Determination of Applicability of Chapter Heading 7318 or 8714 on Metal Parts used in Automotive Sector based on General or Specific Use

Determination Of Applicability Of Chapter Heading (CH) 7318 Or 8714 On Metal Parts Used In Automotive Sector On The Basis Of General Use Or Specific Use

INTRODUCTION:

Goods made of iron or steel are generally covered under Chapter Heading 73 while same goods made of iron or steel may be classified under Chapter Heading 87 if the goods of iron or steel becomes parts or accessories of vehicles, however, the right classification can only be decided on conjoint reading of Chapter Heading 7318 and Chapter Heading 8714 in the light of Notes 2(b) and (3) of Section XVII & Note 2(a) of Section XV.

Chapter 7318 specifically covers the words ‘nut, bolts etc.’ while Chapter 8714 covers “Parts and Accessories of Vehicles” which may include ‘nut, bolt’ also. Section XV deals with ‘base metals and articles of base metal’ while Section XVII deals with ‘vehicles, aircraft, vessels and associated Transport equipment’.

LEGAL POSITION:

Chapter heading 7318 & Chapter Heading 8714 provides as under:.

“Chapter Heading 7318- Screws , bolts , nuts , coach – screws , screw hooks , rivets , cotters , cotter – pins , washers ( including spring washers ) and similar articles , of iron or steel”

Chapter Heading 8714– parts and accessories of vehicles of headings 8711 to 8713

Nut bolts which are classified by name under chapter heading 7318 may also form part of vehicles of headings 8711 to 8713. To clarify the dilemma of classification, we need to study the relevant Notes of section XVII, which are provided as under:

“Section XVII: VEHICLES, AIRCRAFT, VESSELS AND ASSOCIATED

TRANSPORT EQUIPMENT

Notes:

“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 :

xxx                xxx

(b) Parts of general use, as defined in Note 2 to Section XV, of base metal (Section XV), or similar goods of plastics (Chapter 39);”

“3.References in Chapters 86 to 88 to ‘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 of accessory.”

Note 2(a) of section XVII refers to Note 2 of section XV, language of which is provided as under:

“SECTION XV: BASE METALS AND ARTICLES OF BASE METAL NOTES:

2. Throughout this Schedule, the expression “parts of general use” means:

(a) articles of headings 7307, 7312, 7315, 7317 or 7318 and similar articles of other base metal;”

Interpretation:

On reading Note 2(b) of section XVII in the light of Note 2(a) of section XV, it is quite clear that section XVII which is applicable to Vehicles shall not apply to parts of general use falling under Chapter Heading 7318. Here ‘parts of general use’ becomes a deciding factor.

On reading Note (3) of Section XVII, it becomes quite clear that references to ‘parts’ or ‘accessories’ in Chapters 86 to 88 are made to those parts or accessories only which are suitable for use solely or principally for vehicles only. The Principal use of the goods matters for determination of correct chapter heading. Note 3 of Section XVII makes it very clear that where any goods falls under more than one chapter heading, chapter heading corresponding to the Principal use shall be the right classification.

General Use Vs. Specific Use- Note 3 indicates the importance of distinction of ‘general use’ & ‘specific use’ for the determination of the right classification. Parts or accessories which are discussed under section XV are meant to be covered under Chapter Heading 7318 and Parts or accessories which are discussed under Note 2(b) of section XVII are meant to be covered under Chapter Heading 8714 and are two exclusively different parts or accessories. One covered under Chapter Heading 7318 are meant for general use and the other covered under Chapter Heading 8714 are meant for use solely or principally for vehicles.

To further simply, parts or accessories which have no use other than vehicles are meant to be covered under Chapter Heading 8714. If they can be used for general purpose, they are to be classified under Chapter Heading 7318.

‘General Use’ indicates that parts are manufactured not keeping special purpose in mind. They are manufactured and can be used anywhere they gets fitted. The goods which are specifically manufactured on the basis of some drawing, these cannot be considered goods of ‘general use’.

Judicial Position:

These concepts have been discussed in detail in the light of Section XV & Section XVII in the supreme court judgments of G.S. Auto International Ltd. Versus Collector of C. Ex., Chandigarh, 2003 (152) E.L.T. 3 (S.C.) which was subsequently affirmed in Cast Metal Industries (P) Ltd. Versus Commissioner of C. Ex.-IV, Kolkata, 2015 (325) E.L.T. 471 (S.C.).”

In G.S. Auto International Ltd. Versus Collector of C. Ex., Chandigarh, 2003 (152) E.L.T. 3 (S.C.) at point No. 26, the Supreme Court has very lucidly explained the relevant notes under Sections XVII and XV:

26. A conjoint reading of the Notes, referred to above, would show that the expression “parts of general use” throughout the Schedule, means, inter alia, articles of Heading No. 73.18 and similar articles of other base metal; and the expression ‘part and accessories’ in Chapter Heading 87.08 does not apply to parts or accessories which are not suitable for use solely or primarily with articles of Chapter Heading 87.08 which pertains to parts and accessories of motor vehicles of Chapter Heading Nos. 87.01 to 87.05. For the purposes of classification under Chapter Heading 87.08, the test to be applied is: whether the goods are suitable for use solely or primarily with articles of Chapter Heading Nos. 87.01 to 87.05; if the answer is in the affirmative, the goods will be classifiable under Chapter Heading 87.08, but if the answer is in the negative, they would have to be classified under Chapter Heading No. 73.18. Having regard to the finding that the goods in question cannot but be regarded as parts of automobiles, it has to be held that they are suitable for use primarily with articles of Chapter Heading Nos. 87.01 to 87.05. It follows that the goods in question cannot be treated as falling under Chapter Heading No. 73.18 and that they can properly be classified under Chapter Heading No. 87.08 of the Central Excise Tariff Act, 1985

Conclusion: By reading Note 2(b) of section XVII read with Note 2(a) of Section XV, the expressions ‘parts’ and ‘parts and accessories’ are not applicable to the Parts of general use covered under Heading No. 7307, 7312, 7315, 7317 or 7318 and similar articles of other base metal and Note 3 of Section XVII clarifies that the expressions ‘parts’ and ‘parts and accessories’ under Chapters 86 to 88 do not apply to those ‘parts’ and ‘parts and accessories’ which are not suitable for use solely or principally with the articles of those Chapters(86 to 88) or which can be classified under more than one heading and the principal use shall determine the classification.

To further summarise, the goods which are suitable for use solely or principally in automotive industry, principal use, i.e. in automotive sector, shall determine the classification and Note 2(a) of Section XV cannot protect the goods from being classified under Chapter 87.

‘Parts of general use’ under Note 2(a) of Section XV covers those Parts which are not meant solely or principally for automotive industry, rather can be used in areas other than automotive industry as well. In that case, we can classify our goods under Chapter 7318.Goods specifically manufactured for automotive industry on the basis of drawing received from the prospective buyer is meant or principally for automotive industry, therefore, classifiable under Chapter 8714.

Advocate Reeta Garg