Parts suitable for use solely or principally with aircraft are classifiable under Chapter 88, as the 'suitability for use' test under Note 3 of Section XVII overrides the general exclusion of electrical equipment under Note 2(f) of Section XVII.

PER : DR. D.M. MISRA

This appeal is filed against Order-in-Original No.38/2021 dated 29.01.2021 passed by the Commissioner of Customs, Airport & Air Cargo Complex, Bangalore.

2. Briefly stated facts of the case are that the appellant are engaged in the activity of manufacture, repair and overhaul of aircrafts, helicopters and their parts supplied to Indian Air Force. In carrying out the said activity, the appellant had imported “Digital Video Recorders” (DVR for short) from M/s. BAE Systems (Operations) Ltd. UK (BAE, for short) against 13 Bills of Entry during the period 17.07.2019 to 07.02.2020 declaring its classification under CTH 88033000 and discharged duty @ 3% BCD, 10% SW surcharge and 5% IGST. Alleging that the imported goods had been wrongly classified as parts of aircrafts, investigation was initiated by the Department by recording the statement of the Chief Manager (Stores) of the appellant and collecting evidences in this regard. On completion of the investigation, show-cause notice was issued to them on 27.08.2020 proposing classification of the imported DVR under CTH 85219090 and demanding differential duty of Rs.9,45,13,368/- in respect of the 13 Bills of Entry filed during the said period along with interest and proposal for penalty. On adjudication, the learned Commissioner directed reclassification of the product under CTH 85219090, confirmed the differential duty along with applicable interest and dropped the penalty proceedings. Hence, the present appeal.

3.1. At the outset, the learned advocate for the appellant has submitted that the appellant are engaged in the manufacture, repair and overhauling of aircrafts, helicopters and aircraft/helicopter parts which are used and operated by the Indian Air Force under the control of the Ministry of Defence. Appellant imported DVRs solely designed for use in Hawk Military Aircraft during the period July 2019 to February 2020 classifying the same under CTH 88033000 discharging applicable duty. The said DVRs were procured through BAE who is the licensor for the Hawk Military Aircraft and these DVRs are mounted in the cockpit and record the pilot view along with symbolagies (the displays as seen by the pilot).

3.2. Assailing the impugned order classifying the product under CTH 85219090, he has submitted that the learned Commissioner has relied upon the Note 2(f)of Section XVII and the General Note (III) to Section XVII of the HSN Explanatory Notes in classifying the product under CTH 85219090 observing that two conditions in the General Note (III) are not satisfied. He has submitted that all the three conditions in General Note (III) are satisfied in the present case viz. DVRs are not excluded by Note(II). Further, he has submitted that Note (II) cannot be read in isolation. It has to be read along with Note 3 to Section XVII which requires a part or accessory which answers to more than one heading need to be classified according to its sole or principal use. This ensures that the DVRs classifiable as part or an accessory of aircraft only. He has submitted that DVRs are solely and principally used in the aircraft and this fact has not been disputed in the impugned order. It is his contention that since DVRs are not classifiable under Tariff Item 8521 as they are not specifically included elsewhere in the HSN, the only classification that is possible is CTH 88033000. The classification arrived at by the Department is a residual entry within residual entry; hence, it is contrary to the principle of law laid down in Indian Metals & Ferro Alloys Ltd. Vs CCE [1991(51) ELT 165 (SC)].

3.3. It is his contention that the classification adopted by the appellant is correct inasmuch as they have adopted the principle of “sole or principal user test” which is applicable in the present case. In support, he has referred to the following judgements:-