#TaxmannPPT | Customs Rate Changes in Budget 2022 & Classification Disputes on Automobile & Railway

WEBINAR – CUSTOMS RATE CHANGES & CLASSIFICATION DISPUTES

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CUSTOMS TARIFF PROPOSALS BY BUDGET 2022 ©NITYA Tax Associates. All Rights Reserved

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RE-ALIGNMENT OF CUSTOMS DUTY STRUCTURE

Budget Speech Comprehensive review of existing 400 Customs Duty exemptions in near future

BCD increased on several goods

More than 350 entries of Customs Tariff amended w.e.f. 1.1.2022 to align with WCO

BUDGET 2021

BUDGET 2022 BCD on several goods increased, minimal additional exemptions

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AIDC imposed and BCD reduced to same extent

Re-alignment of entire Customs Tariff w.e.f.

1.5.2022, corresponding exemptions being removed

Increase in BCD of several machines to promote domestic manufacturing

PROJECT IMPORTS Project Imports

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▪ BCD on goods imported under Project Imports Scheme increased to 7.5% in a phased manner:

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Particulars

Effective Duty

Projects registered till September 2022 and imports made till September 2023

Existing duty to continue

Projects registered till September 2022 and imports made till October 2023

7.5%

Projects registered post September 2022 and imports made at any time

7.5%

CLARIFICATION ON SWS EXEMPTION SWS exempt if Customs Duty is exempt

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▪ Circular issued clarifying exemption from SWS where Customs Duty exempt ▪ In line with Excise and Service Tax Circulars that since EC and SHEC are levied and collected as a percentage of various primary taxes, thus EC and SHEC will be Nil where basic duty / tax is Nil ▪ Contrary to Unicorn Industries (SC Larger Bench) ruling Cesses shall be payable even when BCD / Excise duty is exempt ▪ Department had started raising disputes in cases of AA exemptions, FTA exemptions, exempt products like healthcare etc

Refund of SWS where BCD paid through scrips?

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CUSTOMS TARIFF PROPOSALS

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▪ Apparel and clothing accessories, knitted or crocheted fabrics under specified headings to attract Ad-valorem rates only. Corresponding exemption of SWS also withdrawn ▪ Exemption on machineries used for leather, textile and handloom industry withdrawn from April 1, 2022 / April 1, 2023 Textile, Leather and Handloom Industry

▪ BCD exemption on specified goods allowed to bonafide manufacturer exporters: ➢ Handicraft items - Decorative paper, photo frames ➢ Footwear and other leather products - Buttons, buckels, locks ➢ Garments - Lining and inter-lining material, inlay cards, fasteners

Changes proposed in Customs Tariff and all exemption Notifications merged

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CUSTOMS TARIFF PROPOSALS ▪ Scrap of iron or steel including stainless steel to attract 2.5% BCD effective April 1, 2023

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▪ Removal of Anti Dumping Duty on following items:

Iron and Steel Industry

Item description

Exporting Country

Straight length bars and Rods of Alloy Steel

China PR

High Speed Steel of Non-Cobalt Grad Flat rolled products of Steel (Aluminum or Zinc Coated)

China PR, Brazil and Germany China PR, Vietnam and Korea RP

▪ Exemption (full or partial at rate of 5%) withdrawn from specified drugs, medicines, diagnostic kits or equipment under Chapter 28, 29 or 30 Drugs and Pharmaceuticals

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▪ Drugs or medicines under Chapter 30 or Heading 9804 used for treatment of rare diseases when imported by specified Centre of Excellence given exemption

CUSTOMS TARIFF PROPOSALS ▪ BCD on parts of smart watches, hearing devices and smart meters to be increased in a phased manner

Electronic gadgets

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▪ BCD on camera lens used for manufacture of Camera module for Mobile phones reduced to 2.5%

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▪ Tariff rate on photo voltaic cells not assembled in modules or made up into panels increased to 25% from April 1, 2022 Solar Panels ▪ Tariff rate on photo voltaic cells assembled in modules or made up into panels increased to 40% from April 1, 2022 ▪ EV kit eligible for duty benefits available to CKD form even if each individual component in the kit is not in disassembled form EV Sector ▪ Concessional rate of duty available to CKD / SKD kits even if some components are missing in the EV kit

SUNSET FOR CONDITIONAL EXEMPTION Conditional exemptions to have automatic expiry

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▪ Section 25(4A) states that every conditional Notification shall be valid till March 31 falling after end of 2 years of issuance of Notification ▪ Notifications in force on March 28, 2021 to remain valid till March 31, 2023

▪ Mega Exemption Notification amended to prescribe validity till March 31, 2023 and March 31, 2024 for different goods ▪ Explanation inserted in several specific Notifications – to be valid till March 31, 2023

All other conditional Notifications to expire on March 31, 2023?

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CLASSIFICATION DISPUTES IN AUTOMOBILE & RAILWAY PARTS ©NITYA Tax Associates. All Rights Reserved

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REASON OF DISPUTE

8708, 8714

Parts and accessories of motor vehicles of Headings 8701 to 8705

BCD – 15% GST – 28%

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Other Headings

Specific other headings of other Chapters like Electrical parts, machinery parts, Control units etc

BCD – 7.5-10% GST – 18%

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IMPACT OF DISPUTE

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Manufacturer / Importer

Distributor

Retailer

Excise

6 or 12.5%

No impact

No Impact

GST

18 or 28%

18 or 28%

18 or 28%

End Customer

NOTES TO SECTION XVII Section XVII - Vehicles, Aircraft, Vessels and Associated Transport Equipment

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Rule 1 of GIR

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

Titles only for ease of reference Classification to be determined as per Heading, Section and Chapter Notes GIR to be followed provided such Headings or Notes do not otherwise require

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Note 1 ……….

a) b) c) d) e)

Vulcanised rubber (Heading 4016) …

Machine and apparatus of Heading 8401 to 8479…

Electrical machinery or equipment (Chapter 85) Articles of Chapter 90

Note 3. References in Chapters 86 to 88 to “parts” or “accessories” do not apply to ones not suitable for use solely or principally with articles of those Chapters. If any gets cover in 2 or more headings of those Chapters, to be classified under heading corresponding to its principal use

CLASSIFICATION OF RELAYS Westinghouse (SC)

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▪ GIR applicable only when classification not determinable from Headings and relevant Section or Chapter Notes

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▪ SC relied on Note 3 of Section XVII to hold that parts suitable for use solely or principally with an article in Chapter 86, cannot be taken to different Chapter ▪ Relays classifiable under Heading 8608 basis their predominant or sole or principal use

8608

8536

Mechanical (including electromechanical) traffic signaling equipment of all kinds…

Electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits (including …relays)

HSN EXPLANATORY NOTES

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Three conditions need to be cumulatively satisfied for classification as “parts or accessories”

Condition (a)

Condition (b)

Condition (c)

Must not be excluded by Note 2 to Section XVII

Must be suitable for use solely or principally with Articles of Chapter 86 to 88

Must not be more specifically included elsewhere

*‘Explanatory Notes’ to Harmonised Commodity Description and Coding System lay down interpretation to internationally accepted Harmonised System of Nomenclature code (‘HSN’) for goods 15

DEPARTMENT INSTRUCTION Instruction No. 1/2022-Customs dated January 5, 2022 ▪ Westinghouse Ruling is Fact Specific, cannot be generalized

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▪ Applicable only to ‘relays’ used in railway signaling equipment i.e. goods of Chapter 86 and not parts under Chapter 87

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▪ SC Judgement pronounced in the context of Central Excise Tariff Act of year 1994, and not Customs Tariff Act ▪ Direction to classify various parts of Section XVII appropriately by considering all facts, details of individual cases and all decisions on the subject

JURISPRUDENCE ON CLASSIFICATION ©NITYA Tax Associates. All Rights Reserved

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JURISPRUDENCE ON CLASSIFICATION ▪ Contesting Heading were 8708 and 9401

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Seat Parts (Shiroki Auto Components, SC)

▪ CESTAT classified seat parts under Heading 9401 being specifically covered by nomenclature and excluded by Note 2 to Section XVII ▪ SC dismissed appeal filed by revenue, did not discuss Westinghouse

▪ Contesting Heading were 8708 and 7318 Fasteners (GS Auto, SC)

▪ SC relied on Note 3 of Section XVII to hold that parts suitable for use solely or principally with an article in Chapter 87, cannot be taken to different Chapter ▪ Fasteners were classified under Heading 8708 ▪ Contesting Headings were 8708 and 3926

Emblems (Pragati Silicon, SC)

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▪ SC classified the emblems under Heading 8708

JURISPRUDENCE ON CLASSIFICATION ▪ Contesting Heading were 8708 and 9031

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Instrumental Clusters (Premier Instrument, SC)

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▪ CESTAT classified instrument clusters under Heading 8708 since goods did not find any mention in Chapter 90 ▪ SC confirmed the CESTAT’s order and clusters were classified under Heading 8708

▪ Contesting Heading were 9032 and 8543 (8708 will also be relevant)

Electronic Automatic Regulators / ECU (Keihin Penalfa, SC)

▪ CESTAT classified goods under Heading 8543 as the impugned goods did not satisfy HSN Explanatory Notes to heading 9032.

▪ SC reversed CESTAT order, held that goods are to be classified under Heading 9032 only since they satisfy description

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