The Delhi High Court has dismissed the appeal filed by Vivo and held that no customs duty exemption is available on the import of Integrated Circuit Micro Electro Mechanical System (MEMS) Microphones.
The bench of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma has observed 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.
The appellant is 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 However, the same being bulky have now become outdated, and have been replaced by high performance and highly sensitive silicon based Integrated Circuit Micro Electro Mechanical System (MEMS) Microphones.
The MEMS Microphones were being imported by the appellant under Tariff Item 8518 10 00 which pertains to Microphones and stands. In respect of the same, Customs Duty at Standard Rate i.e. 15% was being paid by the appellant.
However, the appellant was of the view that the product falls within the description of “Electronic Integrated Circuit” (EIC) since it was a silicon based Multi-ComponentIntegrated Circuit (MCO), which is an energy conversion device that performs the function of converting sound signals into electrical signals. The product has a MEMS sensor and an Application Specific Integrated Circuit (ASIC) chip, which is attached to the Printed Circuit Boards (PCB) and is packaged together through a semiconductor process, called Land Grid Array, inside a metal shell.
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 theCustoms 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.
To claim the exemption, the appellant, by way of an application dated 22.09.2023 filed before the CAAR, sought ruling on the question, whether MEMS Microphone can be classified under Tariff Entry 8542 3900?
The CAAR held that the product has been correctly classified under CTH 8518, specifically Tariff Item 8518 1000, which includes “microphones”. The product, even if packaged similarly to integrated circuits, did not meet the criteria to be classified under CTH 8542. The order holds 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’.
The CAAR 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, considering the application of Rule 1 and Rule 6 of the General Rules of Interpretation, 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.
Vivo argued 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.
Vivo submitted 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.
The court held 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.
The court while dismissing the appeal held that the the contention of the appellant that the product should be classified as an EIC, under CTH 8542, and not as a microphone under CTH 8518, is unmerited.
Case Details
Case Title: Vivo Mobile India Private Limited Versus Customs Authority For Advance Rulings & Anr.
Case No.: CUSAA 24/2024
Date: 20.11.2024
Counsel For Appellant: Kishore Kunal
Counsel For Respondent: Gibran Naushad
