Case Law Details

Case Name : In re Sandvik Mining & Rock Technology India Private Limited (CAAR Mumbai)
Appeal Number : CAAR/Mum/ARC/2/2021
Date of Judgement/Order : 11/03/2021
Related Assessment Year :

In re Sandvik Mining & Rock Technology India Private Limited (CAAR Mumbai)

The goods under consideration in this application are meant for movement/transport goods, carrying relatively high payloads, albeit over short distances within the premises of small and medium sized mines. They are not meant for working the earth. The terms of heading 870410 and the accompanying chapter notes/HSN explanatory notes squarely cover the said goods. Therefore, I do not find any merit in the applicant’s contention of the goods not being motor vehicles as the functional and design feature of the goods answer the requirements of CTH 870410, as discussed above. In light of the foregoing legal provisions, product features and usage and discussions, I rule that underground mining trucks, one example of which is the SANDVIK TH 320, is classifiable as motor vehicles for transport of goods designed for usage in restricted conditions like a mine, under 8704 1010.

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

M/s. Sandvik Mining and Rock Technology India Pvt. Ltd. (the applicant, in short) filed an application dated 15.12.2020 for advance ruling under section 28-H of the Customs Act, 1962 before the Authority for Advance Ruling, New Delhi (MR, in short). The said application was received in the registry/secretariat of the AAR on 17.12.2020. Consequent to the appointment of Customs Authorities for Advance Rulings (CAAR, in short) at New Delhi and Mumbai w.e.f. 04.01.2021, the aforementioned application, based on the address of the applicant, has been transferred by AAR, New Delhi to CAAR, Mumbai in terms of section 28 F (3) of the Customs Act, 1962 read with regulation 31 of CAAR Regulations, 2021.

2. The question on which advance ruling has been sought is classification of underground mining trucks. The applicant is stated to be a leading supplier in equipment, tools, service, and technical solutions for mining and construction, specifically, rock drilling/cutting, crushing/screening, loading/hauling, tunnelling, quarrying, breaking and demolition. The applicant intends to import underground mining trucks from its overseas group entities. These underground mining trucks are designed to transport rock material safely/efficiently/reliably in extreme conditions and their usage is limited to mining operations. These underground mining trucks are used in underground metal mining for: –

  • Mucking and tramming of abrasive ore/waste rock from drivers/cross cuts

> Mucking – removal of blasted ore(muck)

>  Tramming – moving material from extraction area to another place

The applicant has summarised the technical specifications and usage of the proposed imports through the example of model Sandvik TH 320 underground mining truck, some characteristics of which are reproduced below: –

  • Narrow 20 metric ton – for use in small and medium sized hard rock mines,
  • Off-road use only, mainly in mining sites – max speed 27.8 km./hr.,
  • Loading weight – 42,600 kg.

The applicant proposes the classification of the subject product under sub-heading 84305010 as mining machinery excluding coal mining. The applicant has also pointed out a competing classification under sub-heading 87041010 which includes motor vehicles including dumpers designed for off highway use.

3. In their application, the applicant indicated the Principal Commissioner of Customs, Nhava Sheva – I as the office concerned with the application. However, considering the work allocation at the Jawaharlal Nehru Custom House, the application was forwarded to the Commissioner of Customs, Nhava Sheva – V (the commissioner, in short). Comments have been received from the commissioner in which, considering the product specifications, intended usage and the relevant chapter notes and HSN explanatory notes, it is opined that the product in question merits classification under sub-heading 87041010 and not under 84305010, as contended by the applicant. The comments from the commissionerate have been communicated to the applicant. The applicant has filed a reply dated 05.03.2021 wherein they have rebutted the line of reasoning adopted by the commissioner. It is the applicant’s contention that the commissioner has selectively quoted/wrongly interpreted the exceptions to heading 8430 of the customs tariff entry as contained in the explanatory notes of the WCO. On the other hand, the applicant argues, the third paragraph of the exceptions applies to their product which is nothing but a self-propelled wheeled machine in which all the components are specially designed for each other and form an integral mechanical unit and is not a machine mounted on an automobile chassis. The applicant has further argued that the transportation of goods needs to be distinguished from movement of mined out materials over short distances within the premises of the mines. The applicant has also emphasized the restricted visibility from the cab of the truck, limited top speed etc. in support of their contention that their product is not adapted for road use. Finally, the applicant has stated that terming their product as a truck is only for the purpose of soliciting sales and use of such terminology doesn’t undermine the machinery of its mining capabilities.

4. The applicant was heard on 23.02.2021. S/Sri T. Venkateswaran, Advocate; and Atul Kale, General Manager (Logistics Operations) represented the applicant. The learned counsel explained the product design, specifications, and usage in considerable detail to substantiate their claim that the product in question is a mining machinery and not a motor vehicle. My attention was drawn to the provisions of Motor Vehicle Act, 1988 wherein a “motor vehicle” or “vehicle” is defined as any mechanically propelled vehicle adapted for use upon roads … (emphasis supplied). It was strongly argued that the proposed import, i.e., Sandvik TH 320 underground truck is not adapted for on road use, and therefore, cannot be classified under chapter 87 of the customs tariff, which is meant for motor vehicles. It was also emphasized by the learned counsel that it is important to distinguish  the term ‘transportation’ from ‘movement’ and since the intended import is only for moving mined ore/muck from the mine, it cannot be called as a vehicle for transportation of goods. During the hearing, video clips of the product in operation was shown to emphasize its limited speed, compact build, its ability to squeeze in to narrow confines of an underground mine, as well as the severely restricted visibility from the cabin of the truck making it totally unsuitable for road use. It was also stated that the underground mining truck is capable of being operated remotely. During the hearing, the applicant was asked about the source country from which they intend to import the underground mining trucks and what is the classification adopted by them before the customs authorities of other countries where such trucks are imported. The applicant informed that Sandvik TH 320 underground mining trucks are manufactured in Finland and fairly concede that they classify such underground mining trucks under chapter 87 of the customs tariff. On the request of the applicant, another hearing was held, in virtual mode, on 08.03.2021, so that the applicant can effectively put across their arguments vis-a-vis the comments offered by the commissioner. During this hearing, where S/Sri Venkateswaran, Kale, and Sanjay Bose represented the applicant, the points already contained in their original application as well as those in their letter dated 05.03.2021 were reiterated in considerable detail.

5. In India, duties of customs levied under the Customs Act, 1962 are collected in accordance with the provisions of Customs Tariff Act, 1975. The tariff act, in its first schedule, groups all commodities intended for import under 98 chapters. The design of the tariff follows the tariff classification recommended by the World Customs Organization, which has been adopted by its member countries. India also follows the classification scheme for commodities recommended by the WCO not only for import of goods, but also for domestic trade in the form of central excise duty, and to a great extent for goods and services tax. In case of doubt or disputes, the settlement mechanism is prescribed under the general rules for interpretation, which is also adopted from the nomenclature system of the WCO. The universally accepted rule is that classification shall be determined according to the terms of the headings and any section or chapter notes and not on the basis of the titles of the sections, chapters, and sub-chapters. In deciding classification of commodities in India, whether for EXIM or for domestic trade, support is often taken from the WCO’s classification system and its explanatory notes and classification advices.

6. The Harmonized Commodity Description and Coding System, generally referred to as ‘Harmonized System’ or simply ‘HS’ / ‘HSN’, is a multi-purpose international product nomenclature developed by the World Customs Organization (WCO). it comprises more than 5,000 commodity groups; each identified by a six-digit code, arranged in a legal and logical structure and is supported by well-defined rules to achieve uniform classification. The system is used by more than 200 countries and economies as a basis for their customs tariffs and for the collection of international trade statistics. Over 98 % of the merchandise in international trade is classified in terms of the HSN. The HSN contributes to the harmonization of customs and trade procedures, and the non-documentary trade data interchange in connection with such procedures, thus reducing the costs related to international trade. It is extensively used by governments, international organizations and the private sector for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring quota controls, compilation of national accounts, and economic research and analysis. The HSN is, thus, a universal economic language and code for goods, and an indispensable tool for international trade. The Harmonized System is governed by “The International Convention on the Harmonized Commodity Description and Coding System”. The official interpretation of the HS is given in the Explanatory Notes (5 volumes in English and French) published by the WCO. The importance of the HSN, in matters of classification, in the words of none other than the Hon’ble Supreme Court of India, is as follows: –

> COMMISSIONER OF CUS. & C. EX., GOA Versus PHIL CORPORATION LTD. – 2008 (223) E.L.T. 9 (S.C.):

“29. In a number of cases, this court has clearly enunciated that the HSN is a safe guide for the purpose of deciding issues of classification made under chapter 20.”

> COLLECTOR OF CENTRAL EXCISE, HYDERABAD Versus BAKELITE HYLAM LTD. – 1997 (91) E.L.T. 13 (S.C.): –

“17. Hence, for the interpretation of the new tariff, harmonised system of nomenclature and its explanatory notes are relevant. In the case of Collector of Central Excise, Shillong v. Wood Crafts Products Ltd. – 1995 (77) L.T. 23 (S.C.) = (1995 (3) SCC 452], this Court, while considering the Central Excise Tariff Act of 1985, has held that looking to the statement of objects and reasons, the central excise tariff under the 1985 act is based on the Harmonised System of Nomenclature (HSN) and the internationally accepted nomenclature has been  adopted to reduce disputes on account of tariff classification. Accordingly, for resolving any dispute relating to tariff classification, the internationally accepted nomenclature emerging  from the HSN is a safe guide, this being the expressly acknowledged basis of the structure of the Central Excise Tariff in the 1985 Act and the tariff classification made therein. In case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act.”

> COLLECTOR OF CENTRAL EXCISE, SHILLONG Versus WOOD CRAFT PRODUCTS LTD. ­1995 (77) E.L.T. 23 (S.C.):

“18. We are of the view that the Tribunal as well as the High Courtfell into the error of overlooking the fact that the structure of the Central Excise Tariff is based on the internationally accepted nomenclature found in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature  indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the LS! Glossary, which has a different purpose, cannot, in case of a conflict, override the clear indication of the meaning of an  identical expression in the same context in the HSN. In the HSN, block board is included within  the meaning of the expression “similar laminated wood” in the same context of classification  of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian  Tariff of a different intention.”

While recognizing that all the observations of the Hon’ble Supreme Court of India as reproduced above pertain to classification under central excise and not customs, the substantive line of reasoning that emerges from the aforesaid pronouncements is that when the commodity classification system is aligned with the HSN, as both customs and central excise tariff are/were, in India, HSN can be a reliable guide in determination of classification when there exists a doubt or a scope of dispute among more than one tariff entries.

7. To take a definitive view on the classification of underground mining trucks proposed to be imported by the applicant, which is designed for use in underground mines, primarily for removal of blasted ore(mucking) and moving material from extraction area to another place (tramming), it is important to look at the rival tariff entries. For the sake of clarity, both the contending tariff entries are reproduced below: –

contending tariff entries are reproduced

8. The truck (SANDVIK TH 320) is a narrow 20 metric ton truck designed for operation inside small and medium sized hard rock mines, with a max speed 27.8 km./hr. and loading weight of 20,000 kgs. The applicant has sought classification under CTH 84305010, which is reproduced above. It is seen that the CTH 843050 covers machinery which are used to perform various tasks on earth, minerals or ores. As per the HSN explanatory notes, this heading covers machinery, other than the self-propelled machines of heading 84.29, for “attacking” the earth’s crust or for preparing or compacting the terrain (e.g., scraping, levelling, grading, tamping, or rolling). It is seen from the detailed list of activities given in the explanatory notes that they are in the nature of activities undertaken in such a manner that the earth, minerals and ores are ‘affected’. The earth or ores etc. are either scraped, or compacted or levelled etc. These activities materially impact and unsettle the earth, minerals and ores. However, the specific product under consideration in this application is not designed or intended for use in such activities. They are admittedly built to be used in mines, but not for tasks such as grading, levelling, scraping, excavating, tamping, compacting etc.

9. The principal use of SANDVIK TH320 trucks is movement of goods, by way of mucking (removal of blasted ore) and tranning (moving  material from extraction area to another place). The functions of removal and movement of material, prima facie, would fall under the purview of ‘transport of goods’ and not under ‘mining machinery’. It is, therefore, necessary to evaluate an alternate heading that would more appropriately cover the product under consideration. Goods whose primary function is transport of goods are covered under chapter 87. More specifically, I find that CTH 8704, which is reproduced in a preceding paragraph, covers motor vehicles for transport of goods. CTSH 870410101 covers dumpers designed for off-highway use. Further classification under subheadings is on the basis of pay load capacity.

10. The HSN explanatory notes under CTH 8704 state that the heading covers, inter alia,

  • Dumpers – sturdily built vehicles with a tipping or bottom opening body, designed for the transport of excavated or other materials. These vehicles, which may have a rigid or articulated chassis, are generally fitted with off-the-road wheels and can work over soft ground. Both heavy and light dumpers are included in this group; the latter are sometimes characterised by a two-way seat, two seats facing in opposite directions or by two steering wheels, to enable the vehicles to be steered with the driver facing the body for unloading.
  • Shuttle cars – vehicles used in mines to transport coal or ore from the hewing machinery to the conveyor belts. They are heavy, underslung vehicles, equipped with tyres and fitted with internal combustion piston engines or electric motors.

Thus, the above heading clearly covers goods in the nature of motor vehicles used for transport of goods, including those used for off-road purposes. Vehicles used for transport of excavated or other materials, and those used in mines to transport coal or ore from the hewing machinery to the conveyor belts, are explicitly covered under CTH 870410. In view of the above explicit prescription, the exceptions listed in the HSN explanatory notes under heading 8430, on which the applicant has placed reliance, has no application in the present proceedings. it also appears that there is a general practice internationally to classify similar products under chapter 87 instead of chapter 84. Products, which are very similar in design, specifications, and usage; manufactured by companies like Hitachi and Caterpillar, have been classified under heading 8704 in United States Customs Cross Rulings.

11. The applicant has contended that the provisions of the Motor Vehicle Act do not include vehicle of a special type designed/intended for use only in a factory or in any other enclosed premises, and that goods used majorly in underground enclosed premises cannot be classified as a motor vehicle, and hence, 8704 heading is not applicable. According to the applicant: –

  • These goods are advertised as mining machines, and hence, perception of customer is as mining machines; and
  • These machines would not be used for transport of goods on public road, on account of the restricted visibility from the cab/operation console and limited speed.

12. I have carefully examined these contentions. The question of referring to the provisions of Motor Vehicle Act or any other statute would arise only when the terms of the tariff headings leave some ambiguity. As per rule 6  of the general rules for the interpretation of import tariff, 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 sub­heading notes and, mutatis mutandis, to the above rules. Thus, the terms of the tariff headings and sub-headings is the primary determinant of classification. Having established this, the next question to ask is – do the terms of the tariff headings leave any scope for doubt? The answer to that question, without any doubt, is in the negative. As explained above, the heading 8704, clearly and explicitly covers motor vehicles used for transport of goods (which would also include excavated or other materials) and those used in mines to transport coal or ores. The terms of the heading also state that vehicles designed for “off-highway use” are covered CTH 870410. The relevant HSN explanatory notes also make the above position clear. The notes mention that the vehicles falling under CTH 870410 ‘are generally fitted with off-the-road wheels and can work over soft ground; ‘are used in mines to transport coal or ore from the hewing machinery to the conveyor belts; ‘are heavy, underslung vehicles, equipped with tyres and fitted with internal combustion piston engines or electric motors.’

14. Thus, the terms of the tariff headings and the accompanying explanatory notes leave no doubt that vehicles that transport goods, but are off-road vehicles are covered under CTH 870410. In the event, there is no necessity to refer to the provisions of Motor Vehicle Act or to the product positioning in the advertisements of the supplier. It cannot be the case that extraneous criteria can take precedence over the terms of tariff headings and HSN explanatory notes. Even though the applicant has strenuously attempted to distinguish between the terms ‘Transport’ and ‘Movement’, for the purpose of the present proceedings, considering the explanatory notes, I do not think there is any warrant to delve deep into such differentiation.

15. In fact, the HSN explanatory notes even elaborate that the goods under sub-heading 8704.10 can generally be distinguished from other vehicles for the transport of goods by the characteristics such as limited speed and area of operation, special earth-moving tyres, payload and that certain dumpers are specially designed for working in mines or tunnels.

16. I have given due consideration to the case laws relied cited by the applicant. In the case of Bolani Ores [1974 SCC (2) 777], it appears that the Hon’ble Apex Court was faced with the question as to whether dumpers, rockers, tractors were required to be registered/liable to be taxed. The subject matter of the said litigation, as surmised above, have no relevance to the issue before me. Even the advance ruling in the case of Samsung India doesn’t come to the aid of the applicant in so far as the classification ruling sought by the applicant can be clearly settled based on the chapter notes and the explanatory notes, and therefore, there is no real reason to go into the question of market parlance or general perception. I may add here though, as an aside, that had I been required to go into the realm of popular parlance/perception, the issue would still have been debatable considering the fact that the product is advertised/marketed as a truck for moving ore/muck. The decisions cited to drive home the settled proposition of law that a specific heading would prevail over a general heading actually undermine the applicant’s case in so far as in the present proceedings, it is proved beyond an iota of doubt that underground mining trucks are not actually used in core mining functions, and on the other hand, are used for the ancillary functions of mucking and tramming. Therefore, the heading 8704 is a more specific entry for such trucks instead of heading 8430, as contended. I am unable to agree with the applicant’s contention that in case of competitive headings, the heading beneficial to the assessee shall prevail because of my clear finding that in this case the issue is not as contentious as it has been made out to be and that based on the chapter/ HSN explanatory notes, classification of underground mining truck can be established without the aid of more rigorous legal tools. The ratio of the decision of the Hon’ble Tribunal in the case of Chief Engineer, Ground Water Department [Mumbai 2011 (5) TMI 605] and the Hon’ble Orissa High Court in the case of Orissa Mining Corporation (MANU/OR/0024/1978) have no application in the facts of the present proceedings in view of the explicit mandate of the HSN explanatory notes that, ‘vehicles used in mines to transport coal or ore from the hewing machinery to the conveyor belts, which are heavy, underslung, equipped with tyres and fitted with internal combustion piston engines or electric motors………. ‘; are classifiable under heading 8704.

17. To sum up, the goods under consideration in this application are meant for movement/transport goods, carrying relatively high payloads, albeit over short distances within the premises of small and medium sized mines. They are not meant for working the earth. The terms of heading 870410 and the accompanying chapter notes/HSN explanatory notes squarely cover the said goods. Therefore, I do not find any merit in the applicant’s contention of the goods not being motor vehicles as the functional and design feature of the goods answer the requirements of CTH 870410, as discussed above. In light of the foregoing legal provisions, product features and usage and discussions, I rule that underground mining trucks, one example of which is the SANDVIK TH 320, is classifiable as motor vehicles for transport of goods designed for usage in restricted conditions like a mine, under 8704 1010.

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