Vijay Singh Chauhan

1. Brief facts: M/s. Volvo Auto India Private Limited, having IEC No. 0509035621 and PAN-AADCV0346E, have filed an application dated 26-4-2022, received in this office on 27-4-2022, seeking advance ruling under Section 28H of the Customs Act, 1962 before the Customs Authority for Advance Rulings, New Delhi (CAAR, New Delhi in short). On scrutiny, the application was found to be in order as per CAAR Regulations, 2021 and accordingly the application was registered under Serial No. 9/2022, dated 27-4-2022.

2. The applicant, vide the aforesaid application, has sought ruling by CAAR, New Delhi on the question -of classification of IMPORTED ELECTRIC VEHICLE KITS' and eligibility of the import for S. No. 526A(1)(a) of the mega exemption notification, thereby qualifying for 15% BCD rate for the kits".

3. The details of the proposed business model of the applicant is as below:

3.1 The applicant plans to import Volvo passenger Electric Vehicle (EV) in knocked down condition from overseas manufacturing plant of Volvo Group. Different models of electric vehicle kits may be imported by them, from time to time, which include front-wheel drive as well as all-wheel drive variants, along with rear-wheel drive variants that may be imported in due course of time. All major parts/sub-assemblies constituting one electric vehicle kit would be imported from a single plant.

3.2 Prior to import into India, the vehicles would be semi-assembled at Volvo plants located outside India for quality check purpose. However, the assembly is not completed at the said plant as certain parts and final operating software are not installed in the vehicle. Therefore, the vehicle remains unfinished and is not marketable and road worthy. Post quality check, the vehicles would be disassembled into various sub-assemblies for import into India. Thereafter, these disassembled vehicle kits comprising of various sub-assemblies would be shipped to India.

3.3 Completely Knocked Down Kits will consist of various separately identifiable parts, components and sub-assemblies. The electric vehicle kit comprising of different parts or sub-assemblies would be imported in a single consignment or in proximity to each other. Certain liquids and small replacement hardware i.e. nuts and bolts will be imported as separate unit loads.

3.4 Post import to India, the applicant would undertake assembly of knocked down kits of electric vehicles into complete vehicles through a contract manufacturer. The locally assembled vehicles will thereafter be sold to customers.

4. The applicant has detailed out the disassembly operations of the vehicle outside India, manner of import and re-assembly operations in India, which are described in the following paragraphs:

4.1 In order to ensure the highest standards of quality and to avoid any manufacturing defect, these vehicles will be semi-assembled at Volvo Group plants (outside India at their respective manufacturing location). At the assembly site, the essential components are assembled and thereafter, various car-systems are verified to avoid any manufacturing defect. However, the assembly of vehicle will not be completed at the said site as parts namely, rear seats, rear bumper will not be assembled at the site. Further, final operating software is also not installed in the vehicle. These semi-assembled vehicles are unfinished and hence, not marketable and road worthy.

4.2 After thorough verification and testing, once all quality parameters of Volvo India are satisfied, the semi-assembled vehicles would be disassembled into various sub-assemblies. The photograph of the level of disassembly for specific Volvo electric vehicle model, XC 40 BEV, for import into India is attached as under as Exhibit A.

4.3 Disassembled parts of the vehicle are shipped as CKD kits to India consisting of various identifiable parts, components, and sub-assemblies. The vehicle would be broken down into approximately 105 parts/sub-assemblies, which are standalone and not attached to each other or any other parts, components or assembly. Going forward, the number of parts in which the vehicle is broken could increase. The details of these sub-assemblies are captured below:

4.4 In addition to parts mentioned in Category A and B above, approximately 70 other sub-assemblies or parts would be disassembled from the main body/chassis for the purpose of import into India. The complete list of approximately 105 sub-assemblies or parts to be imported as part of the kit for specific Volvo electric vehicle model, XC 40 BEV, is attached with the application. Kit part number together with VTN-number create full identification and trackability for the parts of one vehicle.

4.5 For import, the applicant will place purchase order on Volvo overseas plant for procurement of vehicle kit (not for specific parts) and invoice would be raised for the electric vehicle kit, comprising of all subassemblies/parts.

4.6 The knocked down kit comprising of approximately 105 subassemblies/parts would primarily be imported in a single consignment. The parts/sub-assemblies of a kit could be packed in different containers but would form part of the same import consignment.

4.7 In exceptional cases, due to logistical and business considerations, there could be a scenario, wherein one or more parts/sub-assemblies could be imported in a separate consignment through the same port. However, such import would be in close proximity to the remaining sub-assemblies/parts of the electric vehicle kit and the relevant electric vehicle kit, to which it pertains would be clearly identified. A complete co-relation of the quantities would also, be maintained in case of such parts/sub-assemblies imported in close proximity.

4.8 The import documentation (packing list, bill of lading, etc.) would also capture description of imports as knocked down kit. The item wise details of all the parts, sub-assemblies constituting the kit would be captured in the packing list for each container. Further, the applicant wishes to highlight that certain one-time usage parts such as nuts and bolts will be imported as separate unit loads.

4.9 On arrival into India, the applicant shall file a bill of entry for import clearance of the electric vehicle kit, comprising of all sub-assemblies/parts, at the customs port. The applicant would be the importer on record for such vehicles and would discharge the customs duty on such imports.

4.10 The assembly of electric vehicles would be undertaken at the manufacturing plant of Volvo Group India Private Limited on contract manufacturing basis.

4.11 The assembly line will consist of approximately 9 assembly stations, 1 media filling station and 6 inspection and verification stations. The imported electric vehicle kits would be moved through the stations in a sequential order and each of these assembly and verification stations comprise of trained manpower as well as capital machineries for undertaking the process. A high-level overview of the various stations and manufacturing process is enclosed:

(i) Power pack station 1 and 2: At first, various sub-assemblies such as traction motor package pre-assembly, on-board charger, inverted power control unit, AC compressor are assembled at this station.

(ii) Pallet 1 arid 2: Here, the chassis is dressed/assembled using the various parts/sub-assemblies such as front sub-frame, battery pack etc.

(iii) Marriage point 1 and 2: At this point, body is mounted on top of the chassis.

(iv) Trim 1-3: Various sub-assemblies such as bumper, rear seats, door panels, etc. are assembled on the body at this station.

(v) Media filling station: Then the assembled unit is moved to this station where coolant fluid, brake fluid, air conditioning, etc. would be added in the respective parts of the vehicle.

(vi) SIP/SWDL: At the end, various checks are performed on the assembled unit like process quality, software verification and parameter setting.

(vii) Wheel Alignment: In this station, wheel angles like toe-in, toe-out and castor angles are set as per the technical requirements.

(viii) Head lamp adjustment: Here the head lamp beam angles are checked and if required adjustment will be done as per the technical requirements.

(ix) CAL (Customer Acceptance Line): Here the complete electric vehicle will be inspected with all the static function tests.

(x) Test track: After completion of inspection, vehicle will be driven in test track, where dynamic functional checks along with squeak and rattling checks will be done.

(xi) FHC (Final Health Check): After completing all the other test procedures, FHC would be performed where all the electrical tests are checked before making car factory complete.

(xii) Product Audit: After FHC, few cars will be randomly picked and checked for product quality with reference to audit manual.

The details of the manufacturing footprint have been enclosed with the application. If the assembled vehicle will pass all the tests/checks, it would be considered to be factory complete.

5. The applicant has further detailed out the legal framework for customs classification and duty rate on import of vehicle kits, as below:

5.1 The applicant understands that customs duty rate on import is based on the classification of goods under the First Schedule to the Customs Tariff Act, 1975. In terms of the said schedule, passenger motor vehicles (including electric vehicles) are classifiable under Chapter 87 - 'Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof. Relevant entry (4-digit level) for classification of passenger cars is produced below. Relevant entry (4-digit level) for classification of passenger cars is produced below:

5.2 Since imports by the applicant are in the form of electric vehicle kits comprising of unassembled/disassembled sub-assemblies or parts, it is important to refer to Rule 2(a) of the General Rules for Interpretation ('GRT) to First Schedule, which outlines principles for determining classification. The said rule provides that if an unassembled or disassembled article exhibits essential character of the finished article at the time of presentation to customs, the said article shall be classifiable as finished article. Therefore, based on this rule, disassembled or unassembled vehicle kits may be classifiable under Tariff Entry 8703, provided they exhibit essential characteristics of complete vehicle at the time of import. Relevant extract of Rule 2(a) of GRI reads as under:

"Rule 2(a)

Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished articles has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled."

5.3 Further, the customs duty on import of motor vehicles in India varies on the basis of level of breakdown/disassembly at the time of import. In this regard, Mega Exemption Notification, which extends concessional duty for import of various goods, also extends concessional BCD rates for import of motor vehicles. The said notification was amended vide Notification No. 3/2019-Customs : , dated 29 January, 2019, to extend concessional rate of BCD on electric vehicles classifiable under Chapter 8703.

5.4 In order to bring clarity on the scope of exemption for import of knocked down kits of electric vehicles, the relevant entry for electric vehicles classifiable under Chapter 8703 in the Mega Exemption Notification, has been substituted vide Notification No. 2/2022-Customs : dated 1 February; 2022 (revised exemption notification). Therefore, with effect from 2 February, 2022, the entry for electric vehicles classifiable under Chapter 8703 in the Mega Exemption Notification.

5.5 Further, in this respect, the relevant extract of the TRU Circular D.O.F. No. 334/01/2022-TRU, dated 1 February, 2022, explaining the amendment made in the exemption entry is reproduced below:

"The entries at S. No. 525, 526A and 531A of Notification No. 50/2017 : , dated 30-6-2017 provide the BCD rates on various forms of electric vehicles. Certain representations were received from the trade and field formations about the scope of these entries. Consequently, these entries have been revised, in order to remove the doubts that have arisen about the scope of these entries. The revised entries at S. Nos. 525, 526A and 531A of Notification No. 50/2017 : , dated 30-6-2017 are now self-explanatory. It is to reiterate that this is a clarificatory change only With no change in the applicable BCD rates on various forms of E-vehicles. [S. Nos. 138, 139, 140 of Notification No. 2/2022-Customs :, dated 1st February, 2022 refers]"

5.6 Therefore, based on the above-mentioned exemption entry, the rate of BCD on import of electric vehicle is dependent upon the level of breakdown/disassembly at the time of import as under:

(i) Incomplete or unfinished electric vehicle, imported as knocked down kit containing necessary sub-assemblies, including 'battery pack, motor, motor controller, charger, power control unit, energy monitor, contactor, brake system, electric compressor' (hereinafter referred to as '9 specified sub-assemblies'), with none of these interconnected with each other and not mounted on a chassis, attracting 15% BCD.

(ii) Incomplete or unfinished electric vehicle, imported as knocked down kit containing necessary sub-assemblies, including 9 specified sub-assemblies, with any of the sub-assemblies inter-connected with each other, but not mounted on chassis, attracting 30% BCD.

(iii) Import in any other form attracting 100%/60% rate of BCD depending upon the CIF value.

5.7 Further, based on the reading of the explanation introduced in the relevant entry for electric vehicle (Chapter 8703), it is clear that even if some of the components required for assembling an electric vehicle are not imported, the benefit of concessional BCD rate would still be available if the kit, as presented, is classifiable under Heading 8703. The Explanatory Memorandum to Finance Bill, 2022 ('the memorandum') also clarifies that even if some components are missing in the electric vehicle kit, the benefit of concessional rate of duty would still be available, provided that the kit as presented has the essential character of an electric vehicle. The relevant extract of the memorandum reads as under:

"Certain clarificatory amendments have been made to entry Nos. 525, 526A and 531A of Notification No. 50/2017 : , dated 30-6-2017, in order to bring clarity about the scope of exemptions in relation to imports of completely knocked down/semi knocked down forms (CKD/SKD) of electric vehicles (EV) (including commercial, passenger and two-wheeled electric vehicles). These amendments clarify that for an EV kit to be eligible for the duty benefits available to a CKD form of an EV, each individual component in the kit need not be in a disassembled form. Further, it has been clarified that even if some components are missing in the EV kit, the benefit of concessional rate of duty available to CKD/SKD kits would still be available provided that the kit as presented has the essential character of an EV."

5.8 The applicant further submits that graded duty slabs of BCD rates based on level of breakdown, have' been prevalent for ICE vehicles for a long time, specifically mentioned on the Serial No. 526 of the Mega Exemption Notification.

6. The concerned Commissioner of Customs, Chennai II (Import) vide their letter dated 13-7-2022 has submitted his comments on the subject matter, which are as under:-

6.1 In respect of the classification of product under discussion, it has been submitted that the relevant CTH at 4 digit level CTH 8703 covers motor vehicles of various types (including amphibious motor vehicles) designed for the transport of persons; it does not, however, cover the motor vehicles of Heading 8702. The vehicles of this heading may have any type of motor (internal combustion piston engine, electric motor, gas turbine etc.) While referring, to the General Rules 2(a), it is mentioned that the imported goods, if all the parts are presented in CKD conditions and the goods have essential character of complete goods, they have to be classified as complete goods. Goods imported separately cannot be clubbed together because they are not presented as one CKD pack at the time of import. If all the parts are presented in CKD condition and they have essential character of a complete article, they have to be assessed as complete article [as held in case of Procal Electronics India Pvt. Ltd. v. Commissioner - 2005 (185) E.L.T. A58 (S.C.)]. It is seen from the packing list (Exhibit-A) that the CKD list consisting of listed parts are giving essential characteristics of motor vehicles. If these items are brought together, they can be classified under Heading 8703. In view of the above the electric vehicle kits proposed to be imported are classifiable under CTH 8703 of the first schedule to the Customs Tariff Act, 1975.

6.2 In respect of question of eligibility of Notification No. 50/2017 : Sr. No. 526A, the concerned Commissionerate has submitted that the electric vehicle proposed to be imported should constitute necessary components, parts or subassemblies, for assembling a complete vehicle, including the above mentioned 9 specified sub-assemblies, whether or not individually pre-assembled. It would be eligible for BCD at the rate of 15% if none of the above components, parts or subassemblies are inter-connected with each other and are not mounted on a chassis. In view of the above, the goods if imported into India by the applicant as presented in Exhibit A would be eligible for the Sr. No. 526A(1)(a) at 15%.

7. Thereafter, date for Personal Hearing was fixed for 13-7-2022. The Authorized Representative for the applicant, Shri Vikram Nankani, Senior Advocate, attended the personal hearing on the said date, i.e. 13-7-2022. He started by explaining the provisions under the relevant notifications and the graphic description given in the application as to what way the imported goods would look like. Shri Nitin Agarwal and Shri Rajeev Dimri gave the background of the case and explained the nature of the goods to be imported. They reiterated their view on the classification and eligibility of the notification for the product in question, as submitted in the written application.

8. In addition to the above, the applicant vide their letter dated 25-7-2022 submitted their reply on the comments received from the Commissioner of Customs, Chennai-II, wherein they have inter alia concurred with the comments of the said Commissioner of Customs. They further added that in exceptional cases, due to logistics and business considerations, one or more parts of a kit may have to be imported in a separate consignment through the same port, while majority of the parts of the said electric vehicle kit would still be imported in one consignment. Even in such a case, all imports pertaining to one vehicle would be made in close proximity to each other and the relevant electric vehicle kit, to which it pertains would be clearly identified. All the cases of proposed import of vehicle kit, a single invoice will be issued for one electric vehicle kit (not for specific parts). Further, the overall factual paradigm as indicated in the application would also remain consistent, as all the items constituting a kit, including one or more parts imported separately, would be offered/presented together for customs clearance and would have essential character of complete vehicle.

9. In view of the same, finding that the application is valid in terms of the provisions of the Customs Act and the CAAR Regulations, 2021, having heard the applicant, I allow the application as per Section 28-1(2) of the Customs Act. Further, recognizing the importance of timely pronouncement of rulings, I proceed to examine the question posed for advance rulings on merits.

10. The applicant has approached this Authority seeking ruling on the following questions:

(i) Whether the electric vehicle kits proposed to be imported are classifiable under Tariff Entry No. 8703 of the First Schedule to Customs Tariff Act, 1975

(ii) Whether the electric vehicle kits proposed to be imported by the applicant would be eligible for exemption under sub-category (a) of Serial No. 526A(1) of the Mega Exemption Notification and qualify for 15% BCD rate

11. The first question relates to the classification of the "Electric Vehicle Kits" of Volvo brand passenger vehicles. The salient features of the said kits have been detailed above and in the interest of brevity not being reproduced here again. It is however, noted that the kits as presented to be customs in India will consist of various separately identifiable parts, components and sub-assemblies, which would have been assembled in the foreign plant before export and subsequently disassembled for the purposes of transport. The vehicle assembled abroad would have acquired the essential characteristics of passenger vehicle, though clearly not reached the complete stage to be road worthy. Having gone through the list of parts, components, sub-assemblies that are proposed to be shipped as part of the kits, as detailed in Para 4.3 above, I hold that the kits together have acquired the characteristics of a EV motor car. I also note the fact that certain parts, which are defined as one-time usage parts in the nature of bolts, nuts, screws, oils and lubricants will be imported as separate unit loads and it would not materially impact the classification of the EV vehicle kits.

12. For determining the classification of the aforesaid EV vehicle kits, I consider the relevant headings of Chapter 87 of the Schedule 1 to the Customs Tariff Act, 1975. In the said Chapter, motor cars and other motor vehicles principally designed for the transport of persons [other than those of 87.02 (covering motor vehicles for transport of ten or more persons, including the driver) including station wagons and racing cars, fall under Heading 8703; whereas parts and accessories of the motor vehicles of Heading Numbers 87.01 to 87.05 fall under Heading 8708. This heading includes electrically operated vehicles, with different sub-headings, wherein the EV vehicles would be classifiable depending on various features, including seating capacity and engine size.

13. For determining the appropriate classification of goods being imported as kit comprising the items mentioned in the packing list referred to above, reliance needs to be placed on Rule 2(a) of the General Rules for Interpretation of Import Tariff (GIR in short), which provides that, "any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished articles has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled." In the instant case, the applicant has stated that they will be importing kits of passenger cars and it is also settled, if all the parts are presented in knocked down condition and they have the essential character of a complete article, they have to be assessed as complete article, in terms of said Rule 2(a) of GIR. I find that in the present case, the motor vehicles are initially assembled at site to-a substantive extent for thorough verification and testing, then disassembled and imported in form of a kit. Therefore, notwithstanding the fact that at the initial assembling stage, they have not acquired the completeness of a car to be roadworthy, these kits have acquired the essential characteristics of motor vehicle to merit classification under-Heading 8703, noting that they are principally designed for the transport of persons, numbering less than ten persons. In coming to this conclusion, I have relied inter alia on my Ruling No. CAAR/Del/Volvo/19/2021, dated 10-9-2021 in the case of M/s. Volvo Auto India Private Ltd. : 2022 (379) E.L.T. 513 (A.A.R. - Cus. - Del.)]. In this regard, I also note that the question relating to classification of the EV vehicle kits posed for advance ruling is sufficiently answered holding that they are classifiable under Heading 8703 at four-digit level. Before proceeding further to discuss the second. question, I wish to refer to the additional submission made by the applicant vide letter dated 25-7-2022, wherein it has been mentioned that in exceptional cases, due to logistics and business considerations, one or more parts of the kit may have to be imported in a separate consignment through the same port, while majority of the parts of the said electric vehicle kit would still be imported in one consignment, and even in such case, all imports pertaining to one vehicle would be made in close proximity to each other and the relevant electric vehicle kit, to which it pertains would be clearly identified. I agree with the submission of the applicant that even in such exceptional cases, the classification of the electric vehicle kit would not be impacted and would Heading 8703.

14. I now take up the second question relating to the effective rate of duty applicable on the EV vehicle kits under Notification No. 12/2012-Customs :, dated 17-3-2012, which has since been replaced by the Notification No. 50/2017-Customs : , dated 30-6-2017, as amended. The relevant Entry No. 526A in the said Notification No. 50/2017-Customs : is reproduced below:-

15. I find that the above entry covers all electric vehicles falling under Heading 8703. Further, given the form in which the vehicle kits in disassembled form will be presented before the customs, the question before me narrows down to whether the said vehicle kits being imported by the applicant would be covered under the sub-category (a) or (b) of the S. No. 1, which covers 'Electrically operated vehicles, if imported, - incomplete or unfinished, as a knocked down kit containing necessary components, parts or sub-assemblies for assembling a complete vehicle, including battery pack, motor, motor controller, charger, power control unit, energy monitor, contactor, brake system, electric compressor, whether or not individually pre-assembled'. Since S. No. 2 categorises complete (i.e. other than incomplete or unfinished electric vehicles) on the basis of price, the same is not relevant to answer the question posed for advance ruling.

16. Moving forward, I find that the further sub-categorization under (a) or (b) of S. No. 1 of the aforesaid notification and eligibility for the lowest rate of 15% duty is based on the state of assembly, i.e., none of the above components, parts or sub-assemblies are inter-connected with each other and not mounted on a chassis. I find that the applicant has clearly stated that the Electric Vehicle CKD kits to be imported by the applicant consist of approximately 105 parts/sub-assemblies, which are standalone and not attached to each other or any other parts, components or assembly. They have also added that going forward, the number of parts in which the vehicle is broken down could increase. Further, these components and parts are not mounted on a chassis or a body assembly. Therefore, I find that these CKD kits, as described in the application submitted before this Authority will fall under sub-category 1(a) and attract effective rate of BCD of 15%. This view has also been concurred with by the concerned Commissioners of Customs. The eligibility for the said benefit would not be impacted in the exceptional cases referred to by the applicant vide letter dated 25-7-2022 and discussed in Para 13 above.

17. In view of the above, I rule as under:

17.1 The Electric Vehicle kits, as described by the applicant in the disassembled state and presented together as a kit merits classification under Heading 8703; and

17.2 The aforesaid Electric Vehicle kits are covered under S. No. 526A(1)(a) of Notification No. 50/2017-Cus. : dated 30-6-2017 and therefore presently eligible for 15 percent rate of BCD applicable thereon.