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
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(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
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“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% |
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- |
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(b) engine or gearbox or
transmission mechanism in
pre-assembled form but not mounted
on a chassis or a body assembly. |
25% |
- |
- |
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(2) other than (1)
above. |
40%- |
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- |
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 %.
