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Wednesday, November 22, 2023

Interpretation of the Customs Notification No. 25/2019 , dated 6th July, 2019 for availing Customs duty benefits for the imported CKD kit for assembling a complete vehicle

 


 

Issue  -


Whether a Motor vehicles ( ie. Dumper ) , if imported, -as a Completely Knocked Down (CKD) kit- containing all the necessary components, parts or sub-assemblies, for assembling a complete vehicle, with standalone engine, gearbox and transmission mechanism , is eligible for concessional rate of Basic Customs duty (BCD) @ 15 % under Customs Notification No. 25/2019 , dated 6th July, 2019 ?




Text of the Customs Notification No. 25/2019 , dated 6th July, 2019 for easy reference

 


(1)

(2)

(3)

(4)

(5)

(6)

 

 

 

 

 

“524.

 

 

 

8702

or 8704

Motor vehicles (excluding electrically operated vehicles), 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 transmission mechanism not in a pre-assembled condition;

 

 

 

 

 

 

 

 

 

15%

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

-

 

 

(b) engine or gearbox or transmission mechanism in pre-assembled form but not mounted on a chassis or a body assembly.

 

 

 

25%

 

 

 

-

 

 

 

-

 

 

(2) other than (1) above.

40%-

-

-

 

 

 Possible interpretation of the issue : 


 Case (i)-  Parts  of Engine ,  gearbox and transmission mechanism are in  CKD conditions (Parts of part) 



That engine, gearbox and transmission mechanism  are not imported  as standalone unit but in CKD form for assembling a Dumper.



To be eligible for concessional BCD @ 15% , these goods namely ,  engine, gearbox and  transmission mechanism ,are to be in CKD conditions. 


For example , import of engine in the CKD conditions with following elements : cylinder, piston, connecting rod, crank shaft, flywheel, inlet and exhaust valve, etc, then such motor vehicle CKD kit is eligible for concessional BCD @ 15 %. 


Otherwise, these goods are eligible for concessional BCD @ 25%,being in pre- assembled form.


Alternate Case (ii):  parts of Motor vehicle in CKD condition Parts of a finished goods / as a  Standalone and in pre-assembled form)

 

1.       CKD kits of a motor vehicle should have its own identifiable components, parts or sub assemblies, for assembling a complete vehicle, at the time of import. And not these part themselves in CKD conditions.

2.       In another words, three most critical parts, engine, gearbox and transmission mechanism, either can be a standalone unit or in a pre-assembled form ( ie. Engine with Gear box, Gear box with transmission mechanism, Engine with gear box and transmission mechanism) .That these parts in pre-assembled form are sub-assemblies of a motor vehicle.

 

 

Customs classification of a CKD kit of Dumper under CH 8704  and also for claiming notification benefits in view of Rule 2 (a) of GIR

 

3.       That Rule 2 (a) of GIR may be called for the Customs classification of a CKD kit of Dumper under CH 8704  and also for claiming notification benefits. 

That as per Hon’ble SC ruing ,a notification has to be interpreted in terms of its language. If in the notification exemption is granted with reference to tariff items in the First Schedule to the Customs Tariff Act, 1975, then the same Rules of Interpretation must apply.[(2004 (174) E.L.T. 289 (S.C.) COLLECTOR OF CUSTOMS, BANGALORE Versus MAESTRO MOTORS LTD].


4.       That , as par various Court ruling for Rule 2(a) of GIR , that these un-assembled or dissembled parts should not require further processing on themselves but used as such for assembling a final article ( ie. Dumper).


5.       That these pre-assembled goods are identifiable parts of a motor vehicle. But internal components of an engine ( ie : cylinder, piston, connecting rod, flywheel, inlet and exhaust valve, crank shaft, cam shaft ,etc ), gear box (ie gears, casings ,etc) ,and transmission mechanism (ie. propeller shafts, plain shaft bearing, reduction gear assemblies, universal joints etc ) are not part, component, or sub-assemblies of a motor vehicle

 

6.       That if engine or gear box or transmission are imported in CKD condition then these cannot to be used as such for assembling a dumper.That ,   CKD engine or gear box or transmission are to be assembled in the assembling line , thereafter, such pre-assembled engine , gear box ,and transmission , would be used in assembling of a dumper. Hence , test for essential characteristic of a complete or finished article after assembling of unassembled or disassembled components, required under Rule 2( a) of GIR for classification of a dumper under CH 8702 will fail .And consequently to this, all parts of these goods will classified in their respective customs heading.


7.       Board Circular for Rule 2(a) & CKD kit of a Motor Vehicle :Following parts or components or sub-assemblies could be construed as most essential to bring into effect a finished motor car-

 

The Central Board of Excise and Customs (‘C.B.E. & C.’) Circular F.No. 528/128/97-Cus-TRU, dated 5-12-1997) is reproduced below :

 

It may be considered that the following parts or components or sub-assemblies could be construed as most essential to bring into effect a finished motor car, namely; engine, gear box, chassis, transmission mechanism assembly system, body/cab suspension system, axles


front and rear. In general, it may be mentioned that if all these components or parts or sub- assemblies are imported, Rule 2(a) of the aforesaid rules for interpretation would come into play, inasmuch as it would be possible to take a view that when put together, these parts or components or sub-assemblies constitute essential characteristics of a motor car has been achieved. However, if a few of these components or parts or sub-assemblies are not imported but are wholly manufactured or purchased locally, it would be difficult to take the view that the “essential characteristics” of a motor car has been achieved without these parts.

 

 

 

8.   That all parts or components or sub-assemblies which are most essential to bring into effect a finished dumper, if imported standalone ( not as CKD kit) or fitted with engine on chasis, or full motor vehicle without bodies, will attract BCD @ 15 %. However, a dumper as CBU attracts BCD @ 40 %.

 

9.    Therefore, it is evident from above that BCD has three different rates 15 %, 25% & 40 % pertaining to parts,CKD kit and CBU of a dumper ,respectively. That the difference in these BCD rate is due to cost involved and variability in assembly operation of a dumper , including optimization of operations and performance of parts, components or sub-assemblies through operating software, Electronics modules, and sensors. That in the present case, cost of post -import assembling of components/ parts/sub- assemblies into a dumper is 30% of assessable value of the imported goods.

 

Final thought :

 

10.    It appears that intention of legislature to give more duty concession   for more assembling operation in making a finished Dumper.


That in CKD kit ,if engine, gearbox and transmission mechanism are imported as a standalone part and then BCD @ 15 % ,and if these parts are in pre-assembled form ( ie. Engine with Gear Box ,etc) before importation then such imported sub-assembly of a dumper will attract more BCD @ 25 %.

Tuesday, November 21, 2023

How different stage of assembling of a Dumper are changing Customs classification and rate of Basic Custom Duty (BCD)

 

For the different stage of assembling and changing classification and rate of BCD

 

I.  Imported not as a  part of the CKD Kit ( Standalone )

S.NO

Parts  of the Motor Vehicle

CUSTOMS HEADING

BASIC CUSTOM DUTY

1

Diesel Engine
(Pre Assembled )

8408

15%

2

Gearbox  
(Pre Assembled )

8708

15%

3

Transmission Mechanism 
(Pre Assembled )

8708

15%

 

S.NO

 Parts of the Motor Vehicle

CUSTOMS HEADING

BASIC CUSTOM DUTY

4

Engine with Gearbox
(Pre Assembled form )

8408

15%

5

Engine with Transmission Mechanism
(Pre Assembled form)

8408

15%

6

Gearbox with Transmission Mechanism 
(Pre Assembled form )

8708

15%

 

S.NO

Parts of the Motor Vehicle

CUSTOMS HEADING

BASIC CUSTOM DUTY

7

Engine with Gearbox and Transmission/flexible Shaft (Pre Assembled form)

8408

            15%

 

S.NO

Parts  of the Motor Vehicle

CUSTOMS HEADING

BASIC CUSTOM DUTY

8

Chassis not fitted with engine
(Pre Assembled form)

8708

15%

 

II. Imported  as a  part of the CKD Kit  in Pre-Assembled  form with all essential   components, parts and sub-assemblies  (  Rule 2(a) of the GIR and  Sn  524 (1) (a) of CN 50/2017)

S.NO

 CKD Kit of a motor vehicle  with standalone unit  of

CUSTOMS HEADING

BASIC CUSTOM DUTY

1

Diesel Engine
(Pre Assembled ), Gearbox   (Pre Assembled ), Transmission Mechanism 
(Pre Assembled )

8704

15%

 

III. Imported  as a  part of the CKD Kit  in Pre-Assembled  form with all essential   components, parts and sub-assemblies  (  Rule 2(a) of the GIR and  Sn  524 (1) (b) of CN 50/2017)

 

S.NO

CKD Kit of a motor vehicle  with

CUSTOMS HEADING

BASIC CUSTOM DUTY

1

Engine with Gearbox
(Pre Assembled form )

8704

25%

2

Engine with Transmission Mechanism
(Pre Assembled form)

8704

25%

3

Gearbox with Transmission Mechanism 
(Pre Assembled form )

8704

25%

4

Engine with Gearbox and Transmission/flexible Shaft (Pre Assembled form)

8704

            25%

 

 

 

IV. Different stages of the manufacturing / assembling of the motor vehicle.

S.NO

 Sub-Assembly of the Motor Vehicle

CUSTOMS HEADING

BASIC CUSTOM DUTY

1

Bodies (including cabs with all their fittings and accessories such as  dashboards, boots ,  seats and cushions, mats, Luggage rack an electrical fittings.

8707

15%

 

S.NO

Full motor vehicle  without bodies

CUSTOMS HEADING

BASIC CUSTOM DUTY

2

Chassis fitted with engine, transmission, steering gear , axels, wheels, bonnets, windscreens, mudguards, running-boards , dashboards with all instruments, tyres, batteries, and other electrical and electronics equipment.
(As per HSN Explanatory note, it is full motor vehicle  without bodies )

8706

15%

 

 

S.NO

CKD Kit of full assembly of a motor vehicle -CBU form

CUSTOMS HEADING

BASIC CUSTOM DUTY

3

Chassis fitted with engine and cabs.

8704

40%

 

V. Engine, Gearbox and Transmission mechanism are not in pre-assembled condition (it means in CKD condition with their respective components and parts )

S.NO

Engine not in pre-assembled condition (ie CKD condition)

CUSTOMS HEADING

BASIC CUSTOM DUTY

1

cylinder, piston, connecting rod,  flywheel, inlet and exhaust valve,

8409

15%

 

crank shaft and cam shaft 

             8483

              15%

 

S.NO

Gearbox not in pre-assembled condition (ie CKD condition)

CUSTOMS HEADING

BASIC CUSTOM DUTY

2

gears, gearbox casings,

8708

15%

 

S.NO

Transmission mechanism not in pre-assembled condition (ie CKD condition)

CUSTOMS HEADING

BASIC CUSTOM DUTY

3

propeller shafts, half-shaft , gears, gearing, plain shaft bearing, reduction gear assemblies, universal joints, clutches, differential, Transmission shafts,  torque converters; flywheels and pulleys, pulley blocks, clutches and shaft couplings, universal joints

8708

15%

 

Notes-

1.It is clear from above analysis, that standalone unit of engine, gearbox and transmission in the pre-assembled conditions  and not in CKD conditions, are covered under SN 1(a) and  attracting BCD @ 15 %.

2. That full motor vehicle without bodies is attracting   Customs duty @ 15 % whereas assembly with SKD parts  are attracting Customs duty @ 25 %. This is an anomaly.

3. Under Sn 2(a) – It is pre-assembled condition.

4.. Under Sn 2(b) – It is  pre-assembled  Form

6. What it means that   engine, gearbox and transmission mechanism are not in a pre-assembled condition?

It means that at the   engine, gearbox and transmission mechanism are not in  pre-assembled condition as a single  unit but are  standalone units at the time of import.

7. What is meaning of  “engine or gearbox or transmission mechanism in pre-assembled form” ?

 It means   that if any of them is combined with other, such as engine with gear box or engine with transmission mechanism   or  engine with transmission  and gearbox, gear box with transmission mechanism, then   such assembly  acquired shape of  pre-assembled Form. In another words,  these are engine assembly, gear box assembly , and transmission assembly  .

8. Meaning of pre-assembled  condition  and  pre-assembled  form 

Dictionary meaning

KIT:kit is a set of parts that can be put together in order to make something.( https://www.collinsdictionary.com/dictionary/english/kit )

 

 Condition:- a situation that must exist in order for something else to happen (https://www.oxfordlearnersdictionaries.com/definition/english/condition_1)

Form- the shape of somebody/something; a person or thing of which only the shape can be seen (https://www.oxfordlearnersdictionaries.com/definition/english/form_1?q=form)

When a particular shape forms or is formed, people or things move or are arranged so that this shape is made.

If something is arranged or changed so that it becomes similar to a thing with a particular structure or function, you can say that it forms that thing. (https://www.collinsdictionary.com/dictionary/english-thesaurus/form#form__1)

 

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