was
26
Appeal No.C/40966/2015
not on account of rejection of application for review filed by
department in HD case.
(vi) If appellant's interpretation of notification is to be adopted it
would mean that mere fastening by four bolts to hold together the
pre-assembled engine and pre-assembled gearbox or pre-assembled
transmission should result in 20% rate difference.
(vii) The ordinary meaning of the expression 'not pre-assembled'
means 'not already assembled' if adopted would clearly show that
the goods imported would qualify to be regarded as a pre-
assembled engine or transmission.
(viii) Ld. Special Counsel relied upon the ratio of the case laws in:
(a) Sodra Devi's case [AIR-57-SC-382]
(b) Excon Bldg. Material Mfg. Co. Pvt. Ltd. Vs. C.C.E, Bombay [2005 (186) E.C.T.
263 (S.C.)]
(c) Aeon's Construction Products Ltd. Vs. C.C.E., Chennai *2005 (180) E.L.T. 209
(Tri. - Chennai)]
He submitted that applying the ratio of the above decisions, the
wording ‚not in a pre-assembled condition‛ as given in the subject
Notification dated 24.03.2011 has to be read with each of the items,
viz., Engine, Gear Box and Transmission Mechanism. There is no
warrant to interpret the word 'and' to mean ‚Engine, Gear Box and
27
Appeal No.C/40966/2015
Transmission Mechanism as mated or integrated or interconnected‛.
Further, it is settled law that a Notification has to be interpreted in
accordance with the language of the Notification and there is no
scope for any addition or deletion or giving an extended meaning to
the expressions used in the Notification.
(ix) For availing of concessional rate of Customs Duty @ 10% for
consignments of motor vehicles imported as CKD kits, the engine,
gearbox and transmission mechanism imported within the CKD kit
should not be ‚in a pre-assembled condition‛. The primary test for
verifying the ‚pre-assembled condition‛ of an article would be to
ascertain whether all the essential parts that go to make the
assembled article (i.e., 'engine'/'gearbox') are present in an
assembled form in the said article. Secondly, there shall be no
further assembly as an 'engine' or a 'gearbox' with any parts of the
article. This would be reflected in the nature of 'add-on parts' and
the processes of assembly undertaken in the receiving factory. The
Department has applied these tests to arrive at the conclusion that
the goods imported were in a pre-assembled condition.
28
Appeal No.C/40966/2015
(x) In the case of engines, the imported article contains in
assembled form all the essential parts of an engine such as, cylinder
head, flywheel, engine block, connecting rod, crankshaft, crank case,
camshaft, piston and rings and exhaust manifold. In the case of
automatic transmission, the imported article contains in assembled
form all the essential parts, such as planetary gear sets, hydraulic
system, clutches, seals and gaskets, torque converter and
mechatronic parts. Thus, in both cases, all the integral components
are incorporated in the article under import in a pre-assembled
condition.
(xi) The argument that the imported goods are not operational is
not relevant to the present case. The expression used in the
Notification merely refers to the physical condition of the goods in
question. Nowhere there is any mention of the operational aspect in
the subject Notifications.
(xii) The expression 'complete and functional' was used in the SCN
and O-I-O since the engine and transmission under import were
complete and no parts integral to the engine and transmission were
absent. They were functional on account of the same. The
operational aspect was never alluded to in the SCN or O-I-O.
29
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(xiii) On a scrutiny of the copy of Annexure III submitted to the AR
Authority by the importer, it was observed that among the parts
listed therein were parts of description 'ASSY ENGINE N46 E90 B20
OL LHD A' (under heading : Engine, Compressor and Generator)
and 'LU AUTO TRANSM 6HP 19 CODE MB N46 OL'(under
heading : Gearbox/Transmission Wiring Harness). The importer has
declared the disputed engine part of the CKD kit as engine assembly
and not as a sub-assembly of an engine. Further, under the heading
'Engine, Compressor and Generator' appearing in the annexure
parts of description like cylinders, connecting-rods, crankshaft,
flywheel, camshaft, piston, etc., which are essential elements for
assembling an engine, were not found listed.
(xiv) Moreover, it is pertinent to note that no part by description
'Transmission sub-assembly' is found among the parts listed in the
Annexure III. It is also accepted by BMW vide the statement of
Ms. Payal Tuli given on 06.05.2013 that from 2005 till date there has
been no change in the level of dis-assembly with respect to the
imported engines and transmissions.
(xv) In the case of engines, the imported article contains in
assembled form all the essential parts of an engine such as, cylinder
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Appeal No.C/40966/2015
head, flywheel, engine block, connecting rod, crankshaft, crank case,
camshaft, piston and rings and exhaust manifold. In the case of
automatic transmission, the imported article contains in assembled
form all the essential parts, such as planetary gear sets, hydraulic
system, clutches, seals and gaskets, torque converter and
mechatronic parts. Thus, in both cases, all the integral components
are incorporated in the articles under import and were thus
complete engines and auto transmissions. They were in fact
described in their technical literature and marketed by the suppliers
as engines and auto transmissions. In trade parlance they were
known as such. Further, no part integral to the engine and
transmission was added to them at BMW's factory. Thus, they were
complete and functional as engine and transmission on account of
the same.
(xvi) BMW have referred to List of Add-on Parts to contend that
these parts are required before a complete car can be assembled.
These parts, however, merely provide linkage for the imported
engine/gearbox assembly with the rest of the car parts and are
useful only for integrating the imported engine assembly and
automatic gearbox with the rest of the car. Thus, the engine
31
Appeal No.C/40966/2015
assembly and the transmission assembly imported by BMW were
complete as engine and gear box for automatic transmission
respectively.
(xvii) Point raised in appeal : The invocation of extended period of
limitation is not sustainable.
(a) After receiving Ministry's clarification vide Circular dt.
11.03.2011 issued after the amendment dated 01.03.2011,
which only reconfirmed the necessity of the engines and the
gearboxes not being in pre-assembled condition to avail 10%
BCD and the introduction of amendment vide Notification
No. 21/2011-Cus. dt. 24.03.2011, BMW did not seek any further
clarification either from SIAM or from CBEC or from Chennai
Customs as admitted by Ms. PayalTuli in her voluntary
statement given on 06.05.2013. On the other hand, they started
projecting their imported engines and gearboxes as being in
the form of sub-assemblies.
(b) BMW have not been able to demonstrate or describe as
to how the imported part declared by them as ‚transmission
sub-assembly‛ in the ‚Detailed Packing List‛ is different from
a ‚gearbox‛ and they have also not been able to describe or
32
Appeal No.C/40966/2015
demonstrate as to how the said transmission sub-assembly
would constitute a sub-assembly of the gearbox.
(c) Hence, the submission made by BMW India in their
letter dt. 30.03.2011 that they imported their engines and
gearboxes in sub-assembly form appears to be a clear
misdeclaration aimed at misleading the Customs Authority.
(d) BMW have also never declared in any of their Bills of
Entry or import documents, the description/nomenclature/the
level of assembly or disassembly of the imported parts, viz.,
engines and gearboxes and establishes suppression of facts
and deliberate default to claim ineligible notification benefit.
(e) Very few Bills of Entry filed by BMW [i.e., 20 out of 712
consignments] were taken up (on random selection by system)
for assessment and examination. Most of the Bills of Entry
filed by BMW during the disputed period were cleared under
their own Self-assessment without any examination by
Customs based on their status as an Accredited Client under
the Accredited Client Programme. Out of 20 examination
reports only two mentioned about the pre-assembled nature of
33
Appeal No.C/40966/2015
engine and transmission. On this basis, generalization cannot
be made.
(f) From the above discussion of internal correspondence of
BMW, it appeared that the importer had taken a conscious
decision not to express to the proper officer their
apprehension/doubt regarding their eligibility for availing
10% BCD and not to submit to Customs suo motu the
documentation regarding the level of disassembly of their
imported engines/gearboxes. Their decision to continue to
avail 10% BCD by resorting to self-assessment under Section
17(1) while they were required to go through provisional
assessment under Section 18(1)(a) would indicate deliberate
suppression of facts regarding the pre-assembled nature of the
imported engines and gearboxes on their part to evade
payment of the higher rate of 30% BCD.
(xviii) Point raised in appeal : Views of the Technical experts
endorse the view that the goods described as 'engine assembly' and
'transmission sub-assembly', as imported, are not pre-assembled.
(a) The adjudicating authority has correctly found that the
views expressed by the said ‚technical experts‛ did not help
34
Appeal No.C/40966/2015
to reach a conclusion as to the applicability of the said
Notification to the goods under import. Thus, the parts
described as 'transmission sub-assembly' by BMW are
complete and functional units to be appropriately termed as
pre-assembled 'automatic gearboxes/automatic transmissions'.
Accordingly, the adjudicating authority rightly concluded that
the expert was discussing the relevance of every support
system for the automatic gearbox from the point of view of its
fitment in the larger system of drive train which drives the
fully assembled car and not from the limited point of view of
the completeness and functionality of the automatic gearbox
per se. This observation is factually correct and cannot be
faulted.
(b) The adjudicating authority has also correctly held that
the experts nowhere address the technical literature uploaded
by BMW and manufacturers of transmission mechanism, the
assembly process, constituent parts and the testing of the
subject goods carried out prior to export, based on which the
manufacturers themselves are describing and marketing the
35
Appeal No.C/40966/2015
products as fully assembled 'automatic transmission' and
'engine'.
(xix) Point raised in appeal : No reliance can be placed on the report
of Dr. Ramesh Babu.
(a) With regard to the contention of appellant that reliance
cannot be placed on the report of Dr. Ramesh Babu, the said
expert had inspected the representative samples of imported
goods declared by BMW as ‚ASSY Engine‛/‛ZB Engine‛ and
‚Transmission sub-assembly‛/‛ASSY Auto Gearbox‛ and was
of the opinion that the above representative samples of
engines were ‚pre-assembled engines which could be readily
integrated to build the motor car‛ and that the samples
described as ‚transmission sub-assembly‛ and ‚ASSY Auto
Gearbox‛ respectively were ‚automatic transmission units,
which were otherwise known as automatic gearboxes,<..‛.
(b) The report brought out the pre-assembled nature of the
imported engines and gearboxes. The Expert had also gone
through the ‚List of Add-on Parts‛ and concluded that the
same ‚merely comprised nuts, screws, clips, brackets,
washers, plugs, hoses, pipes, temperature and pressure
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Appeal No.C/40966/2015
sensors and wires, apart from A/C compressor and starter
motors‛ (in respect of the engines) and ‚screws, nuts, brackets
and metal tubes, except the driveshaft assembly, which
actually was a separate and independent item‛ (in respect of
the gearboxes).
(c) The above report of the expert thus
corroborated/validated the Department's position discussed
hereinabove that the ‚ASSY Engine‛ and ‚transmission sub-
assembly‛/‛ASSY Auto Gearbox‛ units imported by M/s.
BMW India in their CKD kits of motor cars are pre-assembled
engines and gearboxes respectively.
(d) With regard to the denial of cross-examination of Dr.
Ramesh Babu, the Ld. Special Counsel submitted that the
Department's case does not rest solely on the opinion of Dr.
Ramesh Babu.
(xx) Imposition of Penalties
For the reasons discussed extensively at Para 10 above, it
emerges clearly that BMW's conduct in the matter was not
above board. There was deliberate default on their part which
certainly entailed severe penal action.
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Appeal No.C/40966/2015
9. Heard both sides and have gone through the records of the
case.
10. In our opinion, the issues involved in the present case are as
under :
I. Whether imports made by the appellant :
(i) are CKD imports for the period 1.3.2011 to
23.3.2011, entitled to a rate of Customs duty at 10% (as
claimed by the appellant) or a rate of Customs duty at
60% (as claimed by the Department);
(ii) are CKD imports for the period 24.3.2011 to
11.4.2013, entitled to a rate of Customs duty at 10% (as
claimed by the Appellant) or a rate of Customs duty at
30% (as claimed by the Department)
II. Whether in the facts and circumstances of the present
case, the longer period of limitation under Section 28 (4) of the
Customs Act, 1962 could be invoked ?
III Whether in the facts and circumstances of the present
case, the imposition of penalty under Section 114A and Section 112
38
Appeal No.C/40966/2015
(a) of the Customs Act, 1962, as well as the imposition of
redemption fine in lieu of confiscation under Section 125 of the
Customs Act, 1962, is justified ?
11.1 The concessional rate of duty for motor cars and motor
vehicles imported as Completely Knocked Down (CKD) unit came
into being w.e.f. 1.3.2003 vide Notification No.26/2003-Cus. by
which such imports benefited from a lower Basic Customs Duty of
25%. This concessional rate was further reduced to 20% vide
Notification No.18/2004-Cus. dt. 12.1.2004 and to 15% vide
Notification No.11/2005-Cus. dt. 1.3.2005, however none of these
notifications provided any Explanation or definition of what
constituted a CKD unit.
11.2 It is in this scenario that the appellants approached the
Advance Ruling Authority. The question that was raised by the
appellant for Advance Ruling was as under :
‚Whether the import of car parts, listed at Annexure III, would be considered
as import of completely knocked down ('CKD‛) unit, eligible to the
concessional rate of customs duty of 15% being covered by Entry 344 of CTH
No. 8703 (1) of Notification No. 21/2002-Cus., dated March 1, 2002 as
amended by Notification No. 11/2005-Cus., dated 1-3-2005?‛
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Appeal No.C/40966/2015
11.3 In their Ruling dt. 28.10.2005, as reported in 2006 (193) ELT
138 (AAR), the majority ruling of the Three-Member Authority
ruled that the import of parts assembly in Annexure-III to the
application would be considered as import of motor car in CKD,
eligible to concessional rate of duty under Notification No.21/2002-
Cus. as amended by notification No.11/2005-Cus. The relevant
portion of the majority ruling, namely para-44 thereof is excerpted
as under :
"44. It may be noted from the clarification report that (1) there are no
specific guidelines prescribed for defining CKD and SKD kits; (2) there are
some parts in the Annexure which could be taken as component form while
there are other parts which could be termed as SKD form. (3) on the basis of
the analysis carried out by ARAI and the discussions held with BMW, it
was learnt that seats would be manufactured locally and then installed in
the vehicle; (4) inasmuch as without seats the vehicle could not be treated as
complete, the words ‚by and large‛ have been used. From the perusal of
these reports, the position that emerges is that parts listed in Annexure-III
to the application represent the CKD Unit and with the assembly of seats,
which will be procured locally, the parts would constitute a complete car.
There are some parts, which could be taken as component form while there
are other parts which could be termed as SKD form. It is true that there are
no definitions of the terms ‚CKD‛ and ‚SKD‛ in the Customs Act or
Rules framed thereunder. But from the material furnished by the applicant
for comparison of CKD and SKD, it appears that the components for the
CKD vehicle are procured from the suppliers who supply to main BMW
production facility at the CKD location and approximately 1400 single
parts and body parts are transported to the CKD country. In the case of
SKD, the vehicles are completely built up in a main BMW production
facility in Germany and subsequently certain components are disassembled;
the partially disassembled vehicles are mounted on transport skids and
shifted to the respective countries where the disassembled components are
fitted. The reports of the expert, as may be seen, refer to Annexure-III as
CKD unit. The notification does not use the term ‚SKD‛. The Notification
for purposes of concessional duty refers to two categories : (i) imported as
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Appeal No.C/40966/2015
completely knocked down (CKD) unit dutiable 15%; and (ii) imported in
any other form 60%. The reports of the expert do not mention that the car is
not imported in completely knocked down (CKD) unit. What they say is
that some parts of the car are in SKD form, thereby meaning, they can be
further knocked down into components. This, in our view, may not be a
relevant factor because it is clear from the report that Annexure-III
represents completely knocked down unit of motor cars. If that be so, the
contention of the Commissioner that Sl. No. 344 (2) prescribing 60% duty
would apply, cannot be accepted; the applicable rate of duty would be 15%.
We hasten to make it clear that the motor cars if imported in any form other
than completely knocked down (CKD) unit, the rate of duty applicable
would be 60%.‛
11.4 It is interesting to note that in the said AAR Ruling, the
Authority have found that ‚there are some parts in the total list which
could be taken as component form while there are other parts which could
be termed as SKD form‛. The Authority has also noted the usage of
words ‚by and large‛ in the report of the Automotive Research
Association of India, Pune (ARAI) and noted that ‚inasmuch as
without seats the vehicle could not be treated as complete, the words ‚by
and large‛ have been used.
11.5 However, in the said AAR Ruling, one of the dissenting
Members held that the goods proposed to be imported by BMW are
not covered by the main text of the description of goods specified in
Column (3) against Sl.No.344 of the Notification No.21/2002-Cus., as
amended by Notification No.11/2005-Cus; that the description of the
goods in the said Sl.No.344, cannot be interpreted in a manner so as
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Appeal No.C/40966/2015
to include incomplete or unfinished 'motor car' or 'other motor
vehicle' within its ambit, hence the benefit of exemption under
notification is not available to the goods in question.
11.6 The moot point that should be kept in mind is that for obvious
reasons, the application by the appellant to the Authority for
Advance Ruling was made before any actual imports had taken
place. In consequence, the Advance Ruling Authority and for that
matter, the ARAI, had gone only by the list of car parts submitted
by the appellants in Annexure III to their application. We find that
the said Annexure III has been filed in page 160 onwards of the
compilation. At the beginning of Annexure-III it is clarified that ‚all
of these items though assigned one part No. are separate‛, an obvious
reference to the identical part numbers given to ‚body shell, doors,
bonnet, boot lid, fuel flap‛. In page 162, Assy. Engine has been
indicated as Part No.7826191 under the sub-group ‚Engine,
Compressor and Generator‛. So also, under a separate sub-group,
‚Gearbox / Transmission Wiring Harness‛ the ASSY. TRANSM.
WIHARNESS and ‚LU AUTO TRANSM ‛ are listed with Part
Nos.7548981 and 754J090. We do not find any indication or mention
in this Annexure III as to whether the said engine assembly and
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Appeal No.C/40966/2015
transmission assembly are separate or whether mated to each other
etc. Nor is there any indication that whether the engine or gearbox /
transmission mechanism is preassembled or for that matter,
whether any or more of those assemblies are installed onto the body
assembly of vehicle. It would therefore not be unreasonable to
conclude that at the point of time when the Advance Ruling was
sought by the appellant, the requirements of the definition of CKD
which were brought about for the first time only w.e.f 1.3.2011 by
Notification No.21/2001-Cus. was not required to be looked into.
11.7 The Harley-Davidson Motor Company (referred to as H-D)
had also approached the Authority for Advance Ruling on the
question whether import of motor cycle ‚in the form of components,
parts and sub assemblies proposed to be imported by the applicant would
constitute import of motorcycle in CKD form and as such‛ would be
eligible for concessional ratio of BCD as provided in Notification
No.21/2002-Cus. as amended. The Authority, vide a ruling dt.
27.7.2010, reported in 2011 (270) ELT 432 (A.A.R), held that if the
engine and transmission assemblies are designed to be housed in a
single housing, and are so assembled, the engine and transmission
assembly is generally referred to as ‚Engine Assembly‛ only and
43
Appeal No.C/40966/2015
merits to be treated as a component for the purposes of CKD units.
The authority noted that in the list of components and parts and
sub-assemblies in Annexure III of the application filed by BMW
related to the earlier ruling, the engine assembly and the
transmission assembly have been indicated as two separate
assemblies. The authority ruled that motor cycles imported by H-D
will be eligible for concessional rate of import duty if they are
imported in the form of identifiable basic sub-assemblies or
components as per the illustrative list of components, parts and sub
assemblies. The authority also ruled that benefit of exemption
would however be applicable only in case the engine and
transmission assembly imported as a single part is designed to be
housed and is so assembled, in a single housing.
11.8 As discussed with respect to the BMW Advance Ruling, the
ruling in the H-D case was also made before any definition of what
constituted CKD was brought about in the exemption notification,
In the case of motor cycles, this came about vide amendment
caused in Notification No.21/2011 dt.1.3.2011 by inserting an
Explanation for the meaning of ‚Completely Knock Down Unit‛ for
the purposes of Sl.No.345.
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Appeal No.C/40966/2015
11.9 The objection filed by the Revenue for reconsideration of its
decision, the Authority for Advance Ruling vide an Order dt.
18.2.2011, reported in 2012 (277) ELT 113 (A.A.R) rejected the
petition and upheld its Order.
12. From the submissions of the Ld. Advocate, it appears that
pursuant to the decision given by the AAR in their case, the
appellant commenced production of their motor cars at their
Chennai Plant from February, 2007 without any problem or dispute.
It also appears that appellants had informed the Customs
Department, Chennai vide letter dt. 21.03.2007 seeking approval for
import of cars of 5-Series model in CKD form at concessional rate
under exemption Notification and that Department vide a letter dt.
26.04.2007 had apparently allowed such imports in CKD condition
at concessional rates. So also, appellants had preferred a letter dt.
28.04.2010 with the Department seeking approval for import of X1
and X3 models as CKD import at concessional rates under the
Notification. The Department after seeking clarifications from the
appellant, apparently allowed the import of the said X1 and X3
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Appeal No.C/40966/2015
series models in CKD condition at concessional rates vide a letter dt.
2.07.2010.
13. It further emerges that pursuant to the AAR ruling in the
Harley Davidson case, there were some interactions between the
Society for Indian Automobile Manufacturers (SIAM) and the
Ministry of Finance, in relation to the proposed definition of CKD
for the purpose of the exemption Notification. As per the documents
filed by the appellant in Page No. 270 to 271 of the Compilation,
SIAM had suggested a definition of CKD as follows :
‚CKD: As imported, in unassembled or dis-assembled condition, means import
of all components or sub-assemblies, which may be used for assembling a
finished vehicle or a semi-finished vehicle, but does not include any of the
following :
(i) Inter-connected sub-assemblies of two or more of the following :
(i)Engine, (ii) Gear Box, (iii) Transmission shaft, (iv)
Axles, (v) Suspensions, (vi) Steering system, (vii)
Glasses, (viii) Seats, (ix) Instrument cluster, (x) Wiring
Harness
(ii) A chassis/Body assembly of a vehicle on which any of the above
components or sub-assemblies is installed.‛
The definition of CKD, as finally approved by the law makers,
inserted by Notification 21/2011 dt. 01.03.2011 in respect of motor
cars and motor vehicles, read as under :
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Appeal No.C/40966/2015
‚Explanation. - For the purposes of this exemption, ‚Completely Knocked
Down‛ unit means a unit having all the necessary components, parts or sub-
assemblies for assembling a complete vehicle but does not include, -
(a) A kit containing a pre-assembled engine or gearbox or
transmission mechanism; or
(b) A chassis or body assembly of a vehicle on which any of the
component or sub-assembly viz., engine or gearbox or
transmission mechanism is installed;‛
Evidently, the actual definition of CKD as brought about vide
Notification 21/2011 dt. 01.03.2011 was different from that
apparently suggested by SIAM.
14. Immediately, on the same day of the date of issue of
Notification dt. 01.03.2011, SIAM sent a communication to the
Revenue Secretary, Ministry of Finance, conveying that the
definition of CKD was highly restrictive and sought urgent
clarification and also suggested alternative options. It also emerges
that on 04.03.2011, M/s. Volkswagen India also sent a
communication to the Revenue Secretary seeking confirmation as to
their following interpretations of the new definition :
1. That all operations not running as a kit basis are not affected by this
change.
2. Reading the Explanation and the memorandum together gives us an
impression that one is eligible to import all critical components
including a pre-assembled engine, gearbox, transmission mechanism as a
CKD as long as these are not installed on the chassis or body assembly.
3. If only the three critical components namely engine, gearbox,
transmission mechanism are imported as standalone sub-assemblies and
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Appeal No.C/40966/2015
not inter-connected to each other, the same should qualify for clearance
as parts.
In reply, the CBEC, Ministry of Finance, clarified that the
definition introduced w.e.f. 01.03.2011 has two independent criteria
for their qualification as CKD units :
That imported units will be termed as CKD units attracting
BCD @ 10%, if it is a unit having all the necessary components,
parts or sub-assemblies for assembling a complete vehicle;
That accordingly, if any pre-assembled engine, gearbox or
transmission mechanism is imported as a part of such unit or
if any of these three components are pre-installed on the
chassis or body assembly, the concessional rate of duty will
not be available.
Accordingly, M/s. Volkswagen India were informed that Point Nos.
1 and 3 of their interpretation are correct, but that Point No. 2 is
incorrect.
15. The definition of CKD was further tweaked vide Notification
No. 31/2011 dt. 24.03.2011 and three differential rates of duty were
indicated. The amended entry reads as under :
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Appeal No.C/40966/2015
344 8703 Motor cars and other motor vehicles
principally designed for the transport of
persons (other than those of heading 87.02),
including station wagons and racing cars,
new, which have not been registered
anywhere prior to importation, if imported,
-
(1) As a Completely Knocked Down (CKD) kit containing all the necessary components, parts or sub-
assemblies, for assembling a
complete vehicle, with, -
(a) Engine, gearbox and 10%
transmission mechanism not
in a pre-assembled condition;
(b) Engine or gear box or
transmission mechanism in 30%
pre-assembled form but not
mounted on a chassis or a
body assembly
(2) In any other form 60%
The clarifications in respect of these changes made in the definition of CKD were conveyed by the TRU, CBEC, vide letter dt. 25th March, 2011 as under :
‚9. As you are aware, a definition of Completely Knocked Down Unit had been prescribed in the Budget. However, considering the representations by the industry, the custom duty rate on vehicles imported in the form of completely knocked down kits having all the necessary components, parts and sub-assembly including the pre-assembled engine, gearbox and transmission mechanism of Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 87.02) including motor cycles is being reduced from 60% to30%. Such imports of vehicles in completely built form or in any other form including in a form where any of the three viz. engine, gear box or transmission assembly are imported fixed to a chassis will attract 60% BCD. The imports in form of CKD kits where all the parts and components including engine, gearbox and transmission assembly are present in completely knocked down condition will attract 10% BCD.‛ 49 Appeal No.C/40966/2015
16. Discernibly, the changes brought about by Notification No. 31/2011-Cus. not only created an additional slab of concessional duty, but also further clarified what exactly would be considered as CKD. Notification 31/2011-Cus. in fact expanded the types of imports which could be considered as CKD unit. In the Notification 31/2011 if the engine, gearbox and transmission mechanism was not in a pre-assembled condition, this would be considered as a CKD kit, meriting the lowest rate of 10% BCD.
At the same time, even if the engine, gearbox and transmission mechanism was in a pre-assembled form, however not mounted on the chassis or a body assembly, even if such imported kit may well be considered as a CKD kit for the purposes of the notification, that will be required to suffer BCD @ 30%. If the imports do not fit into any of these two categories, they would have to pay customs duty @ 60%. As clarified by the TRU in their letter dt. 25.04.2011, only those CKD kits where all the parts and components including engine/gearbox and transmission assembly which are imported in a completely knocked down condition, will alone benefit from the lowest rate of 10% BCD.
50
Appeal No.C/40966/2015
17. Thus, as per the amended Notification (31/2011-Cus.) when all the parts and components are imported in completely knocked down condition, the lower rate of 10% BCD will be applicable. A combined reading of the Notification No.31/2011-Cus. as also the TRU letter dt.25.4.2011 serves to clarify that 'not in a preassembled condition' meant imported in 'completely knocked down condition'. However, even when the engine or gearbox or transmission mechanism was imported in preassembled form, with the remaining parts, components etc., the entire kit would still be treated as a CKD kit, though required to suffer a higher rate of 30% BCD. This type of imports are covered by entry 344 (1) (b) of the Notification, which reads as under :
‚Engine or gearbox or transmission mechanism in preassembled form, but not mounted on a chassis or a body assembly‛
18. Quite evidently, the sub-assemblies covered in sub entry 344 (1) (b) are only ‚engine‛ or ‚gearbox‛ or ‚transmission mechanism‛. From a plain reading of this sub entry, it is also clear that it will not cover engine mated to a gear box or transmission. Hence if the goods as imported for an engine mated to a gearbox or 51 Appeal No.C/40966/2015 transmission, they will go out of the scope of entry 344 (1) (b) and will necessarily fall within the residual entry namely 344 (2) ‚in any other form‛ and suffer BCD @ 60%. Hence, in our view, therefore not only will entry 344 (1) (b) not include automobile kit imported with engine or gearbox or transmission in preassembled form and mounted on a chassis / body assembly but also will not include such sub-assembly engine and / or gearbox and / or transmission mechanism if they are imported mated to each other.
19. It is also pertinent to note that if the imported automobile CKD kit has the engine or gearbox or transmission in preassembled condition, the entire kit will not get the benefit 10% BCD under entry 344 (1) (a) but will have to suffer 30% BCD under entry 344 (1)
(b).
20. The Ld. Advocate has been at pains to emphasise that various representations were made by SIAM, Volkswagen, etc., to the Ministry after Notification No.21/2011- dt. 1.3.2011 was issued, wherein for the first time, the definition of ‚Completely Knocked Down‛ was defined. Possibly, due to all these representations and the discussions between the stakeholders, the definition of CKD 52 Appeal No.C/40966/2015 which was introduced by Notification No.21/2011-Cus. was enlarged in scope. Whereas Notification No.21/2011-Cus. excluded from the scope of CKD automobile kit containing even a preassembled engine or gearbox or transmission mechanism, such preassemblies were considered as a CKD unit in the subsequent Notification No.31/2011-Cus. though, required to suffer a higher BCD of 30%. The decision in the case of Sunil Kumar Rana Vs State of Haryana & Others (2003) 2 SCC 628 was relied by the Ld. counsel for appellant to argue that purposive construction has to be applied to interpret the notification. That the legislative intent was to get over the mischief shooted from the AAR Ruling in Harley Davidson case. As already discussed we do not agree with the submission that the notification under consideration was a consequence of the AAR decision in Harley Davidson. Even though SIAM was asked to suggest definition for CKD, the same was not accepted by the Government which would itself show that the notification did not intend to get over any mischief but intended to give a definition for CKD.
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21. Further amendment to its duty rate was caused about by Notification No.12/2012-Cus.dt. 17.03.2012 wherein the following rates were brought into effect :
TABLE S.No. Chapter or Description of goods Standa Additional Condition Heading rd rate duty rate No. or Sub-
heading or
tariff item
(1) (2) (3) (4) (5) (6)
... ... ... ... ... ...
437 8703 Motor cars and other motor
vehicles principally designed
for the transport of persons
(other than those of heading
87.02), including station
wagons and racing cars, new,
which have not been
registered anywhere prior to
importation, if imported,- (1)
As a Completely Knocked
Down (CKD) kit containing
all the necessary components,
parts or sub-assemblies, for
assembling a complete - -
vehicle, with,-
(a)engine, gearbox and 10%
transmission mechanism not - -
in a pre-assembled condition;
(b)engine or gearbox or 30%
transmission mechanism in
Pre-assembled form but not
mounted on a chassis or a
body assembly. - -
(2) in any other form,-
[(a) with CIF value more than [100%]
US $ 40,000 or with engine
capacity more than 3000 cc
for petrol-run vehicles and
54
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more than 2500 cc for diesel- - -
run vehicles, or with both]
(b) other than (a) above 60%
It is thus seen that definition of CKD kit has continued to remain unchanged except that for the words ‚engine or gearbox or transmission mechanism not in a preassembled condition‛ meriting rate of 10% BCD, the Notification 12/2012 had the words ‚engine, gearbox and transmission mechanism not in a preassembled condition‛, also with the same concessional BCD rate of 10%.55
Appeal No.C/40966/2015
22. Having understood the scope and canvas of the relevant notifications, we proceed to apply this knowledge to the actual impugned imports.
23. From the samples of the Bill of Entry and related documents filed by appellants in page 32 onwards of compilation of documents Vol-I, we find that in a sample Bill of Entry No.7949107 dt.14.09.2012, the imported goods were declared as ‚BMW cars in CKD‛. In the Bill of Entry the imported goods are declared as falling within the Customs Tariff Heading 87039090 and claiming benefit of Notification No.12/2012-Cus. Entry 431 (1) (a) namely claiming BCD @ 10%. The related corresponding Invoice No.GCO 7402 dt. 23.07.2012 describes the consignment as ‚BMW CKD Cars - BMW CKD automobile parts‛. It is also mentioned in the invoice that ‚for description of quantity and nature of goods supplied, please refer to packing list or as alternatively invoice attachment‛. The detailed packing list found in page 51 onwards of the said compilation gives description, part number and quantity consigned, however there is no indication in the detailed packing list that the engine or gearbox or transmission mechanism are mated to each other or otherwise. 56
Appeal No.C/40966/2015
24. Ld. Advocate has argued that introduction of the words ‚and‛ would only refer to a situation where both engine and transmission are in a mated condition prior to the importation. Ld. Advocate has also relied upon the judgment of the Hon'ble Apex Court in Hyderabad Asbestos Cement Products Vs UOI - 2000 (115) ELT 20 (SC) to argue that since the words ‚gearbox and transmission‛ are separated by a conjunction 'and' they have to be read conjointly. However we note that the Hon'ble Apex Court in that judgement was dealing with use of the conjunctive between the two provisos of the erstwhile Rule 56A of the Central Excise Rules, 1944. But in the present case, the meaning of the word ‚and‛ has to be understood and read in the context of the entire sentence as a whole, namely ‚engine, gearbox and transmission mechanism not in a preassembled condition‛. It is pertinent to note that to qualify for inclusion under this description, the imported goods will primarily require to be ‚not in a preassembled condition‛. We also note the use of the punctuation mark -- namely, the 'comma' (,) between the words ‚engine, gearbox‛. In our view therefore, the sentence as a whole should be interpreted only as 'engine or gearbox or transmission mechanism in a preassembled condition' i.e. the word 57 Appeal No.C/40966/2015 ‚and‛ between gearbox and transmission has to necessarily to be read as ‚or‛, since, any other interpretation would lead to absurdity and defeat the intention of the legislature, which obviously is to extend the lowest concessional rate to the highest level of ‚knocked down parts‛.
25. True, in the ordinary course the word ‚and‛ is normally employed to express the relation of addition, adding of something to that, which preceded and generally has a cumulative sense requiring the fulfilment of all the conditions that it joins together. However, even in such a connection, it is, by force of contents, read as ‚or‛ (Ishwar Singh Bindra v. State of Uttar Pradesh - AIR 1968 SC 1450 / (1969) (1) SCR 219; Mohd. Abubakar Siddique v. Mustafa Shahidul Islam (2000) 2 SCC 62. The word ‚or‛ is normally disjunctive and the word ‚and‛ is normally conjunctive. But at times, the word is read ‚vice versa‛ to give effect to manifest the intention of the legislature as disclosed from the context. [Cable Corporation of India Vs Commission of Labour (2008) 7 SCC 680]. In our view, the word ‚and‛ in the above sentence necessarily have to be read in the disjunctive sense, as ‚or‛, since otherwise it would lead 58 Appeal No.C/40966/2015 to a absurd interpretation. The intention of the law makers is clear which is manifested by clarification letter of the Tax Research Unit dt.25.03.2011 where in para-9 it has been explicitly clarified as under
:
‚the imports in the form of CKD kits where all the parts and components including engine, gearbox and transmission assembly are present in completely knocked down condition will attract 10% BCD‛ [EMPHASIS ADDED] Hence any attempt to give a different spin or meaning to the wording of the notification, as the Ld. Advocate has attempted to do, will only lead to interpretations which were never intended by the legislature.
26. In the circumstances, the effect of notification No.31/2011-Cus. and also Notification No.12/2012-Cus.is that 10% BCD will be available only when the CKD kit imported contains engine / gearbox / transmission assembly in completely knocked down condition, i.e. not in preassembled condition.
27. So also, in respect of another Bill of Entry 9190798 dt. 01.02.2013, the description of the imported goods is given as ‚BMW Cars in CKD‛. The Custom Tariff Heading declared was 87039090 59 Appeal No.C/40966/2015 claiming concessional rate of 10% BCD available as per Sl. No. 437(1)(a) of Notification 12/2012-Cus. The corresponding invoice GCQ 8426 dt. 07.01.2013 describes the goods as ‚CKD Cars - BMW CKD Automotive Parts‛. Here also, the invoice advises to refer to packing list or alternatively, the invoice attachment, ‚for description of quantity and nature of goods supplied‛.
28. From the detailed packing list, it is seen that the assemblies and sub-assemblies imported have been listed with their corresponding Part No., for eg., transmission sub-assembly has been listed with Part No. 764206900, assembly ‚ASSY RR AX Gearbox‛ has been listed with Part No. 7592200500, is seen at page 132 of the compilation, ‚ASSY Engine N47 TUE F25 D20 OL 4WD CKD RU‛ with Part No. 781852800 is found at page 133. There is no indication whatsoever in the packing list or in the other accompanying documents as to whether or otherwise the said engine, gearbox and transmission mechanism are in a pre-assembled condition and/or are mated to each other.
29. Ld. Advocate has contended that further, parts are required to be fitted to the imported transmission unit at their Chennai plant to argue that the imported unit is therefore not a pre-assembled unit. 60
Appeal No.C/40966/2015 However, we find that the adjudicating authority has adequately addressed this contention in page 23 of the impugned Order. The adjudicating authority has found that the list of ‚Add-on Parts‛ includes parts like ‚nuts, screws, hoses, cables, drive shafts, gear shaft, levers, cross members and mounting brackets‛. The adjudicating authority has correctly found that the manufacturer was supplying the subject goods in the form of a single product only without supplying any other part and supplying the single product under the nomenclature ‚Automatic Transmission‛; that all the other so-called ‚Add-on Parts‛ are merely required for integrating the gearbox/engine assembly with the car body and mounting the same on the chassis/body of the car. We find ourselves in agreement with these conclusions.
30. There is also no caveat in the concerned Notification that non- inclusion of such ‚Add-on parts‛ would have the effect of treating the otherwise pre-assembled engine/transmission mechanism/gearbox as ‚not‛ pre-assembled.
31. The adjudicating authority has also exhaustively alluded to the parts physically contained in the said assemblies in their imported form as per the technical literature of the manufacturers- 61
Appeal No.C/40966/2015 suppliers, the technical literature uploaded by the manufacturers at their websites, the technical details of their documents including bill of material and test certificates of M/s. ZF, Germany, the Detailed Packing List, test certificates, list of parts assembled at Chennai plant, etc., to arrive at such a conclusion. Similar analysis and conclusions have been made in respect of ‚engine assembly‛.
32. So also, in para 12.8 of the impugned Order, the adjudicating authority has alluded to the statement of BMW India dt. 22.03.2013 wherein it is admitted that the Chennai plant does not assemble essential components like engine, cram shaft, cylinder heads, crank cases, cylinder head, flywheels, pistons, exhaust, etc; that the imported engine assembly incorporates all these essential components; that the assembly mating of engine with transmission mechanism, done by aligning the Torque converter end of the ‚transmission sub-assembly‛ with the flywheel end of the ‚engine sub-assembly‛ is done seamlessly at the appellant's Chennai plant, which only proves that both the transmission mechanism and engine imported are complete assemblies, ready to be mated.
33. The following evidences analysed by the adjudicating authority also support the view that the CKD kits imported by the 62 Appeal No.C/40966/2015 appellants contain engine/transmission mechanism/gearbox which were in pre-assembled and hence not eligible for the 10% BCD rate. On scrutiny of the ‚Detailed Packing List‛ furnished by the importer during investigation in respect of the above six consignments, it is observed that the engine and the individual part pertaining to gear box/transmission mechanism are declared as follows :
Sl.No. Bill of Entry No. Description of Description of gear box/trans.
& date engine mechanism
1 9484836/5.3.2013 ASSY ENGINE TRANSMISSION SUB
N47 E84 ASSEMBLY 8HP45 N4701HI
D20OL RHD
2 9535996/11.3.2013 ZB ENGINE ASSY.AUTO GEARBOX
N47CTUE R60 GA6F21WA ANG
D20UL RK VR
3 9536934/11.3.2013 ASSY ENGINE TRANSMISSION SUB
N47 E84 ASSEMBLY 8HP45 N4701HI
D20OL RHD
4 9560287/13.3.2013 ASSY ENGINE TRANSMISSION SUB
N47 E84 ASSEMBLY 8HP45 N4701HI
D20OL RHD
5 9621600/20.3.2013 ASSY ENGINE TRANSMISSION SUB
N47 E84 ASSEMBLY 8HP45 N4701HI
D20OL RHD
6 9827661/11.4.2013 ASSY ENGINE ASSEMBLYTRANSMISSION
N16 A GA6F21WA ANJ
US/KOREA
The detailed packing list does not include any items of description like cylinder heads, cylinder blocks, pistons, connecting rods, crankshaft, cam shaft etc. which are the components that go 63 Appeal No.C/40966/2015 into the assembling of an engine. It therefore appears to reason that ‚assembly engine‛ imported is already a complete preassembled engine. So also, the packing list does not contain items like gearsets, torque converters, mechatronic parts etc. which are components that go into the assembling of an automatic gearbox. Hence it appears to reason that the imported ‚transmission sub-assembly / assembly auto gearbox / automatic transmission‛ are gear box / transmission which are already preassembled at the time of import.
34. Reference is also made to letters of appellants dt. 22.03.2013 and 04.04.2013 wherein it has been clarified that they do not assemble internal components of engine and automatic gearbox at the Chennai plant.
35. ‚List of add-on parts‛ contains parts like flange nuts, clip nuts, hex nuts, spacer bolts, head screws, self-tapping screws, packing washers etc. which are locally assembled on to the imported engine and transmission sub-assemblies merely provides linkage for these mechanism with the rest of the car parts and are useful only for completing the integration. It is therefore evident that these ‚add- on parts‛ are not of the genre that are required to complete ‚pre- 64
Appeal No.C/40966/2015 assembly‛ of the engine / transmission / gear box mechanisms imported.
36. In para 26 (xii), the adjudicating authority has analysed the nature of the imported ‚transmission sub-assemblies‛ in more than five pages of the impugned order. The discussion is very lucid, well researched and logical and we are unable to find any infirmity with the same. The conclusions arrived at by the adjudicating authority make for interesting reading :
‚Thus, though the importer describes the parts locally assembled on to the 'transmission sub-assemblies' (gearboxes) in abstract technical terms as ‚mechanical, hydraulic, electronic parts‛, it can be noted/observed from the ‚list of add-on parts‛ that they are merely in the nature of fasteners (nuts, screws, brackets, etc. which merely provide the linkage for other parts of the car with the imported gearbox, drive shaft, gear shift lever, etc.), wiring harness (which is described by the importer as ‚electronic part‛ but which actually consists of insulated wires with connector pins at the ends), hose/pipe/tube (which is described by M/s.BMW India as ‚hydraulic part‛ for the simple reason that fluids pass through them), transmission control parts like gear shift lever and fixtures like brackets for fitment of the gearbox, other transmission parts like drive shaft, output shafts and other items to the body of the car. Thus, it appears that all the other parts like drive shafts and many of the nuts and bolts are merely required for making the gearbox/engine assembly ready for integrating the same with the car body and mounting the same on the chassis/body of the car.‛
37. Unique Identification number and model : From facts on record, it emerges that the goods described as ‚transmission sub- assemblies‛ were nothing but ‚automatic transmission‛ with model 65 Appeal No.C/40966/2015 No.8HP45 actually manufactured by M/s.ZF Friedrichshafen AG. It does not appear to common sense that the manufacturer supplier of the gearbox would supply unfinished goods transmission mechanism to the appellants for onward exportation to their Indian arm (appellant). In any case, it has been found that each individual gearbox imported has a unique identification number which is engraved on each individual unit's metal casing by the manufacturer. The adjudicating authority has therefore correctly concluded that no manufacturer supplier would assign such a unique identification number as well as model name to a sub- assembly and refrained from supply remaining parts of that product.
38. Testing of transmission sub assembly / automatic transmission / auto gear box. From the facts on record, it emerges that the automatic transmission / gear box supplied by M/s.ZF, Germany have undergone standard testing procedures before they are supplied to M/s.BMW AG Germany, a fact which has been admitted by BMW India. It has also been admitted by appellants that the imported transmission sub assembly is not tested in any manner at 66 Appeal No.C/40966/2015 the Chennai plant before the car assembling process. The adjudicating authority has correctly concluded that a critical part like gearbox cannot be assembled onto the car without first undergoing all mandatory tests and checks which clearly indicates that the product so tested and marketed as an ‚Automatic Transmission‛ by the manufacturer-supplier is a complete and functional automatic transmission and does not constitute any sub- assembly thereof.
39. So also, the imported engine assemblies already incorporated parts and components like crankshaft, cylinder heads , crank cases, cylinder head covers, flywheels, pistons, exhaust and inlet valves etc. Such critical parts and components are not separately imported. Secondly, even in their import documents appellants have described the said mechanism as ‚Assy. Engine‛. The parts of description ‚Assy. Engine‛ imported in the CKD kit are then nothing but ‚complete engine assemblies‛ which have been imported in pre- assembled form. Like in the case of transmission mechanism list of 'add on parts' claimed to be crucial and integral constituent parts of engine are seen in the nature of fasteners like nuts, clips, screws, 67 Appeal No.C/40966/2015 parts like wiring harnesses and parts like braidings etc. Like in the case of transmission assemblies, the 'add-on parts' in respect of these 'assemblies' only serve the purpose of connecting /mounting/ integrating the engine with the other assemblies or rest of the car.
40. The Ld. Advocate has vigorously argued that no reliance can be placed by the department on the report of Shri Ramesh Babu on the grounds that it has been issued on incomplete facts and without fully understanding or analyzing the assembly operations undertaken by the appellant and without even visiting the Chennai plant of the appellants and physically observing the assembly operations undertaken. Persuasive as it may be, we are nonetheless unable to appreciate this argument of the Ld. Advocate. The levy of Customs duty on imported goods is always on the goods in the condition they are imported. Hence the examination of goods at the point of port alone would be able to determine their exact nature and by implication their value for assessment as well as the eligibility or otherwise of any exemption notification. We find that Dr. Ramesh Babu has also perused copies of the detailed packing list, supplied by sub-assembly chart of engine and transmission 68 Appeal No.C/40966/2015 submitted by BMW as also the list of parts pertaining to engine and transmission to be assembled to the imported engine and transmission assembly as claimed by the appellants. Only after a comprehensive analysis of all these aspects, has Dr. Ramesh Babu opined that ‚parts list merely comprises of nuts, screws, clips etc.; that the imported engine assemblies are actually fully assembled condition which can be readily integrated to build motor car; that similarly transmission sub assemblies are automatic transmission units, otherwise known as automatic gear box. On the other hand, it is pertinent to note that the experts appointed by the appellants namely Professor A.R.Mohanty and Shri Balraj Bhanot have not mentioned in their reports that they have examined the kits in the stage that they were imported. Both have submitted their reports based on their visits to the Chennai plant of BMW India. On the other hand, Dr. N.Ramesh Babu, whose report has been relied upon by the Department, has inspected the imported goods at the stage of import itself.
41. A grievance has also been brought by appellant that cross- examination sought by them of Dr. Ramesh Babu was not granted. 69
Appeal No.C/40966/2015 True, refusal to grant cross-examination in such cases would may possibly put to question the admissibility of the evidence given in the said report. Be that as it may, in our view, the technical opinion of the experts appointed by the appellants also cannot be given any relevance since, as discussed above, they have not examined the goods in the condition as they were imported but only at the factory of the appellants. In any case, the goods as imported, and as per packing list has to be critically examined vis-à-vis the conditionalities of the exemption notification, as per the discussion herein above. We have found that the imported goods as per the packing list would not satisfy the condition of ‚engine, gear box or transmission mechanism not in preassembled condition‛ and hence by no stretch of imagination would they be able to benefit from the lowest B.C.D rate of 10%.
42. For arguments' sake, even if there had been an ambiguity in the Notifications No.31/2011-Cus. and No.12/2012-Cus. as claimed by appellant, in our view, that will not have bearing effect in the case on hand. The benefit of such ambiguity even if it existed, cannot be claimed by the appellant-importer BMW and as laid down by the 70 Appeal No.C/40966/2015 Hon'ble Apex Court, the same must be interpreted in favour of the Revenue. There are number of judgments and the higher courts of the land which have consistently reiterated that exemption notifications should be interpreted strictly. In a very recent judgment in the case of Commissioner of Customs (Import) Mumbai Vs Dilip Kumar and Company & Ors. in Civil Appeal No.3327 of 2007, a five Judge Bench of the Hon'ble Apex Court held that when there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. The relevant portion of the Hon'ble Apex Court judgement is reproduced as under :
"52.To sum up, we answer the reference holding as under -
(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.71
Appeal No.C/40966/2015 (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands over-ruled".
43. We have then no doubt in our mind that the goods imported by the appellants were not of the type and nature which would merit the lowest B.C.D rate of 10% as extended vide the Notification No.21/2011-Cus. and later in No.31/2011-Cus. as amended by Notification No.12/2012-Cus. The allusion made to the rulings of the AAR will also not help the case of the appellants since as pointed out, the rulings not only in the appellant's own case but also in the matter of Harley-Davidson (supra) were made firstly without any actual import of the kits and secondly before any definition of what constituted a ‚CKD kit‛ was inserted into the Exemption Notification No.21/2011-Cus. We are therefore of the considered opinion that the goods imported by the appellants will not benefit from the B.C.D rate of 10% but will only be eligible for higher B.C.D. rate since the CKD kits imported contained engine or gearbox or transmission mechanism in preassembled form (but not mounted on chassis or body assembly). Both for the periods 01.03.2011 to 23.03.2011 as also 24.03.2011 to 11.04.2013, the appellants are not 72 Appeal No.C/40966/2015 entitled to a rate of B.C.D. @ 10% but will necessarily have to discharge B.C.D @ 60% and 30% respectively only. Issue No.I is answered in favour of Revenue.
44. The appellants have also argued on the ground of limitation. Ld. Advocate has drawn our attention to Examination Order of the concerned examining officer dt. 09.02.2013. It is seen that the order for examination includes to examine whether engine, gearbox and transmission mechanism are pre-assembled or not. The examining officer, by a report dt. 07.02.2013, has reported that engine, gearbox and transmission mechanism are not in a pre-assembled condition (PTC). Ld. Advocate has contended that the fact of these examination reports would only serve to prove that the CKD Kit was imported in the very condition satisfying the requirements of Notification 12/2012 to become eligible for concessional rate of BCD @10%. Once the goods have been cleared with such examination reports, it is but obvious that the Department cannot now rake up an argument that the engine/gearbox/transmission mechanism were in fact pre-assembled and/or were brought mated to each other at the time of import.
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45. True, that the Revenue would also argue that since many of the consignments would have been cleared by the Risk Management System (RMS) Module electronically without human interface or intervention, only a few random examination orders may only have been an aberration and not the rule. But, at the same time, it is pertinent to note that the appellant had written to the Commissioner of Customs, Chennai vide a letter dt. 05.07.2010, referring to a meeting and requesting that the CKD import duty rate being given to their 3-series CKD Kits may also be extended to their X1 and X3 models as well.
46. In response, the appellants were informed vide a letter dt. 23.07.2010 that ‚import of BMW X1 and X3 series car in CKD condition can be extended the benefit of Notification 21/2002-Cus., Sl. No. 344(1)‛.
47. Even after the issue of Notifications 21/2011-Cus. dt. 01.03.2011 and 31/2011-Cus. dt. 24.03.2011, appellant appears to have sent another communication to the Commissioner of Customs, Chennai, on 30.03.2011, submitting that the engines, gearboxes and transmission mechanism imported by them as a part of their CKD kits, are in the form of sub-assemblies; that their CKD operations fall 74 Appeal No.C/40966/2015 within the purview of 344(1)(a) of the definition of CKD; that they will continue to file their Bills of Entry as was done in the past.
48. During the hearings, Ld. Senior Advocate had submitted details of 20 such instances where the imported kits had been examined by Customs Officers during the period March 2011 to April 2013 and in most of these reports, it has been confirmed that the impugned goods have been found in CKD condition. No objection was raised in the concerned inspection report. In certain cases it was also directed to verify whether the engine, gearbox and transmission mechanism are in a pre-assembled condition or not, which was also examined and answered in the negative.
49. These are facts and happenings that will stare the Customs Authorities in the face and demolish the allegation that appellant has suppressed facts of import of pre-assembled engine and pre- assembled transmission mechanism or that they have misstated the description of the goods to avail concessional rate of duty.
50. In arriving at these conclusions, we draw sustenance from the ratio laid down by the Hon'ble Apex Court in Pushpam Pharmaceuticals Company Vs CCE Bombay - 1995 (78) ELT 401 (SC). The relevant portion of the judgment is reproduced below : 75
Appeal No.C/40966/2015 "4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."
So also, the Hon'ble High Court of Punjab and Haryana in the case of CC Amritsar Vs Jyoti Industries - 2007 (209) ELT 180 (P&H) has upheld the following findings of the Tribunal that mistake committed on the part of Customs officer in proper assessment of goods cannot be held as suppression / misrepresentation of goods to justify invocation of extended period of limitation :
"We have seen the photocopy of the Bill of Entry No. 82 dated 26-5- 94, which is in dispute and found that the Assessing Officer has himself assessed the goods under Heading 9017.30 by changing the classification adopted by the importer. The examination report of the 76 Appeal No.C/40966/2015 Customs Officer as recorded on Bill of Entry clearly shows that they had found the goods as per description in Bill of Entry and invoice. On examination, when the officers have not pointed out that the goods are to be classified not as "universal measuring instrument" but as "micrometer", then it could only be said a mistake on the part of the Customs Officers and it cannot lead us to conclusion that there has been suppression on the part of the importer (respondent).
We find that the assessment was done by the Customs Officers. The goods were also examined by the Customs Officers and they have found that goods as per description given in the invoice. Therefore, if there has been mistake on the part of Customs Officer in proper assessment of the goods, the respondents cannot be held liable for any suppression of facts as they have neither colluded or suppressed the facts. Therefore, the findings of the Commissioner are correct and based on evidence on record. We, therefore, find no reason to interfere with the order of the Commissioner in dropping the demand for imports made under Bill of Entry No. 82, dated 26-5-94. The appeal of Revenue is accordingly rejected."
51. Precisely for these reasons, we have no hesitation in holding that the extended period of limitation cannot be invoked in this case and hence, the differential duty liability can be confirmed and demanded only for the normal period of limitation from the date of issue of the Show Cause Notice. For this limited purpose, the matter would be required to be remanded to the adjudicating authority to work out the duty liability afresh limited to the normal period of 77 Appeal No.C/40966/2015 limitation. So ordered. Hence Issue No.II is answered in favour of appellant.
52. Coming to the issue of penalties, we find that the adjudicating authority has imposed penalty equal to the duty determined under Section 114A of the Customs Act, 1962. For the very reason that ingredients justifying invocation of extended period not being present in this case, further also taking into account that the issue per se revolves around interpretation of the notification which itself underwent a number of changes, we hold that the penalty under Section 114A of the Customs Act, 1962 is not just and fair and is therefore set aside. So ordered.
53. However, with regard to confiscation of the goods, as there has been definite contraventions of Section 111 (m) and (o) of the Customs Act, 1962, the confiscation ordered by the adjudicating authority is upheld. However, we reduce the redemption fine to Rs.1,00,00,000/- (Rupees One Crore only) imposed under Section 125 of the Customs Act, 1962.
54. So also, while upholding the imposability of penalty under Section 112 (a) ibid, we find that the penalty of Rs.3,00,00,000/- 78
Appeal No.C/40966/2015 imposed is on the higher side and in our view penalty of Rs.1,00,00,000/- (Rupees One Crore only) would merit the interest of justice in this case. So ordered. Issue No.III is answered as held in paras 52 to 54.
To sum up --
(1) The demand is upheld, however restricted to the normal period of limitation. Only for the purpose of re-quantification of the demand for the normal period with interest liability as applicable, the matter is being remanded to the adjudicating authority.
(2) Penalty imposed under Section 114A of the Act is set aside.
(3) Confiscation of goods under Section 111 (m) and (o) of the Act is upheld. Imposability of Redemption fine under Section 125 (1) ibid is upheld. However, the redemption fine imposed is reduced to Rs.1,00,00,000/- (Rupees One Crore only).
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Appeal No.C/40966/2015 (4) Imposability of penalty under Section 112(a) of the Act is upheld. However, penalty imposed is reduced to Rs.1,00,00,000/- (Rupees One Crore only) Appeal is partly allowed and partly remanded on above terms.
(Pronounced in open court on 17.09.2018)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S.)
Member (Technical) Member (Judicial)
Sdd/Gs
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Appeal No.C/40966/2015