2023 (6) TMI 796 - AAR - Customs

Classification of goods proposed to be imported - Fuel Cell System to be used in manufacturing of Hydrogen Fuel Cells Vehicles - to be classified under 8708 or under CTH 8501 33 20? - HELD THAT - In terms of Note 3 to Section XVI, the Fuel Cell system is to be classified as per its principal function which is generation of electricity. Therefore, for this reason also, the Fuel Cell System are classifiable under CTH 85.01 only. Reliance is placed on the judgement of Hon'ble CESTAT, Chandigarh in case of M/S. HERO ELECTRIC VEHICLES PVT. LIMITED VERSUS COMMISSIONER OF CUSTOMS, LUDHIANA 2018 (6) TMI 141 - CESTAT CHANDIGARH , wherein it was held that the product having essential character and performing principal function of a motor is to be classified as electric motor only. The contention of the applicant as well as the ratio laid down by the honourable Tribunal, are agreed upon. As the Fuel Cell System is an electrical power generating equipment as detailed above, it automatically gets excluded by the provisions of Note 2(f) to Section XVII of the Customs Tariff and therefore merits classification under Heading 85.01 as Electric Generators as they are excluded from the provisions of Notes to Section XVII of the Customs Tariff. Therefore, in terms of aforesaid Section Note 2(f) read with the HSN Explanatory Note to Heading 87.08, the fuel cell system cannot be regarded as 'parts' of motor vehicle in terms of Heading 87.08. Section Note 2(a) above categorically states that parts which are goods included in any of the headings of Chapter 85 are in all cases to be classified in their respective headings. Although certain exclusions have been made by way of the Note 2(a) to Section XVI of the Customs Tariff, the CTH 8501 is not excluded by virtue of this note. The Fuel Cell System is specifically covered under CTH 8501 by virtue of section note of the section XVI of schedule I of the Customs Tariff Act, 1975, therefore it cannot be covered under the CTH 87.08. As per the data disclosed in the CAAR-1 Application the output of the Fuel Cell System will be 80 kW (net) and 90 kW (gross). Based on these disclosures the corresponding entry in the Tariff is 8501 33 20. Thus, the Fuel Cell System which is made up of seven components viz. Fuel Processing System, Fuel cell stack module, Air Processing System, Thermal Management System, Electric module, FCS monitoring control and module and DC-DC Converter proposed to be imported by the applicant merits classification under CTH 85.01 and more specifically under CTH 8501 33 20.

Issues Involved: Classification of Fuel Cell System under the Customs Tariff Act, 1975.

Detailed Analysis:

1. Background and Submissions by the Applicant:
The applicant, a leading automobile manufacturer, seeks an advance ruling on the classification of a Fuel Cell System for Hydrogen Fuel Cell Vehicles (FCEVs). The FCEVs operate using power generated by the Fuel Cell System from hydrogen gas and the power stored in a battery. The Fuel Cell System is composed of seven components: Fuel Processing System, Fuel Cell Stack Module, Air Processing System, Thermal Management System, Electric Module, FCS Monitoring Control Module, and DC-DC Converter. The applicant contends that the Fuel Cell System should be classified under CTH 85.01 (Electric motors and Generators) of the Customs Tariff Act, 1975. They also noted that the supplier, Hyundai Motor Company, classifies the system under the same heading.

2. Classification Principles:
The classification of goods under the Customs Tariff is governed by the General Rules of Interpretation (GRI). Rule 1 of the GRI states that classification should be based on the terms of the headings and any relevant Section or Chapter Notes. Rule 2(b) and Rule 3(a) and (b) provide further guidance on classifying goods consisting of multiple materials or components, with the most specific heading preferred over a general one. Rule 3(b) emphasizes that goods should be classified according to the component that gives them their essential character.

3. Analysis of Fuel Cell System Components:
The Fuel Cell System consists of seven components that work together to generate and distribute electricity. The principal function of the system is to generate electricity from hydrogen cells to power the FCEVs. Five of the seven components contribute to electricity generation, while the remaining two components assist in distributing the generated electricity. Based on Note 3 to Section XVI, which states that composite machines should be classified based on the component that performs the principal function, the Fuel Cell System should be classified according to its primary function of electricity generation.

4. Competing Tariff Headings:
The possible tariff headings for the Fuel Cell System are CTH 85.01 (Electric motors and Generators) and CTH 87.08 (Parts and accessories of motor vehicles). The applicant argues that the Fuel Cell System should be classified under CTH 85.01. HSN Explanatory Notes to Heading 85.01 support this classification, as they cover machines that produce electrical power from various energy sources, including hydrogen cells. The Fuel Cell System's primary function aligns with the description of electric generators under Heading 85.01.

5. Exclusion from Heading 87.08:
To be classified under Heading 87.08, the goods must be identifiable as suitable for use solely or principally with motor vehicles and must not be excluded by the Notes to Section XVII. Note 2(f) to Section XVII excludes electrical machinery or equipment of Chapter 85 from being classified as parts of motor vehicles. Since the Fuel Cell System is an electrical power-generating equipment, it is excluded from Heading 87.08 and should be classified under Heading 85.01.

6. Section Note 2(a) to Section XVI:
This note states that parts included in any headings of Chapter 84 or 85 should be classified under those headings. The Fuel Cell System, being an electrical generator, falls under Heading 85.01 and is not excluded by Note 2(a). Therefore, it cannot be classified under Heading 87.08.

Conclusion:
Based on the above findings, the Fuel Cell System, composed of seven components, merits classification under CTH 85.01 and more specifically under CTH 8501 33 20.

← Previous Next →