CESTAT Chennai Upholds Toyota's Classification Of Nine Imported Sensors, Sets Aside Reclassification

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld Toyota Kirloskar Motors Pvt. Ltd.'s classification of nine imported sensors as thermistors, gas-analysis apparatus, measuring or checking instruments, motor-vehicle parts and electrical apparatus.

“The goods have to be classified in the condition in which they are imported, having regard to their objective characteristics and function,” the tribunal observed.

It also held that where the Revenue seeks to depart from an importer's declared classification, the burden of establishing the proposed classification rests on the Revenue.

A coram comprising Judicial Member P. Dinesha and Technical Member M. Ajit Kumar heard Toyota's appeals against an order passed by the Commissioner of Customs (Import), Chennai.

The dispute arose from a Directorate of Revenue Intelligence (DRI) investigation into Toyota's imports of various sensors from its group companies.

The investigation covered imports between January 2019 and June 2023. The Department alleged that the same part numbers had been classified under different Customs Tariff Headings, resulting in short-payment of customs duty.

The tribunal considered three temperature sensors, namely Exhaust Gas Temperature, Water Temperature and Inlet Air Temperature sensors. It upheld Toyota's classification of these goods as thermistors.

The Department had proposed classifying them as measuring or checking instruments. The tribunal found that the sensors contained thermistors whose electrical resistance changes with temperature, while the resulting signal was transmitted to the vehicle's electronic control unit (ECU) for further processing.

It held that the Department had not produced technical evidence showing that the imported assemblies themselves converted or calibrated the signal into a temperature value. The subsequent processing of the signal by the ECU did not change the intrinsic function of the imported sensor.

The tribunal also upheld Toyota's classification of the Oxygen, Air-Fuel Ratio and Nitrogen Oxide sensors as gas-analysis apparatus. These sensors used electrochemical cells to determine the concentration of constituents in exhaust gas.

The transmission of the resulting signal to the ECU did not alter their analytical function. Since the tariff specifically covered gas-analysis apparatus, the residual heading proposed by the Department could not be preferred.

The Brake Pedal Sensor Assembly was upheld as a measuring or checking instrument. It detected the position and movement of the brake pedal and generated an electrical signal, but did not itself apply braking force or regulate the braking system.

The Retainer Ultrasonic Sensor was classified as a motor-vehicle part. The tribunal found it to be a specially moulded plastic retainer designed to hold an ultrasonic sensor inside a vehicle bumper. The Revenue had not established that it was a general-purpose plastic mounting.

For the Speed Sensor, the tribunal accepted Toyota's classification as electrical apparatus. The sensor detected changes in the magnetic field caused by wheel rotation and converted them into digital pulses. The ECU then processed those signals to determine wheel speed.

The tribunal also set aside the proposed reclassification of 36 sensors under Section 28 of the Customs Act where no differential duty had been demanded. It held that Section 28 could not be used merely to change the classification of completed assessments where there was no duty recovery involved.

Toyota's claims for alternative Free Trade Agreement benefits covering four sensors were remanded for fresh consideration. The tribunal also set aside the ₹18,474 differential IGST demand relating to two items.

On four other sensors, the tribunal accepted Toyota's limitation plea. It held that wrong classification alone was insufficient to invoke the extended limitation period without evidence of collusion, wilful misstatement, or suppression of facts with intent to evade duty.

The extended-period demand was set aside, while any normal-period demand remained governed by the original order.

The tribunal also set aside the confiscation, fine and penalties. It held that no interest was payable on the IGST portion of the demand for the period involved.

For Appellants: T. Viswanathan; Rohan Muralidharan; Shobana Krishnan; Anagha Ramadas

For Respondent: Anoop Singh, Authorized Representative