2019 (8) TMI 943 - AAAR - GST

Classification of goods - Power Bank - classifiable under Heading 8504 40 90 as 'Static Converter-others or under Heading 8507 as Accumulator and not as Static Converter? - Challenge to AAR decision - HELD THAT - With the technical report and the relied upon case laws not being of any assistance to advance the case of the Appellant, we turn to the HSN Explanatory Notes to decide the classification of the Power Bank - The Harmonised System of Nomenclature and the Chapter Notes and Explanatory Notes thereto, on which the Tariff Act has been modelled has been repeatedly acknowledged by Courts to be a safe guide for resolution of disputes with regard to classification under the Tariff Act - When we read the Explanatory Notes on Chapter Heading 85.04 and 85.07 (extracted above), we find that, in the case of Static Converters, there is a conversion of electrical energy in order to adapt it for further use. A characteristic feature of this class of apparatus (Static Converters) is that the flow of energy is one way, Electrical Static Converters operate on the principle that that the combination of certain products used as electrodes in combination with certain liquids used as electrolytes will only allow current to now in a single direction. In this case, we find that the Power Banks consists of not only the Lithium-ion Polymer battery but also the circuitry such as charge management system and 'voltage boost converter'. All the components. together make up the Power Bank. Admittedly, it is not the battery alone which makes up a Power Bank. The battery combined with the charge management system and the voltage boost convertor constitute the Power Bank. All three components work in tandem to perform the function of storing electrical energy and discharging it to the connected device when required. The mere fact that there is a converter in the Power Bank will not make it a Static Converter. It is emphasised that the primary difference between the Static Converter and the Accumulator is the fact of storage of electrical energy. It is not the function of converting the direct current from its input supply to its output device by either stepping up the voltage which characterises an accumulator. Accumulation of electrical energy and the conversion of electrical energy from DC to DC that Step up the voltage from its input supply to its output load together characterise the function of a Power Bank. The critical aspect of storage of electrical energy is what distinguishes an accumulator from a static converter - thus, the Power Bank traded by the Appellant is classifiable as an accumulator under Chapter heading 85.07. Ruling of AAR upheld - appeal dismissed.

Summary

Issues Involved:

1. Classification of the "Power Bank" under the appropriate Harmonized System of Nomenclature (HSN) code.
2. Determination of whether the "Power Bank" should be classified under Chapter Heading 8504 as a Static Converter or under Chapter Heading 8507 as an Electrical Accumulator.

Issue-wise Detailed Analysis:

1. Classification of the "Power Bank":

The primary issue is to determine the correct classification of the "Power Bank" under the Customs Tariff Act, 1975. The appellant classified the Power Bank under HSN code 8504 40 90 as 'Static Converter-others' while the Karnataka Authority for Advance Ruling classified it under Heading 8507 as an Accumulator.

2. Determination of Classification under Chapter Heading 8504 or 8507:

Appellant's Arguments:

- The appellant argued that the Power Bank should be classified as a Static Converter because it involves the conversion of electrical energy. The Power Bank includes a charge management system and a voltage boost converter which are integral to its function of charging devices.
- The appellant highlighted that the charge management system reduces the input voltage to a constant 4.2V DC required for the battery, and the voltage boost converter adjusts the output voltage to match the requirements of the device being charged.
- They submitted that an accumulator cannot itself charge another battery without a static converter, and the Power Bank's principal function is to charge connected devices, which is performed by the static converter components.
- The appellant relied on a technical research report from the Indian Institute of Technology (Banaras Hindu University) which concluded that the Power Bank can be considered a Static Converter and not only a charge accumulator.
- They also referenced the judgment in the case of C.E.G.S.T-Delhi vs SB Industries, where it was held that a power bank is primarily used to charge mobile batteries and should be classified differently from an accumulator.

Authority's Findings:

- The authority noted that the Power Bank consists of a lithium-ion polymer battery, a charge management system, and a voltage boost converter. The battery stores electrical energy, and the converters regulate and convert the charge.
- The authority emphasized that the primary difference between a Static Converter and an Accumulator is the storage of electrical energy. A Static Converter does not store electrical energy, whereas an Accumulator does.
- The authority reviewed the HSN Explanatory Notes which state that accumulators include ancillary components that contribute to the function of storing and supplying energy. The Power Bank, with its battery and converters, fits this description.
- The authority dismissed the appellant's reliance on the technical report from IIT (BHU) Varanasi, stating that the report was not conclusive and did not categorically state that the Power Bank is a Static Converter.
- The authority also dismissed the relevance of the Delhi Tribunal's decision in the case of S.B Industries, noting that the Tribunal did not determine the classification of the Power Bank but only its eligibility for an exemption notification.
- The authority distinguished the Power Bank from an Uninterruptible Power Supply (UPS) system, noting that the UPS involves converting DC to AC, whereas the Power Bank involves converting DC to DC.

Conclusion:

- The authority concluded that the Power Bank is classifiable as an Electrical Accumulator under Chapter Heading 8507. This conclusion is supported by the HSN Explanatory Notes and the recent changes in GST rates which classify Lithium-ion Power Banks under Chapter Heading 8507.
- The appeal filed by the appellant was dismissed, and the order of the Advance Ruling Authority classifying the Power Bank under Heading 8507 was upheld.