Case Law Details

Case Name : In re TATA Motors Ltd. (CAAR Mumbai)
Appeal Number : Advance Ruling No. CAAR/Mum/ARC/42/2022
Date of Judgement/Order : 05/12/2022
Related Assessment Year :

In re TATA Motors Ltd. (CAAR Mumbai)

M/s. Tata Motors Limited (hereinafter referred as the Applicant) having its address at Geetanil, 13-19 Nagindas Master Road, Hutatama Chowk, Mumbai, 400001, is a leading automobile manufacturer and is engaged in manufacturing of a wide range of Commercial Vehicles and parts thereof for sale within India and abroad. They submitted an application for advance ruling — CAAR-1, under Customs Act, 1962 dated 06.09.2022 seeking ruling on the classification of Fuel Cell System proposed to be used in manufacturing of Hydrogen Fuel Cells Vehicles.

2. The applicant made the following submissions:

2.1 They are proposing to manufacture Hydrogen Fuel Cell Vehicles in India. The Hydrogen Fuel Cell Vehicles proposed to be manufactured by the Applicant are called Fuel Cell Electric Vehicles [‘FCEVs’]. They operate through power generated by its Fuel Cell System and gas.

2.2 The FCEVs will operate using power derived from following sources:

(a) Power generated within the FCEV from Hydrogen Gas- The power is so generated by the vehicle’s Fuel Cell System using hydrogen fuel cells. This power generated is mainly directly supplied to power electronic controller and transmission via Power Distribution Unit. Some portion of the power generated is also used to recharge the

(b) Power stored in battery- This battery too is recharged using the power generated by the Fuel Cell System from Hydrogen gas.

The aforesaid operation is pictorially represented below for easy understanding:

pictorially represented2.3 The vehicle will predominantly function using the power generated by the Fuel Cell System using the hydrogen fuel cells. The present application pertains to the classification of the aforesaid Fuel Cell System proposed to be imported by the applicant.

2.4 The Fuel Cell System produces power using hydrogen. It enables the FCEVs to operate on power so generated rather than drawing power from only a Battery. Pictorial Image of Fuel Cell System is as follows:

coltventional electric

Normally, conventional electric vehicles are powered by electricity and any other alternate source of power. The electricity is supplied through a battery in the vehicle. The battery is charged periodically, and the electricity is stored therein. The battery then distributes the power to the parts of vehicle thereby powering the vehicle. The Fuel Cell System cleanly and efficiently produces electricity using hydrogen fuel cells. The hydrogen fuel cells produce no harmful emissions, eliminating the costs associated with handling and storing toxic materials like battery acid or diesel fuel. They are more efficient than many other energy sources, including many green energy solutions. Further. the FCEVs are more beneficial as compared to the conventional electric vehicles. The fuel cells are lighter and smaller and can supply electricity as long as the hydrogen fuel is supplied. Thus, they are suitable for long range vehicles. On the contrary, the conventional electric vehicles depend on electricity stored in energy storage device such as a battery and therefore are suitable for short range vehicles only. Further, the fuel also requires lesser space in a vehicle than the components in a conventional electric vehicle. Therefore, size of the vehicles that can be allocated for the components is also less in FCEVs as compared to conventional electric vehicles. During the vehicle design process, the vehicle manufacturer defines the power of the vehicle by the intended application and drive cycle.

2.5 The Fuel Cell System is made of seven components as tabulated below.

Sr. No.  

Name of Component

Function in brief
1. fuel Processing System Safe supply and regulation of hydrogen received by the FCS to the fuel cell stack. Safe and complete isolation of the FCS from incoming hydrogen. Safe and efficient recirculation of hydrogen through the FCS, efficient management of anode water, and minimization of fuel cell degradation mechanisms Safe management of purge gas for supply to the cathode exhaust for dilution proposes. Safe and complete isolation of the fuel cell stack at the anode exit.
2. Fuel cell stack module Safe and efficient hydrogen electro-oxidation and oxygen electro-reduction to generate useful electrical power, thermal management
3. Air Processing system Safe and efficient mechanical compression of ambient air for delivery to the air intercooler and humidification module
4. Thermal Management System Conditioning, distribution monitoring and control of coolant received by the FCS  for FCS cooling and heating Requirements.
5. Electric module Safe and efficient distribution and consumption of HV/LV electricity within the boundary of the FCS. Safe and efficient generation and supply of HV electricity from the FCS.
6.

 

FCS monitoring

control and module

Safe and efficient monitoring and control of FCS behavior via FCS sensors and actuators in all FCS modules.
7. DC DC Converter It Boost the fuel Cell Module Voltage to match up the HV Junction Box voltage and it may help to charge Battery and/or run the vehicle

The Fuel Cell System operates in interaction with the Vehicle Control Unit (VCU). The inputs from the user (driver of the FCEVs) are supplied by the VCU to the Fuel Cell System, on the basis of which the Fuel Cell System generates and distributes the electricity.

2.6 The functioning of the Fuel Control System can be summarized as follows. The Fuel Cell Control Unit (ECU), on receipt of input regarding the required amount of power from the VCU, computes the amount of hydrogen, oxygen and coolants required for the same. Based on the power requirement from the vehicle, FCU calculates the Hydrogen supply pressure required to meet the power demands from ECU and regulates the Hydrogen supply. Based on the input from the FCU, the Fuel Processing System and Air Processing System supply the required amount of hydrogen and oxygen respectively. Thermal Management System distributes, monitors and controls the coolants as per defined control mechanism. The Fuel Cell Stack thereupon generates the required amount of power. The power so generated is received and distributed by the Electric Module which functions like a junction box. Voltage level in Fuel Cell Generated power is Boosted to match HV battery level and then distributed to other HV aggregates. The Fuel Cell system also simultaneously recharges the battery in the FCEVs so that differential power requirement, if required by the FCEVs during its run, can be supplied by the battery. For instance, at the time of acceleration of the vehicle, the required power is taken by the FCEVs from the battery till such time the Fuel Cell System produces sufficient quantity of power. Thus, the battery in FCEVs are charged only to support the vehicle function as a stand by.

2.7 The present Advance Ruling is sought to ascertain the correct classification of Fuel Cell System. They had submitted that it should be classified under 85.01. They also submitted that the Fuel Cell System is classified by the Supplier. i.e. Hyundai Motor Company also under Heading 85.01 only.

3. A personal hearing was held on 13.10.2022 and the applicant was represented by Shri. Shubham Gupta (DGM-Indirect Taxation), Shri. Sanjay Ekhande (DGM-Indirect Taxation), Gajanan Shanbag (Sr. Manager-Indirect Taxation) and Shri Smitan Bhrambhatt (DGM-ERC, Advance Engineering). They reiterated their submissions made in their CAA R-1 application. No one appeared on behalf of the Jurisdictional Commissioner. I have gone through the application and the submissions made by the applicant. No comments were received from the Jurisdictional Commissioner. Now let me turn to the issue of classification raised by the applicant.

4.1 The Hydrogen Fuel Cell Vehicles proposed to be manufactured by the applicant are called Fuel Cell Electric Vehicles [‘FCEVs’]. They operate through power generated by its Fuel Cell System and gas. The FCEVs will operate using power derived from power generated within the FCEV from Hydrogen Gas and the power stored in battery. The vehicle will predominantly function using the power generated by the Fuel Cell System using the hydrogen fuel cells. The Fuel Cell System produces power using hydrogen. It enables the FCEVs to operate on power so generated rather than drawing power from only a Battery. The Fuel Cell System is made of seven components viz. Fuel Processing System, Fuel cell stack module, Air Processing System. Thermal Management System, Electric module, FCS monitoring control and module and DC-DC Converter. The present application pertains to the classification of the aforesaid Fuel Cell System proposed to be imported by the applicant. They had submitted that it should be classified under CTH 85.01 of schedule I of the Customs Tariff Act, 1975. They also submitted that the Fuel Cell System is classified by the supplier Hyundai Motor Company also under Heading 85.01.

4.2 The classification of the goods under the Tariff is governed by the principles as enumerated in the General Rules of Interpretation (GRI) set out in the Tariff. As per Rule I of the GRI, classification of the imported products 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 remaining Rules of the GRI.As per Rule 2(b) of the GRI, the classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. As per Rule 3(a) of the GRI, the most specific heading shall be preferred over general heading for classification of the goods. As per Rule 3(b) of the GRI Rules, goods put up in sets for retail sale shall be classified according to the components, which can be regarded as conferring on the set as a whole its essential character. Rule 3(h) of the GRI Rules is extracted below for ready reference.

“Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.”

4.3 As explained above, the Fuel Cell System is made up of seven components. The components function together in order to generate and distribute the electricity to the parts of the FCEVs. The possible headings under the First Schedule to the Customs Tariff Act, 1975 under which the Fuel Cell System can be classified is 85.01 (Electric motors and Generators) and 87.08 (Parts and accessories of the motor vehicles of Heading 8701 to 8705). The applicants submit that Fuel Cell System shall be classified under CTH 85.01. The Tariff Heading 85.01 of the Customs Tariff covers Electric motors and Electric Generators (excluding generator sets).

4.4 I agree with applicants contention about the importance of EISN explanatory notes as a guiding tool in deciding classification issues in Customs which is already highlighted in apex court judgment in the case of Collector of Customs, Bombay Vs. Business Forms Ltd., 2002(142) E.L.T 18 (SC). As per the above HSN Explanatory Notes to Heading 85.01. the machines that produces electrical power from various energy source are Electrical generators covered under the Heading 85.01. Further, the said Heading covers generators of all sizes and types used for supplying current for variety of purposes as per the said Explanatory Notes. The Fuel Cell System proposed to be imported by the applicant is also an electrical generator inasmuch as its purpose is to generate the electricity from hydrogen cells for powering the FCEVs. In fact, the Fuel Cell System is designed based on the power requirement of the FCEVs in which it is proposed to be used. The Explanatory Note gives an example of generators used for supplying electricity in diesel-electric trains to be covered under the Heading 85.01.

Applicants have submitted that the function of the Fuel Cell System is akin to the above example and therefore. they qualify as electric generators for this reason also. The Fuel Cell System is made of seven components viz. Fuel Processing System, Fuel cell stack module, Air Processing System, Thermal Management System, Electric module. FCS monitoring control and module and DC-DC Converter. Five of these components contribute in electricity generation and two components contribute to electric power transmission. Hence the question of classification is required to be examined further.

4.5 In terms of Note 3 to Section XVI of the Customs Tariff, composite machines consisting of two or more machines fitted together to form a whole are to be classified as if consisting only of that component which performs the principal function. Relevant Note is extracted below:

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

As already explained, the Fuel Cell System consists of seven components which generate and distribute electricity to power the FCEVs. The principal function of the Fuel Cell system is generation of electricity. This can be seen from the following facts:

a) Majority of the components in the Fuel Cell System contributes to the function of generating electricity. Five out of seven components, viz., Fuel Cell Stack module, fuel processing system, air processing system, thermal management system and FCS monitoring and control unit, work towards generation of electricity. Only two components, viz., DC-DC Converter and Electric module, works to distribute the electricity generated.

b) Even the functions of the DC-DC converter and Electric module are complimentary to the main function of generation of electricity. This is because they predominantly only regulate and convert the voltage of the electricity generated for distribution as required by the FCEVs.

c) The principal objective of the Fuel Cell System is to generate cleaner fuel alternative by generating electricity from hydrogen cells. This being the case, distribution of electricity cannot be said to be the principal function of the Fuel Cell system.

4.6 Thus, in terms of Note 3 to Section XVI, the Fuel Cell system is to be classified as per its principal function which is generation of electricity. Therefore, for this reason also, the Fuel Cell System are classifiable under CTH 85.01 only. Reliance is placed on the .judgment of Hon’ble CESTAT, Chandigarh in case of Hero Electric Vehicles Pvt. Ltd. Vs. Commissioner of Customs, Ludhiana (2018 (364) ELT 1090 (Tri-Chan), wherein it was held that the product having essential character and performing principal function of a motor is to be classified as electric motor only. I agree with the contention of the applicant as well as the ratio laid down by the honorable Tribunal.

4.7 For examining the correct classification of Fuel Cell System the other competing entry is the CTH 87.08 which covers Parts and Accessories of Motor Vehicles of heading 87.01 to 87.05. In terms of the HSN Explanatory Notes to Heading 87.08, to be parts and accessories of motor vehicle under the above Tariff heading, the goods ought to satisfy both the following conditions –

(a) They must be identifiable as being suitable for use solely or principally with the vehicles of Chapter 87; and

(b) They must not be excluded by the provisions of the Notes to Section XVII.

Further in terms of Note 2(t) to Section XVII of the Customs Tariff, the terms ‘parts’ and ‘parts and accessories’ used in any chapter of Section XVII do not apply to electrical machinery and equipment of Heading Chapter 85. Relevant Note is extracted below for ready reference

“2. The expressions “parts “and “parts and accessories “do not apply to the following articles, whether or not they are identifiable as for the goods of this Section..

(a)

(f) electrical machinery or equipment (Chapter 85);

As the Fuel Cell System is an electrical power generating equipment as detailed above, it automatically gets excluded by the provisions of Note 2(f) to Section XVII of the Customs Tariff and therefore merits classification under Heading 85.01 as Electric Generators as they are excluded from the provisions of Notes to Section XVII of the Customs Tariff. Therefore, in terms of aforesaid Section Note 2(f) read with the HSN Explanatory Note to Heading 87.08, the fuel cell system cannot be regarded as ‘parts’ of motor vehicle in terms of Heading 87.08.

4.8 In terms of Note 2(a) to Section XVI of the Customs Tariff, the parts which are goods included in any of the headings of Chapter 84 or 85 are to be classified under the said headings only. Relevant portion of the note is extracted below:

“Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 110 Chapter 85, parts of machines (not being parts of the articles of heading 8484, 8544, 8545, 8546 or 8547) are to be classified according to the, following rules:

(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;

4.9 Section Note 2(a) above categorically states that parts which are goods included in any of the headings of Chapter 85 are in all cases to be classified in their respective headings. Although certain exclusions have been made by way of the Note 2(a) to Section XVI of the Customs Tariff the CTH 8501 is not excluded by virtue of this note. The Fuel Cell System is specifically covered under CTH 8501 by virtue of section note of the section XVI of schedule I of the Customs Tariff Act. 1975. therefore it cannot be covered under the CTH 87.08. As per the data disclosed in the CAAR- I Application the output of the Fuel Cell System will be 80 kW (net) and 90 kW (gross). Based on these disclosures the corresponding entry in the Tariff is 8501 33 20.

5. On the basis of the above findings, the Fuel Cell System which is made up of seven components viz. Fuel Processing System. Fuel cell stack module. Air Processing System. Thermal Management System, Electric module. FCS monitoring control and module and DC DC Converter proposed to be imported by the applicant merits classification under CTH 85.01 and more specifically under CTH 8501 33 20.

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