MARCH 26, 2024

By Mr P Sridharan, Advocate and Senior Advisor, M2K, Chartered Accountants

CLASSIFICATION under the Harmonised System Nomenclature in India has always been a cat and mouse game between the importers and Customs; more so in the case of classification automobile components. Battle lines sharpened with the introduction of GST with Revenue finding a new found use for a practically forgotten SC decision in the GS Auto International [2003-TIOL-92-SC-CX] matter.

Then Westinghouse Saxby [2021-TIOL-121-SC-CX-LB] happened opening the flood gates and the test to be applied for classification under 8708 is the 'sole and principal use'. Luckily wiser counsels prevailed, and instructions were issued to field formations to respect the Section Notes, HSN ENs and a slew of other Supreme Court decisions and not to be guided only by Westinghouse Saxby alone.

No sooner did the industry start breathing freely, when the Tribunal Delhi intervened in the M/s Continental Automotive Brake Systems India Private Limited¹ matter, where they were deciding the classification of Electronic Control Units (ECUs) for use in the manufacture of Electronic Stability Systems (ESCS) used in motor vehicles. Tribunal came to the conclusion that neither the Anti-lock Braking Systems (ABS) nor the ESCS manufactured, or the ECU imported by the appellant can be classified under CTH 9032, thus approving classification of the ECUs under CTH 8708.

This decision will have wider ramifications for the Auto industry as a whole as Revenue will be getting ready to issue demands in all cases of imports of ECUs, ESCSs or even ABSs placing reliance on the Tribunals observations. It is therefore necessary to place the issue in the right perspective so that the industry is ready to meet the challenge from Revenue, which will be as certain as night follows day.

The crux of the Hon'ble Tribunal decision could be gathered from the following conclusion of the Tribunal.

In our considered view, neither the ABS nor the ESCS manufactured, nor the ECU imported by the appellant can fit into Section Note 7 (b) by any stretch of imagination. Since Section Note 7 makes it explicit that CTH 9032 applies only to such goods which fall under (a) or (b), ECU gets clearly excluded from CTH 9032.

I would like to emphasise that it is not the intention of the author to pick holes in the decision of the Hon'ble Tribunal. But having seen the submissions and findings, one gets the inescapable feeling that all facts were not on the table.

What is an ESC?

The Electronic Stability Control, ESC or ESP, is an on-board car safety system, which enables the stability of a car to be maintained during critical manoeuvring and to correct potential under steering or over steering ²

ESC is defined as under ³

The agency adopts the ESC definition based on the Society of Automotive Engineers (SAE) Surface Vehicle Information Report J2564 (revised June 2004). ESC is defined as a system that has all of the following attributes:

(a) ESC augments vehicle directional stability by applying and adjusting the vehicle brake torques individually to induce a correcting yaw moment to the vehicle.

(b) ESC is a computer controlled system, which uses a closed loop algorithm to limit vehicle oversteer and to limit vehicle understeer. [The closed loop algorithm is a cycle of operations followed by a computer that includes automatic adjustments based on the result of previous operations or other changing conditions.]

(c) ESC has a means to determine the vehicle's yaw rate and to estimate its sideslip slip or side slip derivative with respect to time. [Yaw rate means the rate of change of the vehicle's heading angle about a vertical axis through the vehicle center of gravity.

Sideslip is the arctangent of the ratio of the lateral velocity to the longitudinal velocity of the center of gravity.]

(d) ESC has a means to monitor driver steering input.

(e) ESC has an algorithm to determine the need, and a means to modify engine torque, as necessary, to assist the driver in maintaining control of the vehicle.

(f) ESC is operational over the full speed range of the vehicle (except at vehicle speeds less than 15 kph (9.3 mph) or when being driven in reverse).Functional Characteristics of ECU:

B. FUNCTIONAL REQUIREMENTS ⁴

The ESC system is required to comply with following functional requirements:

(a) The ESC system must have the means to apply brake torques individually to all four wheels and a control algorithm that utilizes this capability.

(b) The ESC must be operational during all phases of driving including acceleration, coasting, and deceleration (including braking), except when the driver has disabled ESC, the vehicle speed is below 15 km/h (9.3 mph), or the vehicle is being driven in reverse.

(c) The ESC system must remain capable of activation even if the antilock brake system or traction control system is also activated.

B. How ESC Prevents Loss of Control ⁵

The following explanation of ESC systems illustrates the basic principle of yaw stability control, but actual systems include countless refinements and proprietary algorithms that make them practical for the range of circumstances and roadway conditions encountered by drivers. For example, actual ESC systems augment the yaw rate control strategy described below with the consideration of vehicle sideslip (lateral sliding that may not alter yaw rate) to determine the optimal intervention.

When the ESC system detects an imbalance between the measured yaw rate of a vehicle and the path defined by its steering wheel angle, vehicle speed, and vehicle lateral acceleration, it automatically intervenes to turn the vehicle. The automatic turning of the vehicle is accomplished by an automatic application of uneven brake torque rather than by steering wheel movement ⁶.

Now coming to the components of ESC ⁷, this same document provides the information as under:

a) Yaw rate or lateral acceleration sensor

b) Steering wheel sensor

c) Integrated control unit (over ABS)

d) Wires/ Tell tale

Now let us look at Note 7 (b) to Chapter 90

(b) automatic regulators of electrical quantities, and instruments or apparatus for automatically controlling non-electrical quantities the operation of which depends on an electrical phenomenon varying according to the factor to be controlled, which are designed to bring this factor to, and maintain it a desired value, stabilised against disturbances, by constantly or periodically measuring its actual value.

The ESC's function is to maintain vehicle's directional stability by applying and adjusting the vehicle brake torques individually to induce a correcting yaw moment to the vehicle.

It receives electrical signals from various sensors on the driving conditions such as yaw rate sensors and wheel sensors. While the directional stability is the non-electrical quantity controlled by the ECSS through ECU, the signals that vary according to the speed, yaw etc., which are the factors to be controlled, are conveyed to the ECSS through ECU by various sensors in the form of electrical signals. The signals are understood and using the closed loop algorithm built into the ECU, the ESCS automatically signals appropriate response through the actuators in order to bring the directional stability and control back to the desired values.

It could thus be seen that the ESC squarely falls within the four walls of Note 7 (b) to Chapter 90. There is no dispute that the ECU is the controller in the ESCS and when it is presented separately, the HSN ENs permit the classification of the controller as an incomplete controlling instrument/ apparatus.

Even assuming that the controller, which is a PCB, is a part of the ESCS, its classification will be under CTH 9032 9000 only in terms of Note 2 (a) to Chapter 90. In this regard we can refer to the WCO ruling in the matter of classification of the main PCB of an Instrument cluster of a motor vehicle. The WCO's HS Committee in their 62nd Session In September 2018, approved its classification under CTH 9029 9000 applying Note 2 (b) to Chapter 90.

As this is a decision on classification, the next course of action is only the Supreme Court and given the stakes involved, the Auto industry should brace themselves for a long battle ahead and the industry could be rest assured that they have nothing to lose and a very good case to argue.

[The views expressed are strictly personal.]

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¹ M/s Continental Automotive Brake Systems India Private Limited Vs Commissioner of Customs in Customs appeal No CUSTOMS APPEAL NO. 50546 OF 2021 decided by CESTAT, New Delhi on 19.3.2024 [2024-TIOL-305-CESTAT-DEL]

² THE EFFECTIVENESS OF ESC (ELECTRONIC STABILITY CONTROL) IN REDUCING REAL LIFE CRASHES AND INJURIES Anders Lie Swedish Road Administration Claes Tingvall Swedish Road Administration, Monash University Accident Research Centre Maria Krafft Anders Kullgren Folksam Research Sweden Paper number 05-0135

³ U.S. Department Of Transportation National Highway Traffic Safety Administration (NHTSA) - FINAL REGULATORY IMPACT ANALYSIS- FMVSS No. 126 Electronic Stability Control Systems Office of Regulatory Analysis and Evaluation National Center for Statistics and Analysis March 2007 -( Page II-2)

⁴ U.S. Department Of Transportation National Highway Traffic Safety Administration (NHTSA) - FINAL REGULATORY IMPACT ANALYSIS- FMVSS No. 126 Electronic Stability Control Systems Office of Regulatory Analysis and Evaluation National Center for Statistics and Analysis March 2007 -( Page II-3)

⁵ Page III-2 of the same document

⁶ Department Of Transportation National Highway Traffic Safety Administration (NHTSA) - FINAL REGULATORY IMPACT ANALYSIS- FMVSS No. 126 Electronic Stability Control Systems Office of Regulatory Analysis and Evaluation National Center for Statistics and Analysis March 2007 -( Page III- 4)