ABS Components 'Suitable for Use' in Motor Vehicles: CESTAT Denies Concessional Customs Duty [Read Order]

In a recent ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, held that components imported for the manufacture of Anti-lock Braking Systems (ABS) are “suitable for use” in motor vehicles and are consequently denied the benefit of concessional customs duty under Notification No. 50/2017-Cus.

M/s. Continental Automotive Brake Systems (India) Private Limited, the Appellant, manufactures ABS and brake sensors for automobile manufacturers. The Appellant imported components such as ABS Motors and Pressure Transducers during the period from April 2021 to September 2022, availing a concessional rate of duty under Sl. No. 485A and 581B of Notification No. 50/2017-Cus. The Department denied this exemption, contending that the goods were “suitable for use” in motor vehicles and therefore excluded from the concession. A demand of Rs. 7.24 Crores along with interest and penalty was confirmed, and the Pressure Transducers were re-classified under CTH 90318000 instead of 90262000.

The Appellant argued that the imported components were not directly usable in motor vehicles and could only function after being incorporated into an ABS unit. They contended that the term “suitable for use” required the goods to be “actually, practically, and commercially fit” for use, which their components were not at the time of import. The Appellant also challenged the classification of the Pressure Transducers, arguing they should fall under CTH 90262000, and challenged the levy of interest and penalty on IGST, citing the retrospective applicability of Section 3(12) of the Customs Act.

The Coram of Ms. Binu Tamta (Member Judicial) and Mr. P.V. Subba Rao (Member Technical) observed that exemption notifications must be strictly construed against the assessee. The Tribunal noted that the legislature used the phrase “suitable for use” rather than “directly used,” indicating a broad intention to exclude all goods capable of use in motor vehicles.

Regarding the “part of part” doctrine, the Tribunal relied on precedents such as Pushpam Forging and Hyundai Unitech Electrical Transmission Ltd., holding that since the imported goods were parts of the ABS, which is itself a part of a motor vehicle, they fell within the exclusion clause of the notification. The Tribunal found that the goods were specifically designed and imported for use in the manufacture of ABS for vehicles, thereby making them “suitable for use” in motor vehicles.

The Tribunal observed:

“If the intention of the legislature was to exclude only those goods which were to be used directly in motor vehicles, nothing restrained them from providing the expression, ‘all goods other than those directly for use in motor vehicles’, however such an expression would have given a very narrow and restricted operation but since the legislature intended to give a broad expression to exclude all sorts of goods which are suitable/capable for use in motor vehicles, the phrase has deliberately used the word ‘suitable’.”

On the issue of classification, the Tribunal upheld the classification of Pressure Transducers under CTH 90318000, noting that the Appellant themselves had declared the goods under this heading in the Bills of Entry for the disputed period.

However, regarding the levy of interest and penalty on IGST, the Tribunal followed the decision of the Bombay High Court in A.R. Sulphonates Pvt. Ltd. Vs. Union of India. It held that the amendment to Section 3(12) by the Finance Act, 2024 (dated 16.08.2024) was prospective in nature. Consequently, no interest or penalty could be levied on IGST demands for the period prior to this date.

The Tribunal affirmed the demand for differential duty but set aside the levy of interest and penalty on IGST for the period prior to 16.08.2024. The Tribunal ruled partly in favour of the Revenue, affirming the classification and duty demand while granting relief on the penalty and interest regarding IGST based on the prospective application of the Finance Act, 2024.

The CESTAT partly allowed the appeal, affirming the duty demand and classification but setting aside the interest and penalty levied on the differential IGST for the period prior to 16.08.2024.

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