CESTAT Chennai Sets Aside Reclassification of 226 Auto Parts Imported by Toyota Kirloskar Motor Pvt. Ltd.

Background and Context

Toyota Kirloskar Motor Private Limited, the Indian subsidiary of Toyota Motor Corporation, Japan, regularly imports motor vehicle parts and accessories from affiliated overseas entities in Thailand, Indonesia, and the Philippines through the Chennai Sea Port and Kattupalli Port. These imports were declared under Customs Tariff Item 87089900 — the residuary entry covering "other parts and accessories of motor vehicles" — and were cleared at the concessional rate of 5% under Sl. No. 1478 of Notification No. 46/2011-Customs dated 01.06.2011, on the strength of certificates of origin issued under the ASEAN India Free Trade Agreement (AIFTA). The Department never questioned the authenticity of these certificates at any point during the proceedings.

Following an investigation conducted by the Special Intelligence and Investigation Branch, Chennai, which drew upon technical write-ups submitted by the appellant and material purportedly available on the appellant's own website, Show Cause Notice No. S. Misc. 24/2022 Gr. 5B dated 22.12.2022 was issued, proposing reclassification of 226 parts from Customs Tariff Item 87089900 principally to Customs Tariff Item 87082900 (parts and accessories of bodies of motor vehicles), and in select instances to other headings altogether.

How the List of 226 Disputed Articles Was Constituted

Understanding the numerical composition of Annexure A is essential to appreciating the scope of the dispute:

  • Of 1,014 articles for which the appellant had supplied technical particulars, the appellant itself proposed a revised classification for 345 articles.
  • The Department accepted the revision for 307 of those 345 but rejected it for 38, treating the latter as falling under Customs Tariff Item 87082900.
  • Of the remaining 669 articles for which no change had been proposed, the Department accepted the declared classification for 481 but disputed it for 188.
  • The 38 + 188 together constitute the 226 articles in Annexure A, which formed the heart of the classification controversy.

Annexure B covered 114 articles where the appellant had itself accepted the revised classification and had paid differential duty with interest for the period 06.11.2017 to 05.11.2019. The dispute here was confined to alleged short payment for the remainder of the period.

The Adjudicating Authority's Order — Key Findings

By Order in Original No. 109978/2024 dated 22.10.2024, the Commissioner of Customs:

  1. Rejected the self-assessment declared by the appellant under Customs Tariff Item 87089900.
  2. Held the goods to be classifiable under Customs Tariff Item 87082900 and other headings.
  3. Denied the benefit of Notification No. 46/2011-Customs dated 01.06.2011.
  4. Held that differential duty of Rs. 23,17,45,224/- had escaped payment due to collusion, wilful misstatement and suppression of facts, and confirmed the demand under Section 28(8) of the Customs Act, 1962, invoking the extended period under Section 28(4), with interest under Section 28AA.
  5. Held goods valued at Rs. 1,70,37,12,914/- liable to confiscation under Section 111(m) and Section 111(o).
  6. Imposed a redemption fine of Rs. 17,00,00,000/- under Section 125 in lieu of confiscation.
  7. Imposed a penalty under Section 114A equivalent to the duty determined along with interest thereon.
  8. Refrained from imposing a penalty under Section 112(a) by virtue of the fifth proviso to Section 114A.

Arguments Advanced by the Appellant

The appellant, represented by Shri Rohan Muralidharan, raised the following principal contentions:

On Classification

  • The Department failed to discharge the burden of proof it is required to bear whenever it seeks to displace a declared classification. Of the 226 articles in Annexure A, neither the show cause notice nor the adjudication order contained an article-specific finding explaining why any particular article qualifies as a "part or accessory of a body."
  • The website material forming the basis of the charge was never extracted, no screenshot or printout was placed on record, and the appellant was never given an opportunity to meet it.
  • Reliance was placed on H.P.L. Chemicals Ltd. v. Commissioner of Central Excise, 2006 (197) E.L.T. 324 (S.C.), Hindustan Ferodo Ltd. v. Collector of Central Excise, Bombay, 1997 (89) E.L.T. 16 (S.C.), and the Supreme Court's recent ruling in Commissioner of Customs (Import) v. Welkin Foods, 2026 INSC 19.
  • Where the Revenue's proposed classification fails entirely, the classification adopted by the importer must be allowed to stand — as affirmed in Sunrise Traders v. Commissioner of Customs, Mundra, 2022 (381) E.L.T. 393 (Tri. Ahmd.), confirmed in 2022 (382) E.L.T. 23 (S.C.).
  • A prior decision of CESTAT Chennai between the same parties under the same Chapter Heading — reported as Commissioner of Customs, Chennai v. Toyota Kirloskar Motor Pvt. Ltd., 2024 (1) TMI 1170 CESTAT Chennai — had already enunciated this very principle, which the adjudicating authority appears to have completely ignored.

On Individual Articles

Detailed submissions were made regarding the functional characteristics of specific articles: