Classification of goods under the Customs Tariff Act is determined by the product's primary function, not merely by its technological components.

JUDGMENT

SWARANA KANTA SHARMA, J

1. The present appeal under Section 28KA of the Customs Act, 1962 [hereafter ‗the Customs Act‘] has been preferred by the appellant i.e. Vivo Mobile India Private Limited [hereafter ‗the appellant‘] assailing the order dated 13.12.2023 [hereafter ‗the impugned order‘] passed by the learned Customs Authority of Advance Rulings [hereafter ‗learned CAAR‘].

Signature Not Verified CUSAA 24/2024 Page 1 of 25 Digitally Signed

2. The controversy in this case relates to whether the ‗Integrated Circuit Micro Electro Mechanical System Microphones‘ [hereafter also referred to as ‗the product‘] being imported by the appellant under Customs Tariff Heading [hereafter ‗CTH‘] 8518, specifically Tariff Item 8518 10 00, of the First Schedule to the Customs Tariff Act, 1975 [hereafter ‗the Customs Tariff Act‘], is liable to be classified under CTH 8542, specifically Tariff Item 8542 39 00.

FACTUAL BACKGROUND

3. The case set out by the appellant is that being 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 However, the same being bulky have now become outdated, and have been replaced by high performance and highly sensitive silicon based Integrated Circuit Micro Electro Mechanical System (MEMS) Microphones.

4. The MEMS Microphones were being imported by the appellant under Tariff Item 8518 10 00 which pertains to ―Microphones and stands therefor‖. In respect of the same, Customs Duty at Standard Rate i.e. 15% was being paid by 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 Signature Not Verified CUSAA 24/2024 Page 2 of 25 Digitally Signed ‗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 22.09.2023 filed before the learned CAAR, sought ruling on the following question – Whether MEMS Microphone can be classified under Tariff Entry 8542 3900?

The Impugned Order

8. Before the learned CAAR, the appellant, in a nutshell, argued that the product being an MCO (as per the definition of MCO provided under Note 12 of Chapter 85 of the First Schedule to the Customs Tariff Act) will be covered within the ambit of an EIC and will be appropriately classifiable under CTH 8542. In support of the contentions, reliance was placed on Notes of Chapter 85; Explanatory Notes (Volume 5) to the Harmonized Commodity Description and Coding System (2022, Edition Seventh), which is commonly known as Harmonised System of Nomenclature [hereafter ‗HSN‘]; and Signature Not Verified CUSAA 24/2024 Page 3 of 25 Digitally Signed decisions/rulings in the United States of America (USA) and European Union (EU) in similar facts and circumstances.

9. The learned CAAR, in the impugned order, held that the product has been correctly classified under CTH 8518, specifically Tariff Item 8518 1000, which includes ‗microphones‘. It held that the product, even if packaged similarly to integrated circuits,