Case Law Details

Case Name : Rama Krishna Sales Pvt. Ltd. Vs Union of India and Ors. (Delhi High Court)
Appeal Number : W.P.(C) No. 1232/2018
Date of Judgement/Order : 31/01/2019
Related Assessment Year :
Courts : All High Courts (5291) Delhi High Court (1481)

Rama Krishna Sales Pvt. Ltd. Vs Union of India and Ors. (Delhi High Court)

In a case involving import of essential parts for assembling e-rickshaw, Delhi High Court has held that Rule 2(a) of Interpretative Rules, treating unfinished articles as complete. The High Court observed that legal fiction created by a statute cannot be extended beyond the purpose for which it is created. It directed Customs to clear goods withheld because of absence of type certificate required under Motor Vehicles Act.

FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT

1. The limited question that falls for consideration of this Court is whether the Customs Authorities are justified in withholding the consignment of parts of E-Rikshaws on account of non-production of a Type Certificate as required under Rule 126 of the Central Motor Vehicles Rules, 1989. Whereas, it is conceded that the parts of E-rickshaw as imported by the petitioner can be classified as Motor Vehicles for the purposes of the Customs Tariff Act, 1975, the petitioner disputes that the E-rickshaw parts can be considered as Motor Vehicles under Rule 126 of the Central Motor Vehicles Rules, 1989.

2. The consignment imported by the petitioner has been withheld by the Customs Authorities on the ground that the same consists of essential parts of a Motor Vehicle and, therefore, ought to be interpreted as motor vehicles. Consequently, the petitioner has been called upon to furnish a Type Certificate for release of the This has led the petitioner to file the present petition seeking release of the consignment imported by the petitioner.

3. The aforesaid controversy arises in the following context:

3.1 The petitioner company claims to be engaged in the business dealing in all types of electronic components and claims that it is one of the largest solution providers of Semiconductors and Electronic Components for the past thirty years.

3.2 The petitioner imported a consignment from China consisting of three essential parts of an E-Rickshaw: rear axle of the tricycle (500 pieces); motor (1200 pieces) and Controller (1200 pieces). The petitioner filed a bill of entry (BoE) for the said import – being BoE number 4490655 dated 20.12.2017. The said BoE was taken up for assessment and the assessing officer directed 100% examination of the consignment imported by the petitioner in presence of a Chartered Engineer.

3.3 The Chartered Engineer examined the consignment and furnished an assessment report under the cover of his letter dated 06.01.2018. In his report, he confirmed that the consignment imported by the petitioner consisted of the parts of E-Rickshaw as indicated above. He further confirmed that these were essential parts of an E-Rickshaw, but several other parts were also required for manufacturing an E-Rickshaw which included components/assemblies such as transmission, motor, axle, Chassis frame, gear switch, batteries, battery charger socket, charger switch, switch box, flasher, speedometer, pick up handle with horn, hand brake, head light, tail light/reflector, rims, tyres, sprocket kit w/bush, charger 48V etc. He also enclosed therewith a list of major and minor items required to assemble an E-Rickshaw.

3.4 The respondents claim that the Chartered Engineer submitted an addendum report on 10.01.2018, inter alia, stating that the goods received in the consignment are essential parts which have essential character of finished article of E-Rickshaw in terms of Rule 2(a) of General Rules for interpretation of first Schedule of Customs Tariff”. In view of the above, the Custom Authorities have detained the consignment imported by the petitioner. According to them, the same cannot be released for home consumption as the same needs to be type approved or must have a certificate of compliance under Rule 126 of the Central Motor Vehicles Rules, 1989.

Submissions

4. Mr Bansal, the learned counsel appearing for the respondent submitted that to avoid the menace of illegal E-Rickshaws, the Commissioner of Customs, ICD, Tuglakabad had constituted a high powered committee to decide upon the percentage of components/assemblies of E-Rickshaw, which when combined together could be termed as a complete E-Rickshaw in SKD (Semi Knock Down) form as per Rule 2(a) of General Rules for the Interpretation of First Schedule to the Customs Tariff Act, 1975 (hereafter ‘the Interpretative Rules’). He submitted that the said Committee had issued an Office Order dated 12.03.2014, concluding that a motor along with any two essential components of an E-Rickshaw would be understood to have essential character of a complete E-Rickshaw so as to fall within the classification CTH8703 and also covered under the provisions of Motor Vehicles Act, 1988.

5. The learned counsel appearing for the petitioner contended that the legal fiction under Rule 2(a) of the Interpretative Rules, whereby certain parts of an E-Rickshaw could be construed as finished produced for the purposes of the Customs Tariff Act, 1975, could not be applied to conclude that the petitioner had imported a complete E-Rickshaw for the purposes of Rule 126 of the Motor Vehicles Rules, He further submitted that the petitioner was only an importer of parts and not a manufacturer of E-Rickshaws and, therefore, could not be called upon to submit a Type Certificate as required under Rule 126 of the Motor Vehicles Rules, 1989.

6. He relied upon the decision of the Custom Excise and Gold Control Appellate Tribunal (CEGCAT) in L.M.L. Limited v. Commissioner of Customs, Bombay : 1999 (105) E.L. T. 718 (Tribunal) and also pointed out that an appeal preferred against the said decision before the Supreme Court has been dismissed. He also relied on the decision in the case of Commissioner of Customs, New Delhi v. Sony India Ltd. : 2008 (231) E.L. T. 385 (S. C.) and Pioneer Embroideries Ltd. v. Commissioner of Customs, Mumbai : 2015 (322) E.L.T. 602 (S.C.) in support of his contention.

Reasons and Conclusion

7. Undoubtedly, the three parts (rear axle, motor and controller) imported by the petitioner are key essential parts for assembling an E-Rickshaw. The cumulative value of these three parts also constitutes a substantial value of an E-Rickshaw. However, it is not disputed that these three parts do not by themselves constitute the complete product (E-Rickshaw). There are, undisputedly, several other parts that are required to be assembled along with the three parts (rear axle, motor and controller) imported by the petitioner to produce an E-Rickshaw. In this view, it is difficult to accept that these parts imported by the petitioner could be construed as a motor vehicle for the purposes of the Motor Vehicles Act, 1988 or the Rules made thereunder.

8. The term “Motor Vehicle” is defined under Section 2 (28) of the Motor Vehicles Act, 1988 in the following terms:-

(28) “motor vehicle or ” vehicle mens any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimetres.”

9. It is apparent from the above that a motor vehicle is a contraption that can be used on roads. E-Rickshaw is clearly a motor vehicle; but the three parts in question, even though being substantial components of an E-Rickshaw, cannot be termed as motor vehicle within the meaning of Section 2 (28) of the Motor Vehicles Act.

10. At this stage, it is relevant to refer to Rule 126 of the Central Motor Vehicles Rules, 1989 which reads as under:-

126. Prototype of every motor vehicle to be subject to test.- On and from the date of commencement of Central Motor Vehicles (Amendment) Rules, 1993, every [manufacturer or importer] of motor vehicles [including trailers, semi trailers and modular hydraulic trailer] [including registered association (identified by the concerned State Transport Department) for E-rickshaw wherever applicable] shall submit the prototype of the vehicle to be manufactured or imported by him for test by the Vehicle Research and Development Establishment of the Ministry of Defence of the Government of India or Automotive Research Association of India, Pune, [or the Central Farm Machinery Testing and Training Institute, Budni (MP) or the Indian Institute of Petroleum, Dehradun, [or the Central Institute of Road Transport, Pune, or the International Centre for Automotive Technology, Manesar, or the Northern Region Farm Machinery Training and Testing and Testing Institute, Hissar (for testing of combine harvester) or the Global Automotive Research Centre, Chennai] and such other agencies as may be specified by the Central Government for granting a certificate by that agency as to the compliance of provisions of the Act and these rules: “

11. A plain reading of the aforesaid Rule indicates that it is applicable in respect of a manufacturer or an importer of motor vehicles. However, such manufacturer or importer is required to submit a prototype of the vehicle for testing by the specified organizations. Clearly, a prototype approval is not available for parts of a motor vehicle. The petitioner is an importer of certain parts of an E-Rickshaw, which are intended to be sold to manufacturers. There is merit in the petitioner’s contention that it cannot obtain a type approval under Rule 126 of the Motor Vehicles Rules, since it is not importing a motor vehicle but only certain parts thereof. The petitioner has imported these parts for selling the same to manufacturers. The manufacturers in turn are required to obtain a type approval under Rule 126 of the said Rules for manufacture of the E-Rickshaw.

12. The Custom Authorities are not administrating the provisions of the Motor Vehicles Act, 1988 and are only concerned with a question whether it is permissible to import the goods in question and to ensure that the applicable duties are paid for import of the said goods.

13. The respondents have relied on the Office order dated 03.2014, which indicates that a Committee was constituted to decide upon the percentage of components/assembles which could be combined together to make an E-rickshaw as per Rule 2(a) of the Interpretative Rules.

14. It is the petitioner‘s case that in terms of the aforesaid Office Order, the three parts as imported by the petitioner constitutes an E-Rickshaw in terms of Rule 2(a) of the Interpretative Rules.

15. Rule 2(a) of the Interpretative Rules (General Rules for interpretation as set out in the First Schedule to the Custom Tariff Act, 1975) reads as under:-

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

16. It is apparent that the scope of Rule 2(a) of the Interpretative Rules is only to interpret custom duties as applicable to an article imported by any importer. Import of the said Rule is that even an incomplete or unfinished article, which has an essential character of a complete article, would bear the same duties as applicable to the complete article. Rule 2(a) of the Interpretative Rules creates a legal fiction for the purposes of imposition of duties, whereby even an unfinished article or an incomplete article is deemed to be treated as a complete article for the purposes of determining the duties applicable thereon.

17. At this stage, it is necessary to refer to the Office Order dated 12.03.2014, which is relied upon by the respondents. The same is set out below:-

C.No. VIII/ICD/TKD/6AG/ 104/2013/pt Dated 12.03.2014

OFFICE ORDER

A Committee was constituted by Commissioner of Customs ICD 1 KD New Delhi comprising of following below mentioned officers to decide up as to what percentage of components/ assemblies combine together make Erikshaw in CKD SKD as per Rule 2 (a) of the Interpretative Rules to the first Schedule to the Customs Tariff Act 1975.

1. Shri Karamvir singh Joint commissioner of Customs, SUR

2. Shri Gauri Shankar Sinha Deputy Commissioner of Custom, AG

3. Shri Vikash Deputy Commissioner of Customs Import Seed

4. Shri Nalin Kumar Deputy Commissioner of Customs Group V

5. Shri Prashant Kumar Jha Deputy Commissioner of Customs SUB and

6. Shri Abhinav Yadav Assistant Commissioner of Customs Import Shed

2. A meeting of the Committee was held on 06.0-.2014 and after deliberation the matter the Committee has decided that as per Rule 2-a of the interpretative Rules to the First Schedule to the Customs Tariff Act 1975 there are five major components/ assemblies such as transmission motor axle chasis and controller that provides essential characteristics to make a complete E rikshaw in CKD SKD condition classifiable at 8703 and are covered under the provisions of Motor Vehicle Act 1988. However if along with motor any two of the essential components mentioned above are missing then it may be considered as parts of electric rikshaw falling under C.H 8708 and will not attract the provisions of Motor Vehicle Act 1988. All officers are accordingly directed to decide all pending matters on the above lines.

3. This issues with the approval of the Commissioner of Customs ICD TKD New Delhi.

(Karamvir Singh)
Joint Commissioner of Customs (SUB)
ICD, TKD, New Delhi.”

18. It is apparent from the above that the High Powered Committee was constituted to decide as to what percentage of components/assembles combined together should be considered as an E-rickshaw for the purposes of Rule 2(a) of the Interpretative Rules.

19. The aforesaid Office Order indicates the combination of essential components and assemblies of E-Rickshaws that are required to be considered as the finished article (a complete E-Rickshaw). The aforementioned Office Order has to be read in the context of Rule 2(a) of the Interpretative Rules. It is, at once, clear that the import of the Office Order is that the duties as applicable to import of E-Rickshaws would also be applicable to the components which are determined as representing the essential character of the complete E-Rickshaw. The Committee had identified five major components/assemblies, namely, (i) transmission, (ii) Motor, (iii) axel, (iv) Chassis and (v) Controller which would essentially constitute an E-Rickshaw in CKD/SKD (Complete Knock Down/Semi Knock Down) condition. The Committee had further opined that if any two of the essential components along with the motor are missing then the remaining components could be considered as parts of the motor vehicle (E- Rickshaw). In other words, if along with the motor other essential components/assemblies were imported, the same would be considered to have the essential character of an E-Rickshaw. The Chartered Engineer had also submitted an addendum report dated 10.01.2018, clearly stating as under:-

“We hereby once again submit that the goods received in consignment are essential parts which have essential character of finished article of E rickshaw in terms of Rule 2 (A) of general rules for the interpretation of first schedule of Customs Tariff.

Submitted without prejudice.”

20. The petitioner does not dispute that in view of the aforesaid interpretation, the components imported by it are required to bear the same duty as applicable to an E-Rickshaw. The legal fiction as enacted under Rule 2(a) of the Interpretative Rules ± that is treating incomplete and unfinished articles as complete articles ± is only for the purposes of interpretation of the First Schedule of the Custom Tariff Act, 1975. This legal fiction cannot be extended beyond the purpose for which it was enacted. Plainly, by applying the legal fiction of Rule 2(a) of the Interpretative Rules, the components would not, by fiction, become complete motor vehicles for other purposes. The legal fiction enacted for purposes of interpreting the duties under the Custom Tariff Act, 1975 cannot be extended to treat the essential parts of a motor vehicle as a mechanically propelled vehicle adapted for use upon roads.

21. It is well settled that legal fictions created by a statute cannot be extended beyond the purpose for which they are so created. In Bengal Immunity Co. v. State of Bihar: 1955 (2) SCR 603, P.N. Bhagwati J. had, in his concurring opinion, observed as under:

A legal fiction pre-supposes the correctness of the state of facts on which it is based and all the consequences which flow from that state of facts have got to be worked out to their logical extent. But due regard must be had in this behalf to the purpose for which the legal fiction has been created. If the purpose of this legal fiction contained in the Explanation to article 286(1)(a) is solely for the purpose of sub-clause (a) as expressly stated it would not be legitimate to travel beyond the scope of that purpose and read into the provisions any other purpose howsoever attractive it may be. The legal fiction which was created here was only for the purpose of determining whether a particular sale was an outside sale or one which could be deemed to have taken place inside the State and that was the only scope of the provision. It would be an illegitimate extension of the purpose of the legal fiction to say that it was also created for the purpose of converting the inter-State character of the transaction into an intra-State one. This type of conversion could not have been in the contemplation of the Constitution makers and is contrary to the express purpose for which the legal fiction was created as set out in the Explanation to article 286(1)(a) .”

22. In Maruti Udyog Ltd. v. Ram Lal and Ors:2005 (2) SCC 638, the Supreme Court held as under:

“In construing a legal fiction the purpose for which it is created should be kept in mind and should not be extended beyond the scope thereof or beyond the language by which it is created. Furthermore, it is well-known that a deeming provision cannot be pushed too tar so as to result in an anomalous or absurd position. The Court must remind itself that the expressions like “as if is adopted in taw for a limited purpose and there cannot be any justification to extend the same beyond the purpose for which the legislature adopted it.”

23. In L.M.L. v. Commissioner of Customs, Bombay : 1999 (105) E.L.T. 718 (Tribunal), the appellants had imported the complete body unit with all fittings for scooters. The said goods were described as spare parts in the BoE. The Custom Authorities concluded that the said goods were to be interpreted as a complete scooter since they had the essential character of a complete scooter by applying Rule 2(a) of the Interpretative Rules. The authorities relied upon the Explanatory Note to HSN in Chapter 87 of the Customs Tariff Act, 1975 which is set out below:-

An incomplete or unfinished vehicle is classified as the corresponding complete or finished vehicle provided it has the essential character of the latter [see Interpretative Rule 2(a)] as for example:

(A) A motor vehicle, not yet fitted with the wheels or tyres and battery.

(B) A motor vehicle not equipped with its engine or with its interior fittings.

(C) A bicycle without saddle and tyres.

This Chapter also covers parts and accessories which are identifiable as being suitable for use solely or principally with the vehicles included therein, subject to the provisions of the Notes to Section XVII (see the General Explanatory Note to the Section)”. (Emphasis supplied by Ld. S D.R).”

24. At the material time, the complete scooters were also placed in negative list of the ITC Policy and on the basis of the said interpretation the Custom Authorities also contended that the said import was prohibited and, accordingly, the goods in question were confiscated under Section 111(d) of the Customs Act, 1962. While the Tribunal accepted that the goods imported by the appellant were required to be classified as complete motor vehicle for the purposes of the Custom Tariff Act, 1975, it rejected the contention that the said goods could be considered as a complete scooter for the purposes of ITC policy. The operative part of the said decision is set out below:-

8.We have carefully considered the facts and circumstances advanced from both sides. On this plea we agree with Shri R. Santhanam. Rules of Interpretation of Tariff and explanatory Notes to HSN cannot be applied for the purpose interpreting the ITC Policy. When the policy states in the negative list that consumer goods are required to be imported on licence, it means only the complete motor vehicles which are understood to be in the list and not on the basis of the understanding in terms of Customs Tariff Act. Accordingly we are of the view that confiscation of the goods and imposition of penalty are not warranted. We set aside the same. Appeal disposed of in the above terms with consequential relief, if any to the appellants.”

25. It is relevant to note that the Supreme Court upheld the aforesaid order and dismissed the appeal against the aforesaid decision by an order dated 15.12.1998 passed in Civil Appeal 5958/1998.

26. While Rule 2(a) of the Interpretative Rules can be applied for treating the import of goods as an import of a complete E-Rickshaw for the purposes of the Customs Tariff Act, 1975, that is, for determining the applicable duties and tariffs, the said rule will have no application for treating the said goods as a complete E-Rickshaw under any other statute including the Motor Vehicles Act, 1988 and the Central Motor Vehicle Rules, 1989. Clearly, there is no scope for the specified organizations to grant a type approval only on the essential parts of an E-Rickshaw.

27. If the contention as advanced by the respondents is accepted, it would mean that no person other than a manufacturer of an E-Rickshaw can import the essential components/assemblies of an E- This is unpersuasive and cannot be accepted.

28. Before concluding, it is also necessary to note that the learned counsel for the petitioner had also stated that the goods would be sold to only registered manufacturers of E-Rickshaw and no other person and he would also submit an undertaking to the aforesaid effect. The petitioner is bound down to the said statement and an undertaking to the aforesaid effect would be furnished to the Custom Authorities. The Custom Authorities may forward the same to the concerned authorities under the Motor Vehicles Act, 1988.

29. In view of the above, the respondents are directed to clear the goods in question on payment of the duties as applicable to import of an E-Rickshaw. However, the respondents cannot withhold the goods for want of a type approval under Rule 126 of the Central Motor Vehicles Rules, 1989.

30. The petition is disposed of in the aforesaid terms.

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