Polaris India Private Limited Vs Principal Commissioner of Customs (CESTAT Delhi)
CESTAT Delhi held that the Ranger (non-electric) Vehicles deserve to be classified under CTH 8704 and Ranger (electric) and Brutus Vehicles deserve to be classified under CTH 8709.
Facts- Polaris India Private Limited has filed the appeal to assail the order passed by the Principal Commissioner of Customs (Import). The Principal Commissioner has confirmed the demand for customs duty of Rs. 41,61,609/- u/s. 28(4) of the Customs Act, 1962 with interest u/s. 28AA of the Act and penalty of Rs. 41,61,609/- u/s. 114A of the Act. A redemption fine of Rs. 5,00,000/- has also been imposed instead of confiscation u/s. 125 of the Act.
Polaris India is a wholly owned subsidiary of Polaris Industries Inc., USA. Polaris USA designs, engineers, manufactures and markets innovative high-quality Off-Road Vehicles, including All Terrain Vehicles, snowmobiles, motorcycles and electric-powered vehicles for various applications.
Polaris India commenced import of vehicles from its parent company and through various Bills of Entry imported the different models of vehicles. These vehicles, which were classified by Polaris India under Customs Tariff Heading 8704 and 8709, as vehicles to carry goods, material shift and pushing and hauling activities based on their features and characteristics, have been classified under CTH 8703 in the impugned order by treating them as vehicles principally designed for transportation of persons.
A show cause notice was issued to Polaris India rejecting the declared classifications of ATVs in the Bills of Entry filed and reclassifying the same under CTH 8703 and demanding differential customs duty along with interest and penalty.
The Principal Commissioner passed the impugned order upholding the classification under CTH 8703 and the demand proposed in the show cause notice.
Conclusion- The Tribunal, in Mahindra and Mahindra Ltd. vs. CCE & ST, Hyderabad, held that a motor vehicle would be classifiable under 8703 or 8704, depending on how the gross vehicle weight in design of the vehicle was distributed and whether the major portion of it was used for transportation of passengers or transportation of goods, is still the settled yardstick to be applied in such a controversy.
The documents filed by the appellant establish that the design and build of the imported Vehicles are not principally meant for the transportation of passengers, as from the distribution of the payload capacity between the area designed for passengers and cargo, it can be seen that out of the total capacity, more is designed to be used for carrying of cargo only and not passengers. This shows that the principal design is not for the transportation of passengers but for the transportation of goods.
Held that the Ranger (non-electric) Vehicles deserve to be classified under CTH 8704 and Ranger (electric) and Brutus Vehicles deserve to be classified under CTH 8709.
FULL TEXT OF THE CESTAT DELHI ORDER
Polaris India Private Limited1 has filed this appeal to assail the order dated 27.08.2019 passed by the Principal Commissioner of Customs (Import), New Delhi 2 . The Principal Commissioner has confirmed the demand of customs duty of Rs. 41,61,609/- under section 28(4) of the Customs Act, 19623 with interest under section 28AA of the Act and penalty of Rs. 41,61,609/- under section 114A of the Act. A redemption fine of Rs. 5,00,000/- has also been imposed in lieu of confiscation under section 125 of the Act.
2. Polaris India is a wholly owned subsidiary of Polaris Industries Inc., USA 4 . Polaris USA designs, engineers, manufactures and markets innovative high quality Off Road Vehicles, including All Terrain Vehicles 5 , snowmobiles, motorcycles and electric powered vehicles for various applications.
3. Polaris India commenced import of vehicles from its parent company and through various Bills of Entry filed during the period from 23.07.2013 to 18.11.2016, imported the following models of vehicles, which shall be referred to as „Vehicles‟:
1. Rangers (Non-Electric) [cleared under CTH 8704]
i. In Ranger Crew 900 Model
ii. In Ranger Crew 570 Model
iii. In Ranger 570 Model
2. Ranger (Electric) [cleared under CTH 8709]
3. Brutus [cleared under CTH 8709]
4. These Vehicles, which were classified by Polaris India under Customs Tariff Heading6 8704 and 8709, as vehicles for the purpose of carrying goods, material shifting and pushing and hauling activities based on their features and characteristics, have been classified under CTH 8703 in the impugned order by treating them as vehicles principally designed for transportation of persons.
5. It needs to be noted that earlier the Directorate of Revenue Intelligence7 had initiated investigations in relation to the import of ATVs in December 2016 and issued summons to Polaris India. DRI sent a scanned copy of the seizure memo by email dated 17.07.2017, wherein the DRI placed 16 ATVs under seizure under section 110(1) of the Act, including those already sold to dealers. Seizure memo was amended by a corrigendum dated 24.08.2017 and a revised memo was forwarded to Polaris India by email dated 24.08.2017 in relation to 12 ATVs. Subsequently, the 12 seized ATVs were provisionally released by order dated 26.09.2017.
6. A show cause notice dated 21.12.2017 was, therefore issued to Polaris India proposing:
(i) Rejection of the declared classifications of ATVs in the Bills of Entry filed and reclassifying the same under CTH 8703;
(ii) Confiscation of 12 seized ATVs under section 111(m) of the Act;
(iii) Confiscation of 22 seized ATVs imported by misclassifying, but not available for seizure under section 111(m) of the Act;
(iv) Demand and recovery of differential customs duty of Rs. 61,18,771/- and Rs. 5,66,306/- under section 28(4) of the Act; and
(v) Recovery of interest on proposed demand of differential customs duty under section 28AA of the Act and imposition of penalty under section 112(a)/section 114A of the Act.
7. Polaris India filed a detailed reply on 05.08.2019 giving reasons as to why the classification adopted by it should not be rejected.
8. The Principal Commissioner passed the impugned order upholding the classification under CTH 8703 and the demand proposed in the show cause notice. The findings recorded by the Principal Commissioner in regard to the two set of Vehicles are as follows:
(i) Ranger (non electric), Brutus and Ranger (electric): There is no evidence from the product literature and Polaris USA‟s website that the vehicles are meant for transportation of goods. Hence the vehicles would be classified under CTH 8703 for transportation of passengers; and
(ii) The penalty on Aftab Alam under section 112 of the Act is not imposable since he cannot be held responsible for the acts prior to his joining and there is no allegation of any personal gain to him.
9. Shri Harish Bindumadhavan, learned counsel for the appellant made the following submissions:
(i) The Principal Commissioner has not discharged the burden to prove that the correct classification is Customs Tariff Item8 8703 10 10/ 8703 10 90. A perusal of CTI 8703 10 10 and CTI 8703 10 90 shows that for a motor vehicle to be classified under CTH 8703, it must be principally designed for transport of persons first. The fact that the vehicle is principally designed for transport of persons is required to be proved by the Department upon scrutiny and examination of the vehicles in dispute, if the Department intends to classify the Vehicles under CTH 8703 by rejecting the classification adopted by the appellant;
(ii) The Vehicles in dispute have not been designed principally for transportation of persons;
(iii) Incidental use by passengers does not make the Vehicles as one which are principally designed for transportation of passengers; and
(iv) There is no suppression or mis-statement or declaration with intent to evade payment of service tax and so the extended period of limitation could not have been invoked, nor could penalty have been imposed.
10. Ms. Jaya Kumari, learned authorized representative appearing for the Department supported the impugned order and made the following submissions:
(i) ATVs which are having off road use are for recreational purpose and principally designed for transportation of persons and not for the transportation of goods. As such the classification of the imported goods under CTI 8704 31 90, CTI 8704 90 12 and CTI 8704 90 90 is not appropriate. These goods are specially designed vehicles for transport of persons and accordingly as appropriately classifiable under CTI 8703 10 90 and CTI 8703 10 10;
(ii) ATVs Rangers have different models as two-seater, three-seater and crew, which shows that they are for recreational purpose only and principally designed for transportation of persons and not for the transportation of goods;
(iii) As per the website of the parent company and the owner Manual of Ranger Models, there is no mention that Ranger is meant for transportation of goods. However, it contains guidelines regarding safety and other information regarding transportation of passengers;
(iv) Serial No. 6 of Explanatory Notes to Harmonized System of Nomenclature903 further reveals that ATVs for off road use which have steering system based on Ackerman principle are specifically covered under HSN 87.03;
(v) In view of the Explanatory Note to HSN 87.09, the imported goods i.e. ATVs of BRUTUS Model do not have essential characteristic required for classification under HSN 87.09; and
(vi) By resorting to willful mis-statement and suppression, the appellant rendered itself liable to penalty under section 114A of the Act and confiscation under 111(m) of the Act.
11. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
12. It would be necessary to first reproduce the Notes of Chapter 87 of the Customs Tariff Act and CTH 8703, CTH 8704 and CTH 8709 as contained in Chapter 87 and they are as follows:
CHAPTER 87
Vehicles other than railway or tramway rolling-
stock, and parts and accessories thereof
NOTES:
1. This Chapter does not cover railway or tramway rolling-stock designed solely for running on rails.
2. For the purpose this Chapter, “tractors” means vehicles constructed essentially for hauling or pushing another vehicle, appliance or load, whether or not they contain subsidiary provision for the transport, in connection with the main use of the tractor, of tools, seeds, fertilizers or other goods.
Machines and working tools designed for fitting to tractors of heading 8701 as interchangeable equipment remain classified in their respective headings even if presented with the tractor, and whether or not mounted on it.
3. Motor chassis fitted with cabs fall in heading 8702 to 8704, and not in heading 8706.
4. Heading 8712 includes all children’s bicycles. Other children’s cycles fall in heading 9503.
