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TMI Blog2024 (11) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule to the Customs Tariff Act, 1975 [hereafter 'the Customs Tariff Act'], is liable to be classified under CTH 8542, specifically Tariff Item 8542 39 00. FACTUAL BACKGROUND 3. The case set out by the appellant is that being a mobile phone manufacturer in India, it imports various parts and equipment. Earlier, it used to import traditional microphones. However, the same being bulky have now become outdated, and have been replaced by high performance and highly sensitive silicon based Integrated Circuit Micro Electro Mechanical System (MEMS) Microphones. 4. The MEMS Microphones were being imported by the appellant under Tariff Item 8518 10 00 which pertains to "Microphones and stands therefor". In respect of the same, Customs Duty at Standard Rate i.e. 15% was being paid by the appellant. 5. However, the appellant was of the view that the product falls within the description of 'Electronic Integrated Circuit' [hereafter also referred to as 'EIC'] since it was a silicon based Multi-Component Integrated Circuit [hereafter also referred to as 'MCO'], which is an energy conversion device that performs the function of converting sound signals into electrical signals. Further, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsors, actuators, oscillators and combinations thereof, are excluded from the definition of an MCO. The learned CAAR also opined that the product, which appears to be an assembly, constitutes a complete machine or device i.e., microphone and thus, merits classification as a complete machine or device. Therefore, the learned CAAR, also considering the application of Rule 1 and Rule 6 of the General Rules of Interpretation [hereafter 'GI Rules'], held that the product, which even the appellant claims to be a microphone, had been correctly classified under Tariff Item 8518 10 00 of the First Schedule to the Customs Tariff Act. 10. The present appeal has been preferred, assailing the aforesaid findings of the learned CAAR. SUBMISSIONS BEFORE THE COURT Submissions on Behalf of the Appellant 11. The learned counsel appearing on behalf of the appellant argues that the product can be correctly classified under CTH 8542, and more particularly Tariff Item 8542 39 00. He submits that the product is a miniature, high-performance, low-power silicon microphone, which can be characterized as a Integrated Circuit Microphone. He further submits that the product consists of MEMS silicon sensor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Note 12, CTH 8542 takes precedence over every other heading, the learned CAAR ought not to have classified the same merely on the basis that CTH 8518 pertains to 'microphones'. It is contended that irrespective of the description of the heading in CTH 8518, the product being a MCO and being covered within the meaning of EICs, will be covered under CTH 8542 alone. 14. To support the above contentions, the learned counsel refers to Chapter Note 12 of Chapter 85 of the First Schedule to the Customs Tariff Act, which inter alia provides as under: "CHAPTER 85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles NOTES: * * * 12. For the purposes of headings 8541 and 8542: * * * (b) -Electronic integrated circuits are: * * * (iv) Multi-component integrated circuits (MCOs): a combination of one or more monolithic, hybrid, or multi- chip integrated circuits with at least one of the following components: Silicon-based sensors, actuators, oscillators, resonators or combinations thereof, or components performing the functions of articles classifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heading 8523, which might cover them by reference to, in particular, their function." 15. It is stated that Chapter Note 12 also includes components performing the functions of articles classifiable under CTH 8541 which covers Semiconductor-based sensors, and one example of the said sensor referred in Explanatory Notes to Harmonized System of Nomenclature [hereafter 'HSN'] is a 'MEMS element used in silicon microphones as a semiconductor-based acoustic sensor'. 16. It is therefore contended that the product conforms to the explanation provided for MCO under Chapter Note 12(b)(iv) of Chapter 85 inasmuch as the product is a MCO composed of MEMS silicon-based sensor, ASIC amplifier chip, PCB substrate, shell, gold wire, and other components (capacitor-resistance sense), all formed for the purpose of converting sound signal into electrical signals indivisibly into a metal body. The product is used as a microphone component, used for installation onto PCBs of mobile phones and other electronic devices. 17. The learned counsel appearing for the appellant also relies on the decision of Coordinate Bench in Amazon Wholesale India Pvt. Ltd. v. Customs Authority of Advance Ruling, 2023 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operly reclassifying various products that utilize MEMS technology. 22. The learned counsel further contends that the argument of the appellant that the product should be specifically classified under Tariff Item 8542 39 00, taking into account the fact that Chapter Note 12 provides that CTH 8541 and 8542 take precedence over other headings, is flawed. In this regard, it is stated that the appellant has overlooked an important Explanatory Note of HSN, for CTH 8542, which states that all separate (tradable) units that are not classifiable under headings 8504, 8532, or 8541, and which do not fall under the definition of silicon-based sensors, actuators, oscillators, or combinations thereof, are excluded from the definition of an MCO. Thus, since the product is a complete device, specifically a microphone, it should be classified as such under Tariff Item 8518 10 00. 23. It is submitted that Note 2(a) of Section XVI specifies that parts which are goods falling within Chapter 84 or 85 should be classified under their respective headings. The MEMS microphone is a complete component used in devices like mobile phones, which must be classified under CTH 8518 and more particularly Tariff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court elucidated the significance of HSN and the application of GI Rules, as well as the order of precedence of GI Rules, in the case of Commissioner of Customs and Central Excise, Amritsar (Punjab) v. M/s D.L. Steels etc., 2022 SCC OnLine SC 863. The relevant extract of the decision is as under: "9. The Harmonised System of Nomenclature, developed by the World Customs Organisation, has been adopted in India by way of the Customs Tariff Act, 1975, though there are certain entries in the Schedules to this Act which have not been assigned HSN codes. The Harmonised System is governed by the International Convention on Harmonised Commodity Description and Coding System, which was adopted in 1983, and enforced in January, 1988. This multipurpose international product nomenclature harmonises description, classification, and coding of goods. While the primary objective of the HSN is to facilitate and aid trade, the Code is also extensively used by governments, international organisations, and the private sector for other diverse purposes like internal taxes, monitoring import tariffs, quota controls, rules of origin, transport statistics, freight tariffs, compilation of national ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al characteristic', and (c) when goods cannot be classified with reference to (a) or (b), they should be classified under the Heading which occurs last in the numerical order. The order of priority therefore is; (a) specific description, (b) essential character, and (c) the Heading which occurs last in numerical order. However, GRI 3 can only take effect provided the terms of the Heading or Section or Chapter Notes do not otherwise require. GRI 4 states that when the goods cannot be classified in accordance with the aforementioned rules, they shall be classified under the heading appropriate for the goods "to which they are most akin". GRI 5 applies exclusively to cases and packing material, and therefore, is not apropos. GRI 6 states that the classification of goods in the subheadings of a Heading shall be determined according to the terms of those sub-headings and any related Notes, and mutatis mutandis to the above GRIs, on the understanding that only sub-headings at the same level are comparable." (Emphasis added) 29. Therefore, Rule 1 of GI Rules must be considered first, which provides that the Headings, and (ii) the relative Section or Chapter Notes are to be considered fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct under CTH 8518, and more particularly Tariff Item 8518 10 00 of the First Schedule of the Customs Tariff Act, the CTH 8518 is set out hereunder: 8518 MICROPHONES AND STANDS THEREFOR: LOUDSPEAKERS, WHETHER OR NOT MOUNTED IN THEIR ENCLOSURES: HEADPHONES AND EARPHONES, WHETHER OR NOT COMBINED WITH A MICROPHONE, AND SETS CONSISTING OF A MICROPHONE AND ONE OR MORE LOUDSPEAKERS: AUDIO-FREQUENCY ELECTRIC AMPLIFIERS: ELECTRIC SOUND AMPLIFIER SETS 8518 10 00 Microphones and stands therefor Loudspeakers, u 15% - - whether or not mounted in their enclosures: 8518 21 -- Single loudspeakers, mounted in their enclosures: 8518 21 10 - Wireless kg. 20% - 8518 21 90 -- Other kg. 20% - 8518 22 -- Multiple loudspeakers, mounted in the same Enclosure: 8518 22 10 --- Wireless kg. 20% - 8518 22 90 --- Other: 8518 29 10 --- Wireless kg. 20% - 8518 29 90 --- Other kg. 20% - 8518 30 - Headphones and earphones, whether or not combined with a microphone, and sets consisting of a microphone and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough a semiconductor process inside a metal shell (nickel-plated brass). It functions as the sound is transmitted to the diaphragm of the MEMS to cause vibration, and the capacitance between the electrodes changes, thereby realizing the conversion from the acoustic signal to the electrical signal. 7. The Product can be installed on the PCB boards of electronic products such as mobile phones, tablet computers, and notebook computers through conductive voltage points to realize the function of converting sound signals into electrical signals. The Product is suitable for applications such as Headsets, Portable electronics, Cell phones, Laptop Computers, Tablets, Portable Music Recorders and other portable electronic devices where excellent wideband audio performance and RF immunity are required." 35. In the product description, the appellant clearly states that the product is a miniature, high-performance, low-power, matched sensitivity silicon 'microphone'. 36. Further, we also note that while the appellant had sought a ruling for the purpose of classifying the product under Tariff Item 8542 39 00, the appellant had itself placed before the learned CAAR, the technical literature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performs any functions beyond those typically associated with a microphone. 42. At this stage, an analogy with an amplifier may also be relevant. Amplifiers are classified under CTH 8542, which covers EICs, while audio-frequency electric amplifiers are included under CTH 8518. The Explanatory Notes to the HSN in respect of microphones mention that "microphones are sometimes rendered more sensitive by the addition of amplifiers." What manifests from the same is that an amplifier, which is classified under CTH 8542 as an EIC, can be integrated with a microphone to enhance sensitivity; however, the essential nature of the product so created remains that of a microphone. 43. In a similar vein, the product under scrutiny here is unequivocally a microphone. While it may contain a MEMS sensor or other components such as an integrated circuit or specific enabling technology, its core identity as a microphone remains unchanged. 44. It is also the own case of the appellant that the subject product can be installed on the PCBs of electronic products such as mobile phones, tablets, computers, etc. through conductive voltage points to realize the function of converting sound signals into ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate or inter connected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function." 50. Accordingly, Note 4 clarifies that when a machine comprises individual components designed to work together to fulfill a clearly defined function covered by headings in Chapter 84 or Chapter 85, the entire assembly should be classified under the heading appropriate to that function. 51. Considering this too, it can be inferred that where the machine (i.e. product in question - microphone) consists of individual components (such as MEMS sensors, ASIC, etc.) which are interconnected, and are intended to contribute together to a clearly defined function - that is conversion of sound signals to electrical signal and thus act as a microphone - the product should be classified in the CTH which is appropriate to such function i.e. CTH 8518, and more particularly Tariff Item 8518 10 00. 52. This is not a case where the appellant is importing a separate integrated circuit that cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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