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

I — Facts and written procedure

II — Written observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

(a) The first part of the question

(b) The second part of the question

(c) The third part of the question

III — Oral procedure

Decision

The concept of discrete component

The concept of miniaturization

The concepts of moulded module type and similar types

Hybrid integrated circuits

Costs

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.

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.

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:

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.)

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.

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 :

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.

II —. Written observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

(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.

(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.

(b). The second part of the question

(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.

(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.

(c). The third part of the question

(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.

(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.

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

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

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:

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.

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.

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.

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.

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.