Inverter Assembly’ classifiable under CTH 8504: CAAR Delhi

In re Denso Haryana Private Limited (CAAR Delhi)

(a) Question 1: Whether the import of Inverter Assembly is correctly classifiable under Customs Tariff Heading 8504 40 10 of the First Schedule of the Customs Tariff Act, 1975??

Answer: The subject goods i.e. ‘Inverter Assembly’ is rightly classifiable under Customs Tariff Heading (CTH’) 8504 and (more specifically under 8504 40 10).

(b) Question 2: Whether the Applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No. 13 of Notification No 57/2017 – Customs dated 30.06.2017 (as amended)? Answer: Yes, the applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No. 13 of Notification No 57/2017 – Customs dated 30.06.2017 (as amended).

(c) Question 3: Whether the Applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No 646 of the Notification No 69/201 1-Customs dated 29.07.2011?

Answer: Yes, the applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No. 646 of Notification No 69/201 1-Customs dated 29.07.2011 . when imported into India from Japan.

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

M/s. Denso Haryana Private Limited (`Applicant’), holding 1EC 0599001356, are having the registered office at B-1/ D-4, Ground Floor, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi 1 10048. It is submitted that the application for advance ruling in Form No. CAAR -1 along with the relevant annexures and documents as per the provisions of Section 28H of the Customs Act, 1962 has been filed before the Customs Authority for Advance Rulings, New Delhi (CAAR, in short). The said application was received in the secretariat of the CAAR, New Delhi on 26.03.2024 along with their enclosures in terms of Section 28H (1) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’). The enclosed application is submitted to seek confirmation whether the classification adopted by the Applicant under the Customs Tariff Heading 8504 40 10 of the First Schedule of the Customs Tariff Act, 1975 in relation to import of the product “Inverter Assembly” is correct, and the Applicant is eligible to avail concessional rate of Basic Customs Duty under SI. No. 13 of the Notification No 57/2017 – Customs dated 30.06.2017 (as amended). Further, whether the applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No. 646 of the Notification No 69/201 1-Customs dated 29.07.2011.

STATMENT OF FACTS AND QUESTION LAW

1.1 The application is being preferred by M/s. Denso Haryana Private Limited (`Applicant’) a company incorporated in India under the provisions of the Companies Act, 1956 and having its registered head office located at New Delhi. Copy of Certificate of Incorporation, Articles of Association and Memorandum of Association (as submitted with the Registrar of Companies in India) is enclosed herewith as Appendix 1 (Colly).

1.2 The Applicant is presently engaged in the business of manufacturing and trading of parts of automobiles. For its trading business, the Applicant inter alia imports automotive parts in finished form for further supply of these automotive parts to the manufacturers of motor vehicles in India. For the purposes of the present application, the applicant proposes to import inverter assembly (`subject good’) from Denso Corporation Japan (`Denso Japan’). The subject good is to be imported in finished form and upon its arrival into India the same will be sold to its customers (i.e., automotive companies) in as is condition.

1.3 The description, technical features, characteristics, and functions of the products are briefly discussed below. About the subject good —

The subject good is a device that converts Direct Current (`DC’) from a battery or other source to Alternating Current (`AC’) that can power an electric motor or other load. The Applicant shall import the subject good to sell it further to the manufacturers of motor vehicles in India where the subject good is used in Electric Vehicle (`EV’). The subject good is not used in internal combustion engine vehicles (`ICE vehicles’). In an EV, subject good is typically used in the powertrain system that controls the speed, torque, and direction of the motor and optimizes the efficiency and performance of the vehicle.

1.4 The key functionality of the subject good is captured as under for ease of understanding of the Hon’ble Commissioner, CAAR, New Delhi —

i. It is used to convert DC from the battery to AC.

ii. It controls the motor generator as the AC converted by the subject good is supplied by it to the motor for its rotation.

iii. The inverter also converts AC to DC from generator for battery charging.

iv. It provides precise control, monitoring and protection of high-power switches for energy efficiency and reliability.

v. It can increase or decrease the power or torque of the motor by adjusting the amplitude of the signal.

Picture of the subject good in as imported condition is captured below.

1.5 Depending on the drive system of the EV i.e., Front Engine Front Wheel (`FF’) or 4 Wheel Drive (`4WD’), the subject good is installed in the EV. If the EV uses FF driving system, only one quantity of the subject good will be installed in the front portion of the EV. If the EV uses 4WD driving system, two quantities of the subject good will be used — one in the front (to power the front motor for front wheels rotation) and another at the rear section of the EV (to power the re motor fore wheels rotation). Diagrammatic representation of the two driving systems with subject good (depicted as Frlnv and ‘Rrlnv’) installed is captured below —

1.6 To understand how the subject good performs its principal function of conversion of current from DC to AC and vice versa, it is crucial to understand the technical features and key components of the subject good. Before proceeding further with the key components, the exploded view of the inverter diagram is captured below.

1.7 As evident from the picture above, the Inverter is comprised of key components such as case. printed circuit board (‘PCB’), cooler, power card, thermistor:

a) The PCB is housed in the metal case which is the broad skeleton of the subject good. PCB has resister, capacitor, and other Integrated Circuit (`1C’) parts populated on the PCB. PCB controls the overall functioning of the subject good.

b) The bus bar in the subject good conducts electricity and connects different components or circuits within the inverter from input to output.

c) Power card is the component which converts DC to AC for supply of current to the motor. A cooler is stacked next to power card to cool down the power card as it gets heated up in the current conversion process. The subject good comes embedded with multiple power cards depending upon the complexity and the strength of the motor system. For instance, in case of three face AC motor, the inverter shall have three power cards embedded in it.

d) The subject good also uses the thermistor which is to detect the temperature of the power card. Coolant temp from the cooler is sensed by the thermistor for temperature detection, based on which signal is passed on to the cooler for cooling down the power card.

1.8 It is after assembly of all the key components together that the subject good achieves its principal functionality of the conversion of current from DC to AC and vice versa. Since, the subject good in its final form is imported by the Applicant and is sold in India (without performing any further operations on the subject good), the subject good has the capability to perform the principal function (namely, conversion of current from DC to AC and vice versa) at the time of import.

1.9 The Applicant qualifies as an ‘applicant’ under Section 28E(c) of the Customs Act. 1962 (`Customs Act’)- Section 28E(c) of the Customs Act reads as under:

“(c). “applicant” means any person —

holding a valid Importer-exporter Code Number granted under section 7 of the Foreign Trade (Development and Regulation) Act, 1992; or exporting any goods to India; or with a justifiable cause to the satisfaction of the Authority, who makes an application for advance ruling under section 28H;”

1.10. The Applicant is a company registered in India and is holding a valid Importer-Exporter Code (‘IEC’) Number 0599001356 and a valid PAN card bearing Number AAACD6817F. In this regard, a copy of the 1EC certificate and copy of PAN card are enclosed herewith as Appendix 2. Thus, the Applicant is rightly covered under the definition of ‘applicant’ as provided under Section 28E(c)(i) of the Customs Act for making this application.

1.11 Question raised in the application for advance ruling by the Applicant squarely falls within the ambit of Section 28H(2)(a) of the Customs Act-

Section 28H of the Customs Act provides for the questions in respect of which an advance ruling may be sought by an applicant. Section 28H of the Customs Act reads as under —

“28H. Application for advance ruling –

(1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.

(2) The question on which the aclvw7ce ruling is sought shall be in respect of –

(a) classification of goods under the. Customs Tariff Act, 1975 (51 of 1975);

(b) applicability of a notification issued under sub-section (1) of section 25, having a hearing on the rate of duty;

(c) the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act.

(d) applicability of notifications issued in respect of tax or duties under this Act or the Customs Tarff Act, 1975 (51 of 1975) or any tax or duty chargeable under any other law for the time being in _.force in the same manner as duty of customs leviable under this Act or the Customs Tariff Act:

(e) determination of origin of the goods in terms of the rules notified under the Customs Tariff Act, 1975 (51 of 1975) and matters relating thereto.

(f) any other matter as the Central Government may, by notification, specify. ” (Emphasis supplied)

1.12 The Applicant wishes to obtain the advance ruling on questions relating to classification of subject
good and applicability of exemption notification on import of subject good under Section 25(1) of Customs Act as detailed out in Annexure 11. Therefore, the questions raised by the Applicant. falls within the purview of the provisions of Section 28H(2)(a) and 28H(2)(b) of the Customs Act. Hence, the application for advance ruling is being filed in conformity with the provisions of Section 28H of the Customs Act.

1.13 Question raised under the present advance ruling application is not before any officer of customs. the Appellate Tribunal or any Court.

As per Section 281 (2)(a) of the Customs Act with regard to procedure on advance ruling application. no application for advance ruling will be accepted if the question raised in the application is already pending before any forum. Relevant extracts of the provision are reproduced below:

“281. Procedure on receipt of application. —

(1) ……

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:

Provided that the Authority shall not allow the application where the question raised in the application is —already pending in the applicant’s case before any officer of customs, the Appellate Tribunal or any Court, the same as in a matter already decided by the Appellate Tribunal or any Court.”

(Emphasis supplied)

1.14 The Applicant submits that questions raised in the Application (as in Annexure 11) are not already pending before any officer of Customs, the Appellate Tribunal or any court. Further, the questions raised in the present case, have not already been decided by the Appellate Tribunal or any court in the Applicant’s case. Accordingly, the present application should not be considered as pending before any Court as neither the show cause notice has been issued nor the bill of entries has been provisionally assessed. Thus, relying on the above the facts of the current case, Applicant submits its that in its case, the application shall be accepted for hearing on merits by the Hon’ble CAAR.

The Applicant wishes to obtain the advance ruling on the questions listed down in form CAAR -1 (as also appearing in Annexure 11). Hence, the Applicant has proceeded to file this application before the Hon’ble CAAR, New Delhi for kind consideration. The Applicant humbly submits that the Hon’ble CAAR may kindly issue the advance ruling addressing the questions of law raised in the present application at an early date.

1.15 The Applicant is presently engaged in the business of manufacturing and trading of parts of automobiles. For its trading business, the Applicant inter alia imports automotive parts in finished form for further supply of these automotive parts to the manufacturers of motor vehicles in India. For the present application, the proposed activity pertains to the import or subject good from Denso Japan.

1.16 The questions in respect of which an advance ruling has been sought by the Applicant are:

i. Whether the import of Inverter Assembly is correctly classifiable under Customs Tariff Heading 8504 40 10 of the First Schedule of the Customs Tariff Act. 1975?

ii Whether the Applicant is eligible to avail concessional rate of Basic Customs Duty (*BCD’) on import of the subject goods as per Si. No. 13 of the Notification No 57/2017 – Customs dated 30.06.2017 (as amended)?

iii. Whether the Applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SL No. 646 of the Notification No 69/2011-Customs dated 29.07.2011 (as amended)?

QUESTION 1: CLASSIFICATION OF THE SUBJECT GOOD

1.17 For the subject good, the proposed classification and applicant’s interpretation to reach to the proposed classification is discussed as under. The import and export of goods into and out of India is regulated by the Customs Act, 1962. Section 12 of the Customs Act is the charging section which stipulates that duties of customs shall be levied on all goods imported into India or exported out of India at such rates as may be specified under the Customs Tariff Act, 1975 (`Tariff Act’). Section_. 2 Of the Tariff Act provides that the rates at which BCD shall be levied under the Customs Act are specified in two schedules, namely, the First Schedule and the Second Schedule. First Schedule of the Tariff Act deals with the applicable duty structure on import of goods and the Second Schedule deals with the applicable duty structure on export of goods. To determine the said rates of BCD applicable on the imported good it is important to identify the tariff heading in which the good would fall under the First Schedule of the Tariff Act.

1.18 Classification of goods covered under the Customs Tariff is done as per the General Rules of Interpretation (`GRI’). GRI 1 to 5 lay down the principles determining classification of goods under a specific Heading whereas GRI 6 is applicable if the objective is to determine the classification of goods in the Sub­headings of a Heading. GRI 1 stipulates that the goods under consideration should be classified in accordance with the terms of the Headings and any relevant Section or Chapter Notes. These Section or Chapter Notes and Sub-Notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters. These Notes have been given statutory backing and have been incorporated at the beginning of each Section / Chapter. For ready reference, Rule 1 is extracted herein below:

“Classification of goods in this Schedule shall be governed by the following principles”:

The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification 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 following provisions …”

1.19 The Larger Bench of the Hon’ble Tribunal in the matter of Saurashtra Chemical, Porbandar vs. Collector of Customs, 1986 (23) E.L.T. 283 (Tri. -LB) had held that the tariffs must be interpreted in the light of relevant Section and Chapter Notes which are statutorily binding like the Headings themselves. Thus, the Section and Chapter Notes have an overriding force on the respective Headings. This judgment was approved by the Hon’ble Supreme Court of India in the case of Saurashtra Chemicals vs. Collector of Customs, 1997 (95) E.L.T. 455 (S.C.).

Harmonized System of Nomenclature (HSN)

1.20 The Customs Tariff in India is based on Harmonized Commodity Description and Coding System, generally referred to as Harmonized System of Nomenclature (`HSN’) developed by the World Customs Organization (`WCO’) which is applied uniformly by more than 137 countries of the world. Under the HSN, various goods are classified under different headings, sub-headings and tariff items. For the purposes of the uniform interpretation of the HSN, the WCO has published detailed explanatory notes to HSN which have long been recognized as a safe guide to interpret the Tariff Schedule.

1.21 In the case of 0. K. Play (India) Ltd. vs. C.C.E. Delhi III, 2005 (180) E.L.T. 300 (S.C.), a 3-member bench of the Hon’ble Supreme Court of India made the following observations:

“There cannot be a static parameter for correct classification. HSN along with the explanatory notes provide a safe guide for interpretation of an Entry. Functional utility, design, shape and predominant usage have also got to be taken into account while determining the classification of an item. Aforementioned aids and assistance are more important than the names used in the trade or common parlance in the matter of correct classification”.

1.22 It was held by the Hon’ble Supreme Court in L.M.L Limited vs. Commissioner of Customs, 2010 (258) E.L.T. 321 (S.C.) that in order to resolve a dispute on tariff classification, internationally accepted nomenclature emerging from HSN Explanatory Notes is a safe guide. Further, HSN Explanatory Notes are also dependable guide for interpretation of Customs Tariff. Some other judicial pronouncements wherein this proposition was also affirmed, upheld and followed have been enumerated below:

“CC vs. (*Miura! Perstorp Electronics Ltd., (2005) 7 SCC 118, (2005) 186 E.L.T 532 (3-member S.C. bench): CCE vs. Phil. Corporation Ltd, (2008) 223 E.L.T. 9 (S.C.)”

Therefore, the HSN Explanatory Notes are an important aid for ascertaining the classification of a good, in addition to the GRI and corresponding Chapter Notes and Section Notes.

1.23 In the light of above facts, to analyse the classification of above product following needs to be kept in mind:

a) General Rules of Interpretation (GRI).

b) Heading/sub-heading of the First Schedule in con j u net ion with Section/Chapter/Explanatory notes.

c) Principal function of the subject good.

To ascertain the classification and by application of GRI 1, the following Customs Tariff Heading (`CTH’) require attention i.e., CTH 8504 and CTH 8708.

CTH	Description of Goods
8504	Electrical transformers, static converters (for example, rectifiers) and inductors.
8708	Parts and accessories of the Motor Vehicles of Heading 8701 to 8705

Analysis of Chapter 85

1.24 Given the above, CTH 8504 merits consideration, which provides for “electrical transformers, static converters (for example, rectifiers) and inductors”. As stated in Annexure 1 above, the subject good imported by the Applicant is an inverter which is going to be used in the electric vehicles.

CTH		Description of Goods
8504		Electrical transformers, static converters (for example, rectifiers) and inductors.
8504 40	–	Static and Converters
8708	—	Parts and accessories of the Motor Vehicles of Heading 8701 to 8705

As per Rule 1 of the GRI, subject good should be classified in accordance with the terms of the headings and any relevant and Section or Chapter Notes.

1.25 CTH 8504 covers electrical transformers, static converters (for example, rectifiers) and inductors.

Upon reading of the HSN Explanatory Notes to the CTH 8504, it covers inverters by which direct current is converted to alternating current. Relevant portion of the HSN explanatory notes of CTH 8504 is extracted hereunder —

(II) ELECTRICAL STATIC CONVERTERS

“The apparatus of this group are used to convert electrical energy in order to adapt it for further use. They incorporate converting ekment.s. (e.g., valves) of different types. They may also incorporate various auxiliary devices (e.g., transformers, induction coils, resistors, command regulators, etc.). Their operation is based on the principle that the converting elements act alternately as conductors and non-conductors.

The fact that these apparatuses often incorporate auxiliary circuits to regulate the voltage of the emerging current does not affect their classification in this group, nor does the fact that they are sometimes referred to as voltage or current regulators.

This group includes:

(A) …………………

(B) Inverters by which direct current is converted to alternating current.

………………….” (Emphasis supplied)

1.26 As stated above, it has been provided in the above referred HSN Explanatory Notes that inverters by which direct current is converted to alternating current are also categorized under the said heading. As discussed in Annexure 1, the subject good imported by the Applicant controls motor generator by alternating DC to AC. Therefore, by application of Rule 1 of the GRI, subject goods satisfy the description under CTH 8504 40 10.

1.27 In addition to above, it is also imperative to refer Note 2 (a) of Section XVI which provides for classification of parts of machines. It states that parts which are goods of any heading of Chapter 84 or 85 are in all cases to be classified in the respective headings. Relevant extract of Section Note has been reproduced below for ease of reference —

“(a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; ” (Emphasis supplied)

1.28 Therefore, upon bare reading of the above stated Section Note, it can be construed that the inverter which is a good/product as a whole and is going to be used in the electric vehicle merits classification under the Chapter 85 only.

1.29 To substantiate the above, reliance can be placed on the US Cross Ruling numbered NY N306512_. dated 25.10.2019 wherein the applicant was importing power inverters and electrical chargers. In the said case, it was held that “The applicable subheading for the DC/AC, AC/DC Inverter/Charger will be 8504.40.9570, HTSUS, which provides for “Electric transformers, static converters and inductors…: Static converters: Other: Inverters.” Copy of the same is annexed as Appendix 3.

1.30 Also, reliance can also be placed on the US Cross Ruling numbered NY G86580 dated 06.02.2001 wherein power inverters were being imported by the applicant to be used on the roofs of US streetcars. In the said case it was held that “the applicable subheading for this power inverter is 8504.40.9570, Harmonized Tariff Schedule of the United States (HTS), which provides for “Electrical transformers, static converters and inductors^.; Static converters: Other: Inverters”. Copy of the same is annexed as Appendix 4.

1.31 Since the HSN is aligned, these rulings have persuasive value for determining the classification under the Tariff Act. In the light of above and considering there is specific CH I with support of HSN Explanatory Notes and supported by the foregoing US Cross Rulings, the product under consideration should be categorized under the CTH 8504 40 10 i.e., “Electric inverter”.

Analysis of Chapter 87

1.32 At this juncture, the Applicant also considers it relevant to discuss heading of Chapter 87 under Section XVII of the Customs Tariff which covers vehicles (other than railway or tramway rolling stock) and parts and accessories thereof. The parts and accessories of motor vehicles are covered under CTH 8708. To understand the coverage of parts and accessories of motor vehicles, it is important to refer to Section notes of Section XVII. In terms of Section Note 2(f) to Section XVII, electrical machinery and equipment are not regarded “parts or accessories” of the goods of Section XVII even if they are identifiable for use with these goods. Note Section 2(f) to Section XVII is extracted hereunder for reference purposes.

“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:

(f) electrical machinery or equipment (Chapter 85); “(Emphasis supplied)

The Section Note 2 (f) of Section XVII thus explicitly excludes the electrical machinery or equipment of Chapter 85 from the purview of Section XVII.

1.33 Further, reference is made to Note 3 to Section XVII which provides that references in Chapter 86 to 88 to the “parts” or “accessories” do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory. In the instant case, the product is principally used to control motor generator by alternating DC to AC.

1.34 While Note 3 prescribes that a part or an accessory to merit classification, under CTH 8708 should be suitable for use solely or principally with motor vehicles, Note 2(f) states that even such a part, which is suitable for use with motor vehicles, will not be regarded as part or an accessory classifiable under Chapter 87, if such a part is an electrical machinery or equipment of Chapter 85.

Further. the I-ISN explanatory notes under Section XVII explain the scope of the terms “parts and accessories” for the purpose of Section XVII. Relevant portion is extracted hereunder —

III) PARTS AND ACCESSORIES

It should be noted that Chapter 89 makes no provision for parts (other than hulls) or accessories of ships, boats or floating structures. Such parts and accessories, even if identifiable as being for ships etc., are therefore classified in other Chapters in their respective headings. The other Chapters of this Section each provide for the classification of parts and accessories of vehicles, aircraft or equipment concerned.

It should, however be noted that these headings apply only to those parts or accessories which comply with all three of the following conditions:

They must not be excluded by the terms of Note 2 to this Section (see Paragraph (A) below),

They must be suitable for use solely or principally with the articles of Chapter 86 to 88 (see paragraph (B) below, and

They must not be more specifically included else Where in the Nomenclature (see paragraph (C) below:

(A) Parts and accessories excluded by Note 2 to Section XVII

This Note excludes the following parts and accessories, whether or not they are identifiable fir as for the articles of this Section.

(7) Electrical machinery or equipment of Chapter 85, for example:

(a) Electric motors, generators, transformers, etc., of heading 85.01 or 85.04. (Emphasis supplied)

From the above, it is apparent that all the electrical machinery or equipment covered under Chapter 85 are not regarded as “parts or accessories” of motor vehicles classifiable under Chapter 87, as they stand excluded from the purview of Section XVII in view of the above.

Specific entry to prevail over general entry by virtue of GRI 3(a)

1.35 Without prejudice to the discussion above, reference is made to Rule 3(a) of the GRI which provides that the heading that provides the most specific description of the goods shall be preferred to headings providing a more general description. In this regard, Rule 3 of the GRI is extracted as below: –

“3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected us follows :

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) 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, insofar as this criterion is applicable.

©When goods cannot be classified by reference to (a) or (b), they shall he classified under the heading which occurs last in numerical order among those which equally merit consideration.”

(Emphasis supplied)

1.36 Reliance in this regard is placed on the case of Mauri Yeast India Pvt. Ltd. vs. State of UP, 2008 (225) E.L.T. 321 (S.C.) wherein it was held by the Hon’ble Supreme Court that if there is a conflict between two entries one leading to an opinion that it comes with in purview of tariff entry and another the residuary entry, the former should he preferred.

1.37 Further, in the case of Dunlop India Ltd. & Madras Rubber Factory Ltd. vs. Union of India and Ors., 1983 (13) E.L.T. 1566 (S.C.), it was held by the Hon’ble Supreme Court that an article classifiable under specific item cannot be classified under residuary Item.

1.38 Further, reliance is placed on the decision of Hon’ble Tribunal, Mumbai bench in the case of Sirthai Superware India Ltd. v. Commr. of Customs, Nhava Sheva-Ill, 2020 (371) E.L.T. 324 (Tri. -Mumbai), where the Tribunal observed that it is general principle of classification that specific entry should be preferred over the general entry.

1.39 Therefore, it is submitted that where the goods satisfy the requirements of a specific entry, that entry should cover the goods rather than the residual heading. In view of GRI 3(a) and the judicial precedents cited above, where there is a specific heading for the subject good under Chapter 85 (i.e., CTH 8504), it will not merit classification in the residuary heading as parts of motor vehicles under CTH 8708.

1.40 Legal developments after the decision of Hon’ble Supreme Court in the matter of M/s. Westinghouse Saxby Farmer Ltd. and its application in the present case-

In the decision of Westinghouse Saxby Farmer Ltd. vs. Commissioner of Central Excise, Calcutta – 2021 (3) TM1 291 – Supreme Court, while deciding upon classification of relays used for railway signalling system, the Hon’ble Supreme Court has held that those parts which are suitable for use solely or principally with an article of Chapter 86 cannot be taken to a different Chapter as the same would negate the very objective of group classification. In the above decision, the Hon’ble Supreme Court does not discuss the WCO General Explanatory Notes to Section XVII and XV, which indicate that if the goods are specifically excluded under Note 2 or if the goods have a specific classification under another heading, the goods cannot be classified as parts and accessories, irrespective of whether the goods are used along with such goods.

1.41 With regard to the above, kind attention is invited to the Clarification on the classification of parts and accessories of motor vehicles issued by the Office of the Commissioner of Customs (Import) Air Cargo Complex, Sahar, Andheri (E), Mumbai vide F. No. S/3-Misc-03/2019-20/Gr VB/ACC dated 21st May 2019 (annexed as Appendix 5). To streamline the assessment of parts and accessories of automobiles, the Office of Commissioner issued the said clarification wherein legal position was explained in the following manner.

“As per explanatory notes to Section XVII of the HSN, parts and accessories of the vehicles, aircraft or equipment concerned should be classified under headings of section XVII, only if they comply with following conditions:

(a) They must not he excluded by the terms of Note 2 to Section XVII

(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88 and

(c) They must not be more specifically included elsewhere in the Nomenclature.”

1.42 In the instant case, the product under consideration has specifically been excluded by the wording of Note 2 (f) of Section XVII (covering Chapter 86 to 89) which provides that the expressions “parts” and “parts and accessories” do not apply to the electrical machinery or equipment (Chapter 85). Furthermore, there is a more specific CTH as against general CTH under Chapter 87. Therefore, the product under consideration cannot be classified under the Chapter 87 in view of the conditions at point (a) and (c) of the aforementioned circular issued by the Commissioner’s office.

The principal of classification discussed in the Hon’ble Supreme Court’s decisions can be summarized as under.

1.43 In the Westinghouse judgment (supra), the end use test to determine the classification has been preferred over the exclusion provided under Note 2(f) to Section XVII. The judgment of the Supreme Court in the matter of Commissioner of Central Excise, Aurangabad v. M/s. Videocon Industries Limited (2023-TIOL-25-SC-CUS) has emphasized on the exclusion note over the sole/ principal use test.

1.44 Further, post the judgement of the Hon’ble Supreme Court in the case of Westinghouse Saxby (supra), the CBIC on 5th January 2022 issued instruction No. 01/2022-Customs with subject “Implication of the judgement of the Hon’ble Supreme Court in the case of M/s We Ofoifs”^.0 ‘by Farmer 1.1d. Vs Commissioner of Central Excise, Calcutta — reg”. (annexed as Appendix 6). This was to align with the divergent practice being followed on assessment of ‘parts’ after the Westinghouse Saxby judgment (supra) was issued. In the said instructions while making a reference to the judgement of the Hon’ble Supreme Court in the case of M/s Intel Design Systems (India) P. Ltd. Vs Commissioner of Customs & Central Excise, among others the CBIC has instructed as follows —

“3. In the context of the divergent practices arisen, it is noted that the classification of ‘parts’ of goods falling under Section XVII of the Customs or Central Excise Tariff is a complex issue. Further, apparently, the section notes have been suitably applied in relevant judgements of the Honks Supreme Court on issues of classification of parts and accessories.” Thus, the collective wisdom of these judgments indicates the manner in which such classification issues are to be approached.

1.45 Few of such judgments are illustrated in succeeding paragraphs:

3.1 of M/s Intel Design Systems (India) P. Ltd. Vs Commissioner of Customs & C. Ex-2008

A. Apart from the reliance on the section notes and the chapter notes the court in this judgment also considered the USN explanatory notes wherein three conditions that need to he fulfilled for goods to be classified under section XVII are mentioned namely —

a. They must not be excluded by the terms of Note 2 to Section XVII and

b. They must be suitable for use solely or principally with the articles of chapter 86 to 88 and

B. They must not be more specifically included elsewhere in the nomenclature

C. While relying on these conditions, the Hon’ble Supreme Court held —

“The items, therefore, manufactured by the appellants are identifiable or are in the nature of goods falling under Chapter 8536. Since these fall under the category of excluded goods under chapter notes, even though they are used specifically solely or principally with the armored vehicles of Chapter Heading 8710, they are classifiable under chapter heading 853690 only as held by the adjudicating authority.”

C’. By taking cognizance of the conditions mentioned in the HSN explanatory notes the exclusionary clause under Note 2 has been given precedence over the sole or principal use of the items. It was recognized that since one of the conditions i.e. of the exclusions mentioned in Note 2 (condition (a)) was not met, the said goods could not be classified under Chapter 87.”

1.46 Taking cognizance of the rationale laid down in the judgement in the matter of M/s Intel Design Systems (India) P. Ltd. Vs Commissioner of Customs & Central Excise and the instructions issued by the CBIC as discussed above, for goods to be classified under the chapters of Section XVII, fulfilment of the three-layer test postulated “Under the Sub-heading (iii) Parts and Accessories” of the explanatory notes to Section XVII as issued by the WCO is imperative. It is only when all these three conditions are met that a particular item would be classified under the Chapters of Section XVII.

1.47 In other words, the shape/ design/ specification of a product is not a determinant of principal or sole use. Further, Note 3 of Section XVII cannot be applied blanketly and needs to be construed narrowly otherwise the exclusion under Note 2 would become superfluous. To this extent, the Videocon judgment is particularly important, and it is also aligned with the WCO classification principles as propounded in the CBIC Circular (supra).

1.48 It may be added here that the CBIC had issued a further clarification on the issued vide Instruction 25/2022-Cus. dated 03.10.2022 (annexed as Appendix 7), clarifying that the law continues to remain the same and hence the aforesaid instruction would remain valid without any changes. In this context, additional reliance is also placed on the judgment of Hon’ble Delhi Tribunal, in case of Kafila Forge Ltd. v. Principal Commissioner of Customs, (import) ICD TKC, Customs [2023 (7) TM I 1251 — CESTAT New Delhi], where the Tribunal has held that parts of transmission shafts fall under 8483 and not under 8708. In this case, the revenue relied upon Westinghouse judgment to classify the goods under heading 8708 based on sole or principal use. While the bench did not discuss the applicability of Westinghouse judgment but independently evaluated the classification based on section notes and chapter notes and a few other rulings. The bench observed that on comparison of both the heading 8483 and 8708, the impugned goods i.e., Universal Joint Parts to be used in transmission shaft are more specifically covered under sub heading 8483 60 90 whereas nothing specific is found in respect of these goods under the heading 8708.

1.49 This ruling is of importance since it is passed post Westinghouse judgment and contention of the Revenue to classify the item based on sole or principal use as laid down in the Westinghouse case has not been considered. This ruling effectively reiterates that classification based on section and chapter notes would still prevail despite Westinghouse judgment (although this ruling is not explicitly discussed by the bench).

1.50 To sum up. it is submitted in the present case that the inverter being electrical equipment falling under Chapter 85, does not satisfy the very first condition of three-layer test, as these are covered under the exclusion in Note 2 (f) of the Notes to Section XVII. On the other hand, coverage under chapter 85 is clearly supported through the principles of classification viz. GRI and the explanatory notes, as discussed supra. Accordingly, it is the humble submission of the Applicant that the subject good should merit classification under the specific tariff heading provided for the electric inverters i.e., CTH 8504 40 10.

QUESTION 2: APPLICABILITY OF NOTIFICATION NO 57/2017-CUSTOMS DATED 30.06.2017.

1.51 The Central Government vide Notification No 57/2017 – Customs dated 30.06.2017 ‘) intends to provide concessional exemption benefit to the import of machinery items, electrical appliances and its parts and accessories covered in the notification. In this regard, NN 57/2017 vide its S. No. 13 has provided concessional benefit to all the goods falling under CTH 8504 40 to the extent of 10% BCD under the First Schedule of Tariff Act except the charger or power adapter or solar inverters of CTH 8504 40. Copy of the NN 57/2017 is annexed with this application as Appendix 8.

1.52 It is the understanding of the Applicant that the benefit provided under the notification is unconditional as there is no condition annexed to the S. No. 13 of the NN 57/2017 for availing benefit on import of items of CTH 8504 40. So long as the imported goods are rightly classifiable under CTH 8504 40 and are not in the nature of charger/ adapter or solar inverter, the same are eligible to avail concessional benefit @ 10% BCD. Relevant S. No. 13 of the NN 57/2017 is extracted hereunder for ease of reference.

S. No.	Chapter, Heading, Sub-heading and Tariff item	Description	Rate	Condition No.
20	8504 40	All Goods other than the following goods, namely — Charger or power adapter. Solar inverter	10%

Since the subject good imported by the Applicant is the electric inverter which merits classification under CTH 8504 40 10, in view of the submissions above, the Applicant humbly submits that it is rightly eligible to avail exemption duty benefit on import of the subject good under S. No. 13 of the NN 57/2017. To this extent, it is humbly requested before the Hon’ble Authority that the above understanding of the Applicant may be accepted.

QUESTION 3: APPLICABILITY OF NOTIFICATION NO 69/2011-CUSTOMS DATED 29.07.2011.

1.53 The Central Government vide Notification No 69/2011-Customs dated 29.07.2011 has exempted all the goods falling under CTH 8504 from the whole of BCD leviable under the First Schedule of Customs tariff Act, 1975 when the goods imported from Japan. The Notification further provides that the exemption on import of goods notified shall only be available when the origin of such goods is from Japan and the provisions laid down in Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and Japan) Rules, 2011 are complied with. The relevant extract of the entry is reproduced hereinbelow and copy of notification is enclosed as Appendix 8.

S. No.	Chapter, Heading, Sub-heading and Tariff item	Description	Rate in % (unless otherwise specified)
646	8504 40	All Goods.	0

1.54 It is the understanding of the Applicant that the benefit provided under the notification is subject to the condition that the goods being imported from Japan should be originating in Japan and the provisions laid down in Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and Japan) Rules, 2011 are complied with.

1.55 So long as the imported goods are rightly classifiable under CTH 8504 4010 and are originating in Japan, the Applicant is eligible to avail concessional duty benefit @ 0% BCD. In view of the above, the Applicant humbly submits that the Hon’ble Authority may kindly issue the advance ruling as prayed at an early date.

PRAYER

1.56 In the light of the above, a ruling is sought from the Hon’ble Authority as follows:

a) The subject good is correctly classifiable under Customs Tariff Heading 8504 40 10 of the First Schedule of the Tariff Act.

b) The Applicant is eligible to avail concessional rate of BCD @10% as per S. No. 13 to NN 57/2017 on import of subject good.

c) The applicant is eligible to avail concessional rate of BCD @ 0% as per S. No. 646 to Notification No 69/2011-Customs dated 29.07.2011 on import of subject goods subject to satisfaction of origin criteria that the goods are originating from Japan.

2. The Comments of the Airport & ACC (Import) Customs Commissionerate, Bengaluru with regard to points raised in the application arc furnished as under:

2.1 Eligibility of the applicant, in terms of section 28-E (c) of the Customs Act, 1962 to seek such advance ruling.

As per section 28-E(c):

(c)”applicant” means any person-

(i) holding a valid Importer-exporter Code Number granted under section 7 of the Foreign Trade (Development and Regulation) Act, 1992; or

(ii) exporting any goods to India; or

(iii) with a justifiable cause to the satisfaction of the Authority, who makes an application for advance ruling under section 281^–1,l

Hence, as per the above definition of the applicant as under Section 28-E(c), the importer holding a valid IEC No. 0599001356, granted under section 7 of the Foreign Trade (Development and Regulation) Act, 1992 appears to be eligible in terms of Section 28-E(c). Applicability of proviso (1) of Section 28-I (2) of the Customs Act, 1962 regarding the question raised in the application.

2.2 The applicant at SI. No. 11 of the Form CAAR-1 has declared that the question raised in the current application is not pending before any officer of the Customs, Appellate Tribunal or any Court of Law and same could be accepted.

2.2.1 Comments on the merits of the question raised in the application, along with all materials support thereof—

(i) The relevant CTH in this case is 8504 and the same is reproduced below for ease of reference.

(ii) In terms of explanatory notes for CTH 850440 published by the WCO:

“The apparatus of this group are used to convert electrical energy in order to adapt it for further use. They incorporate converting elements (e.g., valves) of different types. They may also incorporate various auxiliary devices (e.g., transformers, induction coils, resistors, command regulators, etc.). Their operation is based on the principle that the converting elements act alternately as conductors and non- conductors. The fact that these apparatuses often incorporate auxiliary circuits to regulate the voltage of the emerging current does not affect their classification in this group , nor does the fact that they are sometimes referred to as voltage or current regulators.

This group includes:

a) Rectifiers by which alternating current (single or polyphase) is converted to direct current, generally accompanied by a voltage change.

b) Inverters by which direct current is converted to alternating current.

c) Alternating current converters and cycle converters by which alternating current (single or polyphase) is converted to a different frequency or voltage.

d) Direct current converters by which direct current is converted to a different voltage.”

(iii) It is clear that CTH 850440 covers Static Converters i.e. which convert the direct current to alternating currents and vice versa. Hence the goods proposed by the applicant fall under CTH 850440.

(iv) Based on the details submitted by the applicant in their application, it appears that the goods proposed by the applicant are ‘inverter assembly’ whose principal function is to convert the DC to AC and vice versa. Hence the goods proposed by the applicant fall under CTH 850440 and since the CTI 85044010 is specific heading for the item ‘Electric Inverter’ and the goods proposed by the applicant are ‘inverter assembly’ which is used in Electric Vehicle are not the ‘electric inverter’. Therefore the more specific classification of the ‘inverter assembly’ is under CTH 85044090.

(v) Further as per SI. No.13 of the Notification No 57/2017 – Customs dated 30.06.2017 –

SI. No.	CTH	Description	Standard Rate	Condition
646	850440	“All goods other than the following goods, namely; (a) Charger or power adapter;	10%	–
		(b) Solar inverter’;

Since the proposed goods are neither charger, nor power adapter, nor solar inverter, hence it appears that the proposed goods are eligible for benefits vide SI. No.13 of the Notification 057/2017-Cus.

(vi) Further as per SI. No.646 of the Notification No 69/201 1-Customs dated 29.07.2011 —

Sl. No.	CTH	Description	Rate in % unless or otherwise specified
646	850440	All goods	0%

Since the CTH covers under SI. No.646 of the Notification No 69/201 1-Customs dated 29.07.20111. However, the benefits under the Notification No 69/201 1-Customs dated 29.07.2011 is subject to the condition that the goods being imported from Japan should be originating in Japan and the provisions laid down in the Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and Japan) Rules, 2011 are complied with.

3. The applicant has submitted the response to the observations of the field Commissionerate, which was received by the CAAR office, which are as follows:

3.1 This letter is furtherance to the Application dated 18.03.2024 (filed on 26.03.2024) for Customs Advance Ruling under Section 28H of the Customs Act, 1962 (`Customs Act’) filed by M/s. DENSO Haryana Pvt. Ltd. (`Applicant’) for seeking clarity on the issue of classification of goods namely ‘Inverter Assembly’ and eligibility to avail benefit of concessional rate of duty under Sr. No. 13 of Notification No 57/2017 – Customs dated 30.06.2017 (`Notification No. 57/2017′) and Sr. No. 666 of Notification No 69/201 1-Customs dated 29.07.2011 (`Notification No 69/2011-Customs dated 29.07.2011‘), upon its import into India.

3.2 In this regard, the authorized representatives oldie Applicant had appeared before CAAK Delhi on 21.05.2024 and presented its detailed submissions in relation to the Customs Advance Ruling sought by the Applicant and the comments provided by the Ld. Additional Commissioner, Rajaji Salai, Chennai. Now on 28.05.2024, the Applicant, has received letters dated 24.05.2024 issued to the Office of the CAAR, New Delhi by the Commissioner of Customs, ACC, Bangalore.

3.3 Further, as per the letter dated 24.05.2024, it is understood that Port Commissionerate of ACC Bangalore has agreed with the classification of ‘Inverter Assembly’ adopted by the Applicant, up to sub­heading level or six-digit level, i.e., CTH 8504 40, but at the classification at eight-digit level under CTH 8504 40 90. The Comm issionerate has also confirmed the eligibility of the Applicant to avail concessional rate of BCD under Sr. No. 13 of the Notification No 57/2017 and Sr. No. 646 of Notification No. 69/2011, on import of ‘Inverter Assembly’.

3.5 In view of the above, the Applicant wishes to submit that w.r.t. the aforementioned comments of the port authorities, it defers only with the view of the ACC Bangalore Commissionerate to the extent of classification of ‘Inverter Assembly’ at the tariff line or eight-digit level. Therefore, the Applicant has presented its submissions hereunder justifying the classification adopted by it at Right-digit level.

Classification of Inverter Assembly at eight-digit level:

3.6 At the outset it is pertinent to re-iterate that there is no dispute with respect to classification of Inverter Assembly up to sub-heading or six-digit level. The Bangalore Commissionerate has agreed to the understanding of the applicant that the ‘Inverter Assembly’ is a kind of a static converter which converts Alternating Current (AC) to Direct Current (DC) and vice versa, hence, the same merits classification under CTSH 8504 40 which covers “Static Converter”.

3.6.1 The only issue of dispute is with respect to classification at the tariff entry or the eight-digit level. The eight-digit entries under CTSH 8504 40 have been extracted as follows:

8504	40		–	STATIC CONVERTER
8504	40	10	—	Electric inverter
			—	Rectifier
8504	40	21	—-	Dip bridge rectifier
8504	40	29	—-	Other
8504	40	30	—	Battery chargers
8504	40	40	—	Voltage regulator and (other than automatic)	stabilizers
8504	40	90	—	Other

3.6.2 As per the Applicant, the Inverter Assembly merits classification under CTH 8504 40 10 which covers “Electric Inverter”. Whereas, as per the ACC, Bengaluru Commissionerate the ‘Inverter Assembly’ merits classification under CTH 8504 40 90 which is a residuary entry and cover “Other” Static Converters. That being so, the Applicant’s additional arguments (in addition to the reasons submitted in the CAAR application concerned) are captured herein below:

3.6.3 Classification ought to be done on principal function of the ‘Inverter Assembly’ and not the nomenclature adopted by the Applicant: It is a settled principle of classification that for purposes of classification of a product, the nomenclature is not of much relevance, what is relevant is the principal function of the product.

3.6.4 As per the ACC, Bengaluru, the product imported by the Applicant is “Inverter Assembly” used in motor vehicles and hence the same is not “Electric Inverter”, therefore, the same cannot be classified under CTH 8504 40 10 and the same merits classification under the residuary entry, i.e., CTH 8504 40 90. This understanding is totally erroneous as the ACC, Bengaluru Comm issionerate has determined the classification of the Inverter Assembly at eight-digit level based on the nomenclature adopted by the Applicant to describe the product under consideration rather than classification based on principal function of the product.

3.6.5 In the present case, the Applicant is importing an Inverter Assembly used in motor vehicle. This Inverter Assembly is capable of converting AC to DC and vice versa (please refer Annexure-I to the Customs Advance Ruling Application for details of the functioning of the Inverter Assembly). Thus, the Inverter Assembly performs the function of a static converter (electrical inverter) which are covered under CTH 8504.

3.6.6 Further, upon perusal of the entries under CTSH 8504 40, it is clear that the term “Electric Inverter” encompasses all kinds of electrical inverters provided under CTH 8504. No distinction has been made for classification of electric inverters used in different applications such as UPS inverter, inverter assembly used in motor vehicle, heavy industries etc. This means that even if the Inverter Assembly imported by the Applicant is used in motor vehicle, the same is still classifiable under CTH 8504 40 10.

3.7 Hence, based on the principal function of the Inverter Assembly imported by the Applicant, it can be said that the product is rightly classifiable under CTH 8504 40 10. The nomenclature adopted by the Applicant to describe the product has no bearing on classification of the product imported by the Applicant.

3.8 Classification of Inverter Assembly merits under CTH 8504 40 10 in terms of GIR 6 read with GIR 1 and GIR 3 (a): Further, the Applicant would like to place reliance on Rule 6 of the General the. general Rules of Interpretation (`GIR’) appended to the First Schedule to the Customs Tariff Act, 1975 which provides guidance for classification at sub-heading and tariff entry level. For ease of reference, GIR 6 has been extracted as follows:

“6. For legal purposes, the classification of goods in the sub-headings of a heading shall be determined according to the terms of those sub-headings and any related sub-heading Notes and, mutatis mutandis, to the above rules, on the understanding that only sub-headings at the same level are comparable. For the purposes of this rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.”

3.8.1 Upon perusal of GIR 6 it is clear that for the purposes of classification at sub-heading and tariff entry level, reference must be placed on the principles applicable to classification in the four-digit headings. In such a case, the terms of the subheadings or sub-heading Notes must be given precedence. Thus, the whole classification process as done for classification at four-digit or heading level has to be repeated again as a separate exercise to choose the six-digit subheading and then again for the eight-digit level.

3.8.2 Accordingly, in terms of GIR 6, the whole process of classification must be repeated to determine the classification of Inverter Assembly at eight-digit level and sequential application of GIR 1 to GI R 5 have to be re-applied to determine the classification at six-digit and eight-digit level. As per GI IZ 1. classification of a product ought to be done based on the terms of heading. Hence, upon perusal of the entries under CTSH 8504 40, we are of the opinion that based on the terms of sub-heading under CTSH 8504 40, the Inverter Assembly is classifiable under CTH 8504 40 10 which covers “Electric Inverters” as the same is capable converting AC to DC and vice versa.

3.8.3 Without prejudice, reliance may also be placed on G1R 3(a) for classification Inverter Assembly imported by the Applicant. As per GIR 3(a), when there are two or more competing entries, the entry which provides the most specific description shall be preferred to the entry which providing a general description.

3.8.4 Applying the principles of GIR 3(a) in the present case, upon perusal of entries at eight-digit level under CTSH 8504 40 it is clear that since CTH 8504 40 10 specifically covers “Electric Inverters” the same becomes a more specific entry as opposed to CTH 8504 40 90 which is a residuary entry. Hence, upon application of GIR 6 read with GIR 3(a), the Inverter Assembly imported by the Applicant merits classification under CTH 8504 40 10.

4. I have taken into consideration of all the materials placed on record in respect of the subject goods including the submissions made by the applicant during the course of personal hearing (held on the comments of Chennai Port Commissionerate). I have gone through the response from the Customs Port Comm issionerate of ACC Bengaluru and 1C1) Bengaluru. However, as the matter and questions before the Authority being the same. I therefore proceed to decide the present application regarding classification of ‘Inverter Assembly’ on the basis of the information on record as well as the existing legal framework having bearing on the classification under the first schedule of the Customs Tariff Act, 1975.

4.1 The Airport & ACC (Import) Customs Commissionerate, Bengaluru has accepted the claim made by the applicant upto the six digit level i.e. 850440 as far as the classification is concerned, has recommended a different CTH at eight digit level as 85044090. The important points of reference being:

4.1.1 Comments on the merits of the question raised in the application

(i) The relevant CTH in this case is 8504 and the same is reproduced below for ease of reference.

8504 40	–	– Static converters:
8504 40 10	—	Electric inverter
	—	Rectifier :
8504 40 21	—	Dip bridge rectifier
8504 40 29	—	Other
8504 40 30	—	Battery chargers
8504 40 40	—.	Voltage regulator and stabilizers (other than automatic)
8504 40 90	—	Other

(ii) In terms of explanatory notes for CTH 850440 published by the WCO:

“The apparatus of this group are used to convert electrical energy in order to adapt it for further use. They incorporate converting elements (e.g., valves) of different types. They may also incorporate various auxiliary devices (e.g., transformers, induction coils, resistors, command regulators, etc.). Their operation is based on the principle that the converting elements act alternately as conductors and non- conductors. The fact that these apparatuses often incorporate auxiliary circuits to regulate the voltage of the emerging current does not affect their classification in this group , nor does the fact that they are sometimes referred to as voltage or current regulators.

This group includes:

a) Rectifiers by which alternating current (single or polyphase) is converted to direct current, generally accompanied by a voltage change.

b) Inverters by which direct current is converted to alternating current.

c) Alternating current converters and cycle converters by which alternating current (single or polyphase) is converted to a different frequency or voltage.

d) Direct current converters by which direct current is converted to a different voltage.”

(iii) It is clear that CTH 850440 covers Static Converters i.e. which convert the direct current to alternating currents and vice versa. Hence the goods proposed by the applicant fall under CTH 850440.

(iv) Based on the details submitted by the applicant in their application, it appears that the goods proposed by the applicant are ‘inverter assembly’ whose principal function is to convert the DC to AC and vice versa. Hence the goods proposed by the applicant fall under CTH 850440 and since the CTI 85044010 is specific heading for the item ‘Electric Inverter’ and the goods proposed by the applicant are ‘inverter assembly’ which is used in Electric Vehicle are not the ‘electric inverter’. Therefore the more specific classification of the ‘inverter assembly’ is under CTH 85044090.

(v) Further as per Sl. No. 13 of Notification No. 057/2017-Cus dated 30.06.2017-

SI. No.	CTH	Description	Standard Rate	Condition
13	850440	“All goods other than the following goods, namely: (a) charger or power adapter;	10%	–
		(b) solar inverter “;

Since the proposed goods are neither charger, nor power adapter, nor solar inverter, hence it appears that the proposed goods are eligible for benefits vide SI. No.13 of the Notification 057/2017-Cus.

(vi) Further as per Sl. No. 646 of the Notification No 69/201 1-Customs dated 29.07.2011

SI. No.	CTH	Description	Rate in % unless or otherwise specified
646	850440	All goods	0%

Since the CTH covers under SI. No.646 of the Notification No 69/201 1-Customs dated 29.07.2011. However, the benefits under the Notification No 69/2011-Customs dated 29.07.2011 is subject to the condition that the goods being imported from Japan should be originating in Japan and the provisions in the Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and Japan) Rules, 2011 are complied with.

5. Having gone through the observations of the field Commissionerates, let’s look at the original submissions made by the applicant and the responses filed additionally with reference to the observations of the Port Commissionerates.

5.1 Classification of goods covered under the Customs Tariff is done as per the General Rules of Interpretation (`GRI’). GRI 1 to 5 lay down the principles determining classification of goods under a specific Heading whereas GRI 6 is applicable if the objective is to determine the classification of goods in the Sub­headings of a Heading. The Larger Bench of the Hon’ble Tribunal in the matter of Saurashtra Chemical, Porbandar vs. Collector of Customs; 1986 (23) E.L.T. 283 (Tri. -LB) had held that the tariffs must be interpreted in the light of relevant Section and Chapter Notes which are statutorily binding like the Headings themselves. In the light of above facts, to analyze the classification of above product following needs to be kept in mind: i. General Rules of Interpretation (GRI); ii. Heading/sub-heading of the First Schedule in conjunction with Section/Chapter/Explanatory notes; iii. Principal function of the subject good.

6.1.1 To ascertain the classification and by application of GRI 1, the following Customs Tariff Heading (`CTH’) require attention i.e., CTH. 8504 and CTH 8708.

CTH	Description of Goods
8504	Electrical transformers, static converters (for example, rectifiers) and inductors.
8708	Parts and accessories of the Motor Vehicles of Heading 8701 to 8705

6.1.2 Analysis of Chapter 85:

Given the above, CTH 8504 merits consideration, which provides for “electrical transformers, static converters (for example, rectifiers) and inductors”. As stated in Annexure 1 above, the subject good imported by the Applicant is an inverter which is going to be used in the electric vehicles.

CTH		Description of Goods
8504		Electrical transformers, static converters (for example, rectifiers) and inductors.
8504 40	–	Static Converters
8504 40 10	—	Electric Inverter

6.1.3 As per Rule 1 of the GRI, subject good should be classified in accordance with the terms of the headings and any relevant and Section or Chapter Notes. CTH 8504 covers electrical transformers, static converters (for example, rectifiers) and inductors. Upon reading of the HSN Explanatory Notes to the CTH 8504, it covers inverters by which direct current is converted to alternating current. Relevant portion of the HSN explanatory notes of CTH 8504 is extracted hereunder –

(11) ELECTRICAL STATIC CONVERTERS

“The apparatus of this group are used to convert electrical energy in order to adapt it for further use. They incorporate converting elements (e.g., valves) of different types. They may also incorporate various auxiliary devices (e.g., transformers, induction coils, resistors, command regulators, etc.). Their operation is based on the principle that the converting elements act alternately as conductors and non-conductors.

The fact that these apparatuses often incorporate auxiliary circuits to regulate the voltage of the emerging current does not affect their classification in this group, nor does the fact that they are sometimes referred to as voltage or current regulators.

This group includes:

(A) …..

(B) Inverters by which direct current is converted to alternating current.

………………….” (Emphasis supplied)

6.1.4 As stated above, it has been provided in the above referred HSN Explanatory ,N9tes„that inverters by which direct current is converted to alternating current are also categorized under the said heading. The subject good imported by the Applicant controls motor generator by alternating DC to AC. Therefore, by application of Rule I of the GRI, subject goods satisfy the description under CTH 8504 40 10.

6.1.5 In addition to above, it is also imperative to refer Note 2 (a) of Section XVI which provides for classification of parts of machines. It states that parts which are goods of any heading of Chapter 84 or 85 are in all cases to be classified in the respective headings. Relevant extract of Section Note has been reproduced below for ease of reference —

“(a) parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings; ” (Emphasis supplied)

Therefore, upon bare reading of the above stated Section Note, it can be construed that the inverter which is a good/product as a whole and is going to be used in the electric vehicle merits classification under the Chapter 85 only.

6.1.6 To substantiate the above, reliance can be placed on the US Cross Ruling numbered NY N306512 dated 25.10.2019 wherein the applicant was importing power inverters and electrical chargers. In the said case, it was held that “The applicable subheading for the DC/AC, AC/DC Inverter/Charger will be 8504.40.9570, HTSUS, which provides for “Electric transformers, static converters and inductors…: Static converters: Other: Inverters.” Also, reliance can also be placed on the US Cross Ruling numbered NY G86580 dated 06.02.2001 wherein power inverters were being imported by the applicant to be used on the roofs of US streetcars. In the said case it was held that “the applicable subheading for this power inverter is 8504.40.9570, Harmonized Tariff Schedule of the United States (HTS), which provides for “Electrical transformers, static converters and inductors; Static converters: Other; Inverters”. Since the HSN is aligned, these rulings have persuasive value for determining the classification under the Tariff Act. In the light of above and considering there is specific CTH with support of HSN Explanatory Notes and supported by the foregoing US Cross Rulings, the product under consideration should be categorized under the CT1-1 8504 40 10 i.e., “Electric inverter”.

6.1.7 The principle of classification discussed in the Hon’ble Supreme Court’s decisions can be summarized as: In the Westinghouse judgment (supra), the end use test to determine the classification has been preferred over the exclusion provided under Note 2(f) to Section XVII. The judgment of the Supreme Court in the matter of Commissioner of Central Excise, Aurangabad v. M/s. Videocon Industries Limited (2023-TIOL-25-SC-CUS) has emphasized on the exclusion note over the sole/ principal use test. Further, post the judgement of the Hon’ble Supreme Court in the case of Westinghouse Saxby (supra), the CBIC on 5th January 2022 issued instruction No. 01/2022-Customs with subject “Implication of the judgement of the Hon’ble Supreme Court in the case of M/s Westinghouse Saxby Farmer Ltd. Vs Commissioner of Central Excise, Calcutta — reg”. This was to align with the divergent practice being followed on assessment of ‘parts’ after the Westinghouse Saxby judgment (supra) was issued. In the said instructions while making a reference to the judgement of the Hon’ble Supreme Court in the case of M/s Intel Design Systems (India) P. Ltd. Vs Commissioner of Customs & Central Excise, among others the CBIC has instructed as follows —

“3. In the context of the divergent practices arisen, it is noted that the classification of ‘parts’ of goods falling under Section XVII of the Customs or Central Excise Tariff is a complex issue. Further, apparently, the section notes have been suitably applied in relevant judgements of the Hon’ble Supreme Court on issues of classification of parts and accessories. Thus, the collective wisdom of these judgments indicates the manner in which such classification issues are to be approached. Few of such judgments are illustrated in succeeding paragraphs:

3.1 of M/s Intel Design Systems (India) P. Ltd. Vs Commissioner of Customs & C. Ex-2008

A. Apart from the reliance on the section notes and the chapter notes the court iii this judgment also considered the HSN explanatory notes wherein three conditions that need to be fulfilled _.for goods to be classified under section XVII are mentioned namely —

a. They must not be excluded by the terms of Note 2 to Section XVII and

b. They must be suitable for use solely or principally with the articles of chapter 86 to 88 and

c. They must not be more .specifically included elsewhere in the nomenclature

B. While relying on these conditions, the Hon’ble Supreme Court held —

“The items, therefore, manufactured by the appellants are identifiable or are in the nature of goods falling under Chapter 8536. Since these fill under the category of excluded goods under chapter notes, even though they are used specifically solely or principally with the armoured vehicles of Chapter Heading 8710, they are classifiable under chapter heading 853690 only as held by the adjudicating authority.”

C. By taking cognizance of the conditions mentioned in the HSN explanatory notes the exclusionary clause under Note 2 has been given precedence over the sole or principal use of the items. It was recognized that since one of the conditions i.e. of the exclusions mentioned in Note 2 (condition (a)) was not met, the said goods could not be classified under Chapter 87.”

V. Taking cognizance of the rationale laid down in the judgement in the matter of M/s Intel Design Systems (India) P. Ltd. Vs Commissioner of Customs & Central Excise and the instructions issued by the CBIC as discussed above, for goods to be classified under the chapters of Section XVII, fulfilment of the three-layer test postulated “Under the Sub-heading (iii) Parts and Accessories” of the explanatory notes to Section XVII as issued by the WCO is imperative. It is only when all these three conditions are met that a particular item would be classified under the Chapters of Section XVII.

VI. In other words, the shape/ design/ specification of a product is not a determinant of principal or sole use. Further, Note 3 of Section XVII cannot be applied blanketly and needs to be construed narrowly otherwise the exclusion under Note 2 would become superfluous. It may be added here that the CBIC had issued a further clarification on the issued vide Instruction 25/2022-Cus. dated 03.10.2022, clarifying that the law continues to remain the same and hence the aforesaid instruction would remain valid without any changes.

VII. To sum up, it is submitted in the present case that the inverter being electrical equipment falling under Chapter 85, does not satisfy the very first condition of three-layer test, as these are covered under the exclusion in Note 2 (0 of the Notes to Section XVII. On the other hand, coverage under chapter 85 is clearly supported through the principles of classification viz. GRI and the explanatory notes, as discussed supra. Accordingly, it is the humble submission of the Applicant that the subject good should merit classification under the specific tariff heading provided for the electric inverters i.e., CTH 8504 40 10.

6.2 APPLICABILITY OF NOTIFICATION NO 57/2017-CUSTOMS DATED 30.06.2017.

i) The Central Government vide Notification No 57/2017 – Customs dated 30.06.2017 (‘NN 57/2017’) intends to provide concessional exemption benefit to the import of machinery items, electrical appliances and its parts and accessories covered in the notification. In this regard, NN 57/2017 vide its S. No. 13 has provided concessional benefit to all the goods falling under CTEI 8504 40 to the extent of 10% BCD under the First Schedule of Tariff Act except the charger or power adapter or solar inverters of CTH 8504 40. Copy of the NN 57/2017.

ii) It is the understanding of the Applicant that the benefit provided under the notification is unconditional as there is no condition annexed to the S. No. 13 of the NN 57/2017 for availing benefit on import of items of CTH 8504 40. So long as the imported goods are rightly classifiable under CTH 8504 40 and are not in the nature of charger/ adapter or solar inverter, the same are eligible to avail concessional duty benefit @ 10% BCD. Relevant S. No. 13 of the NN 57/2017 is extracted hereunder for ease of reference.

S. No.	Chapter, Heading, Sub-heading and Tariff item	Description	Rate	Condition No.
20	8504 40	All Goods other than the following goods, namely — Charger or power adapter. Solar inverter	10%	–

6.3 APPLICABILITY OF NOTIFICATION NO 69/2011-CUSTOMS DATED 29:07.2011

i) The Central Government vide Notification No 69/201 1-Customs dated 29.07.2011 has exempted all the goods falling under CTH 8504 from the whole of BCD leviable under the First Schedule of Customs tariff Act. 1975 when the goods imported from Japan. The Notification further provides that the exemption on import of goods notified shall only be available when the origin of such goods is from Japan and the provisions laid down in Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and^. Japan) Rules, 2011 are complied with. The relevant extract of the entry is reproduced hereinbelow and copy of notification is enclosed as Appendix 8.

S. No.	Chapter, Heading, Sub-heading_ . and Tariff item	Description	Rate in % (unless otherwise specified)
646	8504 40	All Goods.	0

ii) It is the understanding of the Applicant that the benefit provided under the notification is subject to the condition that the goods being imported from Japan should be originating Japan and the provisions laid down in Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and Japan) Rules, 2011 are complied with.

iii) So long as the imported goods are rightly classifiable under CTH 8504 4010 and are originating in Japan, the Applicant is eligible to avail concessional duty benefit @ 0% BCD.

6.4 ADDITIONAL SUBMISSIONS ON BEHALF OF THE APPLICANT

6.4.1 In this regard, the authorized representatives of the Applicant had appeared before CAAR Delhi on 21.05.2024 and presented its detailed submissions already made through CAAR-1 form and the comments provided by the Port Commissionerate, Chennai. On 28.05.2024, the Applicant, has received letters dated 21.05.2024 and 24.05.2024 issued to the Office of the CAAR, New Delhi by Deputy Commissioner of Customs, Inland Container Deport, Whitefield, Bangalore and the Additional Commissioner of Customs, ACC, Bangalore, respectively.

6.4.2 As per the letter dated 21.05.2024, the Port Commissionerate of ICD Bangalore is in conformity with the classification of Inverter Assembly under CTH 8504 40 10, as adopted by the Applicant. Further, it has been confirmed that the Applicant to avail concessional rate of Basic Customs Duty (`BCD’) under Sr. No. 13 of the 57/2017 – Customs dated 30.06.2017 and Sr. No. 646 of Notification No 69/201 1-Customs dated 29.07.2011, on import of Inverter Assembly. Further, as per the letter dated 24.05.2024, the Port Commissionerate of ACC Bangalore has agreed with the classification of Inverter Assembly adopted by the Applicant, up to sub-heading level or six-digit level, i.e., CTSH 8504 40. However, they have opined the classification of Inverter Assembly at eight-digit level under CTH 8504 40 90. But the Port Commissionerate of ACC Bangalore has also confirmed the eligibility of the Applicant to avail concessional rate of BCD under Sr. No. 13 of the Notification No 57/2017 and Sr. No. 646 of Notification No 69/2011, on import of Inverter Assembly.

6.4.3 In view of the above, the Applicant wishes to submit that w.r.t. the aforementioned comments of the port authorities, it defers only with the view of the Port Commissioner, ACC Bangalore to the extent of classification of Inverter Assembly at the tariff line or eight-digit level. Therefore, the Applicant presents its submissions hereunder justifying the classification adopted by it at eight-digit level.

6.4.4 Classification of Iriverter Assembly at eight-digit level:

At the outset it is pertinent to re-iterate that there is no dispute with respect to classification of Inverter Assembly up to sub-heading or six-digit level. The Port Commissioner, ACC Bangalore has agreed to the applicant’s understanding that the Inverter Assembly is a kind of a static converter which converts Alternating Current (AC) to Direct Current (DC) and vice versa, hence, the same merits classification under CTSH 8504 40 which covers “Static Converter”.

6.4.5 The only issue of dispute is with respect to classification at the tariff entry or the eight-digit level. The eight-digit entries under CTSH 8504 40 have been extracted as follows:

8504 40	–	STATIC CONVERTER
8504 40 10	—	Electric inverter
	—-	Rectifier
8504 40 21	—-	Dip bridge rectifier
8504 40 29	—	Other
8504 40 30	—	Battery chargers
8504 40 40	—-	Voltage regulator and (other than automatic)	stabilizers
8504 40 90	—	Other

As per the Applicant, the Inverter Assembly merits classification under CTH 8504 40 10, which covers “Electric Inverter”. Whereas, as per the Port Commissioner, ACC, Bangalore the Inverter Assembly merits classification under CTH 8504 40 90, which is a residuary entry and cover “Other” Static Converters.

6.4.6 That being so, the Applicant’s additional arguments (in addition to the reasons submitted in the CAAR application concerned) are captured herein below:

a) Classification ought to be done on principal function of the Inverter Assembly and not the nomenclature adopted by the Applicant:

b) It is a settled principle of classification that for purposes of classification of a product, the nomenclature is not of much relevance, what is relevant is the principal function of the product 1.

6.4.7 As per the Port Commissioner, ACC, Bangalore, the product imported by the Applicant is “Inverter Assembly” used in motor vehicles and hence the same is not “Electric Inverter”, therefore, the same cannot be classified under CTH 8504 40 ..10 and the same merits classification under the residuary entry, i.e., CTH 8504 40 90. This understanding is totally erroneous as the Port Commissioner, ACC Bangalore has determined the classification of the !livelier Assembly at eight-digit level based on the nomenclature adopted by the Applicant to describe the product under consideration rather than classification based on principal function of the product.

6.4.8 In the present case, the Applicant is importing an Inverter Assembly used in motor vehicles. This Inverter Assembly is capable of converting AC to DC and vice versa (please refer Annexure-I to the Customs Advance Ruling Application for details of the functioning of the Inverter Assembly). Thus, the Inverter Assembly performs the function of a static converter (electrical inverter) which are covered under CTH 8504.

6.4.9 Further, upon perusal of the entries under CTSH 8504 40, it is clear that the term “Electric Inverter^–encompasses all kinds of electrical inverters provided under CTH 8504. No distinction has been made for classification of electric inverters used in different applications such as UPS inverter, inverter assembly used in motor vehicle, heavy industries etc. This means that even if the Inverter Assembly imported by the Applicant is used in motor vehicle, the same is still classifiable under CTH 8504 40 10.

6.4.10 Hence, based on the principal function of the Inverter Assembly imported by the Applicant, it can be said that the product is rightly classifiable under CTH 8504 40 10. The nomenclature adopted by the Applicant to describe the product has no bearing on classification of the product imported by the Applicant.

6.5 Classification of Inverter Assembly merits under CTH 8504 40 10 in terms of GIR 6 read with GIR 1 and GIR 3 (a): Further, the Applicant would like to place reliance on Rule 6 of the General Rules of Interpretation (`GIR’) appended to the First Schedule to the Customs Tariff Act, 1975 which provides guidance for classification at sub-heading and tariff entry level. For ease of reference, GIR 6 has been extracted as follows:

“6. For legal purposes, the classification of goods in the sub-headings of a heading shall be determined according to the terms of those sub-headings and any related sub-heading Notes and, mutatis mandis, to the above rules, on the understanding that only sub-headings at the same level are comparable. For the purposes of this rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.”

6.5.1 Upon perusal of GIR 6 it is clear that for the purposes of classification at sub-heading and tariff entry reference must be placed on the principles applicable to classification in the four-digit headings. In such a case, the terms of the subheadings or sub-heading Notes must be given precedence. Thus, the whole classification process as done for classification at four-digit or heading level has to be repeated again as a separate exercise to choose the six-digit subheading and then again for the eight-digit level.

6.5.2 Accordingly, in terms of GIR 6, the whole process of classification must be repeated to determine the classification of Inverter Assembly at eight-digit level and sequential application of GIR 1 to GIR 5 have to be re-applied to determine the classification at six-digit and eight-digit level. As per GIR 1, classification of a product ought to be done based on the terms of heading. Hence, upon perusal of the entries under CTSH 8504 40, we are of the opinion that based on the terms of sub-heading under CTSH _.8504 40, the Inverter Assembly is classifiable under CTH 8504 40 10 which covers “Electric Inverters” as the same is capable converting AC to DC and vice versa.

6.5.3 Without prejudice, reliance may also be placed on GIR 3(a) for classification Inverter Assembly imported by the Applicant. As per GIR 3(a), when there are two or more competing entries, the entry which provides the most specific description shall be preferred to the entry which providing a general description. Applying the principles of GIR 3(a) in the present case, upon perusal of entries at eight-digit level under CTSH 8504 40 it is clear that since CTH 8504 40 10 specifically covers “Electric Inverters” the same becomes a more specific entry as opposed to CTH 8504 40 90 which is a residuary entry. Hence, upon application of GIR 6 read with GIR 3(a), the Inverter Assembly imported by the Applicant merits classification under CTH 8504 40 10.

6.6 Accordingly, the contention of the Port Commissionerate that inverter Assembly merits classification under CTH 8504 40 90 is not tenable. Further, the Applicant has adequately justified as to why the Inverter Assembly merits classification under CTH 8504 40 10. Thus the Inverter Assembly merits classification under Customs Tariff Heading (`CTH’) 8504 (more specifically under 8504 40 10) in terms of GIR 1 read with Section Notes to Section XVI and Section XVII and GIR 6.

7. The answers to the questions raised by the applicant are as follows:

(a) Question 1: Whether the import of Inverter Assembly is correctly classifiable under Customs Tariff Heading 8504 40 10 of the First Schedule of the Customs Tariff Act, 1975??

Answer: The subject goods i.e. ‘Inverter Assembly’ is rightly classifiable under Customs Tariff Heading (CTH’) 8504 and (more specifically under 8504 40 10).

(b) Question 2: Whether the Applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No. 13 of Notification No 57/2017 – Customs dated 30.06.2017 (as amended)?

Answer: Yes, the applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No. 13 of Notification No 57/2017 – Customs dated 30.06.2017 (as amended).

(c) Question 3: Whether the Applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No 646 of the Notification No 69/201 1-Customs dated 29.07.2011?

Answer: Yes, the applicant is eligible to avail concessional rate of Basic Customs Duty on import of the subject goods as per SI. No. 646 of Notification No 69/2011-Customs dated 29.07.2011 . when imported into India from Japan.

8. I rule accordingly.

Notes

¹ Refer case: Set India Pvt. Ltd. Vs. CC, Cochin, (2003 (152) E.L.T. 190 (Tri. Mumbai)J; Affirmed by the Hon’ble Supreme Court in CC Vs. Multi Screen Media Pvt. Ltd. (2015 (322) ELT  421 (Supreme Court)).