SEPTEMBER 13, 2024

By Sridharan P, Advocate, M2K, Chartered Accountants

ON 30th July 2024, the Delhi Tribunal delivered a decision in an appeal filed by M/s Mitsubishi Electric Automotive India Pvt Ltd - 2024-TIOL-728-CESTAT-DEL on a classification matter where the classification of an Electronic Control Unit (ECU) for an Electronic Power Steering system(ECU-EPS) of an automobile was an issue.

The Hon'ble Tribunal ruled in favour of Revenue upholding the classification of the ECU -EPS under CTH87089400 as part of power steering system of an automobile. In the process the Hon'ble Tribunal ruled out the classification under CTH 9032 and also the alternative classification under CTH 8537 and CTH 8543 argued by the Appellant,approval of either of which could have taken the impugned goods out of Section XVII, hence out of CTH 8708.

As regards ruling out classification under CTH 9032, the Hon'ble Tribunal took the inexplicable line that though electronic instruments and apparatus used in automobiles are classifiable under Chpater90, the ECU-EPS in question is not an instrument or an apparatus and therefore will remain a part of an automobile. The observations of the Hon'ble Tribunal in this regard were:

We are conscious that there are electronic instruments and apparatus which, though used in automobiles, are classifiable under Chapter 90. However, EPS-ECU is not an instrument or an apparatus but is a part of the power steering system. Merely because it is in the form of a PCB and other electronic components does not change it from a part of an automobile into an instrument or an apparatus. It is, in essence, a microprocessor with certain other parts which receives information from the speed and torque sensors and processes it and issues instructions to regulate the assistance provided by the power steering to the driver. Therefore, in our considered view, EPS-ECU does not merit classification under CTI 9032 90 00.

Though this line of argument was not proposed by Revenue, the Hon'ble Tribunal took it upon themselves to use this line of argument to justify their decision to rule out CTH 9032. Therefore, it was incumbent upon the Hon'ble Tribunal to have been conscious of their decision, which will have wider implication for the auto industry in general.

In this regard a reference to the Hon'ble Supreme Court in the matter of COMMISSIONER OF CUSTOMS, NEW DELHI VERSUS C-NET COMMUNICATION (I) PVT. LTD 2007 (9) TMI 15 - SUPREME COURT- Other Citation: 2007 (216) E.L.T. 337 (S.C.) = 2007-TIOL-166-SC-CUS where the Hon'ble Supreme Court dealt with the question what constitutes an apparatus, holding as under:

16. As per Stroud's Judicial Dictionary the term "apparatus" includes the distribution board of an electrical installation. It must be considered when current is passing through and not when it is in its inanimate state. This meaning has been assigned to it in Waddell's Curator Bonis v. Alexander Lindsay Ltd. [1960 SLT 189(OH)]. This would indicate that the terms "apparatus" has been interpreted as something which is inclusive of some other appliance.

In our opinion, the word "apparatus" would certainly mean the compound instrument or chain of series of instruments designed to carry out specific function or for a particular use.

When a distribution board of an electrical installation can be regarded as an apparatus, it cannot be comprehended, that a complex instrument such as an ECU of an EPS, was decided not to be an apparatus for purposes of classification under CTH 9032. As the ECU-EPS did not pass muster as an apparatus at the threshold, the Hon'ble Tribunal did not get into the question whether the ECU -EPS met the requirements of Note 7 (b) to Chapter 90, which is a sine-qua-non for an apparatus or an instrument to fall under CTH 9032.

The reasons for ruling out the alternative classification under CTH 8537 as stated by the Hon'ble Tribunal, are as under:

33. As discussed above, EPS-ECU is not designed for electricity distribution or electric control. It is a part of an automobile –specifically a part of the power steering system to decide how much assistance should be provided to the driver in steering. The mere fact that it makes this determination and intervenes between the 12-volt car battery and a small motor does not, in our considered view does not make, EPS-ECU into an electrical board, panel, etc. We, therefore, find that EPS-ECU does not merit classification under CTI 8537 10 00.

Based on the signals received from the sensors such as the steering wheel angle sensor, speed sensor and the torque sensors, the ECU-EPS, decides on the assistance required to be provided to the steering wheel, by regulating the current supplied to the motor. The ECU -EPS thus controls the operation of the motor and it is the motor, so controlled by the ECU's regulatory action, that provides the assistance required to the driver for steering. Therefore, the steering system is called as Electrical Power assisted Steering (EPAS) system. Thus, the ECU -EPS controls the speed of the motor by regulating the current supplied to the motor. For carrying out this regulatory function the ECU-EPS has the algorithm programmed in it, that decides the appropriate logic for regulating the flow of power to the motor. Therefore, the ECU-EPS in an EPAS is a controller for the motor. A general schematic description of an EPAS is as under:

It could be seen that the ECU is attached to the electric motor. It would be appropriate to note that the HSN explanatory Notes under CTH 8537, specifically mention, programmable controllers as under:

The heading also covers :

(3) "Programmable controllers" which are digital apparatus using a programmable memory for the storage of instructions for implementing specific functions such as logic, sequencing,timing, counting and arithmetic, to control, through digital or analog input/output modules,various types of machines.

The ECU-EPS in question is indeed a programmable controller for controlling the operation of the Electric motor which is an important component in an EPAS. It is also pertinent to note that the electric motor cannot be classified under CTH 8708,even though it is identifiable for use in an EPAS.

Therefore,ruling our CTH 8537 on the ground that the ECU-EPS is not meant for electrical control may not be justified. From the HSN Explanatory Notes under CTH 8537, it could be seen that the term ‘electrical control' has to be understood as electrical control of the machinery. The ECU-EPS controls the speed of the motor by regulating the electrical power supplied to the motor.

It therefore appears that the ECU-EPS fully merited classification under CTH 8537, even granting that classification under CTH 9032 may not be appropriate. It is apparent that articles of Chapter 85 are excluded from Section XVII by Note 2(f) to Section XVII, which the Hon'ble Tribunal fairly recognised.

Classification under CTH 8708 cannot be forced upon the importers/ manufacturers merely for the reason that the components are identifiable for use with the automobiles and more circumspection is required. Revenue fairly decided not to follow such a position taken by the Hon'ble Supreme Court in the Westinghouse matter. This decision raises the same question again, calling for a rethink on the proper appreciation of the exclusions from Section XVII afforded by Note 2 to Section XVII.

[The views expressed are strictly personal.]