Classification of Air Conditioners in CKD/SKD condition

In re Mitsubishi Electric India Private Limited (CAAR Delhi)

The legal position regarding classification of goods in CKD/ 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 un-assembled or disassembled.” This position has been upheld by Hon^.ble Supreme Court in various cases, as mentioned above detailing the submissions of the applicant.

In order to answer this question posed for advance ruling, what is required to be examined is whether air conditioners kits, without capacitors have acquired the primary characteristics of an air conditioner? Viewed alternately, whether capacitors and ODS gas are essential or non-essential components of air conditioners? I note that the applicant has submitted that capacitors are non-essential component of an air conditioner. On cursory reading of technical literature available in public domain suggests that capacitors are essential component of an air conditions, which provide the initial jolt of electricity to the air conditioner’s motors needed to run successfully and a bad capacitor prevents the exterior unit from properly functioning, which hinders the cooling process as a whole. Be that as it may, notwithstanding the role of capacitors in air conditioners, I accept the larger contention that the air conditioner kit, as described by the applicant have acquired the characteristics of an air conditioner and are classifiable as air conditioners when presented together.

Therefore, I conclude that imported air conditioner kits in CKD/SKD condition, as described above have acquired the essential characteristics of an air-conditioner and therefore, when presented together at the stage of assessment under common invoice and bill of entry would merit classification under heading 8415 and specifically under sub-heading 841510 or 841581 or 841582 or 841583, as the case may be depending upon the configuration and model type. In coming to this conclusion, I have also been guided by the submission of the Commissioner of Customs, Chennai Import Commissionerate that for convenience of transport, many machines and apparatus are transported in an unassembled state; although in effect the goods are then a collection of parts, they are classified as being the machine in question and not in any separate heading for parts; the same applies to an incomplete machine having the features of the complete machine presented un-assembled and hence the indoor and outdoor units presented together in CKD/SKD forms are to be classified under heading 841510/ 841581/ 841582/ 841583, as applicable.

I now take up the second question, i.e. when the parts of IDU/ODU or Cooler/Condenser [Heat Exchange Units (HEX)] are imported in CKD/SKD condition, would the same also to be treated as ‘parts of air conditioners’ in as much as such parts are specifically designed for use in the assembly of HEX (IDU/ODU or Cooler/Condenser), which is an integral part of an air-conditioner; and therefore, eligible to be classified under sub-heading 84159000 as parts of a part of air-conditioner?

In this regard, I note that as per the applicant assembly of Heat Exchange Units (HEX) would consist of assembly of IDU or ODU / cooler or condenser It is indisputable that in the instant case such HEX are component/ part of air conditioners. Therefore, the IDU or ODU / cooler or condenser us parts of air-conditioner would merit classification under sub-heading 8415 9000 as parts. However, when HEX units arc presented together as air conditioner kit, it would merit classification as air conditioning machine under heading 841510/ 841581/ 841582/ 841583, as applicable. I note that Heat Exchange Units arc independently classifiable under sub-heading 841950 and they can be so classified if imported on stand-alone basis, not as parts of air conditioners.

The next question that needs to be addressed is the classification of parts of HEX for air conditioning machines. In cases where air conditioner kits containing all essential parts/components of the assembly, including cooler or condenser or evaporator are presented together in CKD condition for assessment and clearance, as per rule 2(a) of GRI such kits in CKD condition, including parts of evaporator or condenser would merit classification as air-conditioning machine under heading 841510/ 841581/ 841582/ 841583, as applicable. However, in the event of parts of HEX units being presented together for assessment, but not as part of air conditioning kit, noting that these parts of HEX (cooler or condenser or evaporator) are designed specifically to be used in an air-conditioner, these parts would merit classification under sub-heading 841590, in accordance rule 2(a) of GRI.

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

M/s Mitsubishi Electric India Private Limited, a company having PAN AAGCM7782A and lFC 0510(159449 (Mitsubishi Electric or applicant, in short), has filed an application dated 29.12.2021 seeking advance ruling under section 28-11 of the Customs Act, 1⁹62 before the Customs Authority for Advance Rulings, New Delhi (CAAR, New Delhi in short). The application was received in the Secretariat of CAAR. New Delhi on 20.01.2022 and registered under serial No. 04/2022-Delhi dated 20.01.2022.

2. The applicant while proposing import of air conditioners in CKD/ SKD condition has sought advance rulings on the questions as under:-

(i) If the applicant imports all parts of air conditioner in CKD/ SKD condition (except capacitors) and assemble the complete air conditioner in India, whether all such parts imported in CKD/ SKD condition can be classified as ‘air-conditioners’ under sub heading 84151010 or under any other sub-headings, by invoking rule 2(a) of the General Rules of Interpretation (GRI, in short) to the Customs Tariff Act, 1975?

(ii) If the applicant imports all the parts of air conditioners in CKD/ SKD condition, under different Bills of Entry by presenting them separately before Customs for clearance, whether all such parts can be classified as ‘parts of air conditioners’ under sub heading 84159000 by invoking section note 2(b) of section XVI of the Customs Tariff Act, 1975?

(iii) When the parts of cooler/ condenser (i.e. heat exchange units -HEX) such as Fins, Copper tubes, Thermoset, Metal Plastic plates and others are imported together under a separate invoice and assembled by the job worker in India, whether they are classifiable as ‘parts of heat exchange units’ under sub heading 84199090 (or) as `parts of air conditioners’ under sub heading 84159000 by invoking section note 2(b) of Section XVI of the Customs Tariff Act 1975?

3.1 While applying for ruling on the said questions, the applicant has stated that at present, air conditioning machines, viz. Room Air Conditioners (RAC) and Packaged Air Conditioners (PAC) are being imported from their overseas group companies especially from Mitsubishi Electric Consumer Products (Thailand) Co. Ltd., and sold to customers in India; they have been classifying the fully assembled air conditioners under sub heading 841510 or under 841581 or under 841582 depending upon the configuration and model type; apart from importing fully assembled air conditioners, they are also importing various parts & accessories of the air conditioners as replacement/ warranty parts. The applicant has informed that they are classifying imported items as below:

3.2 The applicant has stated that they are availing benefits in the form of Basic Customs Duty exemptions (BCD) under the Indo-Thailand & Indo-ASEAN Free Trade Agreement vide Notification 46/2011-Cus. dated 01.06.2011, as amended or under Notification 84/2004-Cus. dated 30.08.2004, as amended, as the case may be.

3.3 The applicant has further stated that they intend to import all the parts in CKD/SKD form and assemble the Air Conditioners (finished goods) in India through a job worker; after import, they will supply the CKD/SKD parts to the job worker who will assemble them into a fully assembled Air conditioners and send back to them.

3.4 The SKD parts proposed to be imported are:

(a) Indoor Unit – IDU [in CKD/SKD condition]:

(i) Unit Mock Up

(ii) Motor

(iii) Electric Box

(iv) Line flow Fan

(v) Fins, Copper tubes, Thermistor, Metal Plastic plates etc., (Parts of Heat Exchangers – HEX)

(vi) Remote controllers

(b) Outdoor Unit – ODU [in CKD/SKD condition]: l

(i) Unit Mock Up

(ii) Motor

(iii) Electric lox

(iv) Compressor

(v) Propeller Van

(vi) Reactor [for inverter models]

(vii) Fins, Copper tubes, Thermistor, Metal Plastic plates etc.

(Parts of Heat Exchangers- HEX)

(c) Panel (for PAC unit only)

3.5 As detailed in the application, the applicant may import the indoor and outdoor units (IDU & ODU) together in CKD/ SKD form under one invoice and present the same for customs clearance under a single Bill of Entry in respect of RAC Models; in respect of PAC models, along with ODU & IDU, they may also import ‘Panels’ and present them together for customs clearance under a single Bill of Entry; after import, they will supply them to the job worker, along with the locally procured capacitors; the job worker will assemble them into a complete air conditioner by a simple assembly process, fill up the ODS gas and return to the applicant for onward sale to customers on payment of applicable GST; alternately, whenever it is not possible to import all the parts under one invoice by filing one Bill of Entry, they may import same parts (except ‘capacitors’) in CKD/ SKD condition under separate invoices and file separate Bills of Entry for customs clearance; thereafter, all the parts together in sets for assembling the air conditioners will be sent to the job worker who after assembling them into a finished air conditioners will return them for onward sales on payment of GST. The applicant has also stated that the job worker will employ a simple assembly process involving spanner, screw drivers, soldering, wiring and gas filling, etc.

3.6 The applicant has prayed to provide rulings on the classification and eligibility for FTA benefits for their proposed imports.

4. The applicant has given their point of view in respect of each question for which they have asked for advance ruling. Question wise explanation of the applicant is as below:

4.1 Question (i) in para 2 above:

In this regard, it is stated that when the applicant import such air conditioners in CKD/ SKD form, and present them together for clearance before Customs, the same shall also be classifiable under the respective headings by following rule 1 and rule 2 (a) of the General Rules for the Interpretation of Import Tariff (GRI, in short); as per rule 2(a) of GR1, if all the parts of an article are imported in incomplete or unfinished condition or unassembled or disassembled form and have the essential character of that article when presented together before Customs for clearance incomplete or unfinished or CKD/SKD parts have to be assessed as complete article and classifiable under the tariff heading appropriate to the complete or finished article; the view has been upheld in the case of Procal Electronics India Ltd v. Commissioner – 2005 (185) F.L.T. A58 (S.C.). wherein the Supreme Court agreed to the Tribunal and Revenue holding that once the goods are imported in CKD condition and presented before Customs as such the goods arc classifiable as complete article. It is also stated that even if sonic non-essential items are not present in the CKD/SKD pack, the latter can still become a complete article as ruled in the case of Galaxy Agencies v. C.C.E.-2009 (239) E.L.T. 478 (‘Fri.); and in the case of Bayerische Motoren-2006 (193) E.L.T. 138 (AAR), the erstwhile Authority for Advance Rulings held that motor cars imported in CKD units without seat have to be treated as complete cars; however, if the parts missing are essential, the CKD pack cannot constitute a complete article; further, the Tribunal in the case of Wipro GE Medical v. C.C.-2006 (202) E.L.T. 141 (Tri.) has held that the CKD pack does not constitute a complete scanning machine because it did not contain parts like probes, monitor and keyboard assemblies; a CKD pack containing all the parts to make a car will be classified as a car for Basic Customs Duty under the Schedule (CC v. Maestro Motors Ltd.-2004 (174) E.L.T. 289 (SC). It is further stated that the applicant proposes to procure ‘capacitors’ locally and utilize them in the assembly process of ACs in India; the capacitor is a non-essential part, used only in electronic boards fitted with the outdoor unit/ indoor units; the capacitors are not essential for carrying out ACs primary function of cooling/ heating; therefore, all parts proposed to be imported in SKD/ CKD form except capacitors will be classifiable under the appropriate sub heading applicable to various models of air conditioners as complete article by invoking rule 2 (a) of GRI to the Customs Tariff Act, 1975; the Customs Tariff classification of air conditioners in CKD/SKD condition as determined based on the terms of headings/ sub headings/ tariff items read with Section/ Chapter Notes and explanatory notes of the HSN are as under:

The applicant has also stated that parts imported separately cannot be clubbed together as discussed in the following cases; the Tribunal in the case of P.R.Trivedi v. CC-2005 (192) E.L.T. 801 (Tri.-Mumbai) held that if the goods are imported and presented by different importers they cannot be allowed to be treated as complete car cassette player; even if they are imported by the same importer but in different consignments, they still do not become complete article since they are not presented together as a complete article in CKD condition, held the Supreme Court in the case of C.C. Delhi v. Sony India-2008 (231) ELT 385 (SC); thus, as per GRI 2(a) to the Customs Tariff Act, 1975, the CKD/ SKD parts proposed to be imported by the applicant are all classified under the sub heading 84151010 or 84158110/90 or 84148210/90, as the case may be depending upon whether the installation is ductable or non-ductable because, as per the HSN explanatory notes, the classification of the air conditioning machine under various sub headings of tariff heading 8415 is mainly based on its design for fitting in wall, floor, ceiling or window and whether or not a duct is required for installation of the subject air conditioners; it is well settled law that when an article (complete or finished) is classifiable under a particular tariff heading or sub heading then the CKD/ SKD parts of that article even in incomplete or unfinished condition are also required to be classified under the same heading/ sub heading; the only conditions to be satisfied are that it should have the essential character of finished article and all the parts are to be presented together before Customs for clearance; CBIC in its Circular No. 55/95-Cus. dated 30.05.1995 had reiterated the fact that the field officers should consider the provisions of rule 2(a) of GRI while classifying the goods imported in CKD/ SKD form; there are plethora of case laws in support of the classification of the goods in CKD/ SKD under the tariff heading relevant to the complete or finished goods; it is therefore, prayed that the Authority may pass orders classifying the CKD/ SKD parts of the air conditioners under the relevant tariff sub heading as per above table.

4.2 Question (ii) in para 2 above:

The applicant states that as per Chapter Note 2 (a) of Chapter 84, parts which are 8431, 8448, 84( , 8473,8485,8503, 8522, 8529,8518 and 8548) arc in all cases to be classified in their respect k c headings. The applicant intends to import following parts separately under different invoices by filing separate Rills of Entry:

The applicant has stated that the parts described against S. No. 4, 6 to 11 of the table above are goods which are specifically covered as goods in the tariff Sub headings mentioned against each; by following the Chapter Notes 2 (a) of Chapter 84 all these items get classified under the respective tariff headings/ sub headings as indicated in the above table by virtue of its coverage under the respective sub headings as separately identifiable goods; the parts mentioned against S. No. 1-3 & 12 are solely or principally designed to be used with the air conditioning machine and not covered under any other tariff heading/ sub heading; by following the Chapter Note 2 (b) of Chapter 84, these goods are classifiable under the sub heading 84159000 as parts of air conditioner; however, when parts are designed and solely used with a particular kind of machine then there are plethora of case laws confirming the view that when a part is solely or principally used with a particular kind of machine then such part need to be classified along with that machine; in a recent judgement, the Supreme Court in the case of Westinghouse Saxby Farmer-2021 (3) TMI 291-SC has upheld the applicability of the ‘suitability for use test’ and held that those parts which are suitable for use solely or principally with an article in (a) Chapter cannot be taken to a different Chapter as the same would negate the very object of group classification; by applying the rationale of the Hon’ble Supreme Court decision cited above, it can be argued that all parts that go into the assembly of an air conditioner should be classified under 84159000 as parts of air conditioner since these parts are solely or principally designed and used only with the air conditioners; in other words, the following parts, viz. motor, compressor, propeller fans, line flow fan, capacitor, reactor, remote control, heat exchange units (HEX) & its parts are all designed and Manufactured 10 be assembled as an air conditioning machine and therefore. all of them merit classification as ‘parts of air conditioners’ under sub heading 84159000 purely based on the ‘suitability & principal or sole use test’ propounded by the Hon’ble Apex Court in their decision: alternately, by applying the Chapter Note 2 (a) of Chapter 84, the parts N‘ltich are goods covered under the respective tariff headings/ sub headings when imported and presented separately before Customs for clearance. can at best be classified under the respective headings; it is prayed that the Authority may pass orders confirming definitive classification for the goods mentioned in this para, above either as parts of air-conditioners under sub-heading 84159000 or as individual parts covered under the appropriate heading, as applicable.

4.3 Question (iii) in para 2 above:

The applicant has stated that when cooler and the condenser (HEX) are imported as finished goods separately, they were being classified under the sub heading 84159000 as parts of air conditioner as it is solely or principally used with the air conditioners; similarly, when parts of such cooler/condenser (HEX) are imported separately and presented for clearance before Customs, they should also be classifiable under sub heading 84159000 as parts of air conditioner based on the use and suitability test as propounded by the Hon’ble Supreme Court in the recent judgement; however, as per Chapter Note 2 (a) of Chapter 84, ‘parts’ which are goods classifiable under a tariff heading/ sub heading, are to be classified under those headings where it is specifically mentioned as separate goods; by invoking this note, the parts of HEX, viz. Finns, Copper tubes, Tubes, Thermosets, Metal plastic plates etc. can be classified under sub heading 84199090 as parts of HEX also; however, application has requested to confirm the classification of the parts of condenser/ cooler (HEX) either under sub heading 84159000 as parts of air conditioners or under 84199090 as parts of Heat Exchange unit (HEX).

5. In accordance with the procedure prescribed under the regulations, personal hearing in the matter took place on 09.05.2022. At the outset, the Authority briefed the authorized representatives that comments from the concerned Principal Commissioner/Commissioner are still awaited. It was also informed that ex-parte ruling in absence of appearance of the representative of the concerned Commissioner(s) and without receipt of the comments from them reduce robustness of the ruling and acceptability by the department; and therefore, the concerned Principal Commissioner/Commissioner have been requested to expedite their comments. It was also informed that after the receipt of or lapse of reasonable time, whichever is earlier, one more hearing will be fixed after forwarding comments of Principal Commissioner/Commissioner, to the applicant. The learned advocate reiterated the submissions already made in the application for advance ruling. He explained that presently the company is engaged in import of complete air conditioners (except refrigeration gas), but desires to start import of air conditioners in CKD/SKD condition, with greater value addition being done in India after import through job worker. lle explained the assembly process post intended importation and working of the RA(‘ and PA (type of air conditioners. the Authority desired to know as to whether the imported goods will he in CKD /SK[) condition as having been assembled abroad and then knocked down import or they would he in the nature of all components procured and imported together and presented as such to Customs. The advocate intOnned that mostly all parts will he put together; however, they would like to furnish submissions in this regard filler due consultation with the applicant. The Authority directed the Secretary to send a reminder to the concerned Principal Commissioner/Commissioner of Customs for expediting comments on the application for advance ruling.

6.1 The comments of the Commissioner of Customs -Import Commissionerate, Chennai have been received vide letter dated 29.06.2022. It is commented inter-alia that for convenience of transport, many machines and apparatus are transported in an unassembled state; although in effect the goods are then a collection of parts, they are classified as being the machine in question and not in any separate heading for parts; the same applies to an incomplete machine having the features of the complete machine presented un-assembled; attention is also drawn to rule 2(a) of the General Rules for Interpretation of Import Tariff and hence the indoor and outdoor units presented together in CI(D/SICD forms are to be classified under 841510/ 841581/ 841582/ 841583, as applicable; however, unassembled components in excess of the number required for a complete machine or for an incomplete machine having the characteristics of a complete machine, are classified in their own appropriate heading; however, it is to be noted that import of air conditioners under 84151010 and 85151090 with refrigerants is prohibited as per notification No. 41/2015-2020-DGFT dated 15.10.2020; when the indoor/ outdoor units are presented separately, the same merits classification under 84159000; the goods under 841590 are eligible for BCD exemption as per serial no. 449A of Notification No. 50/2017-Cus. dated 30.06.2017; the importers have requested for classification of parts of the air conditioner imported and presented separately under 84159000 as these are parts designed and solely or principally used for assembling air conditioner; attention is drawn to Note 2 of the Section XVI Notes; compressor, reactor/capacitor, line flow fan/ propeller fan, parts of heat exchanger unit, if presented separately are to be classified in their specific headings in accordance with Section Note 2(a); hence these items in all cases are classified in their own appropriate heading even if specially designed to work as parts of a specific machine; compressors are rightly to be classified under 84148011 and leviable to BCD @ 10%; reactor/ capacitor to be classified under 8504 and leviable to BCD @ 10% and motors under 8501 and leviable to BCD @ 10%; further attention is drawn to judgement of the Hon’ble Supreme Court in the case of Westinghouse Saxby Farmer-[2021 (3) TMI 291-Supreme Court] wherein it is held that on the question as to what test would be appropriate in a given case, this court pointed out that in the case of A. Nagaraju Bros Vs. State of A.P., there is no single universal test in these matters, the several decided cases drive home this truth quite frequently, it is for this reason probably that the common parlance test or commercial usage test, as it is called, is treated as the more appropriate test. though not the only one, there may he cases. particularly in the case of new products, where this test may not be appropriate, in such cases, other tests like the test of predominance, either by weight or value or on some other basis may have to he applied. it is indeed not possible, nor desirable. to lay down any hard and fast rules of universal application.”; heat exchanger unit if presented along with the indoor and outdoor units are to be classified under the main machine-841510/ 841581/ 841582/ 841583; however, the parts of the heat exchanger units, if imported separately merits classification in their respective headings as per Note 2 (a) of the Section Notes; if specific classification is not available. they are classified in terms of rule 2(b); all other parts of the Air Conditioners are to he classified under 84159000, BCD is leviable 20%; the goods under 841590 are eligible for BCD exemption at 10% as per S. No. 449A of Notification No. 50/2017-Cus. dated 30.06.2017.

6.2 The applicant vide their letter dated 21.06.2022, reiterated the submissions made vide their application and during the personal hearing held on 09.05.2022.

6.3 The applicant was given another opportunity to appear for personal hearing on 03.08.2022. In the personal hearing, the consultant referred to last personal hearing in the matter and clarified that question for ruling in their application for advance ruling be limited to two questions, viz.

(i) If the applicant imports all parts of air conditioner in CKD/SKD (except capacitors) and assemble the complete air-conditioner in India, whether all such parts imported in CK.D/SKD condition can be classified as ‘air-conditioners’ under sub heading 84151010 or under any other sub-headings, by invoking rule 2(a) of the General Rules of Interpretation (GRI, in short) to the Customs Tariff Act, 1975? and

(ii) When the parts of a Heat Exchange Units (HEX) are imported and presented together in CKDISKD condition, the same should also to be treated as ‘parts of Air Conditioners’ in as much as such parts are specifically designed for use in the assembly of HEX (condenser or evaporator) which is an integral part of an air-conditioner and therefore eligible to be classified under sub-heading 84159000 as parts of a part of air-conditioner?

6.4 The Authority asked the representatives as they have been importing air conditioners for a long time, as to whether question related to import of parts/ components of air-conditioners in CKD/ SKD has ever been decided by any authority of Customs or Tribunal or Court. The representative answered the question in negative. Hearing, in the matter was concluded and the applicant was informed that ruling in the matter would be issued shortly.

6.5 After the personal hearing, the applicant vide their written confirmation has stated inter-alia that in their application, they have sought advance ruling on four questions. On re-consideration, they would like to confine the advance ruling only in respect of the following two questions.

Question:l. If MEI imports all the parts of air conditioner in CKD/SKD (except capacitors) in unassembled or disassembled form and assemble the complete air-conditioner in India, whether all such pails imported in CKD/SKD condition can he classified as ‘air-conditioners’ under CTS11 84151010 or under any other sub-headings as appropriate, by invoking Rule 2(a) of the General Rules of Interpretation (GRI) to the Customs Tariff Act 1975?

Question:2. If MEI imports parts of air conditioners such as IDU/ODU (or) Cooler/Condenser (Heat exchange unit -HEX). which are being classified by the department as parts of air conditioners under CTSH 84159000, in CKD/SKD condition, whether all such parts imported and presented together before Customs for clearance can be classified as ‘parts of air-conditioners’ under HSN 84159000 by invoking Section note 2(b) of Section XVI of the Customs Tariff Act 1975 read with Rule 2(a) of the General Rules of Interpretation (GRI) to the Customs Act 1975?

7.1 Having completed the procedure laid down in the CAAR Regulations, I first allow the application, taking into account the facts of the case and submissions by the applicant and the concerned Principal / Commissioner of Customs. Thereafter, I proceed to examine the advance ruling application on merits, beginning with the scope of this ruling. The applicant has stated inter alia that they intend to import air-conditioners in CKD/SKD condition and thereafter undertake assembling of the same in India through a job worker. However, they have not commenced import of air-conditioners in the form of CKD/ SKD kits. Further, it is observed that while the applicant had initially sought advance ruling on various questions, during the personal hearing, the applicant’s representative clarified that ruling on the application be restricted to two questions, as mentioned in para 6.3 and 6.5 above. In view of the submissions made during the personal hearing and written confirmation, thereafter, I propose to restrict my discussion only to the said two questions and accordingly give ruling in respect of the same two questions.

7.2 The first question requires ruling on classification of imports of all parts of air conditioner in CKD/SKD (except capacitors), which will be assembled to make complete air-conditioner in India. It has been submitted that the kits which the applicant intends to import will consist of various separately identifiable parts, components and sub-assemblies and presented before the Customs together for assessment. After the import into India, the applicant would assemble the air-conditioner from the kits through job worker after procuring non-essential component, namely capacitor.

7.3 The legal position regarding classification of goods in CKD/ 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 un-assembled or disassembled.” This position has been upheld by Hon^.ble Supreme Court in various cases, as mentioned above detailing the submissions of the applicant.

7.4 In order to answer this question posed for advance ruling, what is required to be examined is whether air conditioners kits, without capacitors have acquired the primary characteristics of an air conditioner? Viewed alternately, whether capacitors and ODS gas are essential or non-essential components of air conditioners? I note that the applicant has submitted that capacitors are non-essential component of an air conditioner. On cursory reading of technical literature available in public domain suggests that capacitors are essential component of an air conditions, which provide the initial jolt of electricity to the air conditioner’s motors needed to run successfully and a bad capacitor prevents the exterior unit from properly functioning, which hinders the cooling process as a whole. Be that as it may, notwithstanding the role of capacitors in air conditioners, I accept the larger contention that the air conditioner kit, as described by the applicant have acquired the characteristics of an air conditioner and are classifiable as air conditioners when presented together.

7.5 Therefore, I conclude that imported air conditioner kits in CKD/SKD condition, as described above have acquired the essential characteristics of an air-conditioner and therefore, when presented together at the stage of assessment under common invoice and bill of entry would merit classification under heading 8415 and specifically under sub-heading 841510 or 841581 or 841582 or 841583, as the case may be depending upon the configuration and model type. In coming to this conclusion, I have also been guided by the submission of the Commissioner of Customs, Chennai Import Commissionerate that for convenience of transport, many machines and apparatus are transported in an unassembled state; although in effect the goods are then a collection of parts, they are classified as being the machine in question and not in any separate heading for parts; the same applies to an incomplete machine having the features of the complete machine presented un-assembled and hence the indoor and outdoor units presented together in CKD/SKD forms are to be classified under heading 841510/ 841581/ 841582/ 841583, as applicable.

7.6 I now take up the second question, i.e. when the parts of IDU/ODU or Cooler/Condenser [Heat Exchange Units (HEX)] are imported in CKD/SKD condition, would the same also to be treated as ‘parts of air conditioners’ in as much as such parts are specifically designed for use in the assembly of HEX (IDU/ODU or Cooler/Condenser), which is an integral part of an air-conditioner; and therefore, eligible to be classified under sub-heading 84159000 as parts of a part of air-conditioner?

7.7 In this regard, I note that as per the applicant assembly of Heat Exchange Units (HEX) would consist of assembly of IDU or ODU / cooler or condenser It is indisputable that in the instant case such HEX are component/ part of air conditioners. Therefore, the IDU or ODU / cooler or condenser us parts of air-conditioner would merit classification under sub-heading 8415 9000 as parts. However, when HEX units arc presented together as air conditioner kit, it would merit classification as air conditioning machine under heading 841510/ 841581/ 841582/ 841583, as applicable. I note that Heat Exchange Units arc independently classifiable under sub-heading 841950 and they can be so classified if imported on stand-alone basis, not as parts of air conditioners.

7.8 The next question that needs to be addressed is the classification of parts of HEX for air conditioning machines. In cases where air conditioner kits containing all essential parts/components of the assembly, including cooler or condenser or evaporator are presented together in CKD condition for assessment and clearance, as per rule 2(a) of GRI such kits in CKD condition, including parts of evaporator or condenser would merit classification as air-conditioning machine under heading 841510/ 841581/ 841582/ 841583, as applicable. However, in the event of parts of HEX units being presented together for assessment, but not as part of air conditioning kit, noting that these parts of HEX (cooler or condenser or evaporator) are designed specifically to be used in an air-conditioner, these parts would merit classification under sub-heading 841590, in accordance rule 2(a) of GRI.

8. In view of the above, I rule accordingly.