CUSTOMS AUTHORITY FOR ADVANCE RULINGS

NEW CUSTOM HOUSE, BALLARD ESTATE, MUMBAI - 400 001

E-MAIL: cus-advrulings.mum@gov.in

in

Application No. CAAR/CUS/APPL/27,28,29,30/2023 -O/o Commr-CAAR-MUMBAI

Ruling

M/s MRF Ltd. (hereinafter referred to as 'the applicant') filed four applications for advance ruling before the Customs Authority for Advance Ruling, Mumbai (CAAR) under the provisions of Section 28 H 2 (a) & (b) of the Customs Act, 1962. The said applications, along with enclosures, were received in the secretariat of CAAR, Mumbai on 03.01.2023, in terms of Section 28H (1) of the Customs Act, 1962 (hereinafter referred to as the 'Act'). The applicant is seeking advance rulings on the classification of Compounded Rubber under CTH 4005 1000.

2. The Applicant is a regular importer of raw materials needed in the manufacture of tyres and clearing tyres for domestic market and also export tyre to other countries following due process of law applicable for import, manufacture and clearance.

2.1 Applicant proposes to import approximate quantity of 72,000 Tonnes per annum compounded rubber from the suppliers in Thailand, Malaysia, Indonesia, Vietnam and through Chennai Port, Kattupalli Port, Ennore Port, Nhava Sheva Port, Cochin Port and Hazira Port and has sought the Ruling under Section-28(H) 2(a) of Customs Act, 1962 for the import of compounded rubber with Carbon Black or Silica or Styrene Butadiene Rubber (SBR) which is specifically covered under tariff heading 4005 10 00. It is submitted that there is no issue of import license for import of compound rubber with carbon black or silicon classified under CTH 4005 1000. It is also submitted that there is no issue relating to Import Policy Classification under Customs Tariff currently pending or already decided by the department or in the appellate forum. However, in order to obtain certainty in the customs rate of duty, the Applicant is seeking classification from Customs Authority for Advance Ruling on future import of

I. compounded rubber with less than 5 parts of carbon black, (or)

II. compounded rubber without carbon black but with less than 5 parts of SBR (Styrene Butadiene Rubber), (or)

III. compounded rubber without carbon black but with less than 5 parts of clay, appropriately classifiable under CTH 4005 1000.

IV. The Applicant also claims Nil rate of duty vide Sr. No. 503 of Notification 41/2019 dated 31-12-2019 as amended, issued under sub-section 1 of section 25 of Customs Act, 1962.

2.2 Earlier the applicant had imported compound rubber through B/E No. 5498937 dt. 18/09/2021 and got the sample tested in Customs Lab which had stated that sample is in the form of black coloured soft lumps of irregular shape and size and that it was composed of compound rubber. The bill of entry was assessed under CTH 4005 10 00 applying Notification benefit under Notification 41/2019 dated 31/12/2019 (46/2011) as amended. Though the applicant did not face any problem on import of a sample consignment of compound rubber through Chennai Customs, the applicant intends to import substantially large consignments of compound rubber through multiple ports in the above stated category so as to increase applicant's manufacturing activities. In order to safeguard the interest of applicant and to avoid dispute, ruling is sought from the Customs Authority for Advance Ruling under section 28(H) 2(a) and (b) of Act.

3. The applicant further submits that they would fulfil the conditions prescribed under the said notification. The Certificate of Origin required for availing the benefit of the Notification would be obtained at the time of import and the same would be kept ready at the time of clearance of the subject goods. Conditions prescribed under N T Notification 189/2009 would be followed by the applicant. Applicant's interpretation of law and facts are as follows:

1. The classification of imported goods is governed by Customs Tariff Act 1975. The first Schedule specifies nomenclature that is based on the Harmonised Commodity description. The pattern of arrangement of goods in the Tariff is in increasing degree of manufacture of commodities/ products in the sequence of natural products, raw material, semi-finished goods and fully finished goods/ articles machinery etc. the section Notes explains group of chapters. The chapter consist of Chapter Notes, brief description of commodities arranged at four-digit, six-digit and eight-digit level. Every four-digit level is heading, six-digit is called sub heading, and eight-digit is called tariff item. India has developed eight-digit code. The process of arriving at a particular heading or sub heading either at four-digit, six-digit or eight level for a commodity in the tariff schedule is called classification. The title, sections, chapters and sub chapter are provided for ease of reference only.

2. General Interpreative Rules are a set of 6 rules for classification goods in the tariff Schedule. These Rules have to be applied in sequential manner.

• Rule 1 gives precedence to the section notes and chapter notes.

• Rule 2(a) applies to goods imported in incomplete/finished, assembled/unassembled condition.

• Rule 2(b) is applicable to mixture or composite goods. Goods which cannot be classified under 2(b) will be classified under Rule 3 by application of most specific description as per Rule 3(a); Rule 3(b) essential character, 3(c) heading that occurs last in numerical order.

• Rule 4 applies to goods which are most akin.

• Rule 5 applies to packing material and

• Rule 6 applies to arrive appropriate sub-heading within heading.

While classifying goods the most important consideration is to be statutory definitions. In their absence, common parlance words will be applied. Trade meaning is also given due importance in classifying goods. The Board issues Tariff advices and Advance Rulings is binding on the party that is on the applicant and on the concerned Commissionerate.

3. In the instant case, since the description of goods is specifically mentioned as compounded rubber with carbon black or silica under CTH 4005 10 00, Rule 3(a) is applicable in classifying the goods to be imported by the applicant. In this connection the Applicant relies upon Hon'ble Supreme Court decision reported in 2022 (7) TMI 471-Supreme Court in the case of D.L. Steels ETC. Versus Commissioner of Customs and Central Excise, Amritsar, wherein the Hon'ble S.C. has elaborately discussed Customs classification based on the guidelines provided under GIR and HSN.

4. In response to the CAAR-1 application the jurisdictional Customs Commissionerate of port Hazira furnished their comments on the merit of the question on which advance rulings is sought are as follows:-

a. The applicant, viz, M/s MRF Limited, No. 114, Greams Road, Chennai, Tamil Nadu-600006, vide their letter dated 15.02.2023, sought classification for import of goods i.e. Compounded Rubber and sought clarification/ certainty from Customs Authority for Advance Ruling on future import of Compounded Rubber with differentiating three types of compounded rubber with classification under 4005 1000.

b. While seeking the Advance Ruling, they have mentioned a previous Bill of Entry No. 5498937 dated 18.09.2021 vide which they imported the above mentioned goods from Chennai, availing benefit of Notification No. 46/2011-Cus.. In the aforementioned consignment, the importer got the sample tested in CRCL, which has stated that the sample is of compounded rubber.

c. In this regard, it is pertinent to mention that Chapter Heading for Chapter 4005 stands for "Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip". Further, the same is clarified vide Chapter Heading that the heading covers "compounded rubber which is unvulcanised and is in primary forms or in plates, sheets or strips." As mentioned in said Chapter Heading "Unvulcanisation" is a crucial and differentiating part whether to classify the goods under HSN 4005 1000 or otherwise.

d. Customs, Hazira Port has gone through the various consignments of rubber being imported in past one year and found NIL Bills of Entry classified under 4005 1000. Further, in terms of classification, the important factor which speaks about the goods is whether the goods are vulcanized or not. The applicant, vide their submission, has failed to describe exact quality of the goods, though they may be compounded with various additives and chemicals, they cannot be classified in 4005 1000, if the same are vulcanized.

e. Vulcanization of rubber is a complex process, which involves treatment of raw / natural rubber with Sulphur and other chemicals to make it more durable. Sulphur is an integral part of compounding because it forms cross links with natural rubber making it more durable and elastic appropriate to manufacture tyres etc. Thus, rubber compounding can be done using various methods and using various chemicals, however compounding with Sulphur, which is essentially vulcanizing, restrict importer to classify them under 4005 1000.

f. It is further informed that the applicant, while submitting the facts vide their application dated 15.02.2023 for seeking CAAR, failed to address the prime feature of goods that is if the intended goods i.e. compounded rubber is vulcanized or not. Further they also failed to provide the composition of the material they intend to import.

g. Therefore, in absence of accurate information about the exact composition of the goods, this office cannot comment on appropriate classification.

h. In this regard, ruling No CAAR/Mum/ARC/16/2021 may also be referred vide which it's been correctly mentioned in Para 1 that the goods which are not vulcanized with Sulphur do fall under HSN 4005 1000.

In support of what is mentioned at 'e' above concerned jurisdictional Customs Commissionerate has also enclosed some technical literature.

5. A personal hearing in this matter was conducted in a virtual mode on 20.4.2023 in which applicant's representatives advocate Shri. Ramkumar and authorized representative Shri. Abu, Additional Commissioner Chennai Customs Shri. Pandiraja and Deputy Commissioner Shri. Phani participated. Response to CAAR-1 application received from the Customs Commissionerate, Ahmedabad for the port of import Hazira is already on the record and the same was discussed during the course of hearing. It was specifically brought to the knowledge of the applicant's representatives that the term 'unvulcanised' is very critical in deciding the classification. Applicant had not disclosed the chemical composition of the proposed imports of compounded rubber, unvulcanised in their CAAR-1 application. In response to the reply on the behalf of Hazira port applicant had submitted the rejoinder dated 6.4.2023 and enclosed a list of three tables describing the chemical ingredients of three different compounded rubbers along with a footnote that "all the above 3 mentioned compounds contain no curing agents (vulcanizing chemicals). Hence the compound will remain as un-vulcanised rubber".

5.1 On pointing out the description of goods under CTH 4005 1000 to the applicant vis-a-vis chemical composition of three different compounded rubber formulations mentioned in the rejoinder the applicant's representatives immediately acknowledged that the two of the three formulation mentioned in their rejoinder (reproduced below) do not contain either silica or carbon black to be able to classify under tariff entry 4005 1000 and hence the duty exemption benefit under serial number 503 of the notification 46/2011-Cus read with notification 189/2009 (N.T.)-Cus. is not applicable to these two products.

I find that the present CAAR-1 application is seeking a ruling under Section 28 H 2 (a) on classification under CTH 4005 1000 of the first schedule of the Customs Tariff Act, 1975, and Section 28 H 2 (b) on duty exemption benefit under serial no. 503 of Notification 46/2011 issued under section 25 (1) of the Customs Act, 1962 read with notification 189/2009 (N.T.) in respect of following compounded rubber formulations.

Compounded rubber formulation 1 (with less than 5 parts of Carbon Black):

5.2 In their application they have pointed out the reason for applying before the CAAR, Mumbai for obtaining the ruling on the correct classification of their proposed imports. Since applicant is a manufacturer and wants to bring significant quantity of unvulcanised compounded rubber as a raw material for the manufacturing of tyres they need the certainty on the issues of tax incidence as well as eligibility of duty exemption benefit under notification issued under section 25(1) of the Customs Act, 1962. I observe that the applicant has stated that the description of proposed imported goods is specifically mentioned as compounded rubber with Carbon Black or Silica under CTH 4005 1000 the Rule 3 (a) of General Rules for the Interpretation of First Schedule to the Customs Tariff Act, 1975 would apply to their case.

5.3 In their support they have also submitted the US (HNSUS) Cross rulings on the issue of classification of unvulcanised compounded rubber issued by the US Advance Ruling Authority in 1996 and 2019.

5.4 I have perused the records of the case - CAAR.-1 application, reply from jurisdictional commissionerate, rejoinder of the applicant and also the legal framework governing the classification of proposed imports in the form of relevant section VII notes, chapter 40 notes, supplementary notes, notifications 46/2011 and 189/2009 and HSN Explanatory Notes to the chapter headings.

It is already mentioned that earlier the applicant had imported compound rubber through B/E No. 5498937 dtd. 18/09/2021 and got the sample tested in Customs Lab which had stated that 'the sample is in the form of black coloured soft lumps of irregular shape and size and that it was composed of compound rubber'. The bill of entry was assessed under CTH 4005 10 00 applying Notification benefit under Notification 41/2019 dated 31/12/2019 (46/2011) as amended. Here, on perusal of records, I find that the report has not mentioned unvulcanised status of the sample tested. Customs tariff heading 4005 reads as "Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip" and from the description itself it is clear that the tariff heading 4005 accommodates only unvulcanised compounded rubber. It is further stated by the applicant that though the applicant did not face any problem on import of a sample consignment of compound rubber through Chennai Customs, the applicant intends to import substantially large consignments of compound rubber through multiple ports in the above stated category so as to increase applicant's manufacturing activities. In order to safeguard the interest of applicant and to avoid dispute, ruling is sought from the Customs Authority for Advance Ruling under section 28(H) 2(a) and (b) of Act. The applicant further submits that they would fulfil the conditions prescribed under the said notification. The Certificate of Origin required for availing the benefit of the Notification would be obtained at the time of import and the same would be kept ready at the time of clearance of the subject goods. Conditions prescribed under Notification 189/2009 (N.T.) would be followed by the applicant.

From the standpoint of provisions of the Tariff, as discussed in foregoing para, it is seen that the Customs tariff heading 4005 reads as "Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip". It is amply clear that the tariff heading 4005 accommodates only unvulcanised compounded rubber. Further subheadings under this heading relevant for present application are

4005 1000: Compounded with carbon black or silica

4005 9990: Other

HSN Explanatory Notes to heading 4005 state that this heading includes

(A) Rubber compounded with carbon black or silica (with or without mineral oil or other ingredients): This category includes carbon black masterbatch consisting of approximately 40-70 parts of carbon black to 100 parts of dry rubber; it is usually marketed in bales.

(B) Compounded rubbers not containing carbon black or silica: These contain substances such as organic solvents, vulcanising agents, accelerators, plasticisers, extenders, thickeners and fillers (other than carbon black or silica). Some of them may contain red clay or protein.

These two categories include the following types of product:

(f) CompOunded Rubber latex (including pre-vulcanised latex) provided that as a result of compounding it has not acquired the character of a preparation more specifically described in another heading of the nomenclature. Thus, the heading excludes, inter alia, latex varnishes and paints (Chapter 32).

(2) Dispersions and solutions of unvulcanised rubber in organic solvents, used for the manufacture of dipped articles or for coating finished articles.

(3) Plates, sheets and strip, consisting of textile fabrics combined with compounded rubber, weighing more than 1,500 g/m2 and containing not more than 50 % by weight of textile material. Such products are obtained either by calendering or by "gumming" or by a combination of both processes. They are used mainly for the manufacture of tyres, tubes, pipes, etc.

(4) Other plates, sheets and strip of compounded rubber which may be used, for example, for repairing tyres or inner tubes (hot process), for the manufacture of adhesive patches, washers for certain airtight seals, rubber granules, etc., for moulding rubber soles.

(5) Compounded rubber in the form of granules, ready for vulcanisation, and used as such for moulding purposes (e.g., in the shoe-making industry).

The chapter note 3 to the chapter 40: Rubber and articles thereof reads as follows:

"In headings 4001 to 4003 and 4005, the expression "primary forms" applies only to the following forms:

a) Liquids and pastes (including latex, whether or not pre-vulcanised, and other dispersions and solutions);

b) Blocks of irregular shape, lumps, bales, powders, granules, crumbs and similar bulk forms."

Further, the chapter note 3 to the Chapter 40: Rubber and articles thereof reads as follows:

"In headings 4001, 4002, 4003, 4005 and 4008, the expressions "plates", "sheets" and "strip" apply only to plates, sheets and strip and to blocks of regular geometric shape, uncut or simply cut to rectangular (including square) shape, whether or not having the character of articles and whether or not printed or otherwise surface-worked, but not otherwise cut to shape or further worked."

As rightly pointed out by the jurisdictional Customs Commissionerate of Hazira Port it is clear that the compounded rubber has to be in unvulcanised state for its classification under the heading 4005 and any chemical test report should specifically state the unvulcanised or vulcanized status of the goods.

5.5 In addition to the issue of classification the applicant wants to ascertain the eligibility for duty exemption benefit under notification 46/2011-Cus. amended from time to time in the context of free trade agreement between the ASEAN countries and India. I have perused this notification. Goods are proposed to be imported from Thailand, Indonesia, Malaysia and Vietnam. It is very clear that the benefit of duty exemption can be availed only after fulfilling the conditions of the notification 1 89/2009 governing the free trade agreement - Customs Tariff [Determination of Origin of Goods under the preferential trade agreement between the Governments of the States of ASEAN and the Republic of India] Rules, 2009. Most important criteria under this FTA related to the origin of the goods. Applicant has specifically mentioned in their application that they will produce the necessary documents like country of origin certificate from the appropriate authority before the jurisdictional Customs authorities in India at the time of importation of the proposed imports.

5.6 I find that in the present case the most significant factor for deciding the classification is a chemical composition and characteristics of the proposed imports assuming that all other mandatory legal requirements are met by the applicant. In this context the reply of Hazira port forwarded through Ahmedabad Customs Commissionerate is very relevant. It is also important to note that the ruling will be applicable only to the chemical composition and characteristics described by the applicant during the process conducted for issuing an advance ruling. Whether the product - compounded rubber - is vulcanized or unvulcanised, for deciding eligibility of classification under Customs Tariff Heading 4005, can be ascertained only after subjecting the samples of the imported goods drawn by the concerned agency to the chemical composition test. During the course of Customs Compliance Verification (CCV) it will be jurisdictional Customs authorities' responsibility to check whether all conditions necessary for claiming the benefit of duty exemption under the AIFTA are met by the importer and these include correct chemical composition of the imported products for a given classification, fulfilment of conditions related to origin criteria etc.

5.7 However, based on the submissions of the applicant I take up the classification and duty exemption eligibility of three compounded rubber formulations submitted by the applicant and reproduced in the tables in para 5 above.

A . Compounded rubber formulation 1:

It is observed that this formulation contains carbon black in 2.6 % with a tolerance of +/- 5%. Tariff entry 4005 1000 reads as Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip - compounded with carbon black or silica. Here applicant has claimed that the compounded rubber formulation mentioned in the table is unvulcanised. Hence I find that presence of either of carbon black or silica in unvulcanised compounded rubber of heading 4005 is sufficient to classify this formulation under tariff entry 4005 1000. However, presence of zinc oxide and stearic acid in this formulation requires examination from the point of view of checking whether this formulation is still in a unvulcanised state or not. Applicant has categorically submitted that the presence of zinc oxide and stearic acid in this formulation is not as an active agent or vulcanizing agent. Claim of applicant is required to be objectively proved by way of an outcome of the chemical composition test conducted at the time of importation of goods.

5.8 B . Compounded rubber formulation 2:

It is observed that this formulation does not contain either carbon black or silica. Tariff entry 4005 1000 reads as Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip - compounded with carbon black or silica. Hence I find that presence of either of carbon black or silica in unvulcanised compounded rubber of heading 4005 is required to classify this formulation under tariff entry 4005 1000. HSN Explanatory Notes to heading 4005 state that this heading includes Compounded rubbers not containing carbon black or silica. Further such compounded rubber may contain substances such as organic solvents, vulcanising agents, accelerators, plasticisers, extenders, thickeners and fillers (other than carbon black or silica). Some of them may contain red clay or protein. However, absence of both Carbon black as well as silica renders this formulation unfit for classification under tariff entry 4005 1000 and subsequent duty exemption benefit under AIFTA under serial no. 503 of the notification 46/2011-Cus. amended from time to time.

Further, presence of zinc oxide and stearic acid in this formulation requires examination from the point of view of checking whether this formulation is still in a unvulcanised state or not. Applicant has categorically submitted that the presence of zinc oxide and stearic acid in this formulation is not as an active agent or vulcanizing agent. Claim of applicant is required to be objectively proved by way of an outcome of the chemical composition test conducted at the time of importation.

5.9 C . Compounded rubber formulation 3:

It is observed that this formulation does not contain- either carbon black or silica. Tariff entry 4005 1000 reads as Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip - compounded with carbon black or silica. Hence I find that presence of either of carbon black or silica in unvulcanised compounded rubber of heading 4005 is required to classify this formulation under tariff entry 4005 1000. HSN Explanatory Notes to heading 4005 state that this heading includes Compounded rubbers not containing carbon black or silica. Further such compounded rubber may contain substances such as organic solvents, vulcanising agents, accelerators, plasticisers, extenders, thickeners and fillers (other than carbon black or silica). Some of them may contain red clay or protein. However, absence of both Carbon black as well as silica renders this formulation unfit for classification under tariff entry 4005 1000 and subsequent duty exemption benefit under AIFTA under serial no. 503 of the notification 46/2011-Cus. amended from time to time.

In view of scope of tariff headings under CTH 4005 of the first schedule to the Customs Tariff Act, 1975 Compounded rubber formulation 2 (without Carbon Black but with less than 5 parts of SBR -Styrene butadiene rubber) and Compounded rubber formulation 3 (without Carbon Black but with less than 5 parts of clay) mentioned in para 5.1 merit classification under CTH 4005 99 90: Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip - 'Other' and are not eligible for duty exemption benefit under serial number 503 of the notification 46/2011-Cus. dated 1.6.2011 amended from time to time. However, they are eligible for partial duty exemption benefit under serial number 504 of the Notification 46/2011 Cus. dated 1.6.2011 amended from time to time subject to the fulfilment of conditions of the said notification.

5.10 At the cost of repetition, it is to mention that the presence of zinc oxide and stearic acid in this formulation requires sample testing post-importation from the point of view of checking whether this formulation is still in a unvulcanized state or not. Applicant has categorically submitted that the presence of zinc oxide and stearic acid in this formulation is not as an active agent or vulcanizing agent. Claim of applicant is required to be objectively proved by way of an outcome of the chemical test conducted at the time of importation. This aspect of product testing is a part of Customs Compliance Verification (CCV) process after importation of goods. Jurisdictional Customs Commissionerate carries out process of testing of imported goods with the help of concerned agencies to cross-examine accuracy of declaration of goods in the import documents namely a Bill of entry and it's supporting documents before an out of charge (OOC) is granted. Hence the utility of the claim of applicant that the presence of zinc oxide and Stearic acid in this formulation is not as an active agent or vulcanizing agent is limited only to support applicant's contention, during advance ruling process, that the goods will not be in a vulcanized state.

5.11 Based on foregoing I rule that

a. Compounded rubber formulation 1 (with less than 5 parts of Carbon Black) mentioned in para 5.1 merits classification under CTH 4005 1000 Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip - compounded with carbon black or silica and is eligible for duty exemption benefit under serial number 503 of the notification 46/2011-Cus. dated 1.6.2011 amended from time to time subject to the fulfilment of conditions of the said notification as well as notification 189/2009-Cus. (N.T.) dated 31.12.2009 amended from time to time,

b. Compounded rubber formulation 2 (without Carbon Black but with less than 5 parts of SBR -Styrene butadiene rubber) mentioned in para 5.1 merits classification under CTH 4005 99 90 Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip -Other and is eligible for duty exemption benefit under serial number 504 of the notification 46/2011-Cus. dated 1.6.2011 amended from time to time subject to the fulfilment of conditions of the said notification as well as notification 189/2009-Cus. (N.T.) dated 31.12.2009 amended from time to time.

c. Compounded rubber formulation 3 (without Carbon Black but with less than 5 parts of clay) mentioned in para 5.1 merits classification under CTH 4005 99 90 Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip -Other and is eligible for duty exemption benefit under serial number 504 of the notification 46/2011-Cus. dated 1.6.2011 amended from time to time subject to the fulfilment of conditions of the said notification as well as notification 189/2009-Cus. (N.T.) dated 31.12.2009 amended from time to time.

(Narendra V. Kulkarni)

Customs Authority for Advance Rulings,

Mumbai