2024 (8) TMI 30 - AT - Customs

Applicability of restrictions under the Policy Condition 2(II) (d) of Chapter 87 of the ITC (HS) Classification under the Foreign Trade Policy FTP , which permits import of new vehicles only through some designated ports, airports and ICDs - applicability of port restrictions to new vehicles imported in completely knocked down CKD condition - whether the expression motor vehicles in 2(II) (d) above also includes vehicles imported in CKD condition or it includes only completely built units? - HELD THAT - Rule 126 of Central Motor Vehicle Rules (CMVR), 1989 requires the prototype to be tested by testing agencies and approved. It goes without saying that when the motor vehicle is imported in CKD condition, it will not be possible to test it nor will it be possible to grant type approval to a vehicle which has not even been assembled. Therefore, this can only be meant for motor vehicles which have been fully installed. Reliance placed on M/S. RAMA KRISHNA SALES PVT. LTD. VERSUS UNION OF INDIA AND ORS. 2019 (2) TMI 149 - DELHI HIGH COURT in which Delhi High Court dealt with a case where some parts of E-rickshaw were imported by the petitioner and those parts together deserved to be classified under the Customs Tariff as e-rickshaw. The question was whether the petitioner was also required to meet the policy condition for import of new vehicle of the import policy, where it was held that 'There is merit in the petitioner s contention that it cannot obtain a type approval under Rule 126 of the Motor Vehicles Rules, since it is not importing a motor vehicle but only certain parts thereof. The petitioner has imported these parts for selling the same to manufacturers. The manufacturers in turn are required to obtain a type approval under Rule 126 of the said Rules for manufacture of the E-Rickshaw.' From the above, it is obvious that the term motor vehicle used in various clauses of Policy Note II to Chapter 87 can only apply to complete vehicles and cannot apply to vehicles in CKD condition or to incomplete vehicles. In importing motor cycles in CKD condition through ICD, Garhi Harasu, the appellant had not violated any prohibition and the imported goods were therefore, not liable to confiscation under section 111(d). Consequently, no redemption fine or penalty was imposable on the appellant. The impugned order is set aside - Appeal allowed.

Issues Involved:
1. Application of port restrictions under Policy Condition 2(II)(d) of Chapter 87 of ITC (HS) Classification under the Foreign Trade Policy to new vehicles imported in completely knocked down (CKD) condition.
2. Classification of CKD vehicles under ITC (HS) and Customs Tariff.
3. Applicability of policy conditions to CKD vehicles.
4. Validity of confiscation, redemption fine, and penalty imposed under the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Application of Port Restrictions to CKD Vehicles:
The primary issue was whether the port restrictions under Policy Condition 2(II)(d) of Chapter 87 of ITC (HS) Classification, which permits import of new vehicles only through designated ports, also applied to new vehicles imported in CKD condition. The impugned order held that the port restriction applies to CKD vehicles, leading to confiscation, redemption fine, and penalty. However, the appellant contended that these restrictions do not apply to CKD vehicles.

2. Classification of CKD Vehicles under ITC (HS) and Customs Tariff:
The appellant argued that although CKD vehicles are classified as vehicles under the Customs Tariff by applying General Interpretative Rule (GIR) 2(a), they should not be classified as such under ITC (HS) for policy conditions. The Tribunal rejected this argument, stating that ITC (HS) classification, like the Customs Tariff, is based on the Harmonised System of Nomenclature (HSN), and GIR 2(a) applies universally. The appellant had classified the imported CKD vehicles as motor cycles under both Customs Tariff and ITC (HS) in the Bills of Entry, and it was not permissible to argue otherwise.

3. Applicability of Policy Conditions to CKD Vehicles:
The Tribunal examined Policy Condition 2(II) as a whole to determine the scope of the term "motor vehicles." It noted that several conditions, such as having a speedometer, right-hand steering, photometry of headlamps, and compliance with the Motor Vehicles Act, 1988, cannot be fulfilled by CKD vehicles at the time of import. Therefore, the term "motor vehicles" in Policy Condition 2(II)(d) could only apply to completely built vehicles, not CKD vehicles.

4. Validity of Confiscation, Redemption Fine, and Penalty:
Since the policy condition restricting port of import did not apply to CKD vehicles, the appellant's import through ICD Garhi Harasu did not violate any prohibition or restriction. Consequently, the confiscation under section 111(d) of the Customs Act, 1962, and the imposition of redemption fine and penalty were not sustainable. The Tribunal relied on the Delhi High Court's judgment in Ram Krishna Sales Pvt. Ltd. vs. Union of India, which clarified that type approval under Rule 126 of the Central Motor Vehicles Rules, 1989, is required only for complete vehicles, not parts or CKD vehicles.

Conclusion:
(a) GIR 2(a) applies to classification under ITC (HS) and Customs Tariff, and the appellant correctly classified the goods in the Bills of Entry.
(b) Policy conditions in Chapter 87 are in plain language and not linked to specific headings.
(c) The term "motor vehicles" in Policy Condition 2(II)(d) cannot include CKD vehicles, as it would lead to absurd consequences.
(d) Port restrictions under Policy Condition 2(II)(d) do not apply to CKD vehicles, which can be imported through any port or ICD.
(e) The appellant did not violate any prohibition by importing CKD vehicles through ICD Garhi Harasu, and the confiscation, redemption fine, and penalty were not justified.

Order:
The appeal was allowed, and the impugned order was set aside with consequential relief to the appellant.

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