JUDGMENT OF 19. 11. 1981 — CASE 122/80 ANALOG DEVICES v HAUPZOLLAMT MÜNCHEN-ΜITTE AND HAUPTZOLLAMT MÜNCHEN-WEST
In Case 122/80 REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht München [Finance Court, Munich] for a preliminary ruling in the proceedings pending before that court between
THE COURT (Third Chamber) composed of: A. Touffait, President of Chamber, Lord Mackenzie Stuart and U. Everling, Judges, Advocate General: F. Capotorti Registrar: J. A. Pompe, Deputy Registrar
gives the following
JUDGMENT
Facts and Issues
The facts of the case, the procedure and the observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:
I — Facts and written procedure
1. The plaintiff in the main action, Analog Devices GmbH, regularly imports from non-member countries into the Federal Republic of Germany electronic circuits (modules) which are intended to be incorporated in automatic data-processing machines and other electronic equipment. The particulars provided by the national court indicate that these modules are manufactured as follows: Most of the modules consist of a plastic plate on one side of which are fitted individually-mounted diodes, transistors, resistors, capacitors and other active and passive components, some of them being monolithic integrated switching networks and/or a ceramic plate with a resistance network as well. The latter is printed on the ceramic plate by the so-called thick-film technology. The monolithic integrated circuits are inserted in plastic housings in the form of a parallelepiped. In order to connect the individual components with each other and with the terminal pins of the module the plastic plate is provided on one or both sides with conductor elements. In order to produce the conductor pattern the relevant surfaces of the plates are first completely coated with copper. Then those areas which are not intended to operate as conductors are etched away from the copper coating by photochemical means so that the pattern of the conductor elements remains. Then the conductor elements are plated with tin. The individual components are soldered with their connecting wires into small holes provided for that purpose in the conductor elements. In the case of one kind of module (the DAC-10H type) plate is made of ceramic instead of plastic. Conductor elements and resistances are printed on this by thick-film technology. The plate moreover is also fitted with individually-mounted active and passive elements which are soldered on to the conductor elements. Modules of this type do not contain any non-integrated semiconductor elements or monolithic integrated circuits. All the modules are protected by a plastic housing from which only the terminal pins protrude. In the case of most of the modules the inside of the housing is filled up either with synthetic resin or with polyurethane foam through a hole made in the lid. The insertion into the housing in those cases is effected by first pouring in some casting resin or polyurethane foam, then the printed circuit board is inserted with the connecting pins upwards and then the lid is put on and the empty space completely filled up through an opening in the lid. The housing of some modules belonging to a particular type (the ADC 1109 type) are not however filled up. The plate as well as the lid of the housing are secured to the latter by adhesion. According to the particulars furnished by the plaintiff those modules where the housing is either not filled up or is filled up with polyurethane foam may in case of need be repaired by replacing the damaged individual components. In general that, it is stated, then causes the lid, and usually also the housing, to break. The damaged component is then unsoldered and replaced by a new component. Finally the plate is put into a new housing and if necessary recast with polyurethane foam in the requisite quantity.
2. The plaintiff in the main action imported modules of this type on several occasions during the years 1971 to 1973 and also imported on 2 August 1977 type ADC 1109 modules the housing of which was not filled up. When they were cleared for customs purposes the customs authorities classified them under various tariff headings. A subsequent re-examination led the customs authorities to classify the imports effected in 1971 under tariff subheading 85.21 C of the Common Customs Tariff in the version in force at the time and the imports effected on and after 1 January 1972 “as electronic micro-circuits” under tariff subheading 85.21 D of the tariff in the version applicable as from that date. Tariff heading 85.21 C in the version of Regulation (EEC) No 1/71 of the Council of 17 December 1970, (Journal Officiel of 1 January 1971, 1/71, p. 1) in force in 1971 referred to Regulation (EEC) No 1/72 of the Council of 20 December 1971 (Journal Officiel of 1 January 1972, L 1, p. 1), which entered into force on 1 January 1972, amended the wording of tariff heading 85.21. The new heading 85.21 D referred to Regulation No 1/72 also amplified the notes at the beginning of Chapter 85 of the tariff. The new Note 5 reads as follows: Unlike the customs authorities the plaintiff in the main action considers that the goods in question should have been classified, according to their intended use, under headings:
“Transistors and similar mounted semiconductor devices”.
“Diodes, transistors and similar semiconductor devices; electronic micro-circuits”.
“For the purposes of heading No 85.21
A) ...
B) ‘Electronic micro-circuits’ are to be taken to be:
a) Micro-assemblies of the “fagot” module, moulded module, micro-module and similar types, consisting of discrete, active or both active and passive miniaturized components which are combined and interconnected;
b) Monolithic integrated circuits in which the circuit elements (diodes, transistors, resistors, capacitors, inter-connections, etc.) are created in the mass (essentially) and on the surface of a semi-conductor material (doped silicon, for example) and are inseparably associated;
c) Hybrid integrated circuits in which passive and active elements, some obtained by thin-or thick-film technology (resistors, capacitors, inter-connections, etc.), others by semiconductor technology (diodes, transistors, monolithic integrated circuits, etc.), are combined, to all intents and purposes indivisibly, on a single insulating substrate (glass, ceramic, etc.). These circuits may also include miniaturized discrete components.
For the classification of the articles defined in this note, heading No. 85.21 shall take precedence over any other heading in the Tariff which might cover them by reference to, in particular, their function.”
“85.14 Microphones and stands therefor; loud-speakers; audiofrequency electric amplifiers”,
“85.22 Electrical appliances and apparatus, having individual functions, not falling within any other heading of this chapter: A. ... B. ... C. Other”,
or
“84.53. Automatic data-processing machines and units thereof; magnetic or optical readers, machines for transcribing data on the data-media in coded form and machines for processing such data, not elsewhere specified or included”, or, before 1 January 1972, “Punched card ... machines (perforators, verifiers, sorters, tabulators, multipliers etc.)” The above headings give rise to payment of considerably lower customs duty than that payable under the headings taken by the customs authorities.
3. The plaintiff in the main action first lodged administrative objections against the classifications made by the customs authorities and then brought the matter before the Finanzgericht München. Its main submission is that the goods in question were clearly neither integrated circuits nor micro-assemblies since they do not consist of discrete miniaturized components (“Einzelbauelemente”) nor were they manufactured by the micromodule technology or the moulded module or “fagot” technology. Most of the modules in question involve in addition to other components monolithic integrated circuits, which, according to the terminology of the Common Customs Tariff, are not part of discrete components. The various components used in the modules are not miniaturized components either, because their degree of miniaturization is not such as was normal at that time with electrical equipment requiring the maximum possible economy of space. The other special feature that the circuits should be inseparably associated is likewise not present in the case of those modules whose housing is not filled or only filled with polyurethane foam. The components are inseparably associated only if the flow of electricity may be interrupted or a discrete component may be extracted from the system only at the cost of destroying the equipment or unit. That is not the case with the modules in question since they may be split up. Furthermore the modules are not manufactured according to the so-called moulded module technique — the only one to be taken into consideration in this case having regard to Note 5 (B) (a) to Chapter 85 of the Common Customs Tariff. According to the customs authorities the modules, the components of which are fitted to a ceramic plate (DAC-1 OH module), must be regarded from the standpoint of the customs tariff as hybrid integrated circuits within the meaning of Note 5 (B) (c) to Chapter 85 of the Common Customs Tariff. The other modules are micro-assemblies. A discrete component is every part which is individually tangible and constitutes an entity with connections which is to be regarded as indivisible both in describing it and in marketing it. It may consist of one or more circuit elements, so that monolithic integrated circuits also fall within that category. Miniaturization within the meaning of Note 5 (B) (a) to Chapter 85 of the Common Customs Tariff pre-supposes a reduction in size of the normal components up to the limit prescribed by the output standards, the technological situation in or about 1970 being in this respect determinative. The moulded module technique is every processs which applies the moulding of discrete components into a block which is usually of synthetic resin, protecting the said components against the influence of the environment. The so-called “simi-block” technique is only a particular form of the moulded module technique. DAC-1 OH type modules are hybrid integrated circuits, because their conductor elements are produced on a ceramic substrate by the thick-film technology and are fitted with semiconductor elements. The fact that all the semi-conductor components are encapsulated and that their connecting wires are connected by soldering to the conductor elements does not preclude this classification.
4. The national court, considering that the determination of the case depended on the interpretation of Note 5 (B) to Chapter 85 of the Common Customs Tariff (in its version commencing with Regulation No 1/72), by an order of 10 April 1980 lodged at the Court Registry on 14 May 1980 referred the following question to the Court for a preliminary ruling :
“How are the expressions:
1) ‘Discrete miniaturized components’(subparagraph (a) and (c));
2) ‘Moulded module type’, ‘similar types’ and ‘which are combined’ (subparagraph (a)); and
3) ‘In which ... elements, some obtained by ... semi-conductor technology ... are combined, to all intents and purposes indivisibly’(subparagraph (c)), in Note 5 (B) to Chapter 5 of the Common Customs Tariff to be interpreted?”
5. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the Commission of the European Communities, represented for that purpose by Manfred Beschel, acting as Agent, a member of the Commission's Legal Department. The Court, on hearing the report of the Judge-Rapporteur and the views of the Advocate General, decided to open the oral procedure without any preparatory inquiry and by an order dated 15 October 1980 to assign the case to the Third Chamber as provided for by Article 95 of the Rules of Procedure.
II — Written observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC
The Commission points out to begin with that remarkable technical progress has been made in the sector of the electronic goods in question in this case. It emphasizes that it is the development of semi-conductor technology, which has led to the replacement of the electron tube by the transistor, that is especially relevant. After outlining the development of this technique it stresses that the tariff classification of these products, whose properties and external features have been developed and modified just as speedily, gives rise to certain problems. These problems were especially difficult at the end of the sixties when the Common Customs Tariff mentioned under heading 85.21 simply “Transistors and similar mounted semi-conductor components” (until Regulation No 1/71). The Customs Cooperation Council then set about finding an all-embracing solution to this problem. The wording which that Council adopted has been reproduced in the tariff as from 1 January 1972. According to the Commission it is also necessary to take into consideration the Explanatory Notes to the Customs Cooperation Council Nomenclature, formerly called “the Brussels Nomenclature”, which are contemporaneous with the above-mentioned amendment.
(a) The first part of the question
aa) The first part of the question concerns the interpretation of the expression “discrete miniaturized components” or the equivalent used in Note 5 (B) (a) and (c). According to the Commission the word “miniaturization” denotes a tendency to make components of the smallest possible size and not the unchanging, permanent and unvarying state of a product. It describes a development process which is gradually completed and the particular feature of which is that tubes are replaced by transistors. The degree of miniaturization achieved is irrelevant to the answer to be given to the question whether or not it is possible to speak of a discrete miniaturized component. In order to determine whether, in some cases, the capacitors used in the construction of a circuit may be regarded as discrete miniaturized components, it is necessary to establish whether these components have been devised in such a way as to achieve maximum economy of space within the possible technological limits at the time of their manufacture. The order making the reference also raises the question whether the density in which the components are arranged is a factor in the definition of the concept of miniaturization. The national court is endeavouring to ascertain whether the concept “micro-circuit” which implies some reduction of the entire system, allowing space to be saved, presupposes that the components must be assembled according to a specific density. The Explanatory Notes to the Nomenclature, to which reference has been made, mention the “high density” in which the components are arranged as being a particular feature of electronic micro-circuits. Yet they give no indication of the quantity or number enabling this high density to be defined more exactly. There is a “high density” if the gauge corresponds to the normal gauge of modules of the same type manufactured during the same period. According to the Commission the usual distance between the holes made in circuit boards was at the time of the imports in question about 5 mm, whereas nowadays the gauge is about 2.5 mm.
bb) The part of the question concerned with the interpretation of the expressions “discrete component” [Einzelbauelement”] within the meaning of Note 5 (B) (a) is intended to make it possible to establish whether the goods in question are in fact “discrete” components only or whether there are also integrated circuits (monolithic or hybrid). In fact, whereas discrete components are physical entities having one electrical function only (such as transistors, diodes, resistors), the particular feature of integrated components is that, although they are also an entity from the physical point of view, they perform several electrical functions. The problem of delimitation raised by the national court arises only as regards the German version of Note 5 (B) (a) which does not rule out the possibility of an interpretation to the effect that only a physical entity is involved. Such an interpretation must however be rejected. On the one hand from the point of view of systematic interpretation Note 5 (B) draws a a clear distinction between the integrated circuits in question (under subparagraphs (b) and (c)) and non-integrated circuits (referred to under subparagraph (a)). On the other hand all the other language versions of Note 5 (B) (c) include the concept of a “discrete” component, which from the linguistic point of view excludes integrated circuits for the very good reason that it is used as opposed to the concept of the integrated component.
(b) The second part of the question
The second part of the question is concerned with the interpretation of the expressions “moulded module type”, “similar type” and “which are combined” found in Note 5 (B) (a) to Chapter 85 of the Common Customs Tariff.
aa) The purpose of casting electronic circuits into a block is above all to protect the components of the circuit and the conductors from the effects of the environment. This operation usually produces an inseparable physical entity, namely a block into which the various components are cast. According to the Explanatory Notes to the Nomenclature the special feature of the moulded module technology is the fact that “the components are encased in a block ... generally of artificial resin”. It is above all clear from the English version of Note 5 (B) (a) to Chapter 85 of the tariff, which simply mentions “moulded modules” that the concept of “moulded module technology” does not merely cover the special process of the so-called simi-block technology. The Commission takes the view that, in order to be able to speak of moulded module technology, it suffices if the components of the circuits are cast in accordance with some technological process. It is in the interest of legal certainty and ease of verification that reference is made to the objective characteristics and properties of the product in question (judgment of 16 December 1976 in Case 38/76, Industriemetall Luma GmbH v Hauptzollamt Duisburg [1976] ECR 2027). In the Commission's view any casting material which is used for the production of circuits in the form of blocks forming a physical entity, may fall within the moulded module technology.
bb) The words “similar types” cover, within the meaning of Note 5 (B) (a), all manufacturing processes of micro-assemblies the operation of which leads to the production of a unitary system forming a physically inseparable whole. On the other hand this provision excludes “contact boards”, the components of which may be easily unsoldered and replaced by others. However, it should be emphasized that even in the case of modules manufactured in accordance with the moulded module technology or one of the other processes mentioned in Note 5 (B) (a) it is possible to replace some of the components. Having regard to the cost of this operation and the risk of further damage it is undertaken only in special cases. In the Commission's view this type of module is covered by the expressions “similar types” and “which are combined” within the meaning of Note 5 (B) (a). As far as concerns modules inserted in housings without being cast it is the method whereby they are inserted in the housing which determines whether in such circumstances they may or may not be called “similar types”. If the incorporation in a housing leads to the creation of a permanent physical entity made up of a housing and of circuit components which can only be separated at extremely high cost it is then possible to speak of a “similar type” within the meaning of Note 5 (B) (a). This is in particular the case where the opening of the housing involves a risk of the actual circuit's being damaged or where the methods adopted to open the housing and carry out the repairs are disproportionate to the value of the circuit itself.
(c) The third part of the question
The third part of the question is concerned with the expressions “hybrid circuits” and “combined, to all intents and purposes indivisibly” in Note 5 (B) (c).
aa) In a hybrid integrated circuit the carrier (plate) is fitted with “mixed” equipment consisting of active and passive elements. The passive elements (resistors, capacitors etc.) are fitted on to the support by vacuum metal-plating by means of a special process, namely by thin or thick-film technology, which brings about a close association both between the circuit components themselves and between the circuit and the support. That makes it necessary to use glass, ceramic or a material having the same characteristics (for example quartz) as a carrier for the components. For this reason Note 5 (B) (c) mentions an “insulating substrate”. As far as concerns the use of the other components (transistors, diodes, etc.) Note 5 (B) (c) simply states generally that they are “obtained ... by semiconductor technology”. The latter technology covers “discrete” components as well as monolithic integrated circuits both of them being mentioned incidentally in order to state accurately the definition of the concept “semiconductor technology” which is found in the actual note. By way of confirmation the second sentence of Note 5 (B) (c) expressly states that hybrid integrated circuits may include “miniaturized discrete components”. Even where discrete components alone are used, it would be possible to speak of a hybrid integrated circuit, provided that the other conditions laid down by Note 5 (B) (c) are fulfilled.
bb) The requirement that the components used should be combined “to all intents and purposes indivisibly” creates no difficulty in so far as concerns passive components incorporated by means of thin- or thick-film technology. In fact it is impossible because of the mounting technique to separate the component from the support without destroying the element which has thus been constituted. On the other hand the components obtained by semi-conductor technology are simply soldered on the conductor elements. It follows that, even if no particular steps are taken, it is perfectly possible to separate these components from the rest of the circuit (by unsoldering them) and to replace them with others. In such circumstances there can be no question of a combination “to all intents and purposes indivisibly” within the meaning of Note 5 (B) (c). Nevertheless if, after the soldering of the semi-conductor components, circuits of this type are briefly immersed in liquid epoxy-resin with a view to covering them with a protective film, or, like the micro-assemblies, cast in a block, the condition laid down by Note 5 (B) (c) must be regarded as fulfilled. It is immaterial whether the circuit is subsequently incorporated in a housing or not. On the other hand if the circuit (which is not otherwise protected) is simply enclosed in a housing it is the circumstances of the particular case which make it possible to establish whether or not the elements may be said to be combined to all intents and purposes indivisibly. It should be ascertained to what extent the process used is designed to produce a physical entity the splitting of which is only possible subject to great technical difficulty and/or high cost. This argument is confirmed by the English version of Note 5 (B) (c) (“to all intents and purposes indivisibly”). It is for the national court to establish in each case whether the circuit was in fact connected to the housing in such a way that the conditions laid down for customs classification permit classification as a hybrid integrated circuit.
On the basis of the preceding observations the Commission submits that the Court should give the following answer to the question referred to it by the Finanzgericht München:
“1. The expression ‘discrete components’ (‘Einzelbauelemente’) within the meaning of Note 5 (B) (a) and (c) to Chapter 85 of the Common Customs Tariff must be interpreted as meaning that they refer only to physical entities performing one basic electrical function (transistors, diodes, resistors, etc.). Discrete components which are manufactured in accordance with the principles of semi-conductor technology or which, having regard to the technological possiblities at the time of their manufacture, have been designed in accordance with the established trend in the construction of elements of reduced size are to be regarded as ‘miniaturized’ within the meaning of the said provision. Moreover, for electronic circuits manufactured by means of such discrete components to be classified as ‘micro-assemblies’ within the meaning of Note 5 (B) (a) to Chapter 85 of the Common Customs Tariff the miniaturized discrete components must also be grouped together at a density which was normal for the period during which they were manufactured, taking into account the length and width of the components and their conductivity. 2. The expressions ‘moulded module type’ and ‘which are combined’ within the meaning of Note 5 (B) (a) to Chapter 85 of the Common Customs Tariff must be interpreted as meaning that they denote any process whereby micro-circuits are incorporated in material which has been cast so as to form a physical entity in the shape of a block. Any process — such as the manufacturing processes mentioned in Note 5 (B) (a) — which is used to manufacture micro-assemblies forming a physical entity must be regarded as a process of ‘similar type’ within the meaning of the said provision. 3. Note 5 (B) (c) to Chapter 85 of the Common Customs Tariff must be interpreted as meaning that it also covers circuits comprising primarily or exclusively miniaturized discrete components apart from components fixed by means of thin- or thick-film technology. The active and passive elements of a hybrid integrated circuit are ‘combined to all intents and purposes indivisibly’ within the meaning of the provision in question if all the components used are combined to form a physical entity and the construction of the system as a whole indicates that no interference with this entity has been contemplated.”
III — Oral procedure
At an informal preparatory meeting on 21 May 1981 in which Mr Schade, Rechtsanwalt, Munich, representing the plaintiff in the main action, and Mr Beschel, acting as Agent, representing the Commission of the European Communities, took part, the electronics experts of the participants, namely Mr Ruge for the plaintiff in the main action and Mr Junghans for the Commission, gave the Court explanations of a technical nature.
At the sitting on 16 June 1981, oral argument was presented by Mr Schade for the plaintiff in the main action and Mr Beschel for the Commission.
The plaintiff in the main action submitted in the course of the oral procedure that the concepts of “discrete element” or “discrete component” must be regarded as contrasting with that of “integrated components”. Those concepts cover only components consisting of a single electronic circuit element, such as diodes, transistors, resistors or condensers, and not circuits such as monolithic integrated circuits which fulfil several electrical functions. As regards the concept of “miniaturization”, it presupposes that each of the components utilized is actually, at least to some extent, smaller than that normally manufactured at the time in question. The concept of “moulded module technology”, which is not a term of electronic jargon, relates to the moulding of a separate block and not to encasement in a plastic housing which may be filled with a cast.
In the course of the oral procedure, the Commission modified its position, compared with its written observations, now contending that the concept of “discrete components” is to be defined not on the basis of the components' functions but by reference to the characteristics of their construction and that there must be an individual element constituting a separate physical unit, which also applies in the case of integrated circuits. The Commission therefore proposes that the reply to the first part of the question referred to the Court for a preliminary ruling should be that the concept of “discrete components”, within the meaning of Note 5 (B) (a) and (c) to Chapter 85 of the Common Customs Tariff, must be interpreted as including electronic elements which constitute in themselves an indivisible physical entity.
The Advocate General delivered his opinion at the sitting on 8 October 1981.
Decision
1. By order of 10 April 1980, received at the Court on 14 May 1980, the Finanzgericht München [Finance Court, Munich] referred to the Court under Article 177 of the EEC Treaty, a question for a preliminary ruling on the interpretation of Note 5 (B) to Chapter 85 of the Common Customs Tariff in the version adopted in Regulation (EEC) No 1/72 of the Council of 20 December 1971 amending Regulation (EEC) No 950/68 on the Common Customs Tariff (Journal Officiel 1972, L 1, p. 1).
2. This question, which has been raised in connection with a dispute between Analog Devices GmbH and the German customs administration, relates to the classification for tariff purposes of electronic circuits (modules) designed for incorporation in automatic data-processing machines and other electrical equipment. The plaintiff in the main action imported modules into the Federal Republic of Germany between 1971 and 1973 and in 1977. It is of the opinion that those modules are to be classified, in accordance with the use for which they are intended, under the tariff heading corresponding to the relevant machine or equipment. According to the customs administration, however, they are to be classified, in the case of the modules imported during 1971, as “transistors and similar mounted semi-conductor devices” under heading 85.21 C of the Common Customs Tariff in the version set out in Regulation (EEC) No 1/71 of the Council of 17 December 1970 amending Regulation (EEC) No 950/68 on the Common Customs Tariff (Journal Officiel 1971, L 1, p. 1) and, in the case of the modules imported after 1 January 1972, as “electronic micro-circuits”, under heading 85.21 D of the Common Customs Tariff in the version adopted in Regulation (EEC) No 1/72 of the Council of 20 December 1971, replacing the former heading 85.21 C.
3. Note 5 (B), which precedes Chapter 85 and was introduced by Regulation (EEC) No 1/72, lays down that
“For the purposes of heading No 85.21 :
A) ...
B) ‘Electronic micro-circuits’ are to be taken to be:
a) micro-assemblies of the ‘fagot’ module, moulded module, micromodule and similar types, consisting of discrete, active or both active and passive miniaturized components which are combined and interconnected;
b) monolithic integrated circuits in which the circuit elements (diodes, transistors, resistors, capacitors, inter-connections, etc.) are created in the mass (essentially) and on the surface of a semi-conductor material (doped silicon, for example) and are inseparably associated;
c) hybrid integrated circuits in which passive and active elements, some obtained by thin- or thick film technology (resistors, capacitors, inter-connections, etc.), others by semi-conductor technology (diodes, transistors, monolithic integrated circuits, etc.), are combined, to all intents and purposes indivisibly, on a single insulating substrate (glass, ceramic, etc.). These circuits may also include miniaturized discrete components.
For the classification of the articles defined in this note, heading No 85.21 shall take precedence over any other heading in the tariff which might cover them by reference to, in particular, their function.”
4. The Finanzgericht München took the view that the solution of the dispute in the main proceedings depended on the interpretation of the above-mentioned note and referred the following question to the Court for a preliminary ruling:
“How are the expressions:
1) ‘Discrete miniaturized components’ (subparagraphs (a) and (c)) ;
2) ‘Moulded module type’, ‘similar types’ and ‘which are combined’ (subparagraph (a)); and
3) ‘In which ... elements, some obtained by ... semi-conductor technology ... are combined, to all intents and purposes indivisibly’ (subparagraph (c)), in Note 5 (B) to Chapter 85 of the Common Customs Tariff to be interpreted?”
The concept of “discrete component”
5. It is clear from the order malung the reference to the Court that the question raised by the Finanzgericht München seeks to ascertain first whether the expression “discrete components”, employed in subparagraph (a) of Note 5 (B) to denote basic units which may be used to form electronic micro-circuits of the “micro-assembly” type described in that provision, covers only physical units which constitute a single electronic circuit element and have a single electrical function or whether that expression also includes circuits which consist of several elements and have several functions, including integrated circuits.
6. The plaintiff in the main action contended that the expression in question covers only components consisting of a single electric circuit element and having a single electrical function. In that regard, it referred for this purpose to the wording and the layout of the note in question as well as to the Explanatory Notes to the Nomenclature of the Customs Cooperation Council.
7. The Commission, which had expressed the same opinion in its written observations, contended at the hearing that the expression “discrete components” is to be interpreted as covering all the electronic elements constituting an indivisible physical unit and that it may also include monolithic and even hybrid integrated circuits.
8. To begin with, it must be observed that Note 5 (B) distinguishes between three types of electronic micro-circuits, namely micro-assemblies in subparagraph (a), monolithic integrated circuits in paragraph (b) and hybrid integrated circuits in subparagraph (c). From the layout of the notes, the inference may be drawn, in the absence of specific explanations to the contrary, that the authors of the note did not regard the micro-circuits of the types included in subparagraphs (b) and (c) as basic units for those of the type referred to in subparagraph (a).
9. Furthermore, it is necessary to draw attention to a difference in the wording between subparagraph (a) and subparagraph (c). In subparagraph (a), the basic units of micro-assemblies are designated by the expression “discrete components”, whereas in subparagraph (c) the basic units of hybrid integrated circuits are designated by the expression “elements ... obtained ... by semi-conductor technology” and monolithic integrated circuits are expressly included amongst them. That shows that the Common Customs Tariff has drawn a distinction between the seemingly more restrictive concept of “discrete components” and the wider concept of “elements obtained by semi-conductor technology”, since the former is reserved to basic units having only a single electrical function whereas the latter may include integrated circuits combining several of the functions of an electric circuit.
10. Moreover, the Explanatory Notes to the Nomenclature of the Customs Cooperation Council concerning Chapter 85 list under heading 85.21 in paragraph F (I) (1) several elements having a single electrical function as components of micro-assemblies in the form of so-called cordwood or fagot modules but make no mention of monolithic or hybrid integrated circuits. In addition, it is pointed out at the end of paragraph F that heading 85.21 excludes “assemblies formed by adding to an electronic micro-circuit other devices or other micro-circuits of the same or different type” since such assemblies are to be classified, where necessary, as spare parts or pieces under the heading appropriate to the machine or appliance in question. Those explanations support the interpretation that hybrid and monolithic integrated circuits may not be regarded as basic units for the formation of the micro-assemblies referred to in Note 5 (B) (a).
11. It is impossible to counter that interpretation by relying, as the Commission has done, on the last paragraph of Note 5 (B) relating to the precedence of heading 85.21 over all other headings of the nomenclature which are capable of covering the articles in question by reference, in particular, to their function. That provision applies only to the “articles defined in this note” and the question raised concerning the expression “discrete components” seeks precisely to ascertain whether the articles in question are coverd by the definition contained in subparagraph (a) of that note.
12. Admittedly, it cannot be denied that the technical developments which have taken place in the industrial sector concerned, as a result of which the use of integrated circuits as basic units in the construction of certain electronic micro-circuits has become more widespread, justify the drawing up of a new customs classification. However, if that is the case, it is for the competent Community institutions to take account of it by amending the Common Customs Tariff. Failing such an amendment, the interpretation of the tariff cannot be adapted to changing processes.
13. The answer to the question raised must therefore be that the expression “discrete components” within the meaning of Note 5 (B) (a) must be interpreted as denoting physical units consisting of a single electric circuit element and having a single electrical function such as, for example, diodes, transistors or resistors.
The concept of “miniaturization”
14. The question raised by the Finanzgericht München seeks to ascertain, secondly, what the term “miniaturized” within the meaning of paragraphs (a) and (c) of Note 5 (B) is to be understood as meaning.
15. According to the plaintiff in the main action, the concept of miniaturization is characterized by the fact that each component utilized must actually be at least to some extent smaller than that normally manufactured at the time in question.
16. According to the Commission, components manufactured in accordance with the principles of semi-conductor technology or those which, regard being had to the technical possibilities in existence at the time of their manufacture, have been conceived in accordance with the tendency to construct elements of reduced dimensions, are to be regarded as “miniaturized” within the meaning of the note in question.
17. In that regard, it should be pointed out that the concept of miniaturization relates to a manufacturer's effort to save space by reducing the size of the pieces in question. In the case of discrete components used in the construction of the electronic micro-circuits referred to in Note 5 (B), “miniaturization” indicates that the various components in question, such as diodes, transistors, condensers, inductances, resistors or others, must be produced in smaller sizes.
18. Even though the tendency to save space is particularly marked in the case of electronic technology based on semi-conductor elements, it does not follow that where an element has been obtained by semi-conductor technology it may, for that very reason, be regarded as “miniaturized” within the meaning of the provision in question.
19. Furthermore, it is apparent from the terms electronic “micro”-circuits and “micro”-assembly that the attempt to save space must be related not only to the components of the electronic circuits in question but also to those circuits in their entirety, in other words on the basis of the density of the components within the circuit. Moreover, that is supported by the Explanatory Notes to the Nomenclature of the Customs Cooperation Council. The first sentence of paragraph F under heading 85.21 of those notes explains that electronic micro-circuits “are miniaturized devices having a high passive and active element and/or component density”.
20. The Common Customs Tariff has refrained from fixing an absolute figure for either the size of discrete components or their group density. The concept of miniaturization constitutes a relative criterion which refers, at least indirectly, to the normal technical possibilities in existence in the electronics industry at the time of importation. The application of such a concept to a given case may thus depend on technical developments in that field. It is for the national court, where necessary with the assistance of an expert, to determine the state of technology at the time of importation so as to enable that criterion to be assessed.
21. However, contrary to the view expressed by the plaintiff in the main action, it does not follow that each of the components utilized in a module must actually be at least to some extent smaller than the average standard in production in the sector in question at a given moment. Such a requirement would unduly restrict the scope of the relevant provision in a sector in which a tendency towards miniaturization is particularly pronounced. For the purposes of the relevant provision, it is sufficient if the modules are conceived, as regards both the dimensions and the density of the components utilized, in accordance with the tendency to save space prevailing in the industrial sector concerned.
22. Accordingly, the reply to the question raised must be that the condition of “miniaturization” within the meaning of Note 5 (B) must be understood as meaning that, regard being had to the normal technical possibilities in existence in the electronics industry at the time of importation, the appearance of the modules reveals the manufacturer's effort to save space by utilizing components of small dimensions and by grouping them in a certain density.
The concepts of “moulded module type” and “similar types”
23. The question raised by the Finanzgericht München seeks to ascertain, thirdly, what the expressions “moulded module type” and “similar types” in Note 5 (B) (a) are to be understood as meaning.
24. According to the plaintiff in the main action, the expression “moulded module” refers solely to modules manufactured in accordance with the so-called “simi-block” process which consists in casting the elements of the module in a separate block and not in encasing them in a plastic housing filled with a cast.
25. According to the Commission, that expression covers all processes which consist in encasing the micro-circuits in question in a cast in such a way as to create a physical entity in the form of a block.
26. The Explanatory Notes to the Nomenclature of the Customs Cooperation Council specify, in paragraph F (I) (2) under heading 85.21, that micro-assemblies are, inter alia, in the form of modules such as “moulded modules in which the components are encased in a block (cube, parallelepiped, hemisphere, etc.) generally of artificial resin”. That definition may apply both to a process characterized by the fact that the resin cast is utilized not only as a protection but also as a base for the various parts, and to a process consisting in casting a micro-circuit which has already been assembled on its own base in a receptacle containing resin. Consequently, the concept of “moulded module type” does not relate to a particular technique but covers any process which consists in incorporating the elements of the module in a cast in such a way as to create a physical entity in the form of a block.
27. According to the first sentence of paragraph F of the Explanatory Notes to the Nomenclature of the Customs Cooperation Council relating to heading 85.21, the expression “electronic micro-circuits” covers a group of electronic devices “which are regarded as single units”. That wording indicates that the modules in question must constitute a group the components of which are intended to be inseparable. Several processes utilized for the various types of modules referred to in Note 5 (B) (a) as “ ‘fagot’ module, moulded module” and “micro-module ... types” are moreover characterized by the fact that the components of the modules can, in principle, no longer be separated. Accordingly, it is their indivisible character which must be taken into consideration both in the case of modules in the form of “moulded modules” and in the case of modules of “similar types” within the meaning of the note in question.
28. However, it is not possible to insist on this indivisible character from a strictly technical point of view since it is most frequently possible in theory to separate the components of the units thus constituted by costly means. For a module to be no longer regarded as an indivisible unit, it is sufficient if the separation of its components in particular for the purpose of repair is possible, regard being had to the normal technical possibilities in existence in the electronics industry, by means the cost of which is not disproportionate to the value of the module.
29. The reply to the relevant part of the question raised must therefore be that the concept of “moulded modules” and “similar types” within the meaning of Note 5 (B) (a) must be interpreted as referring to processes resulting in the manufacture of modules constituting a unit the components of which cannot, regard being had to the normal technical possibilities in existence in the electronics industry at the time of importation, be separated, in particular for the purpose of repair, except by means the cost of which is disproportionate to the value of the module. The concept of “moulded module” related to any process which consists in incorporating the elements of the module in a cast in such a way as to create an indivisible physical entity, in the sense described above, in the form of a block.
Hybrid integrated circuits
30. The question raised by the Finanzgericht München seeks to ascertain, fourthly, what is to be understood by the expression “in which ... elements, some obtained by., semi-conductor technology ... are combined, to all intents and purposes indivisibly” within the meaning of Note 5 (B) (c), defining hybrid integrated circuits. It is clear from the order making the reference that the purpose of the question is primarily to determine whether the elements manufactured by semi-conductor technology, utilized to form a hybrid integrated circuit side by side with components manufactured by thin-or thick-film technology, must in the main be non-discrete components or whether they may also be exclusively discrete components, in the sense described above.
31. The hybrid integrated circuits referred to in subparagraph (c) of the note in question are characterized by the fact that some elements of such micro-circuits are obtained by thin- or thick-film technology whilst others are obtained by semi-conductor technology. The expression “elements obtained by semi-conductor technology” covers both discrete components in the sense referred to above and monolithic integrated circuits. The last sentence of subparagraph (c) of the note in question also explains that some hybrid integrated circuits may include miniaturized discrete components (active or passive or both) and permits their utilization without laying down any restrictions.
32. It follows that Note 5 (B) (c) covers modules containing all kinds of elements obtained by semi-conductor technology, including those which consist, apart from their components manufactured by thin- or thick-film technology, exclusively of discrete components in the sense described above.
33. It is apparent from the order making the reference that the question raised by the national court seeks to establish next what is to be understood by the combination “to all intents and purposes indivisibly” of the two types of element constituting a hybrid integrated circuit.
34. According to the first sentence of paragraph F of the Explanatory Notes to the Nomenclature of the Customs Cooperation Council under heading 85.21, it must be possible for all the electronic micro-circuits referred to in that note to be “regarded as single units”. It follows that by the expression “combined, to all intents and purposes indivisibly” in subparagraph (c), in keeping with the views expressed above on the concepts of “moulded modules” and “similar types” within the meaning of subparagraph (a), the note in question does not refer to a particular method of electrical connection or of securing elements, nor does it relate to the physical impossibility of separating the elements in question. It is sufficient, for the purposes of the application of subparagraph (c), if the various components of a hybrid integrated circuit are combined in such a way that, regard being had to the normal technical possibilities in existence in the electronics industry, they can be separated, in particular for the purpose of repair, only by means the cost of which is disproportionate to the value of the module.
35. The answer to the question raised should therefore be that Note 5 (B) (c) must be interpreted as meaning that hybrid integrated circuits include modules comprising all kinds of elements obtained by semi-conductor technology, as well as modules consisting, apart from their components manufactured by thin- or thick-film technology, exclusively of discrete components in the sense described above. The various components of a hybrid integrated circuit must be combined in such a way that, regard being had to the normal technical possibilities in existence in the electronics industry at the time of importation, they cannot be separated, in particular for the purpose of repair, except by means the cost of which is disproportionate to the value of the module.
Costs
36. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.
On those grounds, THE COURT (Third Chamber) in answer to the question submitted to it by the Finanzgericht München by order of 10 April 1980, hereby rules:
1 The expression “discrete components” within the meaning of Note 5 (B) (a) to Chapter 85 of the Common Customs Tariff must be interpreted as denoting physical units consisting of a single electric circuit element and having a single electrical function such as, for example, diodes, transistors or resistors.
2 The condition of “miniaturization” within the meaning of Note 5 (B) must be understood as meaning that, regard being had to the normal technical possibilities in existence in the electronics industry at the time of importation, the appearance of the modules reveals the manufacturer's effort to save space by utilizing components of small dimensions and by grouping them in a certain density.
3 The concept of “moulded modules” and “similar types” within the meaning of Note 5 (B) (a) must be interpreted as referring to processes resulting in the manufacture of modules constituting a unit the components of which cannot, regard being had to the normal technical possibilities in existence in the electronics industry at the time of importation, be separated, in particular for the purpose of repair, except by means the cost of which is disproportionate to the value of the module. The concept of “moulded module” relates to any process which consists in incorporating the elements of the module in a cast in such a way as to create an indivisible physical entity, in the sense described above, in the form of a block.
4 Note 5 (B) (c) must be interpreted as meaning that hybrid integrated circuits include modules comprising all kinds of elements obtained by semi-conductor technology, as well as modules consisting, apart from their components manufactured by thin- or thick-film technology, exclusively of discrete components in the sense described above. The various components of a hybrid integrated circuit must be combined in such a way that, regard being had to the normal technical possibilities in existence in the electronics industry at the time of importation, they cannot be separated, in particular for the purpose of repair, except by means the cost of which is disproportionate to the value of the module.