Report for the Hearing delivered in Case C-66/89

I — Facts and procedure

1. Powerex-Europe imports silicon discs from the United States, on which it carries out a number of processes in its plants at Massy and Le Mans for the purpose of turning them into electronic components known as high-power semiconductors (for the most part thyristors), that is to say, devices which allow an electrical current to pass in only one direction.

2. The items which Powerex import are of two types, A and B, which correspond to two distinct levels of production and which are used at different stages in one of the three phases of the technological production cycle introduced by the company. Before those items are imported into France, impurities designed to allow conduction are added to the items which are then soldered to a molybdenum disc. Items corresponding to type A are imported in that form, while all the so-called first phase operations have still not been completed. Powerex then subjects them to a conversion process in which the sides of the silicon discs are altered by the execution of a bevel, a process which then enables the core to let a current pass in one direction and to block it in the other. This operation is followed by a series of tests which conclude the first phase. In the case of items corresponding to type B, all the conversion processes in the first phase are carried out prior to importation. On the other hand, the operations in the second conversion phase are carried out after the items have been imported, both in the case of items corresponding to type A and in those corresponding to type B. Those operations involve a doping process: impurities are added in the first phase in such a way that their introduction cannot be fully controlled and that also means that the electric flux transmitted from one side of the silicon core to the other cannot be controlled. The second phase involves a fresh irradiation under an electron beam which introduces additional impurities, this time in a manner subject to full control. The third phase, that of assembly or encapsulation, is carried out by Powerex on all the types of silicon discs which it imports.

3. The main proceedings between the customs authorities and the Powerex company have arisen due to a difference of opinion concerning the tariff classification of those silicon discs in the case of imports made between 16 May and 14 September 1986. The customs authorities take the view that those discs come within the scope of Commission Regulation (EEC) No 1203/86 of 23 April 1986 (hereinafter referred to as ‘Regulation No 1203/86’) and must therefore be classified under subheading 85.21 D II of the Common Customs Tariff (rate of 17%) which is worded as follows: Powerex, however, had declared the silicon discs under subheading 85.21 E (rate of 5.8%), which is worded as follows: The customs authorities thereupon brought proceedings for recovery from Powerex of the difference between the duties which, in its view, ought to have been paid, and those which actually had been paid.

‘85.21 : ... valves and tubes ...

D. Diodes, transistors and similar semiconductor devices; light-emitting diodes; electronic microcircuits.

II. Other.’

‘85.21 E: Parts’.

4. The tribunal d'instance of Le Mans, before which the case was brought, took the view that, for it to be able to come to a decision, it was necessary to determine authoritatively the properties of the items imported and to have a highly detailed and objective description of the processes which Powerex carries out on them prior to their resale. The court therefore commissioned Mr Camus, the Director of the Centre national d'études des télécommunications (National Centre for Telecommunications Studies) in Grenoble for the purpose of acquiring an expert opinion. Following the submission of his report, the national court decided to stay the proceedings as it considered it necessary to refer the following questions to the Court of Justice: The judgment referring those questions was received at the Court Registry on 6 March 1989. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the defendant in the main proceedings, represented by F. Girard, of the Paris Bar, by the French Government, represented by E. Belliard and G. de Bergues, acting as Agents, and by the Commission of the European Communities, represented by G. Berardis, acting as Agent. On hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry and to assign the case to the Sixth Chamber.

‘(1) Do the two categories of items imported by Powerex-Europe, the qualities and characteristics of which were described by the expert, Mr Camus, in his repon dated 29 December 1988 drawn up after hearing the parties, fall within the scope of Regulation (EEC) No 1203/86 of 23 April 1986?

2) If Question 1 is answered in the affirmative, must that regulation be declared invalid for the reasons put forward by Powerex-Europe?

3) If Question 2 is answered in the affirmative, does the decision annulling the regulation affect imports made before the judgment was given?’

II — Written observations submitted to the Court

1. Powerex-Europe, the defendant in the main proceedings, states first of all that the report drawn up by the expert, Mr Camus, shows that the goods which Powerex imports do not, in their imported state, possess the essential characteristics of semiconductor devices as defined under subheading 85.21 D II of the Common Customs Tariff. It explains that the processes carried out in its plants on the components of type A make it possible to create a component which allows electrical current to pass in one direction and which blocks it in the other, while the processes which it carries out on items of types A and B lead to an alteration at the very core of the silicon discs, which is the active part of the product, and render the components capable of performing the electrical functions for which they were designed. Powerex then goes on to consider the validity of Regulation No 1203/86, which has the effect and the aim of classifying all silicon discs which have undergone selective diffusion whereby discrete zones are formed and which are mounted on a molybdenum support under subheading 85.21 D II. In that connection, it claims that the regulation was adopted on the basis of incorrect data, inasmuch as it is not true to say that a silicon disc which has undergone selective diffusion requires only terminals, leads and housing for its completion; according to Powerex, a bevel must be made which creates a current block in one direction, and doping must be administered without which it is not possible to control electrical flux. According to Powerex, the error in the basic data is also proved by the definition of selective diffusion included in the recitals in the preamble to Commission Regulation (EEC) No 288/89 of 3 February 1989 (Official Journal 1989, L 33, p. 23), according to which selective diffusion is ‘the process whereby integrated circuits are formed on a semiconductor substrate by the selective introduction of an appropriate dopant’. As a result, it explains, the dopage process is a substantial operation which leads to the creation of a new product: prior to dopage, the silicon core does not, according to the actual terms of the regulation, possess ‘its functional capabilities’. That illustrates the importance of the dopage process and proves that until such a process is carried out, a silicon core does not possess the essential characteristics of a semiconductor device. Powerex therefore claims that the Commission was inadequately informed as to the exact nature of the goods in question and was therefore led into committing a manifest error. The provisions adopted are the result of that error and constitute an infringement of the Treaty and of the texts adopted for the purpose of its application. Powerex also refers to the Commission's powers to adopt Regulation No 1203/86. In its view, the Commission had the power, under Regulation No 97/69 of the Council of 16 January 1969, to adopt a regulation introducing a classification coming between two headings capable of being considered, and it was also able to determine the content of those headings, a power concomitant with that of deciding at what stage of completion a specific product may be considered to possess the essential characteristics of the finished object. Powerex believes that, since the Commission stated in the recitals in the preamble to the regulation that two subheadings were capable of being considered, it is necessary to determine, for the purpose of deciding on the validity of that regulation, whether or not the terms of the headings required, on the contrary, pursuant to rule 1 and rule 2a of the Rules for the Interpretation of the Nomenclature, a classification under subheading 85.21 E as the only heading permissible for such articles. That question, it goes on to argue, may only be resolved through an examination of the operations which enable a silicon core to be converted into a semiconductor device. The expert report established unambiguously that a silicon core which has undergone selective diffusion must, prior to its encapsulation, undergo two main conversion processes: at the end of the first phase, the production of a bevel, allowing an electrical current to be blocked in one direction; in a second phase, the administration of a dopage which entails the totally controlled introduction of additional impurities, in such a way that it is subsequently possible to control the volume of electrical flux which is transmitted. According to Powerex, those two operations enable the silicon cores to function correctly and are so described not only in the expert report but also in the reasons on which the draft regulation was based. It therefore follows that only silicon cores which have undergone those conversion processes may come under subheading 85.21 D II and that, in the absence of such conversion, they must necessarily come under subheading 85.21 E. Powerex therefore believes that Regulation No 1203/86 altered the very terms of the headings by classifying under subheading 85.21 D II goods which did not come within its definition. If that were the case, it would be incompatible with the Council Regulation on the Common External Tariff and ought for that reason to be declared invalid. In conclusion, Powerex considers that Article 1 of Regulation No 1203/86, inasmuch as it applies without distinction to all silicon discs which have undergone selective diffusion, appears to apply to the silicon discs imported by Powerex. As a result, if it were supposed that the Community legislature considered that the operation of selective diffusion was defined as that process during which the dopage was definitively administered, which is the definition of selective diffusion proposed by Regulation No 288/89, and that Regulation No 1203/86 should be applied in the light of that definition, the latter regulation would certainly be valid and goods imported by Powerex would not be covered by it. Powerex therefore requests that the Court should rule as follows: In the event that the Court of Justice should not find it possible to interpret Regulation No 1203/86 in that way, Powerex requests that the Court should rule as follows: With regard to the third question, the defendant believes that the principle of retroactive annulment of the effects of an act which has itself been annulled is based, like the principle that a regulation should not be retroactive in effect, on respect for the subjective rights of individuals and businesses. Those rights, Powerex suggests, form the basis not only of those principles but also of exceptions thereto. In that regard it cites several judgments of the Court which, far from upholding the effects of a regulation or of another act, which has been declared invalid, vis-à-vis the economic operators whom they place at a disadvantage, have rather the opposite tendency to protect the rights which they extract from the provisions of superior law in addition to their established rights. For that reason, it is only in cases where overriding necessity justifies it that a right to repayment may be refused. In the present case, notes Powerex, it is difficult to see what overriding necessity could justify refusal of the right to repayment. Moreover, its request calls, in its view, for the invalidation of a regulation on the ground that, failing to comply with superior law, the customs duty which it had the effect of causing to be levied on certain goods which had previously been less heavily taxed, since they came under a different tariff heading, ought never to have been imposed. Moreover, within the context of the present case, Powerex has brought, by way of counterclaim, a request for repayment such that it will have, by the time that judgment is given, a vested right to repayment. Finally, it points to the admission made by the French customs that the disputed regulation was expressly directed towards Powerex which was, in its own words, ‘the only European importer of such materials’, and that such a finding was sufficient to dispel the idea that there could have been matters of overriding necessity. Powerex therefore suggests that the Court should answer the third question as follows:

‘The goods imported by Powerex, that is to say, silicon discs which have undergone selective diffusion, come within the scope of application of Commission Regulation No 1203/86 of 23 April 1986, in so far as it can be shown that they only lack terminals, leads and housing in order to constitute semiconductor devices, and that they already possess the essential characteristics of the finished product which consist, on the one hand, in allowing an electrical current to pass in one direction and blocking it in the other, and, on the other hand, in possessing properties required to permit the control of electrical flux with regard to both intensity and to volume.’

‘Regulation No 1203/86, which classifies silicon discs which have undergone selective diffusion under subheading 85.21 D II, that is to say, as semiconductor devices, even though they are not such devices and do not possess the properties of semiconductors, cannot be regarded as having defined the content of the provisions or required a classification between two subheadings capable of being considered in view of the terms of the headings, but must rather be regarded as having required a classification which runs counter to the terms of the headings, and as being for that reason invalid.’

‘If Regulation No 1203/86 of 23 April 1986 should be declared invalid, the effects of that regulation cannot remain in force with regard to imports made previously by Powerex.’

2. With regard to the first question, the French Government believes that the second and fourth recitals in the preamble to Regulation No 1203/86, in conjunction with Article 1 thereof, make it clear, in the first place, that that regulation covers silicon discs which have undergone selective diffusion whereby discrete zones are formed, and which are mounted on a molybdenum support; secondly, that those discs, although not provided with terminals, leads or housing, already in their present form constitute semiconductor devices; finally, that those discs come under subheading 85.21 D II. According to the French Government, items corresponding to type B have already undergone selective diffusion and are not subjected under phase 1 to any other major technological process. Those items therefore possess qualitatively the properties which are characteristic of a thyristor. In that regard, it refers to Rule 2a of the general rules of interpretation laid down in the Convention on Nomenclature for the Classification of Goods, which provides that: That, in its view, is the case with imported items corresponding to type B which, for that reason, must be classified under subheading 85.21 D II. According to the French Government, items corresponding to type A have undergone selective diffusion which by itself creates thyristors, and the first process which they undergo in Powerex-Europe's plant at Massy is a check that the thyristor has been satisfactorily energized. In support of that contention, the French Government refers to the report drawn up by Mr Camus, in which he states that: The French Government therefore believes that the answer to the first question must be that items corresponding to types A and B imported by Powerex-Europe do come within the scope of Commission Regulation No 1203/86. Turning to the second question, which concerns the validity of Regulation No 1203/86, the French Government first points out, in respect of the material validity of the regulation, that the Court has consistently held that it may criticize such a decision by the Commission only in the case of manifest error of judgment or misuse of powers, bearing in mind the technical nature of the necessary prior examination. The company, it is claimed, has not produced any material capable of casting doubt on the technical examination which the Commission carried out. With regard to the failure to state reasons which was also relied on by Powerex, the French Government argues that it is not possible to contend that the Commission regulation fails to state reasons, since the following reasoning emerges clearly from the recitals in the preamble to that regulation: the Common Customs Tariff, published as an annex to Regulation No 950/68 of the Council of 28 June 1968 (Official Journal, English Special Edition 1968 (I), p. 275), places semiconductor devices under subheading 85.21 D; silicon discs which have undergone selective diffusion, although not provided with terminals, leads or housing, constitute semiconductor devices; those discs are not ‘wafers’ within the meaning of subheading 85.21 D I; they therefore come under subheading 85.21 D II. With regard to the allegations made by Powerex concerning lack of competence on the part of the Commission, the French Government points out that the regulation in question was adopted pursuant to Regulation No 97/69 of the Council of 16 January 1969 (Official Journal, English Special Edition 1969 (I), p. 12) on measures to be taken for uniform application of the Common Customs Tariff. In that connection, the French Government also points out, citing the judgment of the Court of 28 March 1979 in Case 158/78 Biegi v Hauptzollamt Bochum [1979] ECR 1103, that the Court has ruled that that regulation confers on the Commission a wide discretion as to the choice between two or more headings of the Common Customs Tariff, subject only to the reservation that provisions adopted by the Commission shall not amend the text of the tariff. It is the opinion of the French Government that the Commission, far from modifying the Common Customs Tariff, has simply defined its contents by deciding to classify the goods in question in the present case, in view of their objective characteristics, under subheading 85.21 D II of the Common Customs Tariff.

‘Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as imported, the incomplete or unfinished article has the essential character of the complete or finished article’.

‘Items corresponding to type A, considered in their entirety, already have a thyristor structure (multi-layer NPNP) [N and P are the letters used in the expert report to designate the two different types of semiconductor] and it is possible to make them function “on the spot” as a thyristor by applying the appropriate voltage to the anode, cathode and the gate. The proof is that one of the first processes undergone by those items is a check to ensure that the thyristor has been satisfactorily energized’.

3. The Commission believes that the question whether the items imported by Powerex come within the scope of Regulation No 1203/86 must be answered in the negative. In support of that contention, the Commission explains that the silicon discs at which the regulation is directed ‘already in their present form constitute semiconductor devices’ (third recital in the preamble) which means, it argues, that those discs have already undergone ‘selective diffusion whereby discrete zones are formed’ (first recital in the preamble). In other words, the discs are imported after they have been treated in the non-member country of exportation in such a way that they allow an electrical current to pass in only one direction, which is the essential characteristic of a semiconductor. The importing company thus has only to fit the discs with their housing and the necessary leads and terminals. For the above reasons, the Commission adds, discs of that kind must be classified under subheading 85.21 D II, in accordance with General Rule 1 for the Interpretation of the Nomenclature. The Commission, however, claims that that is not the case as far as the silicon discs imported by Powerex are concerned. It is clear from the expert report that the discs imported by the company do not, in their imported state, constitute semiconductor devices; in order for them to become such, they require to be altered ‘through a series of basic technological processes’. The Commission also points out, in the light of the description given in the expert report of the various phases in the technological production cycle which take place in the Powerex plants, that all discs which the company imports must necessarily and systematically undergo extensive and complex technological treatment in order to become semiconductor devices. Only after that do the silicon discs which are imported by Powerex resemble those which are subject to Regulation No 1203/86. For those reasons, the Commission proposes that the Court should answer the first question as follows:

‘Silicon discs intended for the manufacture of semiconductor devices, which, for that purpose, have systematically to undergo a series of technological operations, do not come within the application of Commission Regulation No 1203/86 of 23 April 1986.’

M. Díez de Velasco

Judge Rapporteur

1 Language of the case: French.