Madras High Court Sets Aside Orders Over Inzi Controls Air & Oil Filter Classification, Remands Matter

The Madras High Court on 8 September set aside appellate orders concerning the classification of air and oil filters manufactured by Inzi Controls India Limited and remanded the matter to the appellate authority for fresh consideration.

A Bench of Justice Senthilkumar Ramamoorthy passed the order in a batch of petitions filed by Inzi Controls, which manufactures air and oil filters supplied to automobile companies. The company had classified the filters under Chapter 84, while the Tax Department treated them as motor vehicle parts under Chapter 87. He held:

“It is pertinent to recall that the primary contention of the petitioner was that the relevant HSN Note to Chapter 87/Section XVII lays down three conditions to be cumulatively satisfied for classification of goods or parts under Chapter 87. This contention was not engaged with in the impugned orders.”

Inzi Controls had contended that the relevant HSN Notes prescribe three conditions that must be cumulatively satisfied before goods can be classified under Chapter 87. It argued that its filters did not satisfy two of these conditions and were excluded from Chapter 87, while being specifically covered under Heading 8421.

The Tax Department had classified the filters under Chapter 87 on the ground that they were intended for use in automobiles. The appellate authority relied mainly on the intended use of the filters and the decisions in Westinghouse Saxby and Hanon Automotive Systems.

Inzi Controls had also relied on earlier Supreme Court judgments and a 2022 instruction issued by the Central Board of Indirect Taxes and Customs (CBIC) on examination of such classification disputes. The High Court noted that the appellate authority had not considered these authorities or the company's specific contention concerning the cumulative conditions under the HSN Notes.

The Court clarified that it was not deciding whether the filters should ultimately be classified under Chapter 84 or Chapter 87. It was examining whether the tax authority had properly considered the company's contentions while deciding the classification.

Finding a flaw in the decision-making process, the Bench set aside the appellate orders and remanded the matter to the appellate authority for fresh consideration. It also directed the authority to give Inzi Controls a reasonable opportunity of hearing and pass fresh orders within six months.

For the Petitioner/Inzi Controls India Limited: G. Natarajan

For the Respondents: I. Dinesh, Additional Government Pleader (Tax), and R. Sethu Prabakaran, Government Advocate (Tax)