CESTAT Chennai Quashes ₹14.88 Crore Customs Duty Demand Against Toyota Kirloskar Auto Parts

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai has set aside a ₹14.88 crore customs duty demand against Toyota Kirloskar Auto Parts Pvt. Ltd.

It held that transmission gears imported by the company are classifiable as "gears and gearing" under the Customs Tariff and cannot be treated as motor vehicle parts merely because they are ultimately used in manufacturing vehicles.

Holding that the imported goods were specifically classifiable as "gears and gearing" under the Customs Tariff, the tribunal said a specific tariff entry would prevail over the competing entry for motor vehicle parts.

Judicial Member Ajayan T.V. and Technical Member M. Ajit Kumar allowed Toyota's appeals after finding that the imported goods answered the specific description of "gears and gearing" under the Customs Tariff.

The bench rejected the department's argument that the goods should be classified as motor vehicle parts because they were designed for Toyota vehicles and were eventually used in rear axle assemblies and gearboxes.

The tribunal held that the imported goods retained their identity as gears and gearing despite their eventual use in manufacturing rear axle assemblies or gearboxes. It said their end use in motor vehicles, by itself, could not justify classifying them as motor vehicle parts.

The dispute began after the Directorate of Revenue Intelligence alleged that Toyota had wrongly classified imports including Final Gear Kits, Differential Gears, Pinion Gears and Side Gears, resulting in a short payment of customs duty.

Customs authorities consequently raised a demand of ₹14.88 crore along with interest, ordered confiscation of the goods, imposed a redemption fine and levied penalties on the company and two of its senior officials.

While examining the classification issue, the tribunal said the Customs Tariff, Section Notes, Chapter Notes and the HSN Explanatory Notes were the primary guides. It found that the supplier's classification, foreign customs rulings, trade parlance and the eventual use of the goods could not override the specific tariff entry applicable to the imported goods.

In reaching this conclusion, the bench relied, among other decisions, on Hero MotoCorp Ltd. v. Commissioner of Customs and JTEKT Sona Automotive India Ltd. v. Commissioner of Customs, which recognised that goods specifically covered as transmission components cannot be reclassified merely because they are used in motor vehicles.

Having concluded that the goods were correctly classifiable as "gears and gearing", the tribunal set aside the ₹14.88 crore customs duty demand, the interest, confiscation, redemption fine and the penalties imposed on Toyota and its officials.

It also dismissed the Department's appeal seeking an additional penalty against the company, observing that once the proposed reclassification failed, the consequential penal proceedings could not survive.

For Appellants (Toyota Kirloskar Auto Parts Pvt. Ltd. and its officials): Advocates T. Viswanathan, Rohan Muralidharan,Yogesh

For Respondent/Revenue (Commissioner of Customs): C. Dhanasekaran, Authorised Representative