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:
