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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 ..... of the Product Functioning provided by the appellant that the product acts as an energy conversion device and performs the functions of converting sound signals into electrical signals . We are of the opinion that, it is not the technology which is used in the product that defines the product and decides its classification under the CTH, but it is the product (which may be created using a particular technology) which decides the classification. For this reason, it is the microphone which has the technology of MEMS, which adds value to the microphone, and it is not the microphone which is adding value to the technology of MEMS. The inclusion of MEMS technology enhances the product s function but does not change its primary identity as a microphone. In the given case, the product is not a stand-alone sensor or an EIC. This is not a case where the appellant is importing a separate integrated circuit that could be combined with various other components to create devices with diverse functions. Had the appellant imported an individual integrated circuit (such as an ASIC chip) or standalone MEMS sensors, our findings may have differed. However, the item being imported is a fully assembl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the product has a MEMS sensor and an Application Specific Integrated Circuit [hereafter ASIC ] chip, which is attached to the Printed Circuit Boards [hereafter PCB ] and is packaged together through a semiconductor process, called Land Grid Array [hereafter LGA ], inside a metal shell. 6. The appellant intends to import the product under CTH 8542 which pertains to Electronic Integrated Circuit , and specifically the Tariff Item 8542 39 00 i.e. Others . Though the First Schedule to the Customs Tariff Act imposed a Customs Duty at Standard Rate of 7.5% in respect of Tariff Item 8542 39 00, the entire CTH 8542 was exempted from the levy of customs duty vide Notification No. 024/2005-Cus dated 01.03.2005. 7. To claim the aforesaid exemption, the appellant, by way of an application dated 22.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel 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 components, an ASIC amplifier chip, a PCB substrate, a shell, gold wire, and other capacitor-resistance components, all packaged using the LGA method. As regards the functioning of the product, it is submitted that the product (an integrated circuit) acts as an energy conversion device that performs the function of converting sound signals into electrical signals. The sound is transmitted to the diaphragm of the MEMS to cause vibration which changes the capacitance between the electrodes, converting acoustic signal to electrical signal. 12. The learned counsel contends that the learned CAAR has erroneously applied GI Rules by completely ignoring the relevant Section Notes as well as Rule 1 of GI Rules. It is contended that Rule 1 provides that the Chapter Notes have to be compulsorily considered and it is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 classifiable under heading 85.32, 85.33, 85.41, or inductors classifiable under heading 85.04, formed to all intents and purposes indivisibly into a single body like an integrated circuit, as a component of a kind used for assembly onto a printed circuit board (PCB) or other carriers, through the connecting of pins, leads, balls, lands, bumps, or pads. For the purpose of this definition: (1) Components may be discrete, manufactured independently then assembled onto the rest of the MCO, or integrated into other components. (2) Silicon-based means built on a silicon substrate, or made of silicon materials, or manufactured onto integrated circuit die. (3) (a) Silicon-based sensors consist of microelectronic or mechanical structures that are created in the mass or on the surface of a semiconductor and that have the function of detecting physical or chemical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 SCC OnLine Del 7817, wherein it was held that the mere name or nomenclature ascribed to a product should not be the decisive factor in determining its classification. 18. It is contended that the scope of CTH 8518 is limited to traditional microphones, and the MEMS Microphones would fall within the ambit of CTH 8548. Therefore, it is prayed that the impugned order be set aside. Submissions on behalf of the Revenue 19. The learned counsel appearing on behalf of Revenue contends that the appellant has consistently described the product as an Integrated Circuit MEMS Microphone, which remains a variant of a microphone, though enhanced with MEMS technology. the appellant has also acknowledged that the product performs the primary function of a microphone. Moreover, the technical literature submitted by it before the learned CAAR clearly identifies the product as an omnidirectional, botto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 Item 8518 10 00. 24. The learned counsel further submits that the appellant has described the product as an Integrated Circuit MEMS Microphone. According to Rule 3(a) of the GI Rules, the heading that provides the most specific description must be preferred over more general descriptions. In the present case, the most specific description for the product falls under CTH 8518, which covers Microphones and Stands therefor . It is contended that the present case is not a situation where multiple headings apply to different parts of the product; MEMS technology is an inherent feature of the microphone in this case, and it does not have a separate identity that would justify classification under CTH 8542 39 00. Therefore, as per Rule 3(a) of the GI Rules, the product is clearly a microphone, enhanced by MEMS technology, and is thus correctly classified under CTH 8518. 25. Therefore, it is pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accounts, and economic research and analysis. In the present times, given the widespread adoption of the Harmonised System by over 200 countries, it would be extremely difficult to deal with an international trade issue involving commodities, without adverting to the Harmonised System. The Code is the bedrock of custom controls and procedures. The HSN consists of over 5000 commodities groups, which are structured into 21 Sections and 97 Chapters, which are further divided into four and six digit subheadings. Many custom administrations, like India, use an eight or more digit commodity coding system, with the first six digits being the HSN code. 10. Classification under the Harmonised System is done by placing the good under the most apt and fitting sub-heading. This is done by choosing the appropriate Chapter, Heading, and sub-heading respectively. To facilitate interpretation and classification, each of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove 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 for the purpose of classification of a product. 30. The Hon ble Supreme Court in M/s D.L. Steels (supra) also discussed the common parlance test of classification of products. The observations in this regard as are follows: 12. We would, at this stage, take on record the well-settled principle that words in a taxing statute must be construed in consonance with their commonly accepted meaning in the trade and their popular meaning. When a word is not explicitly defined, or there is ambiguity as to its meaning, it must be interpreted for the purpose of classification in the popular sense, which is the sense attributed to it by those people who are conversant with the subject matter that the statute is dealing with. This principle should commend to the authorities as it is a good fiscal policy not to put people in doubt or quandary about their tax liability. The common parlance test is an extension of the general principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets consisting of a microphone and one or more loudspeakers: 8518 30 11 ---- True Wireless Stereo [TWS] Sound channel not connected by wire] kg. 20% - 8518 30 19 ---- Other kg. 20% - 8518 30 20 --- Headphones and earphones, whether or not combined with a microphone, and capable of connecting only through wired medium kg. 20% - 8518 30 90 --- Other kg. 20% - 8518 40 00 - Audio-frequency electric amplifiers u 15% - 8518 50 00 - Electric sound amplifier sets u 10% - 8518 90 00 - Parts u 15% - 33. Similarly, CTH 8542, including Tariff Item 8542 39 00, under which the appellant now seeks the classification of its product, is set out hereunder: 8542 ELECTRONIC INTEGRATED CIRCUITS - Electronic integrated circuits: 8542 31 00 -- Processors and controllers, whether or not combined with memories, converters, logic circuits, amplifiers, clock and timing circuits, or other circuits u Free - 8542 32 00 -- Memories u Free - 8542 33 00 -- Amplifiers u Free - 8542 39 00 -- Other u 7.5% - 8542 90 00 - Parts kg. Free - 34. To adjudicate the issue in question, it shall be relevant and necessary to take note of the Product Description and Product Functioning, placed before the learned CAAR by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alog output MEMS microphone. It has high performance and reliability. It is with enhanced RF immunity performance. MSM381A2718Z9DM2E is available in a thin 2.75 mm 0.9 mm metal can LGA package. It is SMT compatible with no sensitivity degradation. Mobile Phone Laptop Tablet computer Bluetooth headset Earphone Wearable intelligent equipment 37. This technical literature, relied upon by the appellant, itself describes the product as a microphone or MEMS microphone and does not use the term Integrated Circuit MEMS Microphone anywhere. This supports the view of this Court that the core identity of the product is a microphone, though it is enhanced or powered by MEMS technology. 38. Thus, while the appellant has referred to the product as an Integrated Circuit MEMS Microphone , it appears this terminology has been selectively chosen for potential classification advantage. The correct nomenclature for the product should simply be Microphone or MEMS Microphone or MEMS-Enabled Microphone . 39. It is also clear from a reading of the Product Functioning provided by the appellant that the product acts as an energy conversion device and performs the functions of converting sound signals into e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has primarily relied on the Chapter Note 12(b)(iv) of Chapter 85, to contend that the product would fall under the definition of an MCO, and thus classifiable under CTH 8542. However, we observe that the Explanatory Notes to the HSN specify the following: All separate (tradeable) units, which are not classifiable under 85.04, 85.32, 85.33, 85.41 or which do not fall under the definition of silicon-based sensors, actuators, resonators, oscillators and combinations thereof are excluded from the definition of an MCO (e.g., transformers (heading 85.04) or magnets (heading 85.05)). 46. Thus, we have no hesitation in concurring with the finding of the learned CAAR that the product, which appears to be an assembly, constitutes a complete machine or device i.e. microphone and therefore, is to be classified as such. 47. The appellant s contentions are premised on the presence of technical components within the product, notably the MEMS sensor and ASIC chip, and thus, according to the appellant, the product should be placed under CTH 8542 as an EIC since the same is an MCO. However, while the product i.e. microphone contains these elements, it is important to note that its fundamental pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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