AC Parts Classification: Fujitsu General Ruling

In re Fujitsu General (India) Private Limited (CAAR Mumbai)

In the case of In re Fujitsu General (India) Private Limited (CAAR Mumbai), the Customs Authority for Advance Rulings (CAAR) examined the classification of air conditioner (AC) parts imported by Fujitsu General (India) Pvt. Ltd. The ruling clarified that if all components of an AC are imported together in semi-knocked down (SKD) form under a single invoice and presented for Customs clearance under one bill of entry, these components can be classified as a complete air conditioner under headings 84151010, 84158310, or 84158390, depending on the specific type of AC. However, if indoor units (IDUs) or outdoor units (ODUs) are imported separately in SKD form or in incomplete form, under different invoices, and presented separately for clearance, they should be classified under CTH 84159000 as parts of an air conditioner. This distinction is critical for determining the appropriate classification and applicable duties.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI

M/s. Fujitsu General (India) Private Limited (having IEC No. AADCF5791R and hereinafter referred to as ‘the applicant’ or FGI, in short) filed an application (CAAR-1) for advance ruling before the Customs Authority for Advance Rulings, Mumbai (CAAR in short). The said application was received in the secretariat of the CAAR, Mumbai on 11.03.2024 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 following questions:

(1) If all parts of Air Conditioner are imported together in SKD form, under one invoice and presented for Customs clearance under a single Bill of Entry, whether all such SKD parts can be classified as ‘Air Conditioner’ under 8415 1010 or 8415 8310 or 8415 8390 or under other headings?

(2) If Indoor Units (IDUs) or Outdoor Units (ODUs) are imported separately in SKD form or in unfurnished or incomplete form under different invoices and presented separately for Customs clearance under separate Bills of Entry, whether the same can be classified under CTH 8415 9000 as parts of Air Conditioner?

Applicant has submitted as follows:

2.1 The FGI is engaged in the import and trading of different kinds of Air Conditioners (hereinafter referred to as “AC”) and its parts & accessories. At present, the Air conditioning (AC) machines, viz Window air conditioners, Room Air Conditioners (RAC)-Non-ductable type, Ductable type, Cassette type Air conditioners and VRF model air-conditioners are being imported from our overseas group companies /Overseas vendors especially from Thailand, China and also from Japan for selling Io customers in India. The window type air conditioners of all tonnages are classified under CTSH- 84151090. The HSN classification currently adopted by FGI on import of fully assembled Split Air conditioners are as indicated below.

As seen above, all cooling models (Non-ductable) with less than 2 ton are classified under Chapter 8415 1010 and more than 2 ton are classified under 8415 8310. All cooling & heating models (Non-ductable & not incorporating refrigerating unit) with more than 2 ton, are classified under 8415 8310 and less than 2 ton are classified under 8415 8390. And all ductable air-conditioners, not incorporating refrigerating unit, are also classified under 8415 8310 or 8415 8390. Cassette type, all cooling models (Non-ductable) with less than 2 ton are classified under Chapter 8415 1010 and more than 2 ton are classified under 8415 8310 as the case may be. Apart from importing fully assembled Air conditioners, FGI are also importing various parts & accessories of the Air conditioners separately. The 11SN classification adopted by FGI for the imported parts are as given below.

2.2 FGI is availing FTA benefits under the Indo-Thailand (ITFTA) & Indo-ASEAN (AIFTA) in the form of basic customs duty exemptions (BCD) granted under Notification 46/2011-Cus dated 01.06.2011, as amended (or) under Notification 84/2004-Cus dated 31.08.2004, as amended, as the case may be. In tune with the ‘make in India’ concept, FGI and their affiliated companies now propose to import split system air-conditioners viz outdoor units (ODUs) and Indoor unit (IDUs) in SKD form from Thailand and China and take up the manufacturing /assembling of ACs in India. In this process, FGI wishes to import air conditioners as SKD Parts in full set and complete the assembly process of the air conditioners (Finished Goods) through a job worker located in India. The job worker unit is skilled to assemble the Window, RAC, Ductable, Cassettes & VRF Air-conditioners. The job worker will assemble and supply the fully assembled air conditioners back to FGI for onward sale to dealers/ customers. The SKD parts of split system of air conditioners proposed to be imported are:

(a) SKD of Indoor Unit-IDU [in unassembled/disassembled form]:

i. Mock Up Unit fitted

ii. Remote controller(wireless).

iii. Control Unit

(b) SKD of Outdoor Unit-ODU [in unassembled/disassembled form]:

i. Mock up unit fitted

ii. Discharge pipe

iii. Suction pipe

iv. Insulation tape

The indoor and outdoor mock up units fitted together with other SKD parts proposed to be imported under one invoice and presented together for Customs clearance in a single bill of entry for each category/Model. After payment of applicable duties, SKD parts will be supplied to the job worker who will assemble them into air conditioners, by simple process involving brazing, wiring, bolting, nutting & testing and fill the gas, and return to FGI for onward sale to customers. FGI will clear them on payment of applicable GST. Similarly, FGI and their affiliated companies may also import the indoor unit (IDU) or Outdoor unit (ODU) in SKD form separately under separate invoice/bill of entry and supply them to the job worker independently who will carry out a simple assembly process on IDU or ODU, as the case may be, as stated above to bring out the finished IDU or ODU. Alternately, FGI & their affiliated companies may also import all the Parts of air conditioners, which are solely or principally used, for assembly of Air conditioners separately under different invoices and file different Bills of Entries (BOE) separately for Customs clearance. Thereafter, either the individual parts will be sent to the job worker for assembling, gas filling and return as finished air-conditioners in set or as IDU or ODU as parts of air-conditioners and cleared on payment of GST or will be supplied as warranty/replacement parts directly to the customers on payment of GST.

2.3 Classification of imported goods, covered under Schedule I of the Customs Tariff Act, 1975 (Customs Tarff) is done as per the General Rules of Interpretation (GRI). As per the GRI, Rule 1, “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 and, provided such headings or Notes do not otherwise require, according to the following provisions: “ Rule 2(a) of the GRI provides for the manner of classification of goods, which are ‘incomplete’ or ‘unfinished’, and goods, which are presented ‘unassembled’ or ‘disassembled’, which are extracted as under:

“Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented; the incomplete or un finished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled”

The Section or Chapter notes or Chapter sub-notes give a detailed explanation as to the scope and ambit of the respective sections and chapters. The Section Notes to Section XVI include the following notes, which are critical for the classification of the subject goods:

Note 1(g): this Section does not cover parts of general use, as defined in Note 2 to Section XV’ [of base metal J or similar goods of plastic covered under Chapter 39 of the Customs Tariff.

Note 2(a): parts, which are goods, included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8485, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings. Note 2 (b): other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 8479 or 8543), are to be classified with the machines of that kind, as appropriate.

Note 2 (C): all other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8487 or 8548

Note 3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.

Note 4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.

As per rule 1, “for legal purposes, classification shall be determined according to the terms of the headings and any relevant Section or Chapter Notes”, in sequential order. The chapter heading relevant for classification of air conditioning machines and their parts is Tariff Heading 8415 of the Customs Tariff, which are extracted below.

2.4 The General Explanatory Notes to the GRI further provide that:

“The description of an article or group of articles under a heading is preceded by “- “, the said article or group of articles shall be taken to be a sub-classification of the article or group of articles covered by the said heading. Where, however, the description of an article or group of articles is preceded by – “, the said article or group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has Where the description of an article or group of articles is preceded by “——-” or “——“, the said article or

group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has “- ” or “- – “. ”

As seen from the tariff heading 8415, the Air-conditioners designed to be fixed to a window, wall ceiling or floor, whether self-contained or split system are classifiable under tariff items 84151010 or 84151090. The Air conditioners designed to be for persons in motor vehicles are classifiable under tariff items 8415 2010 or 8415 2090. All other Air conditioners are classifiable under tariff sub-headings 8415 81 to 8415 8390. The Parts of Air conditioners are classifiable under tariff sub-heading 8415 9000. The Applicant generally deals with Room Air conditioners, Packaged Air conditioners and VRF type air conditioners by classifying them under appropriate headings as stated supra.

2.5 When the applicant import such Air conditioners in SKD form, and present them together for clearance before Customs, the same shall also be classifiable under the respective headings as stated supra by following the Rule 1 & Rule 2(a) of General Rules of Interpretation (GRI) to the Customs Tariff Act 1975 which says that if all the parts are presented in CKD /SKD condition and they have the essential character of a complete article, then they have to be assessed as complete article. This has been held in the case of Procal Electronics India Ltd. v. Commissioner – 2005 (185) E.L.T. A58 (S.C.)]. In this case, the

Supreme Court agreed to the Tribunal and the Revenue holding that once the goods are imported in CKD condition and presented before Customs as such the goods are classifiable as complete electronic calculator.

Further, even if some non-essential items are not present in the CKD/SKD pack, the latter can still become complete article as ruled in the case of Galaxy Agencies vs. C.C.E-2009(239) ELT478(Tri.). In addition, in the case of Baycrische Motoren -2006 (193) E.L.T. 138 (A.A.R.), the AAR held that Motor cars imported in CKD units without seats have to be treated as complete cars. However, if the parts missing are essential, the CKD pack cannot constitute a complete article. The Tribunal in the case of Wipro Ge Medical vs. CC, – 2006 (202) E.L.T. 141 (Tri.) held that the CKD pack docs not constitute a complete scanning machine because it did not contain parts like probes, monitor and keyboard assemblies. Simply the essential parts do not make a complete article. A CKD pack containing all the parts to make a car will be classified as a car for basic customs duty under the Schedule as held by Hon’ble supreme court in the case of CC vs. Maestro Motors Ltd. 2004(174) ELT289 (SC). The Advance Ruling authority, New Delhi in the recent case of Mitsubishi Electric India Ltd, vide its ruling dated 30.08.2022 had dealt with similar issue of importation of SKD/CKD parts of air conditioners and ruled its classification under the heading relevant to the air conditioners as claimed by the applicant.

2.6 The applicant can thus import all the parts of Air conditioners and utilize them in the assembly process of a finished Air conditioners in India. Therefore, the air conditioners proposed to be imported in SKD form will be classifiable under CTSH 8415 1010 or 8415 8310 or 8415 8390, as the case may be, as complete Air conditioners (unassembled or dis assembled), by invoking the rule 2(a) of GRI to the Customs Tariff Act 1975. The Applicant therefore submits that the SKD parts of air conditioners proposed to be imported under one invoice and cleared under one single Bill of entry will be classified under the appropriate subheadings for the complete air conditioner under heading 8415.

2.7 The parts of air conditioners are classifiable under tariff heading 8415 itself. As pre-explanatory notes to the HSN, the Indoor units (IDUs) and Outdoor units (ODUs), if imported separately, are classifiable as parts of air conditioners under CTSH 8415 90. The I DU or ODU- SKD parts of air-conditioners, as indicated supra, has the essential characteristics of the complete or finished IDU/ODU. This SKD parts of IDU/ODU, after import will be subjected to further assembly process such as bracing, welding, wiring and screwing/bolting/nutting etc., to bring out a finished or completed IDU/ODU. The assembly process involves a simple process of bracing suction and discharge pipes, covering insulation tape on accumulator, wiring control unit with other parts and gas charging. Since, at the time of import, the ODU had already attained the essential characteristics of an ODU by virtue of completion of the major portion of assembly and the ODU comes into being after a simple process of bracing and wiring, bolting and screwing was done after import, the same can be safely treated as an unfinished or incomplete ODU of an air conditioner. The classification of such incomplete or unfinished ODU needs to be done by following the Rule 2(a) of the General Rules of Interpretation (GRI) of the Customs Tariff Act 1975. Accordingly, since the finished or complete ODU is classifiable under CTSH 8415.9000, the incomplete or unfinished ODU should also be classified under the same tariff item. Even if the subject goods are treated as SKD parts, then also the same merits classification under 8415.9000 as parts of ACs.

2.8 This view is supported by plethora of Judicial decisions. In the case of BHARAT HEAVY ELECTRICALS LTD vs COLLECTOR OF CUSTOMS MADRAS 1987(28) ELT 545(Tribunal-DELHI), the Hon’ble larger bench (5 member) had dealt with the case of import of rough machine banding and claimed it as attaining the essential characteristics of the finished goods of heading 84.11 whereas the department assessed it under CTH 73.06/07. After elaborate discussions, the hon’ble bench had held that the goods had attained the essential characteristics of a machinery and therefore need to be classified under CTH 84.11. The Hon’ble Supreme Court in the case of COMMISSIONER OF CUSTOMS, NEW DELHI vs SONY INDIA LTD 2008(231) E.L.T.385(SC), had also held that Rule 2(a) of Rules for interpretation of Tariff applicable only if all components intended to make final product presented at same time for customs clearance- the Rule 2(a) applicable when imported goods presented unassembled or dis assembled can be put together by means of simple fixing device or by riveting or welding etc., therefore, the ODU, imported and presented in unassembled or dis assembled SKD form for customs clearance and assembled as ODU by using simple process of welding, wiring, bolting/nutting, will be rightly classifiable under CTSH 8415 9000 as unassembled or disassembled ODU- which is parts of the air-conditioner, by virtue of rule 2(a) of GRI, read with HSN explanatory notes.

3. Chennai Customs Commissionerate has responded to the subject application vide their letter dated 05.04.2024 as under:

With respect to applicability of first proviso (1) of section 28-1 (2) of the Customs Act, 1962 regarding the question raised in the application, it is submitted that as per the data available, no such issue is pending in respect of the applicant before any officer of customs of Chennai-II Commissionerate or pending before the Appellate Tribunal or any Court.

a. If all parts of AC are imported together in SKD form, under one invoice and present them to the Customs clearance under a single Bill of Entry then all such SKD parts can be classified as ‘Air Conditioner’ under 8415 1010 or 8415 8310 or 8415 8390 or under other heading?

Ans: In this situation, if all the imported parts proved to the satisfaction that they constitute an entire AC either completely or incompletely, however having essential characteristics, then in terms of Rule 2(a) of GIR. the said parts could be classified under the appropriate tariff item applicable to the finished AC. It is recommended to suffixing to the description of such parts with the sentence “in CKD” or “in SKD”, as the case may be.

b. If Indoor Units or Outdoor Units are imported separately in SKD form or in incomplete form under different invoices and present them separately for clearance under separate Bill of Entry then the same can be classified under CTH 8415 9000 as parts of AC?

Ans: In this situation, since the Indoor Units and Outdoor Units, either complete/finished or incomplete/unfinished, are going to be imported under different invoices and further being presented separately for clearance, then in accordance with the judgment of the Hon’ble Supreme Court of India in the matter of CC, New Delhi Vs. Sony India Ltd., as reported at 2008 (231) E.L.T. 385 (S.C.) [23-09-2008], such units will be classifiable as parts under 8415 9000, provided if such units do not constitute incomplete or unfinished unit which has the essential character of the complete or finished unit.

4. A personal hearing in the matter was conducted on 25.06.2024 in office of the CAAR, Mumbai. During the personal hearing the authorized representatives of M/s. Fujitsu General (India) Private Limited, Shri M. Ponnuswamy, Consultant, Shri G. Madan Kumar, Sr. Manager reiterated the contention made in the written application. They contended that the SKD parts of the air-conditioners proposed to be imported under one invoice and to be cleared under one Bill of entry will be appropriately classified under Tariff heading 8415 more particularly under 8415 1010 or 8415 8310 or 8415 8390 as applicable. They further submitted that the department has also concurred the view expressed by them that the SKD part of IDU/ODU fall under 8415 90 as part of air-conditioner. Thery relied upon a number of case laws referred in the written application and submitted that the CAAR, Delhi in a ruling passed in the matter of Mitsubishi Electric India Ltd, 2023 (383) E.L.T. 224 (AAR-CUS), Delhi has taken the same view.

Initially, the applicant asked three questions in the instant advance ruling application, however, during the personal hearing, they submitted that they would like to restrict their application for advance rulings only on the first two questions (reproduced supra in para 1).

Nobody appeared for personal hearing from department side either in person or online.

5. I have taken into consideration all the materials placed on record in respect of the subject goods. I have gone through the response received from the Chennai Customs Commissionerate. I therefore proceed to decide the present application on the basis of the information on record as well as the existing legal framework having bearing on the classification of the goods in question under the first schedule of the Customs Tariff Act, 1975.

6. The first question requires ruling on classification of imports of all parts of air-conditioned in SKD, which will be assembled to make complete air- conditioner in India. The legal position regarding classification of goods in SKD conditions are fairly settled. As per Rule 2(a) of the GRI, “any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished articles has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.”

Here, the terms ‘as presented’ and ‘essential character’ are important to decide the case at hand. These two terms are employed in the proviso of the Rule 2(a) mentioned above. It is observed that the incomplete or unfinished articles may be classified under the same heading wherein the complete or finished article are classified, provided, the articles/goods as presented before the Customs for clearance have the essential character of the complete or finished articles/goods.

Therefore, by virtue of this rule, in the instant case, all the parts of Air Conditioner which are proposed to be imported together by the applicant or its affiliated companies in Semi-knock down (SKD) form, under one invoice, and presented before the Customs for the clearance under a single Bill of Entry, may be classified under the heading which is appropriate to classify the complete Air Conditioner. The terms ‘under one invoice‘ and ‘under a single Bill of Entry’ as put forth by the applicant, fulfills the condition of ‘as presented’ stipulated under the proviso of Rule 2(a) of the GRI.

7. Further, as for the second condition of the said proviso, it is observed that the department is right in its contention that if all the said imported parts proved to the satisfaction that they constitute an entire Air Conditioner either completely or incompletely, however, having the essential characteristics of Air Conditioner, in terms of Rule 2(a) of GRI, then the said parts could be classified under the heading appropriate to classify the finished Air Conditioner. At the same time, it is also observed that if any essential part/parts of the Air Conditioner, which renders the essential character to an Air Conditioner, are not presented in the said imported parts of Air Conditioner, then the said imported parts altogether, shall not be considered a finished Air Conditioner, and the same cannot be classified under the heading of the finished Air Conditioner. Further, the HSN proposed by the applicant to classify the parts of the Air Conditioners are 8415 1010 or 8415 8310 or 8415 8390, in this regard, it is observed that all the said imported parts can be classified under the CTIs as proposed by the applicant, if such parts altogether have the character of the Air Conditioners of such headings. The field formation, however, may verify that such imported parts altogether constitute an entire Air Conditioner either completely or incompletely, have attained the essential characteristics of Air Conditioner or otherwise.

8. I now take up the second question, i.e. when Indoor Units (IDUs) or Outdoor Units (ODUs) are imported separately in SKD form or in unfurnished or incomplete form under different invoices and presented separately for Customs clearance under separate Bills of Entry, whether the same can be classified under CTH 8415 9000 as parts of Air Conditioner?

Here, it is observed that as the goods are proposed to be imported separately in SKD form or in unfurnished or incomplete form under different invoices and presented separately for Customs clearance, the said imports would not be in line with the terms of the proviso of Rule 2(a) of the GIR, i.e. ‘as presented’ and the ‘essential character’. Such imported parts, can be considered as parts of the Air Conditioner, however, such imported parts cannot be considered altogether constituting an Air Conditioner, as they will be presented under different Bills of entries. The presentation of such parts would not render such parts the essential character of an Air Conditioner.

9. Further, Note 2(a) section XVI states that parts, which are goods, included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8485, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings. CTI 8415 90 00 specifically covers parts Air Conditioning Machines. The applicant and the department have agreed the classification of the Air Conditioner parts under CTI 8415 90 00.

10. On the basis of foregoing discussions and findings, I answer in positive to both of the questions asked in the present application and rule that:

(1) all parts of Air Conditioner, imported together in SKD form, under one invoice and presented for Customs clearance under a single Bill of Entry, having essential character of the Air Conditioners, can be classified as ‘Air Conditioner’ under CTIs 8415 1010 or 8415 8310 or 8415 8390 as per the configurations of such Air Conditioners.

(2) Indoor Units (IDUs) or Outdoor Units (ODUs), imported separately in SKD form or in unfurnished or incomplete form under different invoices and presented separately for Customs clearance under separate Bills of Entry, then the same can be classified under CTH 8415 9000 as parts of Air Conditioners.

(Prabhat K. Rameshwaram)
Customs Authority for Advance Rulings,
Mumbai.