Customs Can Levy Duty On Modular Kitchens, Not Re-Determine Value Arbitrarily: CESTAT Chennai

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that customs duty is applicable to imports of modular kitchens in CKD/SKD condition, but the declared transaction value cannot be rejected or enhanced merely on the basis of a weight-based comparison or administrative valuation guidelines.

The bench, consisting of Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao, examined whether the Department was justified in rejecting the declared transaction value of modular kitchen imports solely on the basis of derived weight-based comparisons and administrative valuation benchmarks, despite the absence of evidence that the relationship between the importer and its foreign joint venture partner had influenced the price.

The dispute related to imports of modular kitchen components in CKD/SKD condition by Aran Kitchen World (India) Pvt. Ltd. during August 2008 to December 2013 from its foreign joint venture partner.

The imports were examined by the Special Valuation Branch to determine whether the relationship between the parties influenced the declared prices under Rule 3(3) of the Customs Valuation Rules, 2007.

Out of 72 Bills of Entry, the Department rejected the declared value in 11 consignments by comparing derived “per-kilogram” values with earlier imports and sought to re-determine value using contemporaneous imports and DGOV furniture benchmarks, while accepting the declared value in the remaining consignments.

The Commissioner (Appeals) had set aside the value enhancement, holding that modular kitchens are not furniture and that weight-based valuation is impermissible.

Challenging this, the Department argued before the Tribunal that modular kitchens are essentially complete kitchen units classifiable as furniture under Heading 9403.40 and that, once so classified, DGOV furniture valuation guidelines must apply.

The Tribunal partly disagreed with the Commissioner (Appeals) on classification and clearly held that modular kitchens imported in CKD/SKD condition are movable goods at the time of import and squarely fall within Chapter 94, including Heading 9403.40 covering wooden kitchen furniture.

The bench stated that,

"..classification under the Customs Tariff is required to be determined at the time of importation and in the condition in which the goods are imported. The goods in the present case are imported in CKD/SKD condition as modular kitchen components consisting of cabinets, panels, shutters, drawers, cases and fittings. They are movable goods at the time of importation and are capable of being bought and sold as such. The subsequent act of installation at site does not determine their tariff classification."

It ruled that subsequent installation or fixation at the site is irrelevant for customs classification and that Chapter Note 2 to Chapter 94 expressly includes unit furniture designed to be fixed to walls. Consequently, the Tribunal confirmed that customs duty is leviable, treating modular kitchens as furniture.

However, on valuation, the Tribunal held that classification under Chapter 94 does not automatically justify value enhancement, and that DGOV guidelines cannot override Section 14 of the Customs Act, 1962 and the Customs Valuation Rules, 2007.

The bench opined that the comparison undertaken was internal, between different consignments of the same importer across different periods, without establishing that the goods compared were identical or similar in all material respects.

The bench held that,

"modular kitchens imported in CKD/SKD condition are classifiable under Chapter 94 as furniture; however, the DGOV furniture guidelines cannot override provisions of Section 14 of the Customs Act, 1962 or the provisions of the Customs Valuation Rules, 2007."

"the acceptance of the declared value in the remaining Bills of Entry is consistent with Rule 3(3)(a) of the Customs Valuation Rules, 2007", added the Tribunal.

Accordingly, while confirming that duty applies to modular kitchens by classifying them as furniture under Chapter 94, the Tribunal dismissed the departmental appeals.

Appearances:

For Appellant: Authorised Representative, Sanjay Kakkar

For Respondent: None