Case C-666/13, Rohm Semiconductor – duty-free shopping for infra-red data-transfer devices [judgment 2014, ECLI:EU:C:2014:2388]

Data can be transmitted from one electrical device to another by using infra-red light. Using infra-red light and special transmitter/receiver modules allows images that have been captured on a mobile telephone to be transferred to either another mobile telephone nearby or a digital printer in the same room. Rohm Semiconductor has imported a great many infra-red data-transfer kits and believed these imports to be free from duty but German customs disagrees and deems them to be taxable at 3.7%. The referring German court wants to know how to classify these devices for the purposes of the Combined Nomenclature, established by EC Regulation No 2658/87.

Facts
Data can be transmitted from one mobile telephone to another by using infra-red light. For one-way communication, all that is needed is to put a transmitter in one device and a receiver in the other.

This use of infra-red light need not be restricted to mobile-to-mobile data transfers. Put the same receiver into any other electrical device and the data can be transferred to it. Thus, images or files captured on a mobile telephone can be sent to a laptop or a printer or a digital camera nearby.

In this particular case, Rohm Semiconductor bought infra-red transmitters and receivers known as ‘Photo Link Modules’ and ‘IrDA Infrared Communication Modules’. These modules were developed for a particular mobile telephone maker.

Rohm Semiconductor bought these modules from outside the EU, and imports of goods into the EU are governed by the so-called Combined Nomenclature. The CN, established by EC Regulation No 2658/87, is based on the International Harmonised Commodity Description and Coding System (‘HS’) drawn up by the Customs Cooperation Council, now the World Customs Organisation.

With the rules of the CN in mind, Rohm Semiconductor described the imported goods as consisting of an LED, a photo diode, an amplifying circuit in the form of a monolithic integrated circuit and other component elements housed in a surface-mounted device.

Consequently, Rohm Semiconductor thought that these goods fell under CN heading ’8541′, which covers: ‘Diodes, transistors and similar semiconductor devices; photosensitive semiconductor devices, including photovoltaic cells whether or not assembled in modules or made-up into panels; mounted piezo-electric crystals’.

Goods falling under this heading can be imported free of import tax.

However, German customs disagreed with Rohm Semiconductor’s interpretation of EU law. Customs thought that the goods did not fall under the heading of 8541 but rather under heading 8543, and those imports are taxed at a rate of 3.7%. Moreover, in light of the fact that Rohm Semiconductor had already imported many these devices in previous years, customs billed Rohm Semiconductor more than 100 000 euro in unpaid import taxes. Rohm Semiconductors objected to this and challenged a couple of the decisions of the German customs authority.

Litigation ensued before the Finanzgericht Düsseldorf. German customs stood fast. They submitted that Heading ’8543′ covers goods that are ‘electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter’. As to the what the tail of the clause meant (‘not included elsewhere in this chapter’), the relevant chapter was Chapter 85 CN, and this covers ‘Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles’. German customs therefore  contended that these goods were electrical machines that were not specified elsewhere in Chapter 85.

Rohm Semiconductor rejected that reading of the CN. To their idea, German customs were misreading the wording of 8543. In essence, their argument was this: heading 8543 requires (i) the machines and apparatus must have individual functions and (ii) the objects cannot be included in another heading elsewhere in Chapter 85. Rohm Semiconductor believed that neither hurdle was cleared since the devices could not be said to have an individual function, and it was quite possible to bring these devices under heading 8541 CN – indeed, it would be in keeping with an earlier judgment of the CJEU to do so.

That is to say, the earlier judgment of the CJEU was that handed down in Case C-411/07, X (the name of this company having been anonymised by the Dutch courts to just ‘X’). The case was all about the import of optocouplers. These are useful devices that ensure ‘galvanic separation’ whereby light signals can pass from one electric circuit to another circuit without those circuits being electrically connected to each other. The CJEU had gone on to bring optocouplers under the heading of 8541.

Rohm Semionductor believed that the CJEU’s judgment in X was premised on the assumption that optocouplers were said to have no individual function. Consequently, that premiss applied equally to the present case since these infra-red emitters and receiver modules were just like optocouplers and had absolutely no individual function. Consequently, the correct heading was 8541 and not 8543 as German customs would have the German courts believe.

German customs submitted that the imported goods were unlike optocouplers. They believed that the difference lay in the fact that the transmitter/receiver modules in this case were not geared to each other but rather always communicated with any external object. The function of the transmitter/receiver was broader than those found in optocouplers – the imported devices were more akin to wireless optical communication by transmitters and receivers. Furthermore, the transmitter/receiver functioned to communicate with mobiles or laptops which had the relevant modules built in to them – however, these modules were neither integral nor inseparable to the functioning of those electrical devices.

The Fourth Chamber of the Finanzgericht Düsseldorf dealt with hurdle (i) to start with, namely, did the transmitter/receivers have an individual function? After all, an object that was to be built into only specific mobile telephones could only qualify as a machine with an individual function if its function was clearly distinct from the function of mobile telephones or other electronic machines.

The Fourth Chamber of the Finanzgericht Düsseldorf thought that was the case here. The function of the emitter/receiver was distinct from that of mobile telephones. The devices enabled a special communication of data by wireless means to occur over very short distances, such as inside the room of a building. And the function of the device being built into the mobile telephone was independent to that of the mobile telephone since the mobile telephone was designed to enable communication to take place over great distances inside a radio telephone network to which the mobile telephone could connect.

Furthermore, the mobile telephone could still be used inside the radio telephone network even if the emitter/receiver were to fail. Equally, if the emitter/receiver was incorporated into another electronic device such as printer or a laptop, then those could devices still be used even in the event of the emitter/receiver failing.

Nevertheless, the Finanzgericht Düsseldorf recalled that there was a further requirement to qualify under the 8543 heading; namely, hurdle (ii) was that a machine’s ‘individual functions’ must not be specified or included elsewhere in Chapter 85 CN.

So what was to be understood by the CJEU’s reasoning in the optocoupler case of Case C-411/07, X when it had reasoned:

23 In that connection, it must be observed that the tariff classification of optocouplers cannot vary according to the presence or absence of an integrated amplifying circuit. It is not disputed that the incorporation of such a circuit in optocouplers is a very widespread technique which serves only to ensure good transmission of signals. The presence of the circuit does not therefore fundamentally alter the characteristics and properties of the optocoupler as a photosensitive semiconductor.

24 It is clear from the foregoing considerations that optocouplers are also covered by heading 8541 of the CN when they contain an amplifying circuit.

25 Moreover, since it is not disputed that optocouplers are photosensitive semiconductor devices, their classification under heading 8541 of the CN appears, having regard to their characteristics summarised in paragraph 8 of this judgment, more specific and appropriate than classification under heading 8542 of the CN.

Did this mean that a component part would fall under 8543 even when the device could be understood to have an individual function as a machine part to 8541? As a part with an individual function, the device could then be brought within Chapter 85 CN; and since it could qualify under 8541, it would not be able to qualify under 8543.

If the answer to that Question was that the imported goods could not be classified under 8541, then Fourth Chamber of the Finanzgericht Düsseldorf wondered how these transmitter/receiver modules with an individual function, might be regarded as parts of machines or apparatus for the purposes of heading 8543.

The practical effect of the answer was that if 8543 applied, then the goods would be taxed at 3.7%. However, if the products were parts of machines or apparatus with components from 8541 or 8542, but housed in a surface-mounted device, then owing to other rules contained in subheadings to 8543, then they could still be imported duty free.

But the legal problem here were the CJEU’s judgments as to what constituted a ‘part’ of a machine. If the CJEU’s judgments in cases such as Case C-339/98 were applied here, then the result would be that they would not be parts of a machine. After all, the emitter/receiver modules may well have been built into mobile telephones but they could not be considered to be a part of the machine since it was perfectly possible for the mobile telephone to work without the modules. It was really rather the case that the mobile telephones needed to work before the emitter/receiver modules could work since the modules depended on the mobile telephones for their power supply.

However, the CJEU in its optocoupler judgment of Case C-411/07, X had viewed machines to be parts of other machines if they could not function independently of the electrical machines for which they were designed. If that principle applied to the present case, then given that the emitter/receiver modules were designed for specific mobile telephones and they could not function effectively without there being other mobile telephones or laptops, or printers or digital cameras, then they could be considered to be parts of a machine, and thus fall under heading 8543.

Questions Referred
According to the Curia website, the Finanzgericht Düsseldorf has asked:

1. Does the fact that goods have an individual function within the meaning of heading 8543 of the Combined Nomenclature mean that they may not be classified in heading 8541, despite their assembly?
2. If the answer to Question 1 is in the affirmative: In what circumstances are transmitter/receiver modules of the type described in more detail in the grounds, which have an individual function within the meaning of heading 8543, to be regarded as parts of machines or apparatus in heading 8543?