CUSTOMS AUTHORITY FOR ADVANCE RULINGS
NEW CUSTOM HOUSE, BALLARD ESTATE, MUMBAI-400001
[Email:cus-advrulings.MUM@gov.in]
Application no:- CAAR/CUS/APPL/42/2024-O/o Commr-CAAR-MUMBAI
CEE DEEYES IT Park, Block No. 1, No.63, Rajiv Gandhi Salai, Navalur, Chennai - 600 130.
{Email: dinesh-raja.r@valco.com}
Ruling
M/s. Valeo India Private Limited (IEC No.: 0508058899) (hereinafter referred to as 'the Applicant') Filed an application (CAAR-1) for advance ruling in the Office of Secretary, Customs Authority for Advance Ruling (CAAR) Mumbai. The said application was received in the secretariat of the CAAR, Mumbai on 07.05.2024 along with its enclosures in terms of Section 28H(1) of the Customs Act, 1962 (hereinafter referred to as the 'Act also'). The applicant is seeking advance ruling on the issue of classification of the "High Voltage Coolant Heater", used to heat the coolant in electric vehicles under CTH 8419 8990 as heating equipment or CTH 8516 as electrical heaters or under CTH 8708 as parts of motor vehicles or otherwise.
2. Submission by the Applicant:
2.1 Valeo India Private Limited ("the Applicant"), is a Private Limited company/ engaged in the manufacture of automobile components and has a strong presence in areas of Mechanical Design, Simulation, Embedded Software Development, Vision Systems Software and Hardware and Functional Safety Design.
2.2 The applicant is proposing to import High Voltage Coolant Heater (hereinafter referred to as "HVCH/ the Coolant Heater/ the subject goods"). A Coolant Heater is used to heat the coolant in Electric Vehicle, which in turn used for battery pre- heating and cabin heating during winter season.
2.3 The Coolant heater consists of a housing, with an inlet and outlet pipe, allowing the flow of coolant into and out of the heater. Inside the housing, there's a heating clement in direct contact with the coolant. The electric heating clement generates heat when electricity flows through it. The heating of the coolant takes place by conduction of heat generated by heating clement. This setup allows heat to transfer from the heater to the electric vehicle battery.
2.4 A thermistor (a device to measure the temperature) is positioned in the housing to output a signal indicative of a temperature of the battery coolant. A controller energizes the heating element when the signal represents that the coolant temperature is less than a predetermined lower limit. The inflow of the coolant is controlled by vehicle side coolant pump.
2.5 The Heating Coil is made up of Nickel Chromium Alloy Resistance wire. The heating element is connected to Insulated Gate Bipolar Transistors (IGBTS) in the controller which is connected with supply connector, and this is how electricity is supplied to the heating element. The normal operating voltage of the Coolant Heater is 350V.
2.6 A diagram of the product along with the bracket assembly used for mounting and imported along with the Coolant Heater is shown
3. Applicants interpretation of Law/Facts:
3.1 Applicant states that the first schedule to the Customs Tariff Act, 1975 sets out the General Rules of Interpretation ("GRIs") which are to be applied to determine classification under the Customs Tariff.
3.2 GRI 1 provides that classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the section notes and chapter notes do not otherwise require, the remaining GRIs may then be applied.
3.3 The Section Notes or Chapter Notes and Sub-Heading Notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters. These notes have been given statutory backing and have been incorporated at the beginning of each Chapter.
3.4 In the case of Commissioner of Central Excise vs. Simplex Mills Co. Ltd, [2005 (181) E.L.T. 345 (S.C)], it was held that according to Rule 1, titles of Section and Chapters in the Schedules are provided for ease of reference only. For legal purposes, classification shall be determined according to the terms of the headings and any relevant section or Chapter Notes. The other rules for interpretation shall be required only when the relevant Heading or Section Notes are not sufficient to lead to a definitive classification.
3.5 In the case of import by applicant, the entries which merit consideration primarily are tabulated hereunder:
Classification under CTH 84198990
3.6 Chapter 84 of the First Schedule to the Customs Tariff Act, 1975 covers goods, described as "Nuclear Reactors, Boilers, Machinery and Mechanical Appliances; Parts Thereof'. The chapter falls under Section XVI, titled "Machinery and Mechanical Appliances; Electrical Equipment; Parts Thereof; Sound Recorders and Reproducers, Television Image and Sound Recorders and Reproducers; and Parts and Accessories of such articles".
3.7 Chapter Heading 8419 reads as under:
"84.19 - Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, non-electric. "
3.8 Notably, Chapter Note 2 (A) to Chapter 84 reads as under:
a) heading 8419 does not, however, cover:
(i) germination plant, incubators or brooders (heading 8436);
(ii) grain dampening machines (heading 8437);
(iii) diffusing apparatus for sugar juice extraction (heading 8438);
(iv) machinery for the heat-treatment of textile yarns, fabrics or made up textile articles (heading 8451); or
(v)Machinery, plant or laboratory equipment, designed for a mechanical operation, in which a change of temperature, even if necessary, is subsidiary.
3.9 The HVCH proposed to be imported by the applicant is used to heat the coolant in electric vehicles. Given the function of the HVCH, the heating function is the primary function of HVCH and therefore the HVCH does not fall within any of the excluded categories and therefore not excluded from CTH 8419.
3.10 The HSN Explanatory Notes under the heading 8419 describe the nature of the equipment covered under this heading thus:
"With these exceptions, the heading covers machinery and plant designed to submit materials (solid, liquid or gaseous) to a heating or cooling process in order to cause a simple change of temperature, or to cause a transformation of the materials resulting principally from the temperature change (e.g., heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling processes). But the heading excludes machinery' and plant in which the heating or cooling, even if essential, is merely a secondary function designed to facilitate the main mechanical function of the machine or plant, e.g., machines for coating biscuits, etc., with chocolate, and conches (heading 84.38), washing machines (heading 84.50 or 84.51), machines for spreading and tamping bituminous road surfacing materials (heading 84.79). "
3.11 Further, as per the HSN explanatory notes, machinery and plant falling within this heading may or may not incorporate mechanical equipment and can be heated by any system such as coal, oil, gas, steam, or electricity. In addition, this heading encompasses only nondomestic equipment, with exceptions made for instantaneous or storage water heaters, which are classified in heading 8516.
3.12 Some of the exception from the heading 8419. which are classifiable under the heading 8516 are also described in the HSN Explanatory Notes at page XVI-8419-1 and XVI-8419-2, under the heading 8419 as under:
"It should be noted that this heading does not include :
(a) - (p)----
(q) Immersion heaters, not permanently incorporated for heating liquids, semifluid (other than solid) substances or gases, as well as immersion heaters permanently incorporated in a vat and designed for water heating only (heading 85.16).
(r) Electric soil heating apparatus, electric space heating apparatus, and electro-thermic domestic appliances of heading 85.16. "
3.13 In the case of HVCH in question, the only role is to subject the coolant to the heating process and therefore the primary role of this equipment is subjecting the coolant to a heating process. Further the HVCH operates through electricity which is supplied to the heating elements placed inside the Aluminium cylinder.
3.14 HVCH can thus be regarded as a, 'Machinery, plant or equipment, electrically heated for the treatment of materials by a process involving a change of temperature such as heating.... which are specifically covered under the heading 8419.
3.15 The sub-headings under the heading 8419 include the following:
3.16 The HVCH under consideration is an electric heater that heats coolant instead of water. Thus, classification under Instantaneous or storage water heaters would not be covered under this heading. The subject goods also do not clearly fall under dryers or distilling or rectifying plant.
3.17 In case of Heat Exchange Units, a hot fluid (hot gas, steam or hot liquid) and a cold fluid are made to traverse parallel paths, but usually in opposite directions, separated by thin metal walls in such a manner that the one fluid is cooled and the other heated. These units are usually of the three following types, viz., in the form of:
(i) Concentric tube systems: one fluid flows in the annular interval, the other in the central tube.
(ii) A tubular system for the one fluid, enclosed in a chamber through which flows the other fluid or
(iii) Two parallel scries of interconnected narrow chambers formed of baffle plates.
3.18 Hot and cold fluids do not transverse parallel paths in the HVCH and thus, classification under Heat Exchange Unit is also precluded.
3.19 In their Ruling No N263439 April 30, 2015 the American Customs was dealing with a Wesbasto High Voltage Heater (HVH), item number 9031166. The HVH was an electrically driven heat source designed to be placed in the engine room or the underfloor of electric vehicles and plug-in hybrid electric vehicles. The HVH was described as a heater that uses radiant energy from the vehicle's battery to heat coolant that circulates into the vehicle's heater core, dispensing warm air into the cabin compartment of the vehicle. Depending on the circuit scheme, the heated coolant may circulate through the vehicle's engine. The HVH consisted of a heat exchanger, low and high voltage electric connectors, a coolant inlet tube, a coolant outlet tube, a printed circuit board and a ground post. This heater was held to be classifiable under CTH 8419 89 9585 under US Customs Tariff.
3.20 In their ruling HQ H065718 February 1, 2010 was dealing with a heater that directly submits the vehicle's engine coolant to a heating process by circulating the coolant through the heater's combustion chamber, where the coolant is heated by a heat exchanger. The hot coolant is then re-circulated through the vehicle's engine and HVAC heat exchanger to preheat the engine and distribute heated air to the vehicle's passenger compartment. Thus, it was now the position of the applicant that the heater in NY J88055 shall be classified in heading 8419, HTSUS, which provides for "machinery, plant or laboratory equipment, whether or not electrically heated ... for the treatment of materials by a process involving a change in temperature such as heating: Heat exchange units: Other. The American customs approved the classification of the heater under CTH 8419 5050.
3.21 Therefore, by application of GRI 1, classification under CTH 8419 can be justified. Further under the heading 8419, as no other Tariff Items cover the HVCH specifically, classification under CTH 84198990 can be justified as appropriate.
Classification under heading 8516
3.22 Another entry which merits consideration for the goods in hand is under Heading 8516, falling under Chapter 85 which reads as Electrical machinery and equipment and parts thereof: sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles.
3.23 The Heading 8516 reads as follows:
"Heading 8516 - Electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlersl curling tong heaters) and hand dryers; electric smoothing irons; other electro-thermic appliances of a kind used for domestic purposes; electric heating resistors; other than those of heading 8545. "
3.24 It could be seen from the description of the heading that the heading covers the following groups of equipment.
(a) Electric instantaneous or storage \ water heaters and immersion heaters
(b) Electric space heating apparatus and soil heating apparatus
(c) Electro-thermic hair-dressing apparatus and hand dryers
(d) Electric smoothing irons, and,
(e) Other electro-thermic appliances of a kind used for domestic purposes
(f) Electric Heating resistors
3.25 Of the groups of equipment covered by the heading 8516, the only group that could be relevant for purposes of classification of HVCH will be under the group: Electric space heating apparatus.
3.26 Moreover, the types of space heating apparatus covered under the group Electric space heating apparatus and soil heating apparatus are listed in the HSN Explanatory Notes as shown below:
"This group includes :
(1) Electric storage heating apparatus, in which electric elements heat up a solid (e.g., bricks) or a liquid which stores the heat produced and subsequently releases it, when required, to the surrounding atmosphere.
(2) Electric fires (fan heaters and radiant heaters), including portable types with parabolic reflectors and sometimes with built-in fans. Many of these fires are fitted with coloured lamps and flicker devices to imitate a coal or wood fire.
(3) Electric radiators. These are apparatus in which electric elements heat up a liquid (for example, oil) which circulates in the radiator and which then radiates the heat to the surrounding atmosphere.
(4) Convection heaters. These circulate air by convection currents, sometimes assisted by a fan.
(5) Heating panels for mounting in the ceiling or to a wall including panels producing infra-red radiation for heating public places, streets, etc.
(6) Heating units for motor cars, railway coaches, aircraft, etc., other than defrosters and demisters.
(7) Road heating equipment to prevent the formation of frost and soil heating equipment especially used to encourage plant growth, the elements of which are usually buried in the ground
(8) Engine heaters for placing beneath a car to facilitate starting. Electric central heating boilers are classified in heading 84.03. "
3.27 The equipment described above are essentially household/ domestic apparatus with the exception of the heaters for motor cars etc., which are similar to space heating apparatus. The HVCH in question is used to heat the coolant and not for any storage or space heating purposes. It cannot be regarded as a space heating apparatus as this equipment is used to heat the coolant which in turn is circulated in the electric vehicle for heating the battery and the cabin. In fact, the coolant is used primarily for heating the batteries. Therefore, the HVCH cannot be regarded as space heating apparatus.
3.28 Hence, classification of the HVCH under this group and hence under CTH 8516 may not be appropriate.
3.29 Given the fact that the HVCH in question operates through heating coil elements, it may be possible to regard the HVCH as an immersion heater. The types of immersion heaters covered under the heading 8516 are explained in the HSN Explanatory Notes thus:
"(5) Immersion heaters of different shapes and forms depending on their use, are generally used in tanks, vats, etc., for heating liquids, semi-fluid (other than solid) substances or gases. They are also designed to be used in pots, pans, tumblers, cups, baths, beakers, etc., usually with a heat-insulated handle and a hook for hanging the heater in the vessel.
They have a reinforced protective sheath which is highly resistant to mechanical stress and to seepage from liquids, semi-fluid (other than solid) substances and gases. A powder (usually magnesium oxide) with good dielectric and thermal properties holds the wire resistor (resistance) in place within the sheath and insulates it electrically.
Assemblies consisting o f immersion heaters permanently incorporated in a tank, vat or other vessel are classified in heading 84.19 unless they are designed for water heating only or for domestic use, in which case they remain in this heading. Solar water heaters are also classified in heading 84.19". (emphasis supplied)
3.30 It could thus be seen that the HSN Explanatory Note specifically indicate that assemblies of immersion heaters permanently incorporated in a tank or any other vessel will be classifiable under CTH 8419. The HVCH is one such equipment, where the heating elements are permanently fixed inside the Aluminium cylinder for heating the coolant. For this reason, also, classification under CTH 8516 can be ruled out.
Classification under Heading 8708
3.31 Chapter 87 reads as "Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof'. Chapter 87 is covered under Section XVII (vehicles, aircraft, vessels and associated transport equipment). The only possible justification for seeking classification under the heading 8708 is that the HVCH is used in an electric or a hybrid- motor vehicle.
3.32 The Applicant submitted that end use cannot determine the classification. It is a settled position of law that the goods are to be classified in the state in which their importation has taken place/ or in the state in which they have been cleared. The subsequent use of the goods cannot be a determinative factor for classification.
3.33 In CCE v. Carrier Aircon Ltd. [2006 (199) E.L.T. 577 (S.C.)], the Hon'ble Supreme Court held that end use to which the product is put to cannot be determinative of the classification of the product.
3.34 In Subros Limited vs. CC [2018 (363) ELT 0849 (Tribunal-Delhi)], the dispute related to classification of Thermistors which were intended to be used in automobiles. The assessee was classifying the goods under CTH 8533 40 30, whereas the Department sought to classify them under Tariff Item 8415 90 00 as parts of auto air-conditioners. The Hon'ble Tribunal, rejecting the classification proposed by the Department, held that classification cannot be based on ultimate use.
3.35 Thus, the fact that the HVCH in question is meant for use in electric motor vehicles of Chapter 87 is immaterial for the purpose of determining their classification.
3.36 Having said that, it is also submitted that classification of parts and accessories of motor vehicles is governed by Section Notes 2 and 3 of Section XVII and the mandatory classification requirements provided in the HSN Explanatory Notes under Section XVII, extracted below: "2.- The expressions "parts" and "parts and accessories" do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:
(a) Joints, washers or the like of any material (classified according to their constituent material or in heading 84.84) or other articles of vulcanised rubber other than hard rubber (heading 40.16);
(b) Parts of general use, as defined in Note 2 to Section XV, of base metal (Section XV), or similar goods of plastics (Chapter 39);
(c) Articles of Chapter 82 (tools);
(d) Articles of heading 83.06;
(e) Machines or apparatus of headings 84.01 to 84.79, or parts thereof other than the radiators for the articles of this Section; articles of heading 84.81 or 84.82 or, provided they constitute integral parts of engines or motors, articles of heading 84.83;
(f) Electrical machinery or equipment (Chapter 85);
(g) Articles of Chapter 90;
(h) Articles of Chapter 91;
(ij) Arms (Chapter 93);
(k) Luminaires and lighting fittings or parts thereof of heading 94.05; or
(I) Brushes of a kind used as parts of vehicles (heading 96.03).
3.- References in Chapters 86 to 88 to "parts" or "accessories" do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory.
3.37 Section Note 2 thus restricts the application of the expression "parts" and "parts and accessories" by excluding certain articles from being classified under the chapters of this section.
3.38 Further, the explanatory Note, (III) PARTS AND ACCESSORIES reads as below:
"It should be noted that Chapter 89 makes no provision for parts (other than hulls) or accessories of ships, boats or floating structures. Such parts and accessories, even if identifiable as being for ships, etc., are therefore classified in other Chapters in their respective headings. The other Chapters of this Section each provide for the classification of parts and accessories of the vehicles, aircraft or equipment concerned.
It should, however, be noted that these headings apply only to those parts or accessories which comply with all three of the following conditions:
(a) They must not be excluded by the terms of Note 2 to this Section (see paragraph (A) below), and
(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88 (see paragraph (B) below), and.
(c) They must not be more specifically included elsewhere in the Nomenclature (see paragraph (C) below). "
3.39 The principle that the terms "parts and accessories" for the purposes of Section XVII should be reckoned only after considering the exclusions specified under Note 2 to Section XVII has also been accepted by Hon'ble Supreme Court in Intel Design System (India) Pvt. Ltd vs. CC [2008 (223) ELT 135 (SC)]. In this case, the Hon'ble Supreme Court held as under:
"4. As per Rule 1 on Interpretive Rules, classification of excisable goods is to be determined according to the terms of the Heading and in terms of Section/Chapter notes. Note 2(f) to Section XVII (which governs Chapter 87) excludes the goods viz. electrical machinery and equipment (Chapter 85). The goods in question i.e. contractors, switches, control box etc. are the goods used for switching, protecting electrical circuits or for making connections to or in electric circuit. These parts/components are specifically covered under CSH 8536.90. The CBEC Circular relied upon by the assessee is not relevant.
5. As per the Explanatory Notes to HSN the parts falling under Chapter Heading 8710 would be covered under the said chapter, provided they fulfil both the conditions i.e. they must be identifiable as being suitable for use solely or principally for such vehicles and that they must not be excluded by the provisions of Notes to Section XVII. The identifiable parts under the said heading bodies of armoured vehicles and parts thereof cover special road wheels for armoured cars, propulsion wheels for tanks, tracts etc. As per this requirement, the goods should not only be identifiable to be armoured vehicles, but it should so not have been excluded by Notes to Section XVII. The Chapter note 2(f) excludes electrical machinery and equipment falling under Chapter 85. Explanatory Notes to HSN relating to the parts and accessories excluded by Note 2 specify items with reference to specific Chapter Heading as per (7) (a), (k) which excludes photographs and other current collectors for electric traction vehicles, fuses, switches and other electric apparatus of Heading No. 85.35 or 85.36. The items, therefore, manufactured by the appellants are identifiable or are in the nature of goods falling under Chapter Heading 85.36. Since these fall under the category of excluded goods under Chapter Notes, even though they are used specifically solely or principally with the armoured vehicles of Chapter Heading 8710, they are classifiable under Chapter Heading 8536.90 only as held by the adjudicating authority. "
3.40 Reference may also be made to the following recent decisions on classification of parts and accessories under CTH 8708/8174. In CCE v. Uni Products India Limited [2020 (372) E.L.T. 465 (S.C.). The issue before the Hon'ble Supreme Court was whether car malting is classifiable under CTH 5703 covering "Carpets and Other Textile Floor Coverings" or whether they would be classified under CTH 8708 which covers "Parts and accessories of the motor vehicles of headings 8701 to 8705". While ruling on classification of car matting under CTH 5703, the I lon'blc Supreme Court propounded, inter alia, the following ratio:
"a. Section Noles and Chapter Notes are of utmost importance to determine classification;
b. According to HSN Explanatory Note to Section XVII, all following three conditions must be fulfilled to classify any product as parts or accessories namely
(a) They must not be excluded by the terms of Note 2 to Section XVII, and
(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88; and
(c) They must not be more specifically included elsewhere in the Nomenclature
c. The most specific description shall be preferred to headings providing a more general description as per Rule 3(a) to GI Rules.
d. Even though HSN Explanatory Notes have persuasive value only, but the level or quality of such persuasive value is very strong, as observed in numerous judgments. "
3.41 From the above decisions, it can be seen that the articles of the headings 8419 and 8516 cannot be regarded as "parts and accessories" of motor vehicles classifiable under CTH 8708, even if they are principally designed for use with motor vehicles on account of the exclusions operating through Notes 2 (e) and (f) respectively of Section XVII.
3.42 In Westinghouse Saxby Farmer's Union v. CCE 2021 2021 (3) TMI 291, the Hon'ble Supreme Court applied the "sole or principal use" test in Note 3 to Section XVII as the exclusive test to determine whether an article should be classified as a "part of accessory" under Section XVII. Consequently, the Hon'ble Supreme Court applied the "sole or principal use" test to the prejudice of the specific exclusions under Note 2 to Section XVII.
3.43 The Hon'ble Supreme Court observed as follows:
"In terms of Note 3 to Section XVII, parts which are suitable for use solely or principally with an article covered under Chapter 86 cannot be classified under a different chapter. Note 2(f) will be applicable only to those goods which are capable of being marketed independently for use and does not apply to parts solely or principally used with an article covered under Chapters 86 to 88?'
3.44 In our view, the argument that exclusions in Note 2 and the test in Note 3 is to be cumulatively satisfied for an article to be classified as a "part or accessory" under Section XVII was not brought to the attention of the Hon'ble Supreme Court.
3.45 Meanwhile, vide Instruction No. 01/2022-Customs dated 05.01.2022, the Deputy Secretary Customs has written to various Principal Commissioners noting the following: -
The Hon'ble Supreme Court in Saxby held that the 'relays' are classifiable as parts of 'railway signalling equipment', under Heading 8608 of the Central Excise Tariff In holding so, the Court has given precedence to the 'sole or principal use ' test of Section Note 3 over Note 2(f) to Section XVII which specifically excluded 'electric equipment' from being classified under Section XVII, whether or not it is identifiable as being for the goods of that Section.
Classification of 'parts ' of goods falling under Section XVII of the Customs or Central Excise Tariff is a complex issue which has led to divergent practice. Various other judgements of Supreme Court such as Intel Designs [2008 VIL 72 SC - CE] and Uni Products [2020 (372) ELT 465 (SC)] have suitably applied the Section Notes.
However, in Saxby, the Judgments referred above have not come up for consideration and the Supreme Court has applied the 'sole or principal use ' test of Section Note 3 to the exclusion of the embargo in Note 2. Thus, Saxby appears to be at variance with the stand taken by SC in classifying other parts of goods falling under Section XVII.
Saxby has decided the classification of 'relays' used in railway signalling equipment of Chapter 86 and not parts of goods falling under Chapter 87. The judgement itself does not refer to its wider applicability to other cases or issues of a similar nature.
Thus, the classification of various parts of Section XVII is to be decided taking into account all facts, details of individual cases, all the decisions on the subject, and arrive at the appropriate classification.
The Department has filed a review petition against the judgement in Saxby.
3.46 However, the review petition preferred by the Department against the decision of the Hon'ble Supreme Court in Westinghouse Saxby came to be dismissed by the Hon'ble Supreme Court vide its Order dated 10.08.2022.
3.47 In this regard, various representations were received by the Department concerning the validity of Customs Instruction No. 01/2022- Customs dated 05.01.2022. Recently, the Board issued Customs Instruction No.25/2022 dated 03/10/2022 re-affirming Customs Instruction No. 01/2022- Customs dated 05.01.2022.
3.48 Vide Instruction dated 03.10.2022, it has been re-clarified that the decision in Westinghouse Saxby i.e., precedence of Note 3 to the exclusion of the embargo prescribed in Note 2, is not to be applied indiscriminately applicable to all cases and classification of various parts of Section XVII has to be decided taking into account all facts, details of individual cases, rules of interpretation, various decisions of Hon'ble Supreme Court on the subject etc.
3.49 It is submitted that the CBIC vide the above instructions has categorically observed that the Hon'ble Supreme Court in Saxby did not consider various other judgements of the Supreme Court on the very same issue of classification of parts of vehicles/locomotives falling under Section XVII. Accordingly, they have opined that a holistic view should be taken on the issue of classification after considering the Section Notes, Explanatory Notes and other relevant judgements of the Supreme Court.
3.50 In the light of all the submissions above, the HVCH, cannot be classified under the heading 8708, notwithstanding the fact that these are used in electric motor vehicles for the following reasons:
a) The HVCH is classifiable under the heading 84198990
b) Therefore, HVCH will remain excluded by Note 2(e) to Section XVII.
4. Port of Import and reply from jurisdictional Commissionerate:
4.1 The applicant in their CAAR-1 indicated that they intend to import the subject goods i.e. High Voltage Coolant Heater (HVCH) at the jurisdiction of Office of the Commissioner of Customs, Mundra Customs. The application was forwarded to the Office of the Commissioner of Customs, Mundra Customs for their comments on 10.05.2024. The Mundra Customs Commissionerate vide their letter dated 28.05.2024 submitted that the classification of goods under the Harmonized System is governed by a set of General Rules of Interpretation (GR1). The decision to classify the High Voltage Coolant Heater for Electric Vehicles under heading 8708 is primarily based on GRI 1 and GRI 3.
General Rule of Interpretation 1 (GRI 1)
Text of GRI I: "The titles of sections, chapters and sub-chapters are provided for case of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions."
Application of GRI 1:
Terms of the Headings: Heading 8708 explicitly covers "Parts and accessories of the motor vehicles of headings 8701 to 8705." Since a high voltage coolant heater is a part specifically designed for use in electric vehicles (which fall under heading 8703), it naturally fits within the scope of heading 8708.
Section and Chapter Notes: Section XVII (which includes Chapter 87) notes that parts and accessories suitable for use solely or principally with the vehicles of Chapter 87 are to be classified under heading 8708.
General Rule of Interpretation 3 (GRI 3)
Text of GRI 3: "When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a)Thc heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration."
Application of GRI 3(a):
Most Specific Description: Heading 8708 provides a more specific description of the high voltage coolant heater as it relates directly to automotive parts and accessories. In contrast, headings 8419 and 8516 are more general, covering a wide range of heating and cooling equipment not specific to automotive applications.
4.2 Further, a comparative analysis of headings 8419, 8516, and 8708 for the classification of a High Voltage Coolant Heater for electric vehicles, along with a rationale for why it should be classified under heading 8708 is as follows:
4.3 Therefore, it can be concluded that the classification of the High Voltage Coolant Heater under heading 8708 is determined by applying GRI 1, considering the terms of the heading and relevant section notes, and GRI 3(a), favouring the most specific description provided by heading 8708. This heading best matches the nature and use of the product as an integral component of electric vehicles.
5. Details of Personal Hearing;
5.1 A personal hearing was held on 22.07.2024 at 12.30 PM. Ms. Lakshmi Menon, Advocate appeared for the hearing on behalf of the applicant. She reiterated the contention submitted with the application. She contended that the subject impugned goods i.c. High Voltage Coolant Heater (HVCH) for electric vehicle merit classification under CTH 84198990 and not under CTH 8708 and that. CTH 8419 is most suitable for the same. She submitted that the department is stressing mainly on the criterion of end use for classification of the subject goods under Chapter 87. She further submitted a compendium of case laws to support their claim.
Nobody appeared on behalf of the Department for hearing.
DISCUSSION AND FINDINGS
6.1 I have considered all the materials placed before me in respect of the subject goods. I have gone through the submissions made by the applicant during the personal hearing. I have also gone through the response received from the Mundra Customs Commissionerate. Therefore, I proceed to pronounce a ruling on the basis of information available on record as well as existing legal framework.
6.2 The Applicant has sought advance ruling in respect of the following questions:
a. Whether the product 'High Voltage Coolant Heater' is classifiable under CTH 84198990 as heating equipment under Customs Tariff Schedule?
b. If the answer to the above question is in the negative, then whether product is classifiable under CTH 8516 as electrical heaters under Customs Tariff Schedule?
c. If the answers to the above questions are in the negative, then whether product could be classified under CTH 8708 as a part of motor vehicle under Customs Tariff Schedule?
d. If the answer to the above question is in the negative, what would be the correct classification of the product under the Customs Tariff of India?
6.3 At the outset, we find that the issue raised in the questions (a) to (d) in the Form CAAR-1 is squarely covered under Section 28H(2) of the Customs Act, 1962 being a matter related to classification of goods under the provisions of this Act.
6.4 The applicant submitted that the subject goods i.e. High Voltage Coolant Heater is used to heat the coolant in Electric Vehicle, which in turn used for battery pre- heating and cabin heating during winter season. The Coolant heater consists of a housing, with an inlet and outlet pipe, allowing the How of coolant into and out of the heater. Inside the housing, there's a heating element in direct contact with the coolant. The electric heating element generates heat when electricity flows through it. The heating of the coolant takes place by conduction of heat generated by heating clement. This setup allows heat to transfer from the heater to the electric vehicle battery. The heating element is connected to Insulated Gate Bipolar Transistors (IGBTS) in the controller which is connected with supply connector, and this is how electricity is supplied to the heating element.
6.5 Before deciding on the issue, let me deliberate on the legal framework prescribed in Customs Tariff Act, 1975, Chapter/ Section notes along with HSN explanatory notes. As per Rule 1 of GRI, the titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes.
6.6 I find that the applicant has contended that the classification of the subject goods i.e. High Voltage Coolant Heater (HVCH) is justified under Tariff Entry 84198990. They also talked over applicability of competing Tariff Headings No. 8516 and 8708.
6.7 Now, I take up the first question requires ruling on the classification of the product i.e. High Voltage Coolant Heater under CTH 84198990 of Customs Tariff Schedule as heating equipment.
6.7.1 Relevant portion of CTH 8419 is reproduced below for ease of reference:
8419 Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling, other than machinery or plant of a kind used for domestic purposes; instantaneous or storage water heaters, non-electric
6.7.2 I find that in chapter 84, headings 8402 to 8424 cover the other machines and apparatus which are classified mainly by reference to their function, and regardless of the field of industry in which they are used. Sub-heading 8419 is used to classify machinery, plant or laboratory equipment that is used for processes that involve a change of temperature, such as heating, cooling, or drying. Explanatory Note to heading 8419 as follows:
It should he noted that this heading does not include:
(a) Domestic stoves, grates, cookers, etc., of heading 73.21.
(b) ...
(c) ...
(r) Electric soil heating apparatus, electric space heating apparatus, and electro-thermic domestic appliances of heading 85.16.
With these exceptions, the heading covers machinery and plant designed to submit materials (solid, liquid or gaseous) to a heating or cooling process in order to cause a simple change of temperature, or to cause a transformation of the materials resulting principally from the temperature change (e.g., heating, cooking, roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising, condensing or cooling processes). But the heading excludes machinery and plant in which the heating or cooling, even if essential, is merely a secondary function designed to facilitate the main mechanical function of the machine or plant, e.g. machines for coating biscuits, etc., with chocolate, and conches (heading 84.38), washing machines (heading 84.50 or 84.51), machines for spreading and tamping bituminous road-surfacing materials (heading 84.79).
The machinery and plant classified in this heading may or may not incorporate mechanical equipment.
They may be heated by any system (coal, oil, gas, steam, electricity, etc.), except in the case of instantaneous water heaters and storage water heaters which are classified in head'ng 85.16 when healed electrically.
The heading covers only non-domestic equipment, except for the instantaneous or storage water heaters referred to later in this Explanatory Note.
The heading includes a very wide range of machinery and plant of the types described below.
(I) HEATING OR COOLING PLANT AND MACHINERY
This group covers plant of general use in many industries for the simple treatment of materials by heating, boiling, cooking, concentration, evaporation, vaporisation, cooling, etc. They include:
(A) Vessels, vats, etc., of various kinds for heating or cooling:
(1) Vessels; vats; etc., for Indirect heating or cooling with double walls or bottoms incorporating provision for the circulation of steam, chilled brine or other heating or cooling media. However, double-walled or double-bottomed vessels fall in Section XIV or Section XV (e.g., heading 73.09) if they do not have such provision for circulating heating or cooling media (e.g., heat-insulated containers) or in heading 84,18 if they incorporate an evaporator of a refrigerating unit (direct cooling).
(2) Single-wall vessels, vats, etc., incorporating provision for direct healing (including heating by perforated steam coils) other than such vessels normally used in the household (heading 73,21, generally). In general, the industrial types are distinguished by their large size and solid construction, or (he provision off liters or condensing domes or of mechanical devices such as agitators or tippers.
Such vessels, whether of the single or double-walled type, are frequently constructed for working under high pressure (e.g., autoclaves), or at reduced pressures for special purposes, particularly in the chemical and allied industries.
Vessels fitted with mechanical devices but not incorporating means of direct or indirect healing fall in heading 84.79 unless clearly designed as machinery of a type specified in another heading.
This group of heating vessels includes pasteurisers, sometimes operating at reduced pressure, used to submit food or drink products (milk, butler, wines, beers, etc.) to pre-determined temperatures to eliminate harmful micro-organisms.
(B) Heat exchange units in which a hot fluid (hot gas, steam or hot liquid) and a cold fluid are made to traverse parallel paths, but usually in opposite directions, separated by thin metal walls in such a manner that the one fluid is cooled and the other heated. These units are usually of the three following types, viz., in the form of
i. Concentric tube systems: one fluid flows in the annular interval, the other in the central tube.
ii. A tubular system for the one fluid, enclosed in a chamber through which flows the other fluid.
or iii. Two parallel series of interconnected narrow chambers formed of baffle plates.
As stated in the first paragraph of this Explanatory Note (exclusion (e)), the heading does not include auxiliary plant for steam generating boilers (heading 84.04) much of which (e.g., steam condensers, air pre-heaters and economisers) are of the general type of heat exchange unit mentioned above.
The following are examples of machinery and plant which, subject to the provisions referred to above, are covered by Part (I) of this Explanatory Note:
(1) Freezing-salt type freezers (other than those of heading 82.10).
(2) Condensers for nitrogen or other gases.
(3) Pasteurising, concentrating, cooling, etc., plant for milk (including storage vats with cooling equipment).
(4) Processing and maturing vats for the cheese industry.
(5) Plant for concentrating, cooling, etc., fruit juices, wines, etc.
(6) Plant for use in agriculture (e.g., autoclaves for cooking potatoes, etc., as fodder; hot water baths for re-melting honeycombs, including those with pressing screws).
(7) Cooling columns (e.g., for the bread grain milling industry).
(8) Autoclaves and steaming, boiling, cooking, frying, etc., plant for cooking, preparing or preserving food (e.g., cooking chests for ham; fish friers; cookers, blanching autoclaves, etc., for fruit, vegetables, etc.; autoclaves and coolers for the canning or preserving industry; jam boilers; confectionery boilers).
(9) Macerating vessels and mashing vats with heating equipment; vessels for the decoction of hops; beer pasteurisers, coolers, etc.
(10) Defecation vessels, juice concentration plant, vacuum boiling pans, carbonation, sulphiting or refining vats, etc., for use in the sugar industry.
(11) Autoclaves for melting tallow or for saponifying fats; margarine solidifying tanks, incorporating a cooled rotating cylinder on to which the margarine solidifies.
(12) Vats, vessels, autoclaves, etc., for the chemical preparation of wood pulp or for the hydrolysis of wood.
(13) Vats, etc., for the preparation of dyes.
(14) Autoclaves for vulcanising rubber.
(15) Vats, etc., for pickling or de-greasing metals.
(16) Immersion coils consisting of an assembly of plastic tubes, placed in parallel or braided, and sealed at each end into a honeycomb structure to which a connector is attached, when immersed in a bath, these devices will keep it at a constant temperature, or heat or cool it, by means or a fluid or steam circulating in the tubes.
(17) Specialised heating or cooking apparatus which are not normally used in the household (e.g., counter-type coffee percolators, tea or milk urns, steam kettles, etc., used in restaurants, canteens, etc.; steam-heated cookers, hot-plates, warming cupboards, drying cabinets, etc.; deep-fat friers).
(18) Automatic hot or cold beverage-dispensing machines without a device to accept payment.
The apparatus described above is essentially used industrially, but the heading also covers non-electric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not. If electrically heated, such appliances are excluded (heading 85.16).
6.7.3 I observe that above Explanatory Notes is very much illustrative and clear. It excludes, for example-heating and cooling machinery used in a washing Machine i.e.to be used for heating/controlling the temperature of water/to be used as dryer. As per the Explanatory Notes such kind of heating and cooling processes constitutes secondary function and not primary one. In this example, primary function is the normal performance of the washing machine itself. This example in the explanatory notes suggests such kind of machinery (heating and cooling apparatus) to be classifiable under heading 84.50 or 84.51. The Applicant in the instant case has submitted that the subject goods i.e. HVCH is used to heat the coolant in electric vehicle which in turn used for battery pre-heating and cabin heating during winter season. Based on the same analogy, it can be safely deduced that the function of HVCH is secondary function designed to facilitated the main battery pre-heating and cabin heating function in electric motor vehicle/parts thereof. Hence, the subject goods i.e. HVCH becomes out of preview of ambit of Chapter Heading 84.19.
6.7.4 I further find that if the product i.e. High Voltage Coolant Heater can be regarded as a "Machinery, plant or equipment, electrically heated for the treatment of materials by a process involving a change of temperature such as heating...' as proposed by the applicant, then it would fall under the group of heating or Colling Plant and Machinery' as the product heat the coolant. As per Explanatory Notes, this group covers plant of general use in many industries for the simple treatment of materials by heating, boiling, cooking, concentration, evaporation, vaporisation, cooling, etc.. Further, some examples of machinery and plant which are covered under the category of Heating or Colling Plant and Machinery are also given in Explanatory Notes. It was also mentioned that the apparatus described in the category of Heating or Colling Plant and Machinery is essentially used industrially. The subject product i.e. High Voltage Coolant Heater is used to heat the coolant in Electric Vehicle and same will not be used in industry or plant. Thus, the product i.e. High Voltage Coolant Healer being a part of the electric vehicle cannot be classified under CTH 84198990 as the explanatory notes to Chapter Heading 8419 covers only the machinery or plants which are used essentially industrially except non-electric instantaneous water heaters and storage water heaters, including solar water heaters, domestic or not.
6.7.5 On going through the description of chapter heading, it can be seen that this heading provides the details of the goods falling under it. It further specifics the machinery, plant or laboratory equipment for the treatment of material. The said treatment has to be affected by the processes involving a change of temperature such as healing, cooking, roasting, distilling, rectifying, sterilizing, pasteurizing, steaming, drying, evaporating, vaporizing, condensing or cooling.
It is observed that these processes broadly involve either heat treatment (heating, cooking, roasting etc.) or, condensing or cooling. The treatment of material, for example may involve various processes which can be used to alter the properties and characteristics of materials such as metals, alloys, ceramics, polymers and composites etc. to enhance their machinability, performance, functionality, durability, ductility, softness, toughness, improving electrical or magnetic properties, making material corrosion resistant, workable rolling, changing its crystalline structure etc. Once the treatment of material is completed, the purpose is fulfilled.
6.7.6 It is seen from the product description that it is for heating the coolant in electric vehicle only. The main purpose of the machine is to electrically heat the coolant and transfer the heat to the electric vehicle battery and cabin for getting it heated. Further, treatment of material applies a modification of that material so that it is transformed for intended use. However, in the present case, the mechanism of the product i.e. High Voltage Coolant Heater does not involve any treatment of material as described in Explanatory Note to CTH 84.19 and as elaborated above.
6.7.7 The Applicant has provided the picture of the subject goods (page 3 as above). On going through the pictures and literature, it can be seen that the coolant heater has very specific function for the purpose of electric vehicle. It's description is apparently reflected as HVCH-ASSY with LV-HARNESS same as to Toyota 27 PL HVCH. Ongoing through the Valeo Website (www.valeo.com), HVCH appears as per follow:
What is a high voltage coolant heater?
Initially designed to heat the coolant in EV's standard HVAC module and improve cabin comfort. High Voltage Coolant Heater is used to heat up the battery. They have now become mandatory for battery pre-heating in cold weather condition.
Further, from the open sources, it is understood that HVAC (heating, ventilation, air-conditioning) is a car's climate control system. HVAC system offer greater efficiency due to their ability to handle both heating and cooling demands. This is climate control and it works in a similar way as household thermostat, because if there temperature is set, this system operates to maintain the temperature heating, ventilation and air-conditioning (HVAC). The basic principle behind the operation of HVAC is conduction and convection. Heat is transferred from a low temperature region to high temperature region in the vehicle due to the pressure difference. Based on the literature available and specification shown by the applicant, I find considerable force to deduce that the subject goods is a primary component/part of motor vehicle.
6.7.8 Further, heading 84.19 covers machinery, plant and similar laboratory equipment for the treatment of materials by a process involving a change of temperature. The above description of goods indicates that a machinery or equipment, to be classified under Heading 84.19, should be used for the "treatment of materials" by a process invoking change of temperature such as heating, cooking, roasting, distilling, condensing, cooling, etc.
In the present case, mere heating of coolant cannot be considered as "treatment of material'' by a process involving a change of temperature as required for the goods to be classified under Heading 84.19 of the Customs Tariff.
6.7.9 Here I don't support the contention of the applicant that heating of the coolant is the primary function of HVCH and the same would not fall within any of the excluded category and therefore, not excluded from the CTH 8419.
It is a fact on record that a coolant heater is used to heat the coolant in electric vehicle, which in turn used for battery pre-heating and cabin heating during winter season. Therefore, it can be safely deduced that the primary function of the HVCH is "battery pre-heating and cabin heating in electric vehicle" and not the heating of coolant. By virtue of the exclusion clause given in the HSN Explanatory to the Chapter Heading 84.19, it is evident that subject import goods does not qualify under the machinery and plant for the purpose of Chapter Heading 84.19.
6.7.10 The applicant has relied upon US Customs Cross Rulings and other case laws in support of their claim. I find that all these rulings and case laws are in different perspective, hence, not applicable to the present case.
6.8 Now, I take up the second question which requires ruling on the classification of the product i.e. High Voltage Coolant Heater under CTH 8516 of Customs Tariff Schedule as electrical heater.
The description for the Chapter Heading 8516 reads as follows:
"Heading 8516 - Electric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electro-thermic hair-dressing apparatus (for example, hair dryers, hair curlersl curling tong heaters) and hand dryers; electric smoothing irons; other electro-thermic appliances of a land used for domestic purposes; electric heating resistors; other than those of heading 8545."
6.8.1 It could be seen from the description of the heading that the heading 8516 covers the following groups of equipment.
(a) Electric instantaneous or storage water heaters and immersion heaters
6.8.2 'Hie applicant proposed that HVCH in questions operates through heating element coil elements, it may be considered as an Immersion Heater. The types of immersion heater are explained in the HSN Explanatory Notes to Chapter Heading 8516 and same is reproduced below for ready reference:
From the above, it is clear that the Immersion Heater is having an insulated handle and a hook for hanging in tank or vessel. The product under question is used to heat the coolant which in turn used for battery pre-heating and cabin heating during winter season. Thus, the product cannot be considered as Immersion Heater.
6.8.3 The Applicant also proposed that the product under question could be covered under the group of Electric Space Heating Apparatus to heading 8516. The products covered under the group of Electric Space Heating Apparatus are listed in the explanatory notes to chapter heading 8516 as shown below:
(1) Electric storage heating apparatus, in which electric elements heat up a solid (e.g, bricks) or a liquid which stores the heat produced and subsequently releases it, when required, to the surrounding atmosphere.
The equipment described above are essentially household/ domestic apparatus with the exception of the heaters for motor cars etc., which are used for space heating purpose. However, the HVCH in question is used to heat the coolant and not for any storage or space heating purposes. Thus, it cannot be regarded as a space heating apparatus covered under Chapter Heading 8516.
6.8.4 In view of the above, I find that the product i.e. High Voltage Coolant Heater cannot be considered as electrical heater which are covered under Chapter Heading 8516 of the Customs Tariff Act, 1975.
6.9 Now, I take up the third question which requires ruling on the classification of the product i.e. High Voltage Coolant Heater under CTH 8708 of Customs Tariff Schedule as part of motor vehicle.
6.9.1 1 find that Chapter 87 of the First Schedule to the Customs Tariff Act. 1975 covers goods, described as "Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof'. Chapter Heading 8708 covers "Parts and accessories of the motor vehicles of headings 8701 to 8705". Relevant portion of CTH 8708 is also reproduced below for ease of reference:
6.9.2 I find that the applicant has stated that the High Voltage Coolant Heater is used to heat the coolant in Electric Vehicle, which in turn used for battery pre-heating and cabin heating during winter season. Thus, it remains to be seen here whether High Voltage Coolant Heater may be classified as "Parts and accessories" of the motor vehicles of headings 8701 to 8705. Chapter 87 is covered under Section XVII (vehicles, aircraft, vessels and associated transport equipment). Classification of parts and accessories of motor vehicle is governed by Section Note 2 and 3 of Section XVII and same as mentioned below:
2. The expressions- "parts" and "parts and accessories" do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:
(a) joints, washers or the like of any material (classified according to their constituent material or in heading 8484) or other articles of vulcanised rubber other than hard rubber (heading 4016);
(b) parts of general use, as defined in Note 2 to Section XV, of base metal (Section XV), or similar goods of plastics (Chapter 39);
(c) articles of Chapter 82 (tools);
(d) articles of heading 8306;
(e) machines and apparatus of headings 8401 to 8479, or parts thereof other than the radiators for the articles of this Section, articles of heading 8481 or 8482 or, provided they constitute integral parts of engines and motors, articles of heading 8483;
(f) electrical machinery or equipment (Chapter 85);
(g) articles of Chapter 90;
(h) articles of Chapter 91; (ij) arms (Chapter 93);
(k) luminaries and lighting fittings and parts thereof heading 9405; or
(I) brushes of a kind used as parts of vehicles (heading 9603).
3. References in Chapters 86 to 88 to parts or accessories do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part of accessory.
6.9.3 Thus, Section Note 2 of Section XVII restricts the application of the expression "parts" and "parts and accessories" by excluding certain articles from being classified under the chapter 87 of this Section. Clause (b) of Note 2 excludes the following: -
"(b) parts of general use, as defined in Note 2 to Section XV, of base metal (Section XV), or similar goods of plastics (Chapter 39) "
I find that High Voltage Coolant Heater docs not fall under the exclusion of "parts of general use" as elaborated herein above.
6.9.4 Further, Section Note 3 of Section XVII read as follows:
"References in Chapters 86 to 88 to "parts" or "accessories " do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part of accessory. "
6.9.5 The HSN Explanatory Notes to Section XVII further amplifies the scope and
ambit of the Section Notes. Part III deals with Parts and accessories. The same is reproduced below for ease of reference:
(III) PARTS AND ACCESSORIES
".... The other Chapters of this Section each provide for the classification of parts and accessories of the vehicles, aircraft or equipment concerned. It should, however, he noted that these headings apply only to those parts or accessories which comply with all three of the following conditions:
(a) They must not he excluded by the terms of Note 2 to this Section and
(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88 and
(c) They must not he specifically included elsewhere in the Nomenclature.
The above provisions show that for any item to be classified as a part and accessories in Chapter 87, all the three conditions as at (a), (b) and (c) above have to be fulfilled cumulatively.
6.9.6 I find that as per the explanatory notes to the heading 8708, which puts three conditions to satisfy for becoming parts and accessories of the motor vehicles of heading 87.01 to 87.05. I have gone through the list of 'parts and accessories' excluded as per the provisions of the Explanatory Notes 2 to Section XVII and found that 'High Voltage Coolant Heater' does not find mention in the same. Therefore, the first condition is satisfied. Further, on the basis of the submission given by the applicant it is further seen that 'High Voltage Coolant Heater' as per its configuration, specific functions and uses, is a part, which can be used solely or principally in the electric motor vehicles only. The picture 2 (page 3) itself illustrates that the nature of the subject goods which categorically mention that the make and model of the vehicle where the goods are to be used/fitted. Motor vehicles are covered under headings 87.01 to 87.05 of Chapter 87 of the First Schedule to the Customs Tariff Act, 1975. Thus the second condition is satisfied. Further, the product is not specified particularly anywhere else in the Tariff, therefore, the third condition, i.e., they must not be specifically included elsewhere in the Nomenclature is also satisfied. Since all the three conditions have been satisfied, it can be concluded that the 'High Voltage Coolant Heater' is covered under the heading 8708 only and is in accordance with classification in terms of Rule 1 of G1R, Section XVII and Chapter Notes of Customs Tariff Act, 1975.
6.9.7 One thing which I would like to discuss here is that explanatory notes to the heading 8708 which contains only an illustrative list of the parts and accessories covered under that heading and not an exhaustive list. Further, just because this illustrative list may or may not contain any entry relating to any specific item (in the instant case 'High Voltage Coolant Heater') or its parts or accessories, it docs not necessarily mean that the parts or accessories, which are not simply mentioned in the ambit of this list, cannot be or should not be classified under the said heading. From a bare reading of the Chapter Heading 8708, it can be derived that it covers parts and accessories of motor vehicles and this chapter heading is wide enough in its scope so as to cover all parts and accessories of motor vehicles. I am therefore of the opinion that the parts and accessories of motor vehicles, subject to relevant conditions, which are not covered under any of the Sub-headings starting from 87081010 to 87089500 under the heading 8708 would be invariably covered under the Sub-heading 87089900. In the instant case, heading 8708 covers "parts and accessories of the motor vehicles of headings 87.01 to 87.05. Further, as discussed earlier, 'High Voltage Coolant Heater' merit classification under CTH 8708. the product is more specifically classifiable under CTH 87089900 of Customs Tariff Act, 1975 as there no specific sub-heading is provided under CTH 8708.
6.9.8 The Applicant has submitted that end use cannot determine the classification. That, it is a settled position of law that the goods are to be classified in the state in which their importation has taken place/ or in the state in which they have been cleared. The subsequent use of the goods cannot be a determinative factor for classification. They also relied upon the case of CCE v. Carrier Aircon Ltd. [2006 (199) E.L.T. 577 (S.C.)] and Subros Limited vs. CC [2018 (363) ELT 0849 (Tribunal-Delhi)], wherein it was held that end use to which the product is put to cannot be determinative of the classification of the product. In this regard, it is submitted that classification of the product i.e. High Voltage Coolant Heater under CTH 8708 is considered after taking into account the Chapter Notes, Section Notes and Explanatory Notes to Chapter Heading 8708. Thus, the relevant case law cited by the applicant is not applicable to the present case.
Further, the Applicant has contended that the department has given only criterion of end use for classification of these goods under Chapter 87. In this regard, I observed that that Hon'ble Supreme Court in the case of Commissioner of Central Excise Vs. Wockhardt Life Sciences Ltd reported in 2012 (277) ELT 299 (SC) had held that the functional utility and predominant usage of the commodity must be taken into account apart from the understanding in common parlance to determine the correct classification of the product. The Hon'ble Supreme Court in the case of Collector of Customs Vs. Kumudam Publications [1997 (96) ELT 226 (SC)] has held that "it is not entirely correct to say that the end use or function of the goods is irrelevant to decide the question of classification". A three Judge Bench of the Hon'ble Supreme Court had also relied upon the function and end use in determining the classification in the case of Indian Tool Manufactures Vs. Asst. Collector of Central Excise, Nasik & Others reported in 1994 (74) ELT 12 (SC). The applicant itself has submitted that the said product is used to "heat the coolant in electric vehicle and transfer the heat from the heater to the electric vehicle battery and cabin compartment".
The Applicant has also not come up with any other possible use other than that of battery pre-heating and cabin heating in electric vehicle.
6..10 I also find that the concerned jurisdiction Commissionerate i.e. Commissioner of Customs, Mundra Customs, has too proposed the classification of the subject product i.e. High Voltage Coolant heater under CTH 8708, more specifically under CTH 87089900, which I concur.
7. On the basis of foregoing discussions and findings, my answer in respect of all the four questions asked in the present application, are as follows:
Question (a): Whether the product 'High Voltage Coolant Heater' is classifiable under CTH 84198990 as heating equipment under Customs Tariff Schedule?
Answer: Answered in negative.
Question (b): If the answer to the above question is in the negative, then whether product is classifiable under CTH 8516 as electrical heaters under Customs Tariff Schedule?
Question (c): If the answers to the above questions are in the negative, then whether product could be classified under CTH 8708 as a part of motor vehicle under Customs Tariff Schedule?
Answer: Answered in positive. The product i.e. 'High Voltage Coolant Heater' is rightly classifiable under CTH 8708, more specifically under CTH 87089900 of the First Schedule of the Customs Tariff Act, 1975 for the reason as discussed above.
Question (d): If the answer to the above question is in the negative, what would correct classification of the product under the Customs Tariff of India?
Answer: Not applicable for the reason as discussed above.
8. I rule accordingly.
(Prabhat K Rameshwaram)
Customs Authority for Advance Rulings, Mumbai