Customs Duty Exemption Denied on ABS Components: CESTAT Holds “Suitable for Use” Includes Indirect Use in Motor Vehicles; No IGST Interest/Penalty Pre-Aug 2024

The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has ruled that components used in Anti-lock Braking Systems (ABS) are not eligible for concessional customs duty if they are “suitable for use” in motor vehicles, even if they are not directly installed in vehicles at the time of import. The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that the phrase “suitable for use” must be interpreted broadly. It observed that the notification does not require direct use in motor vehicles, and the absence of the word “directly” indicates legislative intent to cover all goods capable of being used in motor vehicles. The dispute arose from the import of components such as ABS motors, MK 100 motors, pressure transducers/sensors, and brake light sensors during the period from April 2021 to September 2022. The appellant claimed concessional duty under Notification No. 50/2017-Cus on the ground that the imported goods were merely components used in manufacturing ABS and electronic braking systems, and were not directly usable in motor vehicles. However, the Directorate of Revenue Intelligence (DRI) alleged that after the amendment brought by Notification No. 21/2021-Cus, the exemption was not available for goods “suitable for use” in motor vehicles. Based on this interpretation, a show cause notice was issued proposing denial of exemption and recovery of differential duty for multiple bills of entry. The adjudicating authority confirmed a demand of ₹7.24 crore along with interest and penalty. Before the Tribunal, the appellant argued that the imported goods were not “actually, practically, or commercially” capable of being used in motor vehicles in their imported condition. It was contended that these components become functional only after being integrated into ABS systems, which are then supplied to automobile manufacturers. The appellant also argued that classification should be determined at the time of import and not based on eventual use. The Tribunal emphasized that exemption notifications must be strictly construed and any ambiguity must be interpreted in favour of the Revenue. The Bench further noted that the imported components were specifically used in manufacturing ABS systems, which are integral to motor vehicles and enhance safety by preventing wheel lock and skidding. Since the appellant itself admitted that these goods were used to manufacture systems ultimately supplied for use in vehicles, the Tribunal applied the principle that “part of a part is a part of the whole” and held that such goods fall within the exclusion clause of the exemption notification. On the issue of classification of pressure transducers/sensors, the appellant contended that they should fall under CTH 9026 as instruments for measuring pressure. The Tribunal, however, upheld classification under CTH 9031, noting that the appellant had consistently classified the goods under this heading in earlier imports and that the classification was not disputed in the show cause notice. A subsequent change in classification practice could not alter the position for the relevant period. A significant relief was granted to the appellant on the issue of interest and penalty on Integrated GST (IGST). The Tribunal relied on the Bombay High Court decision in A.R. Sulphonates Pvt. Ltd. and held that provisions enabling levy of interest and penalty on IGST came into force only from 16 August 2024 and operate prospectively. Accordingly, no interest or penalty was leviable on the IGST component for the period prior to this date. In conclusion, the Tribunal upheld the demand of customs duty along with interest and penalty (except on IGST for the pre-16 August 2024 period) and rejected the claim for concessional duty. The appeal was thus partly allowed. The ruling underscores that even indirect or eventual use of imported goods in motor vehicles can disentitle an assessee from claiming exemption where the goods are “suitable for use” in such vehicles. Case Details Case Title: M/s. Continental Automotive Brake Systems India Private Limited Versus Commissioner of Customs Citation: JURISHOUR-905-CES-2026(DEL) Case No.: Customs Appeal No.55862 of 2023 Date: 22.04.2026 Counsel For Appellant: Priyanka Rathi and Chandrasekaran Counsel For Respondent: Shiv Shankar, Authorised Representative Click Here To Read Order Read More: Service Tax Applicable on Recovery Agent Services; No Joint Venture Without Evidence: CESTAT

Customs Duty Exemption Denied on ABS Components: CESTAT Holds “Suitable for Use” Includes Indirect Use in Motor Vehicles; No IGST Interest/Penalty Pre-Aug 2024

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