CCAR Ruling: Exemption Benefit for Imported Off-Highway Equipment Turbochargers

In re Garrett Motion Technologies (India) Pvt. Ltd. (CAAR Mumbai)

In a recent ruling by the Customs Authority for Advance Ruling (CAAR) in Mumbai, the eligibility of M/s Garrett Motion Technologies (India) Pvt. Ltd. for exemption benefits on imported turbochargers meant for off-highway equipment was examined. The ruling delves into the intricacies of classification and eligibility under Indian customs regulations.

M/s Garrett Motion Technologies (India) Pvt. Ltd. sought clarification on the applicability of exemption benefits, as per SI. No. 448H of Notification No. 50/2017-Cus., dated 30.06.2017, for imported ‘Turbochargers’ classifiable under Tariff Item 8414 80 30. These turbochargers were intended exclusively for use in off-highway equipment, such as generators and earth-moving machinery.

The applicant, a pioneer in turbocharger technology in India and globally, explained that these turbochargers could not be used in on-highway vehicles due to their large engine capacity (14L to 60L) and high power ratings (400 hp to 2970 hp). They supplied these turbochargers to customers engaged solely in the off-highway equipment business.

The ruling considered the legal framework, specifically CTH 84148030 and SI. No. 448H of the notification. It found no distinction between on-highway and off-highway turbochargers in the tariff. Instead, the eligibility for exemption hinged on whether the turbochargers were suitable for use in motor vehicles falling under specific headings (8702, 8703, 8704, and 8711). As the imported turbochargers did not meet these criteria, they were deemed eligible for the exemption.

The CAAR’s ruling clarified that turbochargers intended solely for use in off-highway equipment and not suitable for on-highway vehicles were eligible for exemption benefits under SI. No. 448H of Notification No. 50/2017-Cus. This ruling provides clarity for businesses importing such turbochargers in India and reinforces the importance of proper classification under customs regulations.

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

Ruling

M/s Garrett Motion Technologies (India) Pvt. Ltd. (TEC No.: 3105000534) (Herein after will be referred to as ‘Applicant’) filed an application for advance ruling in the Office of Secretary, Customs Authority for Advance Ruling (CAAR) Mumbai on 26.04.2023 seeking applicability of exemption benefit in terms of SI. No. 448II of Notification No. 50/17-Cus. dated 30.06.17 as amended on import of’ Turbochargers’ meant for off highway equipment.

2. Submission by the Applicant:

2.1 The applicant has informed that they are pioneers of turbocharging systems for gasoline and diesel. Applicants arc a differentiated technology leader and offer various solutions to empower the transportation industry. They arc a pioneer in the Turbocharger Technology in India and globally. They arc strong players in the niche segments of electric boosting and automotive soft-ware solutions.

2.2 As per application they seek understanding towards eligible for ex-emption benefit in terms of S). No. 44811 of Notification No.50/17-Cus. dated 30.06.17 as amended for import of Goods namely ‘Turbochargers’ (classifiable under Tariff Item 8414 80 30), which are suitable for use only in Off-highway equipment(s), having model nos. / part nos. which are currently being imported (as specified in table below) as well as future models:

Table-1

2.3 Background sub-mitted by Applicant:

2.3.1. The Applicants are engaged in the import and trading of ‘Turbochargers’ which are suitable for use in (a) On-highway applications such as motor vehicles and (b) Off-Highway equipment(s) such as generators, power generation units, earth-moving equipment, and construction equipment etc.

2.3.2 All Turbochargers (whether for off-highway application or on-highway application) are classified under Tariff Item 8414 80 30 of the Customs Tariff upon import.

2.3.3 The present application for Advance Ruling is limited to Turbochargers which arc suitable for use only in Off-highway equipment i.e., for generators, earth moving equipment etc.

2.3.4 List of various models of Turbochargers for which the Applicants arc seeking an Advance Ruling are given in Table-1 in para 2.2. Applicants submit that the abovementioned part numbers reflect on the turbocharger in the form of stickers having mention of the Part Number and also a bar code. The Applicants import and trade / supply the above Turbochargers to two (2) of their customers i.e., Caterpillar India Private Limited (CAT) and Perkins India Private Limited (Perkins. These customers arc engaged in Off-highway equipment business only.

2.3.5 The Applicants submit that On-highway vehicles have engine displacement capacity ranging between 0.6L to 9L only, whereas Off-Highway equipment has massive engine displacement capacity ranging between 14L to 60L.

2.3.6 The Applicants submit that Turbochargers, which are subject matter of the present application, are incapable of being used with engines having capacity less than 14 L (for e.g., in on- highway vehicles), and can only be used only in high-capacity engines, (for e.g., in generators, earthmoving equipment etc). Even the power rating of the engines in which these turbochargers arc used ranges from 400 hp to 2970 hp.

2.3.7 The Applicants’ customers use the Turbochargers for Off-highway equipment i.e., for fitment in high-capacity engines, which are ultimately fitted into Power generation units, Earthmoving equipment, construction equipment, industrial equipment etc.

2.3.8 Therefore, the Turbochargers being imported by the Applicants arc suitable for use only-in engine(s) with a capacity ranging from 14L to 60L and having power rating ranging from 400hp to 2970 hp and cannot be fitted into and arc not suitable for use in motor vehicles (on-highway), as their engine displacement capacity is less and ranges between 0.6L to 9L only.

2.3.9 The Applicants submit that details of the Turbo-chargers being imported can be searched and located using specific Part Number on the Applicants web-site accessible at: Aftermarket & Reman Turbochargers Catalog. Find Garrett Turbo (garrettmo-tion.com).

2.3.10 On the basis of this, the Applicants submit that specific model(s) of turbochargers being procured by Applicants for its customers, are meant only for use in Off-Highway segment.

3. Additional information submitted by Applicant:

3.1 Investigation by DRI Jodhpur:

3.1.1 In 2022, the Directorate of Revenue Intelligence (DRI), Jodhpur had initiated an investigation against the Applicants regarding import of (a) Turbo-chargers and (b) Actuators and eligibility to claim exemption benefit under SI. No. 44811 and SI. No. 485A of Notification No. 50/ 2017 dated 30.06.17 as amended, respectively.

3.1.2 As with any vacuum tube, there is a cathode, which emits electrons into the vacuum and an anode to collect the electrons, thus establishing a flow of electrical current, known as the beam, through the tube. Tn a high voltage power source, the X-Ray spectrum depends on the anode material and the accelerating voltage.

3.1.3 ‘The Applicants examined the claim of DRI and accordingly, vidc letter dated 25.05.23 surrendered entire customs duty forgone along with interest, in respect of imports of (a) Actuators and (b) Turbochargers suitable for use for on-highway applications only viz. motor vehicles.

3.1.4 As a consequence of the above investigation, the Applicants did not claim exemption under of SI. No. 448H of Notification No. 50/ 2017 dated 30.06.17 on Turbochargers imported, even when they were suitable for use only with Off-highway equipment only.

3.2 Issuance of Show Cause Notice by Commissioner of Customs, Nhava Sheva-V

3.2.1 Pursuant to the DRI investigation, the Applicants were issued with Show Cause Notice (‘SCN’) No. 1730/2022-23/Commr/NS-V/CAC/JNCH dated 03.01.23 (received on 17.01.23).

3.2.2 The above SCN is restricted to demand of duty on imported Actuators and Turbochargers suitable for use with On-highway applications such as motor vehicles, it docs not cover imports of Turbochargers that are suitable for use with Off-highway equipment(s). In other words, no demand of duty has been made in the SCN for the import of turbocharger meant for off-highway equipment(s).

3.3.3 In the spirit of law and to avoid prolonged litigation, the Applicants vide letter dated 15.02.23 have made payment of 15% of duly towards penalty amounting to Rs.40,86,965/-(rounded off) and opted for closure of proceedings in terms of Section 28(6) of the Customs Act.

3.3.4 The Applicants submit that the duty demand in the above SCN was for Turbochargers for On-highway application viz. motor vehicles only. The Applicants import specific part numbers of turbochargers meant for Off-Highway equipment and there was no proposal to demand duty on these turbochargers. These are mentioned in the present application.

3.3 Thus, to sum-up, the Applicants state that the duty forgone surrendered before DRI was limited to Turbochargers suitable for use in On-highway applications such as motor vehicles alone. This was duly conveyed vide letter dated 25.05.22 to the DRI. Even, the SCN dated 03.01.23 issued pursuant to the above investigation is limited to demand of duty for im-ported Turbochargers suitable for use with On-highway applications such as motor vehicles alone.

3.4 The Applicants feel that in spite of noticing this fact that the SCN did not demand differential duty on Turbochargers suitable for use only with Off-highway equipment, the Applicants have approached this Hon’ble Authority in order to have certainty.

4. Port of Import and reply from jurisdictional Commissionerate:

4.1 The applicant in their CAAR-1 indicated that they intend to import the impugned goods from the jurisdiction of Office of Commissioner of Customs (NS-V) Nhava Sheva, Raigad Maharashtra – 400 707. The application was forwarded to the jurisdictional Commissioner of Customs & Commissioner of Customs, Nhava Sheva for their comments on 08.05.2023.

4.2 The Jurisdictional Customs Commissionerate. Nhava Sheva-V sent the comments vide their letter dated 01.06.2023. Inter-alia it has been informed vide their reply 01.06.2023 that a Turbocharger is a type of forced induction device that uses the exhaust gas from an engine to spin a turbine, which in turn spins a compressor. The compressor then forces more air into the engine, which allows it to burn more fuel and produce more power. Turbo Chargers are typically used in Diesel engines and high performance gasoline engines. They can also be found in some hybrid and electric vehicles. Turbochargers can be a great way to improve the performance of an engine and some of the benefits of using a turbocharger are increased power, improved fuel economy and reduced emissions. It is widely used in automobile industry. Further they have informed that Turbo-chargers are specifically classified under CTH 84148030 without specifying its use or application. It has been informed that the SCN has not disputed the Classification of ‘Turbocharger’ and the dispute is in respect of wrong availment of notification benefit availed by them which were available for goods other than those suitable for use in motor vehicles covered under 8702, 8703, 8704 and 8711.

5. Details of Personal Hearing:

5.1 A personal hearing was held virtually on 24.08.2023 at 03:00 PM, Shri T. Vishwanathan, Advocate along with other officials of applicant appeared for the hearing. No one appeared on behalf of the jurisdictional commissionerate. The applicant demonstrated a presentation wherein they reiterated the points submitted in the application and re-quested for the ruling.

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 as well as the response received from the Jurisdictional Customs Commissionerate. Therefore, I proceed to pronounce a ruling on the basis of information available on record as well as existing legal framework. The issue before me is of applicability of exemption benefit in terms of SI. No. 448H of Notification No. 50/ 2017 dated 30.06.17 as amended on import of ‘Turbochargers’ meant for off highway equipment. Thus the applicant in his application has requested to clarify whether the goods Turbochargers (classifiable under tariff item 84148030), which arc suitable for use only in off-highway equipment, having part number 826835-0020 and 712302-5005, as well as future models, will be eligible for exemption benefit in terms of Sr. no. 448H of Notification No. 50/ 2017 dated 30.06.17, as amended.

6.2 The applicant has submitted that the turbochargers which they arc importing are suitable for use in a) On-highway applications such as motor vehicles and b) Off-highway equipment such as generators, power generation units, earth-moving equipment and construction equipment etc. Further the turbochargers for Off-highway equipment are huge in size and thus in no way capable of being fitted into motor vehicles viz. for On-highway applications. The above mentioned turbochargers are for their customers Caterpillar India Pvt. Ltd. (CAT) and Perkins India Pvt. Ltd. which are engaged in Off-highway equipment business only.

6.3 Further, the applicant submits that the turbo-chargers which are subject matter of present application are incapable of being used with the engines having capacity less than 14 L and can only be used only in high capacity engines. Even the power rating of the engines in which these turbochargers are used ranges from 400 hp to 2970 hp. Thus the applicant submits that the specific models of turbochargers being procured by them for its customers are meant only for use in Off-highway segment.

6.4 Further, the applicant also submitted that DRI, Jodhpur had initiated investigation against them regarding import of turbochargers and actuators and eligibility to claim exemption benefit under sr. no. 448H and sr no. 485A of Notification No. 50/ 2017 dated 30.06.17, as amended. Pursuant to the investigation SCN was issued and demand of duty was restricted only to those goods i.e turbochargers and actuators, which were suitable for use with On-highway applications such as motor vehicles and no demand of duty was made for Off-highway equipment.

7.1 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. I find that there is no ambiguity in the classification of the ‘Turbochargers’ since they arc specifically classified under CTI 8414 8030.

7.2 Relevant portion of CTH 8414 is reproduced below for ease of reference:

7.3 The submission of the applicant was scrutinized in view of Sr. No 448 H of Notification No. 50/ 2017 dated 30.06.17 as amended by Notification No. 21/2021-Customs dated 31.03.2021. In this regard, it is to mention that the relevant portion of the Notification is as under: –

7.4 The entry under Sr. No 448 11 of exemption Notification No. 50/ 2017 dated 30.06.17 as amended says that goods of CTH 841480 (except 8414 8011) are eligible for exemption benefit under Sr. No 448 H provided they shall not be suitable for use in motor vehicles falling under heading 8702 or 8704; motor cars falling under heading 8703 or motor cycles fall-ing under heading 8711.

8.1 I find that the ‘Off-Highway equipment’ is a broad term that is used to explain the machinery which spends most of its time off-road. The type of equip-ment can range from large trucks used in mining to small agricultural machines, and every thing in be-tween. Thus from the plain reading of above CTH 841 8 of the tariff and sr. no. 44811 of the said notifi-cation it is evident that there is neither any mention of On-highway or Off-highway goods nor there is any such distinction of turbochargers classified under CTH 84148030 in aforesaid categories as per its use. Therefore, as per the tariff, it is evident that the turbochargers, whether for On-highway or Off-highway use, are classifiable under CTH 84148030. At the same time the sr. no. 448H of the Notification No 50/2017 dated 30.06.2017, as amended makes it clear that turbochargers are chargeable for 7.5% duty instead of 15% provided the same arc not used in motor vehicles/cars/cycles falling under heading 8702, 8704, 8703 and 8711.

8.2 Further, if we examine the said headings, especially 8702 and 8704, then these are for transport of more titan 10 persons and transport of goods and thus can include big vehicles for Off-highway use. Infact, in respect of CTH 8704 10 it is specifically mentioned in die tariff as “Dumpers designed for off-highway use”. Similarly, as seen from the information available on internet, dirt bikes, quad bikes, dune buggies, All Terrain Vehicles, Electric vehicles of similar category etc also Tall under Off-highway use and which may be classified under heading 8703 and 8711. There-fore, it is difficult to distinguish the turbochargers based on its use in On-highway or Off-highway vehicles category and it is required to examine if the use of the turbocharger specifically falls in any of the motor vehicles with heading 8702, 8704, 8703 and 8711 to deny or provide the benefit of the notification

9. Therefore, in view of the above discussions, as re-quested by the applicant, the imported turbochargers cannot be linked to use in On-highway or Off-highway category of the vehicles to get the benefit of the sr. no. 448H of Notification No. 50/ 2017 dated 30.06.17, as amended As per the said notification, the turbochargers will get benefit of the notification only in case where they are suitable for use in goods other than motor vehicles/cars/cycles falling under heading 8702, 8703, 8704 and 8711. Accordingly, the application is disposed off.