Goods imported in completely knocked down (CKD) condition are complete goods or just a conglomeration of parts—that is the question in customs . It has been so for long . Judging from the number of decisions given by the Tribunal this year and every year and considering the several High Court and Supreme Court judgements also, the issue needs some introspection in totality which this treatise proposes to do . Issues are two. First issue is if the goods in CKD/SKD condition are complete goods or not, when some parts are not there. Second, there are always exemptions for goods imported in CKD condition or as parts. The question arises about the applicability of exemption. Similar problem is there in Central Excise also but here we are dealing only with Customs.
The general principle that is applicable on these two issues is given in the statutory rules called General Rules for the Interpretation of this Schedule. The Schedule refers to both the Customs and Central Excise Schedules. The concerned Rule 2(a) says that when incomplete goods are presented before customs for clearance and they have the essential character of complete goods, they have to be classified as complete goods. We shall examine the different issues involved with reference to judicial decisions.
If all the parts are presented in CKD condition and they have the essential character of a complete article, they have to be assessed as complete article. This has been held in the case of Procal Electronics India Ltd. v. Commissioner - 2005 (185) E.L.T. A58 (S.C.)]. Here the Supreme Court agreed to the Tribunal and the Revenue holding that once the goods are imported in CKD condition and presented before Customs as such the goods are classifiable as complete electronic calculator.
Goods imported separately cannot be clubbed together as discussed in the following cases. The Tribunal in the case of P.R. Trivedi vs. CC - 2005 (192) E.L.T. 801 (Tri. - Mumbai) held that if the goods are imported and presented by different importers they cannot be allowed to be treated as complete car cassette player. Even if they are imported by the same importer but in different consignments, they still do not become complete article since they are not presented together as a complete article in CKD condition, held the Supreme Court in the case of C.C., Delhi vs. Sony India-2008(231)ELT385(SC).
If some non-essential items are not present in the CKD pack, the latter can still become complete article as ruled in the case of Galaxy Agencies vs.C.C.E–2009(239)ELT478(Tri.) And in the case of Bayerische Motoren -2006 (193) E.L.T. 138 (A.A.R.), the AAR held that Motor cars imported in CKD units without seats have to be treated as complete cars.
But if the parts missing are essential, the CKD pack cannot constitute a complete article. The Tribunal in the case of Wipro Ge Medical vs. CC, - 2006 (202) E.L.T. 141 (Tri.) held that the CKD pack does not constitute a complete scanning machine because it did not contain parts like probes, monitor and keyboard assemblies. Simply the essential parts do not make a complete article.
A CKD pack containing all the parts to make a car will be classified as a car for basic customs duty under the Schedule but the exemption for components (as in exemption notification No.29/83-Cus) will also be admissible if the exemption is specific for CKD parts. CC vs. Maestro Motors Ltd. vs. 2004(174)ELT289(SC).
The conclusion is the following:
Rule 2(A) stipulates that if all the parts are presented in CKD condition and they have the essential character of the complete article, they have to be assessed as complete article. Goods imported separately cannot be clubbed together because they are not presented as one CKD pack at the time of import. If some non-essential items are not imported, the CKD pack can still become complete article. But if the parts missing are essential, the CKD pack cannot constitute a complete article. Issue arises which is essential and which is non-essential. This is a matter of fact and has to be decided in each case. Simply the essential parts do not make a complete article. Board has issued a circular No.55/95-Cus dated 30.5.1995 (F. No.528/42/95-Cus.(TU) which is quite outdated. It is high time a new circular is issued.