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TMI Blog2003 (6) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ines in unassembled condition which on assembly would have the essential character of the complete or finished article. No doubt of the Respondents would need some local components to complete the assembly of engine. But that fact cannot make Rule 2(a) inapplicable as Rule 2(a) is there to be invoked in such cases only for the purpose of determining the classification of the product. There is no force in the submission of the learned Sr. Advocate that Rule 2(a) speaks of an article and in the present case, article is component of engine which is complete or finished and it should be classified as such. The Explanatory Notes below Section XVI of H.S.N. explains the applicability of Rule 2(a) by providing that a machine lacking only a fly wheel, a bed plate, calender rolls, tool holders, etc. is classified in the same heading as the machine, and not in any separate heading provided for parts. Thus, it is apparent that some part may not be there and procured separately. What is necessary for the application of Rule 2(a) is that article, as presented, has the essential character of the complete or finished article. The Note further mentions that no account is to be taken in that regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be substituted for functional character of an article/machine; that all functional components cannot be said to be essential; that what imparts the essential character to a machine are only the essential components without which the machine would loose its very identity or its continued existence. She mentioned that as per the Rule 2(a) of the Interpretative Rules, an article which is incomplete or unfinished but which has the essential character of the complete or finished article should also be classified as the complete article and the complete or finished articles presented unassembled or disassembled would also be classifiable as the complete article; that applying the said Rule, a complete engine has been imported in unassembled condition; that as per Explanatory Notes of H.S.N., a machine taking only a fly wheel, a bed plate, calender rolls, tool holders, etc., is classified in the same heading as the machine and not in any separate heading provided for parts. She contended that in view of this, it is apparent that cylinder, piston, connecting rod, crank shaft, inlet and exhaust valves when taken together give an engine its essential character/feature of conversion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en M/s. Mitsubishi Motors Corporation and M/s. Hindustan Motors Ltd. She finally submitted that Rule 2(a) clearly stipulates that even if 100% components are not imported they still are to be assessed to duty as complete article provided that they have essential character of the complete or finished article. She relied upon the decision in Universal Commercial Corpn. v. Collector of Customs, Delhi - 1994 (69) E.L.T. 150 (T) wherein it has been held that the word essential character occurring in Rule 2(a) cannot be interpreted to mean functional character ; that in this case the Tribunal has held that the imported goods have the essential character of air-conditioning machine though they may be incomplete air-conditioning and other parts are also required to make it a functional air-conditioner. 5. Countering the arguments, Shri M. Chandrasekharan, learned Sr. Advocate, submitted that the Respondents have imported only components of engines; that the imported goods are not CKD kits; that Clause 1.3 of the Agreement refers to parts and components of engines; that further as per Clause 3.2 of the said Agreement, M/s. Mitsubishi have to send their personnel to the Respondents to give t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Larger Bench of the Tribunal in Sony India Ltd. v. C.C., ICD, New Delhi - 2002 (143) E.L.T. 411 (Tri.-LB) = 2002 (50) RLT 885 (Para 24) which refers to the complex manufacturing process undertaken by M/s. Sony India Ltd. The learned SDR countered by contending that it is clear from Para 24 of the decision in Sony India case that the components were subjected to working operation which is not so in the present matter. 6.2 The learned Sr. Advocate again emphasized that the Revenue s case is that when the components imported by them are assembled, they would have the essential character of Engines; that Rule 2(a) is to be applied to what is being imported; that the import by the Respondent is of components which are complete and finished; that what are being presented are components; that the second part of Rule 2(a) would apply only when all the parts are imported which they are admittedly not importing. 7. We have considered the submissions of both the sides. The fact which is not in dispute is that M/s. Hindustan Motors Ltd. imported components of diesel/petrol engines from their collaborator and procured some parts locally also. It is the contention of the Revenue that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early shows that all the parts were imported under one Bill of Entry and not over a period of time. Nothing has been brought on record before us to rebut the material adduced by the Revenue to prove that each invoice was not in respect of sets of engines. This supports the case of the Revenue that the engines need not be assembled by combining the goods imported over a period of time. Once the Revenue has succeeded in showing that what was imported under one Bill of Entry were sets of engine in unassembled form and once they are assembled would have the essential character of engine, the findings in the impugned order cannot be upheld. 9. The next question to be considered is whether Rule 2(a) of General Rules for the Interpretation of Customs Schedule is applicable to the facts. Rule 2(a) reads as under : Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond part of Rule (a) hundred per - cent parts should be imported in unassembled or disassembled condition. The Explanatory Notes of H.S.N. does not support the said view as it clearly mentions that The second part of Rule 2(a) provides that complete or finished article presented unassembled or disassembled are to be classified in the same heading as the assembled article..... This Rule also applies to incomplete or unfinished article presented unassembled or disassembled provided that they are to be treated as completed or finished articles by virtue of the first part of this Rule. This is also further clarified in Explanatory Notes of HSN to Section XVI wherein it is mentioned that machines transported in an unassembled state, although in effect the goods are then a collection of parts, are classified as being the machine in question and not in any heading for parts . The same applies to an incomplete machine having the features of the complete machine presented unassembled. Further Explanatory Notes of HSN below Chapter 89 mentions that Complete vessel presented unassembled, and hulls, unfinished or incomplete vessels (whether assembled or not), are classifiable as vessels of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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