2018 (1) TMI 1279 - AT - Customs

Classification of imported goods - Electrical Multiple Unit (EMU) consisting of 2 EL S-PR RAILWAY COACH-DMC (Locomotive) (Drive motors cars DMC) and 1 EL S-PR RAILWAY COACH TC (Locomotive) (Trailer cars-TC) - Revenue held a view that these TCs are not self-propelled railway or tramway coaches and they are more appropriately to be classified under CTH 8605 0000 as railway or passenger coaches not self-propelled - whether TCs can at all be to put into operation without integrating with DMCs? Held that - Admittedly, there is no dispute that EMU is a set of DMCs and TCs and whole propulsion of EMU is integrated with different components located in DMCs as well as TCs. The TC contains pantograph, transformers which are essential to draw power from overhead lines and convert the same to required capacity for use in the motors situated in DMCs - It is clear that the very same goods were examined by the Committee which gave a categorical ruling that EMUs are treated together and are to be classified under CTH 86.03. In fact, it is recorded that the T-cars could not be treated separately. Similar view has been taken by the US Customs authorities in advance ruling referred above. TCs as well as DMCs which are integrally forming part to make a functional EMU are to be treated together for the purpose of classification assessment. The concession available, extended by the Revenue to DMCs are to be extended to the EMUs as EMU is an integrated unit consisting DMUs and TCs. Neither DMC nor TC can be self-propelled on their own. Appeal allowed.

Summary

Issues: Classification of trailer cars in imported EMUs under Customs Tariff Heading (CTH) 8603 or CTH 8605, and applicability of duty exemption.

Issue 1: Classification of Trailer Cars
The case involved the classification of trailer cars (TCs) in imported Electrical Multiple Units (EMUs) intended for use in Hyderabad Metro. The main appellant imported 25 EMUs consisting of 2 Drive Motor Cars (DMCs) and 1 TC each. The dispute centered around whether the TCs should be classified under CTH 8603 1000 as claimed by the appellant, or under CTH 8605 0000 as contended by the Revenue. The Revenue argued that TCs are not self-propelled railway coaches and should be classified under CTH 8605 0000, attracting a duty rate of 3.75%. The original authority upheld the Revenue's view, resulting in a demand for differential duty and penalties against the appellants.

Analysis for Issue 1:
The original authority concluded that TCs lack self-propulsion features and cannot be classified under CTH 8603. However, the appellants argued that the EMUs operate as an integrated unit, with TCs and DMCs functioning together. They emphasized that the design and operation of EMUs require the integration of TCs and DMCs for propulsion. The appellants cited the opinion of the World Customs Organization (WCO) HS Committee, which classified EMUs as a single unit under CTH 8603. Additionally, they referred to a US Customs ruling on a similar matter, supporting the classification of passenger rail cars under CTH 8603. The Tribunal noted that EMUs operate as a single unit, with TCs and DMCs integral to the functioning of the EMU. Considering the technical specifications and operational arrangement of EMUs, the Tribunal concluded that TCs and DMCs should be treated together for classification assessment. As neither TCs nor DMCs can operate independently, the Tribunal held that the TCs should be classified under CTH 8603 along with DMCs.

Issue 2: Applicability of Duty Exemption
The appellants claimed full exemption of Basic Customs Duty (BCD) under Notification No. 152/2009-Cus. for the imported EMUs classified under CTH 8603 1000. However, the Revenue objected to the exemption for TCs classified under CTH 8605 0000, leading to the initiation of proceedings for reclassification and demand for differential duty.

Analysis for Issue 2:
The Tribunal's decision on the classification of TCs under CTH 8603 renders the issue of duty exemption moot, as the EMUs, including TCs, are now classified under the same heading. Since the Tribunal allowed the appeals and set aside the impugned order based on the classification under CTH 8603, the question of differential duty and penalties imposed by the Revenue no longer applies. The Tribunal's ruling on the classification of TCs under CTH 8603 also implies the applicability of the duty exemption claimed by the appellants for the imported EMUs.

In conclusion, the Appellate Tribunal CESTAT Chennai, in its judgment, classified the trailer cars in the imported EMUs under CTH 8603 along with Drive Motor Cars, rejecting the Revenue's classification under CTH 8605. The Tribunal's decision emphasized the integrated operation of TCs and DMCs in EMUs, leading to the classification of both components together. The ruling not only overturned the original order but also resolved the issue of duty exemption by aligning the classification of TCs under CTH 8603, allowing for the full exemption of Basic Customs Duty as claimed by the appellants.