Auto AC Parts Like Filters, Valves Must Be Classified Under Specific Tariff Heads, Not General ‘Parts of Air Conditioners’: CESTAT [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that parts used in automobile air conditioners, like filters and water valves, must be classified under their specific tariff headings and not under the general category of “parts of air conditioners.”

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Motherson Bergstrom HVAC Solutions Pvt Ltd, the appellant, is engaged in importing and manufacturing parts for automobile air conditioning systems. Between August 2018 and October 2020, the appellant imported items such as blowers, filters, water valve assemblies, control panels, and thermostats and classified these under specific tariff headings while paying customs duty.

The customs department issued show cause notices arguing that these goods should be classified under the general heading for “parts of air conditioners” and not under the various specific headings used by the appellant. The Principal Commissioner of Customs passed an order accepting the department’s view and demanded differential duty with interest, though the confiscation and penalty proposed were dropped. Aggrieved by this order, the appellant approached the CESTAT.

The appellant’s counsel argued that under Note 2(a) to Section XVI of the Customs Tariff, parts that are themselves identifiable goods under Chapters 84 or 85 should be classified under their respective headings, even if they are used in air conditioners.

They referred to Supreme Court decisions clarifying that Note 2(b), which allows classification under the parent machine, applies only if Note 2(a) is not applicable. They argued that since the products like blowers and filters were covered under their specific headings, classifying them under the general heading “parts of air conditioners” was incorrect.

The department’s counsel argued that the imported goods were used solely in automobile air conditioners, and hence, should be classified under the general heading for “parts of air conditioners” under CTI 8415 90 00. They argued that Note 2(b) applied because the goods were designed specifically for air conditioners in vehicles.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that Note 2(a) requires that parts that are themselves identifiable goods under Chapters 84 and 85 should be classified under their specific headings, even if used in specific machines, and that Note 2(b) could only be applied if Note 2(a) did not apply.

The tribunal found that the goods imported by the appellant, including blowers, filters, and thermostats, were clearly identifiable under specific headings and should be classified accordingly rather than under the general heading for “parts of air conditioners.”

The tribunal set aside the Principal Commissioner’s order and allowed the appeal, ruling that the goods should be classified under their specific tariff headings and that the demand for differential duty with interest was unsustainable.

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