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2021 (3) TMI 448 - AAR - GSTClassification of goods - Air Springs - correctly classifiable under Tariff heading 40169990 or Tariff heading 8708 9900 and attract GST at the rate of 18%? - HELD THAT - The applicant is engaged in the manufacture and sale of Air Springs which are used in Air suspension systems for Buses, Trucks and Trailers. The product is composed of a rubber bellow which includes rubber and fabric composite, beadwire, griddle hoop, crimped top plate, piston and a bumper. The material composition of such Air Spring is approximately 60% metal and 40% rubber. The Air Springs work on the pneumatic system principle, whereby a volume of gas confined within a container is compressed, and, it produces a reaction force. The reaction force takes the vehicle load, makes the ride smoother and reduces wear and tear in the vehicle. Hence, the sole purpose of Air Spring is to provide a smooth, constant ride quality. In the erstwhile Central Excise regime they were classifying their product under the Heading 4016. Effective 01.07.2017, under GST, they have classified their product under CTH 8708. It is seen that all articles of vulcanized rubber(other than hard rubber) not covered by the preceding headings are included in this heading. Thus the entry 4016 is a residual entry which covers Other articles of Vulcanised Rubber other than hard rubber in which CTH 4016 99 is a further residual entry Other and CTH 4016 99 90 is a residual- residual-residual entry and therefore not a specific entry . To be classified under this heading, the product should be an article of vulcanised rubber other than hard rubber and should not be covered under any specific preceeding entries - it is seen that CTH 8708 covers Parts and accessories of vehicles falling under CTH 8701 to 8705. Section Note 2(a) of Section XVII, states that the expression Parts of this Section do not apply to articles covered under CTH 4016-other articles of vulcanised rubber other than hard rubber . The functional unit of the air spring, the container which holds the air i.e, bellows made of fabric-reinforced vulcanised soft rubber and therefore should merit classification under CTH 40169990, the suspension, i.e., the functional utility, is not provided only by the vulcanised soft rubber in the Air Spring . It is the entire formation of the product, bellow by the fabric reinforced vulcanised soft rubber, crimped with the bolts and the steel plate which provides the functional utility , when air is pumped in through the compressor and let out through the connected valves in the system. It is without doubt that the rubber used in the product is vulcanised soft rubber and mere usage of the same in the product do not merit the product to be termed as an article of vulcanised rubber other than hard rubber and classifiable under CTH 40169990.When it is held that the Air Springs are not products of vulcanised rubber other than hard rubber , then there is no application of Note 2 (a) of Section XVII of the Customs Tariff - The Air springs are a part of the Suspension System fitted in the axles of the vehicles falling under CTH 8701 to 8705, designed for use in such vehicles. In the case at hand, it is true that the products are for use primarily with articles of chapter 8701 to 8705. The product Main Air Spring are fitted in the lift axle and act as suspension for lift axle. The product Lift Air Springs are fitted in the lift axle suspension system and operate to move the lift axle up and down. Thus both these air springs are Suspension systems and part thereof and by predominant usage are classifiable under CTH 8708. Following the Apex Court s decision above, the product in hand being suitable for use solely with articles of Chapter Heading No. 8701 to 8705 are classifiable under CTH 8708, more appropriately under CTH 8708 80 00- Suspension Systems and parts thereof . The product as a whole is not an article of vulcanized rubber other than hard rubber and not classifiable under Customs Tariff entry at 40169990. Customs heading entry at 87088000 specifically covers Suspension systems and parts thereof of Motor Vehicles classifiable under CTH 8701 to 8705 and the functional utility of the Air Springs being extending suspension or acting as shock absorber designed specifically for Motor Vehicles, the said entry is to be preferred to the residual entry of CTH 8708 9900. However, the GST rates for the purposes of Notification No. 01/2017-C.T.(Rate) dated 28.06.2017 are based on the descriptions in the notification with the CTH at the four digit level - the Air Springs manufactured by the applicant are rightly classifiable under CTH 8708 and more specifically under CTH 8708 8000.
Issues Involved:
1. Classification of "Air Springs" under the appropriate Tariff heading. 2. Determination of the applicable GST rate for "Air Springs." Detailed Analysis: Issue 1: Classification of "Air Springs" under the appropriate Tariff heading Applicant's Argument: - The applicant contends that "Air Springs" should be classified under Tariff heading 40169990 as "Other Articles of Vulcanised Rubber other than Hard Rubber," attracting an 18% GST rate. - They argue that the functionality of "Air Springs" is primarily derived from the vulcanized rubber component, which forms 40% of the product, with the remaining 60% being metal. - The applicant references the Supreme Court decision in O.K. Play (India) Ltd. v. Commissioner of Central Excise, emphasizing that the functional utility and predominant usage of the product should be considered for classification. - They also rely on a US tariff classification ruling which classified a similar product under a heading for vulcanized rubber articles used in vehicles. Authority's Analysis: - The product "Air Springs" is composed of vulcanized soft rubber and other materials, with its primary function being to provide suspension in vehicles. - The classification under CTH 40169990 is considered a residual entry, not a specific one. - The Explanatory Notes to HSN indicate that articles of vulcanized rubber not covered by preceding headings fall under this residual category. - The product is designed and manufactured for use in motor vehicles falling under CTH 8701 to 8705, which suggests a more specific classification under CTH 8708. Conclusion: - The Authority concludes that "Air Springs" are not merely articles of vulcanized rubber but are specifically designed as parts of the suspension system for motor vehicles. - Therefore, "Air Springs" are more appropriately classified under CTH 8708, specifically under 87088000, which covers "Suspension systems and parts thereof (including shock absorbers)." Issue 2: Determination of the applicable GST rate for "Air Springs" Applicant's Argument: - The applicant initially classified "Air Springs" under CTH 8708 9900, attracting a 28% GST rate. - They later sought to reclassify the product under CTH 40169990 to benefit from an 18% GST rate. Authority's Analysis: - The Authority examines the relevant Section and Chapter Notes, as well as the General Explanatory Notes of the First Schedule to the Customs Tariff Act. - The product's primary function as a suspension system part for motor vehicles aligns with CTH 8708 8000. - The specific entry for suspension systems under CTH 8708 8000 takes precedence over the residual entry under CTH 8708 9900. Conclusion: - The "Air Springs" are rightly classified under CTH 8708 8000. - As per Notification No. 01/2017-C.T.(Rate) dated 28.06.2017, the applicable GST rate is determined based on the descriptions in the notification with the CTH at the four-digit level. Ruling: - "Air Springs," manufactured and supplied by the applicant, are rightly classified under CTH 8708 and more specifically under CTH 8708 8000.
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