2022 (6) TMI 1430 - AAR - Customs

Classification of goods sought to be imported - spot coolers - prohibited goods or not - to be classified under the sub-heading 84186990 of the Customs Tariff Act, 1975 or not? - HELD THAT - Spot cooling is a process that delivers conditioned air directly to a production line worker using spot coolers. Spot coolers work by sucking in the air around them and sending it across a closed-loop coil which contains refrigerant. The coil not only cools the air but also reduces its humidity. After the air passes over the coil, the supply vent pumps cold air back out into the room. The cooler releases any excess heat up through a flexible tube usually connected to a ceiling vent or pointed out of a window or door. Thus, it is established that the spot coolers are compressor-based refrigeration systems. The basic principle is similar to that used in a car or a household air conditioner, i.e., reducing the temperature of the air by sending it across a closed-loop coil which contains a refrigerant. In this system, the air also gets dehumidified as it gets cooler. Therefore, spot coolers cool and dehumidify their immediate surroundings. The impugned goods are fitted with a motor-driven fan/blower and a unit that changes both the temperature and, by condensation, the humidity of the air. As per HSN notes, these machines may be in the form of single units encompassing all the required elements or they may be in the form of split systems which operate when connected together. In the present case, the impugned apparatus is in the form of a single portable unit. Therefore, the goods appear to be classifiable under heading 8415. The essential conditions to be satisfied by the goods for classification under heading 8415 which the impugned devices satisfy. Therefore, the goods under consideration do not merit classification under sub-heading 84186990. In regards to DGFT Notification No. 41/2015- 2020, dated 15th October 2020. it is to be noted that the said notification pertains to foreign trade policy and specifically to the import policy of India. The subject matter of advance rulings in customs, as specified in section 28H (2) of the Customs Act, 1962, does not cover foreign trade policy. The spot coolers merit classification under sub-heading 84158290 of the first schedule of the Customs Tariff Act, 1975.

Issues Involved:
1. Classification of spot coolers under the Customs Tariff Act, 1975.
2. Applicability of DGFT Notification No. 41/2015-2020 on spot coolers.
3. Comparison of spot coolers with air conditioners.

Issue-wise Detailed Analysis:

1. Classification of Spot Coolers under the Customs Tariff Act, 1975:
The applicant, M/s. Toyota Tsusho India Pvt. Ltd, sought an advance ruling on the classification of spot coolers, which they have been importing under sub-heading 84186990 of the Customs Tariff Act, 1975. The primary function of spot coolers is to deliver conditioned air directly to a production line worker by pulling fresh air from outside, cooling it down through a refrigerant, and releasing hot exhaust in the same room. The applicant argued that spot coolers are distinct from air conditioners as they are portable, use less energy, and do not require a closed room for effective functioning.

Upon review, it was established that spot coolers are compressor-based refrigeration systems that reduce the temperature of the air by sending it across a closed-loop coil containing a refrigerant, also dehumidifying the air. The relevant chapter for classification is Chapter 84, which covers types of machinery and mechanical appliances. The rival headings considered were 8415 (Air conditioning machines) and 8418 (Refrigerators, freezers, and other refrigerating or freezing equipment).

According to General Rule of Interpretation (GRI) 1 and the Harmonized System Nomenclature (HSN) notes, the primary function of spot coolers aligns with heading 8415, which covers air conditioning machines designed to change both temperature and humidity. The spot coolers meet the conditions specified in the HSN notes for heading 8415, as they are equipped with a motor-driven fan/blower, a unit that changes both temperature and humidity, and are in the form of a single portable unit. Therefore, the spot coolers merit classification under sub-heading 84158290.

2. Applicability of DGFT Notification No. 41/2015-2020 on Spot Coolers:
The applicant raised concerns regarding the applicability of DGFT Notification No. 41/2015-2020, dated 15th October 2020, which prohibited the import of air conditioners under sub-headings 84151010 and 84151090. The applicant argued that spot coolers, being functionally different from air conditioners, should not be subject to this notification.

However, the authority clarified that the subject matter of advance rulings in customs, as specified in section 28H (2) of the Customs Act, 1962, does not cover foreign trade policy. Therefore, the authority could not provide a ruling on the applicability of the DGFT notification, as it is beyond their jurisdiction.

3. Comparison of Spot Coolers with Air Conditioners:
The applicant provided a detailed comparison between spot coolers and air conditioners, highlighting differences in functionality, portability, energy consumption, and suitability for different environments. Spot coolers are portable, use less energy, and do not require a closed room, whereas air conditioners are fixed installations that can both cool and heat the air, and require more energy.

Despite these operational differences, the authority concluded that both spot coolers and air conditioners share the same primary function of modifying the temperature and humidity of the surroundings. The essential conditions for classification under heading 8415, as discussed, are satisfied by the spot coolers. Thus, the operational differences do not disqualify spot coolers from being classified under heading 8415.

Conclusion:
Based on the comprehensive analysis, the authority ruled that spot coolers merit classification under sub-heading 84158290 of the first schedule of the Customs Tariff Act, 1975. The authority did not address the applicability of the DGFT notification due to jurisdictional limitations.

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