In a recent decision, the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) ruled that assembling imported television parts constitutes “manufacture,” entitling the applicant to reduced customs duty rates under the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.
The case started in September 2017 when the assessee-manufacturer, Bossh Technology, filed an application to import television parts with the intent of assembling them domestically, aiming to qualify for concessional duty rates under Notification No. 68/2017-Cus. This notification is designed to promote local manufacturing by offering reduced duty rates for components used to make finished goods within the country.
However, the customs authorities denied the application on October 9, 2017, arguing that the components were imported in a form that the Assistant Commissioner termed “semi-knockdown condition.” According to the customs authorities, the parts were already nearly fully assembled, and thus the final assembly process did not amount to manufacturing. Their position was based on the view that assembling these parts did not create a “new product” with distinct characteristics, which they argued was necessary to meet the exemption’s definition of manufacture.
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The assessee, disagreeing with this interpretation, appealed the decision to the Commissioner (Appeals), who sided with the applicant. The Commissioner noted that the company had previously received similar exemptions for imported components under comparable conditions and emphasized that the components were imported individually, not in a semi-knockdown format. The Commissioner (Appeals) found that the assembly of the parts domestically did, in fact, create a functional television, which could be considered a distinct product under the rules governing manufacturing. The Commissioner deemed the customs authority’s grounds for rejection unsubstantiated, particularly given that the manufacturer had regularly qualified for similar concessions under the former Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. The Commissioner concluded that the customs authorities had, without evidence, assumed that the parts were in semi-knockdown condition and, therefore, wrongfully denied the application.
Despite this ruling, the customs department filed an appeal with CESTAT, insisting that the assembly did not meet the standard of manufacturing.
The customs representatives reiterated that under Rule 2A of the General Rules of Interpretation of Import Tariff, any item imported in a semi-knockdown state would be classified the same as a fully assembled item, arguing that no new product was created during the assembly process.
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The assessee’s counsel, however, strongly disputed these claims, maintaining that the parts were imported individually and in no way represented a semi-knockdown condition. The counsel further argued that several components were domestically sourced, supporting the position that the final assembly constituted genuine manufacturing. Additionally, it was argued that assembling a television from individual parts, which included components such as display panels, circuit boards, and various wiring and housing components, transformed these parts into a new product that could be classified separately from its individual elements.
After hearing both parties, the CESTAT bench of Mr Raju and Mr Somesh Arora reviewed the list of imported parts and assembly steps. The tribunal found that the components included items such as LED display panels, circuit boards, remote sensors, and various connectors, all of which were individually imported and required extensive assembly. The tribunal noted that the manufacturer had provided a detailed breakdown of the assembly process, including the mounting of displays, wiring of sensors, installation of speakers, and final software upgrades.
CESTAT ultimately agreed with the Commissioner (Appeals), affirming that these assembly steps sufficiently transformed the imported parts into a new product with distinct features and functionality—a fully operational television. The tribunal held that the assembly process met the definition of manufacturing under the customs rules, thereby qualifying the manufacturer for the concessional duty rate.
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In its decision, CESTAT dismissed the customs department’s appeal, finding no merit in the argument that the imported parts were in a semi-knockdown state.
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