2024 (7) TMI 1325 - HC - Customs

Maintainability of the application before the Advance Ruling Authority - Classification of imported goods - components / parts/ sub-assemblies - to be classified as motor vehicle under Tariff Heading 87.03 or as Completely Knocked Down (CKD) kit under Sr. No. 437 of Notification No. 12/2012-Cus., dated 17.3.2012, as amended - If the import of components/parts/sub-assemblies by the applicant will not be classified as motor vehicle or as CKD kits, whether the applicants imports will be classified under their respective headings/sub-headings of the Customs Tariff Act, 1975 or under Tariff Heading 87.08 of the Customs Tariff Act, 1975? Maintainability of the application before the Advance Ruling Authority - appellant raised a preliminary objection as to the maintainability of the application before the 1st Respondent, on the premise that the jurisdiction of the Advance Ruling Authority under Section 28E(b) of the Customs Act, 1962 is to determine a question of law or fact specified in the application regarding the liability to pay duty in relation to an activity which is proposed to be undertaken by the applicant - HELD THAT - The object of Advance ruling is avoidance of litigation and promoting better relationship. In the era of globalisation of business, the purpose for creating the Authority is for expeditious disposal and determination of question of law or fact specified in the application regarding the liability to pay tax in relation to a transaction proposed by the applicant for which the Authority is required to give advance ruling. The Authority has been created to promote better compliance inter alia with the provisions of the Customs Act, 1962, on the lines of a similar Authority constituted under the Income-tax Act, 1961. The advance ruling would enable an importer to obtain in advance, a binding view from the Authority under the Act on issues which could arise in determining his tax liability A reading of the above provision would show that an advance ruling would be binding only unless there is a change in law or fact. In other words, if there is a change in fact which has a material bearing on the question raised for ruling by the authority, the Advance Ruling Authority would no longer be binding. This is indicative of the legislative intent that the expression business employed in Section 28E(a) of the Customs Act must be given a wide meaning so as to include business qua models / modus operandi and not business qua product. On reading of Sections 28 E and 28 I of the Customs Act conjointly, if there is a change in fact or law which substantially alters the position, the same would constitute activity for the purpose of Section 28 E of the Act. In the present case, AAR has found that there is change in facts and in our view, the change in modus adopted is extensive and would thus constitute business activity for the purpose of Section 28E of the Act. Thus, the challenge to the maintainability premised on construction by the Revenue in giving a narrow / restricted meaning to business is liable to be rejected. A reading of Section 28 I(2) of the Act would show that mere obtaining of an Advance Ruling in respect of a product does not bar an applicant from approaching the Advance Ruling Authority if there is a change in fact or law. Admittedly, there is change in business model. The 1st Respondent has on examination admitted the application which remains unchallenged. It is trite law that when an order resulting in adverse consequences is not challenged immediately / at the earliest / within the prescribed period (if limitation is prescribed) the same must be treated as having attained finality and then ought not to be disturbed lightly - the challenge to the maintainability raised as a preliminary issue by the appellant not agreed upon. Classification of imported goods - HELD THAT - It has been repeatedly held that until all the components of the complete article are presented together for assessment at the same point of time, Rule 2(a) cannot be invoked to classify the parts as complete article. It has also been held that consignments removed / presented at different points of time from different factories cannot be clubbed together to classify the parts as complete article. The sine qua non for the application of this Rule is that any imported article, which is as presented , must have the essential character of the complete or finished article . It is also a settled position in law that the goods would have to be assessed in the form in which they are imported and presented on import and not on the basis of the finished goods manufactured after subjecting them to some process after the import is made. Rule 2 (a) if applied to the facts considered by the 1st Respondent, the import cannot be understood as that of motor vehicles. Six essential components viz., Engine along - with Transmission Unit, Door Panel, HVAC and Cooling Module, Exhaust System and Axle are being procured from vendors in India. There are no reason to interfere with the impugned order - this Writ Petition stands dismissed.

Summary

Issues Involved:
1. Maintainability of the application before the Advance Ruling Authority.
2. Classification of imports under the Customs Tariff Act, 1975.

Detailed Analysis:

Maintainability of the Application:

The Revenue challenged the maintainability of the application before the Advance Ruling Authority (AAR) on the grounds that the jurisdiction under Section 28E(b) of the Customs Act, 1962, is limited to determining a question of law or fact regarding the liability to pay duty in relation to an "activity" proposed to be undertaken by the applicant. The Revenue argued that the 2nd Respondent was already engaged in the business of importing motor vehicles, and thus, the application did not pertain to a new business activity.

The 2nd Respondent countered that the application was maintainable as it was filed before the commencement of the new business model in January 2015. The eligibility to seek an advance ruling must be tested based on the facts existing on the date of filing the application.

The court concluded that the application was maintainable, interpreting "activity" in Section 28E(a) to include new business models or patterns of import. The court emphasized that the object of constituting an Advance Ruling Authority is to provide clarity and avoid litigation. The court also noted that the Revenue did not challenge the initial admission of the application by the AAR, and thus, it could not challenge the maintainability at this stage.

Classification of Imports:

The core issue was whether the import of components/parts/sub-assemblies by the 2nd Respondent should be classified as motor vehicles under Tariff Heading 87.03 or under their respective headings/sub-headings of the Customs Tariff Act, 1975.

The AAR found that six critical parts/components/sub-assemblies were sourced locally from third-party vendors, which included:
1. Engine (along with transmission unit)
2. Axle assembly
3. Exhaust systems
4. Cooling module
5. Heating, Ventilation, and Air Conditioning unit (HVAC)
6. Door panels

The AAR ruled that the import of components/parts/sub-assemblies by the applicant would be classified under their respective headings/sub-headings of the Customs Tariff Act, 1975. The court upheld this ruling, stating that Rule 2(a) of the General Interpretative Rules, which allows classification of incomplete or unfinished articles as complete articles if they have the essential character of the complete article, did not apply. The court reasoned that the components were imported at different times and from different entities, and thus, did not meet the criteria for classification as a complete motor vehicle.

The court also referenced the 1997 circular, which clarified that if essential components like the engine, gearbox, chassis, etc., are not imported together but are sourced locally, the import cannot be considered as having the essential character of a complete motor vehicle.

The court dismissed the Revenue's reliance on the Supreme Court's decision in Westinghouse Saxby, noting that it dealt with Rule 3(a) of the General Interpretative Rules, whereas the present case involved Rule 2(a).

Conclusion:
The court dismissed the writ petition, upholding the AAR's ruling that the imports in question should be classified under their respective headings/sub-headings of the Customs Tariff Act, 1975. The court found no reason to interfere with the AAR's order, emphasizing that any change in facts could lead to appropriate proceedings in accordance with the law.