Purpose & Function Of Product Is Relevant For Classification Under 'Customs Tariff' Heading, Not Tech Used In Such Product: Delhi High Court
The Delhi High Court has held that it is not the technology which is used in the product that decides its HSN classification under the Customs Tariff Heading (CTH) for the purposes of Customs Tariff Act, 1975. A division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma held that it is rather the product, which may be created using a particular technology, which decides the...
The Delhi High Court has held that it is not the technology which is used in the product that decides its HSN classification under the Customs Tariff Heading (CTH) for the purposes of Customs Tariff Act, 1975.
A division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma held that it is rather the product, which may be created using a particular technology, which decides the HSN classification.
The ruling came in an appeal preferred by Vivo India from an order of the Customs Authority of Advance Rulings (CAAR), rejecting its claim to classify the import of 'Integrated Circuit Micro Electro Mechanical System Microphones' under CTH 8542, specifically Tariff Item 8542 39 00- which pertains to 'Parts' and is exempted from levy of customs duty.
The product is presently categorized under CTH 8518, specifically Tariff Item 8518 10 00- which pertains to 'Microphones and stands therefor' and is exigible to Customs Duty at 15%.
Vivo claimed that since the product in question uses 'integrated circuits' technology, it should be re-classified.
CAAR had rejected this claim, stating that the technical literature submitted by Vivo itself describes the product as a 'microphone' or a 'MEMS Microphone' and not as 'Integrated Circuit MEMS Microphones'.
In appeal, the High Court held that to determine the HSN classification of a product, its fundamental purpose and function must be taken into account.
In the case at hand, the Court noted that the core identity of the product is a microphone, though it is enhanced or powered by MEMS technology.
It reasoned that the product acts as an energy conversion device and performs the functions of “converting sound signals into electrical signals”.
Interestingly, even the Explanatory Notes to the HSN provide that a 'microphone' converts sound vibrations into corresponding variations or oscillations of electric current.
Court then drew an analogy with amplifiers which are classified under CTH 8542, which covers Electronic Integrated Circuits. This is because an amplifier can be “integrated” with a microphone to enhance sensitivity; however, the essential nature of the product so created remains that of a microphone.
In a similar vein, the Court said, Vivo's product, 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.
“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,” the Court thus held.
It found that Vivo had selectively chosen to refer to the product as an ―Integrated Circuit MEMS Microphone, for potential classification advantage.
It thus dismissed the appeal.
Appearance: Advocates Kishore Kunal, Jayesh Sitlani, R. Pare, Ankita Prakash, Mahesh Singh and Anuj Kumar for Vivo; Advocate Gibran Naushad for Customs
Case title: Vivo Mobile India Private Limited v. Customs Authority For Advance Rulings & Anr
Case no.: CUSAA 24/2024