Opinion of the Advocate-General
Introduction
1. By order of 18 December 1999, the Finanzgericht Düsseldorf (Finance Court, Düsseldorf, Federal Republic of Germany) referred to the Court two questions for a preliminary ruling concerning the Combined Nomenclature of the Common Customs Tariff (hereinafter the CN). The first question asks whether sound cards for automatic data-processing equipment should be classified under heading 8471, 8473 or 8543 of the CN. The second question asks whether, in the event that sound cards are to be classified under heading 8543 of the CN, Commission Regulations (EC) Nos 1153/97 and 2086/97 (hereinafter Regulation No 1153/97 and Regulation No 2086/97 respectively) which gave effect to that classification are valid.
2. It should be noted at the outset that sound cards are printed circuit boards with active and passive processing components which are plugged, together with their edge connectors, into the boxes designed for that purpose on the motherboard of automatic data-processing machines (hereinafter ADP machines or computers). These cards convert sounds received as digital data in certain software into analogue signals and thus make them audible and also convert analogue signals into digital data and thus make it possible to process and store such data.
Legal framework
3. Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff (hereinafter Regulation No 2658/87), established a goods nomenclature called the Combined Nomenclature to meet, at one and the same time, the requirements both of the Common Customs Tariff and the external trade statistics of the Community. The CN is based on the international harmonised commodity coding system introduced by the Customs Cooperation Council in the framework of the World Customs Organisation (WCO) (hereinafter the HS).
4. Heading 8471 of the CN, provided for in Chapter 84 of Annex I to the abovementioned regulation, refers to Automatic data-processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included.
5. Following the entry into force, on 13 December 1996, of the agreement on the trade in information technology (ITA), concluded under the auspices of the World Trade Organisation (WTO), the Commission issued Regulation No 1153/97 introducing, inter alia, subheading 8471 80 of the CN covering other units of automatic data-processing machines and the further subheading 8471 80 90 of the CN covering other units different from peripheral units (which are the subject of subheading 8471 80 10 of the CN).
6. Heading 8471 of the CN is also the subject of Note 5(B) to Chapter 84 of the Combined Nomenclature which defines units of automatic data-processing machines for the purposes of that heading. In that respect, I note that in the version in force at the time of the facts in point in the present case that note stated:
Automatic data-processing machines may be in the form of systems consisting of a variable number of separately housed units. A unit is to be regarded as being a part of the complete system if it meets all of the following conditions:
(a) It is connectable to the central processing unit either directly or through one or more other units;
(b) It is specifically designed as part of such a system (it must, in particular, unless it is a power supply unit, be able to accept or deliver data in a form (codes or signals) which can be used by the system.
Such units presented separately are also to be classified within heading No 8471.
Heading No 8471 does not cover machines incorporating or working in conjunction with an automatic data-processing machine and performing a specific function. Such machines are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.
7. Note 5(B) to Chapter 84 of the Combined Nomenclature was subsequently amended by Regulation No 2086/97. The new text, which concerns us here, provides:
...
B. Automatic data-processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions:
(a) It is of a kind solely or principally used in an automatic data-processing system;
(b) It is connectable to the central processing unit either directly or through one or more other units; and
(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.
...
E. Machines performing a specific function other than data-processing and incorporating or working in conjunction with an automatic data-processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.
8. Again as regards heading 8471 of the CN, the explanatory notes to the HS, adopted by the Customs Cooperation Council, specify that data processing consists in handling information of all kinds, in pre-established logical sequences and for a specific purpose or purposes. However, that heading does not cover machines, instruments and equipment with their own function which incorporate an automatic data-processing machine or which work in conjunction with such a machine; they are classified under the heading corresponding to that function.
9. Heading 8473 of the CN contained in Chapter 84 of Annex I to Regulation No 2658/87 covers Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of headings 8469 to 8472. In that general context the same regulation also provides for subheading 8473 30 00 of the CN covering parts and accessories of machines under heading 8471. Moreover, Regulation No 1153/97, cited above, added the further subheading 8473 30 10 of the CN covering electronic assemblies.
10. In its turn, Chapter 85 of Annex I to Regulation No 2658/87 contains heading 8543 of the CN covering Electronic machines and apparatus with a specific function, not specified or included elsewhere in this chapter.
11. It is important to note, next, that Regulation No 1153/97 added subheading 8543 89 79 of the CN covering upgrade kits, for automatic data-processing machines and units thereof, put up for retail sale, consisting of, at least, speakers and/or microphone, and an electronic assembly that enables the automatic data-processing machine and units thereof to process audio signals (sound cards).
12. That subheading was finally amended by Regulation No 2086/97 which extended the range of products contained therein. In the version established by that regulation, in force from 1 January 1998, the subheading reads as follows: Equipment enabling automatic data-processing machines and units thereof to process audio signals (sound cards); upgrade kits, for automatic data-processing machines and units thereof, put up for retail sale, consisting of, at least, speakers and/or microphone, and an electronic assembly that enables the automatic data-processing machine and units thereof to process audio signals (sound cards). Accordingly, Regulation No 2086/97 introduced in subheading 8543 89 79 of the CN sound cards which I would define as independent, that is to say without speakers and/or microphone.
Facts and proceedings
The national proceedings
13. In July 1997, CBA Computer Handels- und Beteiligungs GmbH, now VOBIS Microcomputer AG (hereinafter CBA Computer), imported sound cards from Taiwan for release for free circulation in the Community.
14. In the declaration made at the time of importation CBA Computer stated that those sound cards should be classified under subheading 8543 of the CN, namely as Electrical machines and apparatus having individual functions, not specified or included elsewhere in this chapter. Accordingly, it calculated customs duty at the rate of 3.8% and paid a total sum of DEM 352.49. The import duties calculated by CBA Computer were entered into the accounts by the Hauptzollamt (Principal Customs Office) Aachen on 11 August 1997.
15. On 31 July 1997, CBA Computer lodged an objection against its own declaration arguing that the sound cards it had imported should have been classified under subheading 8473 30 10 of the CN at a customs duty rate of 2.5%. In addition to the arguments which I will deal with later, CBA Computer, in support of its assertion, submitted binding tariff information of the Danish customs administration of 13 January 1995 classifying sound cards in subheading 8473 30 10.
16. By decision of 20 May 1998, the Hauptzollamt Aachen not only rejected the objection, but decided that CBA Computer should pay a further customs duty of DEM 111.29 because, in its view, Regulation No 2086/97, which had entered into force in the intervening period, classified sound cards under subheading 8543 89 90 of the CN and, as such, a customs duty of 5% was applicable. According to the Hauptzollamt, although the above regulation had only entered into force on 1 January 1998, and therefore after the events in the present proceedings had occurred, that regulation was also applicable to goods imported before that date in so far as it did not amend Regulation No 2658/87, but merely clarified the wording of subheading 8543 of the CN.
17. On 4 June 1998, CBA Computer appealed against that decision to the Finanzgericht Düsseldorf where it claimed, in particular, that in the intervening period the Court of Justice had given a ruling on Techex Computer according to which, in the opinion of CBA Computer, the sound cards it had imported should have been classified under subheading 8471 80 90 of the CN as other units of automatic data-processing machines.
The questions referred for a preliminary ruling
18. Since it considered that the dispute before it turned on the interpretation of the above headings of the CN, the Finanzgericht Düsseldorf, on 18 December 1999, decided to stay proceedings and refer the following questions to the Court for a preliminary ruling.
1. Is the Combined Nomenclature, as amended by Annex I to Commission Regulation (EC) No 1153/97 of 24 June 1997 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff, to be interpreted as meaning that electronic assemblies which enable automatic data-processing equipment and units thereof to process audio signals (sound cards) must be classified under heading 8471, 8473 or 8543?
2. Are Commission Regulation (EC) No 1153/97 of 24 June 1997 and Commission Regulation (EC) No 2086/97 of 4 November 1997 amending Annex I to Council Regulation (EEC) No 2685/87 on the tariff and statistical nomenclature and on the Common Customs Tariff valid in so far as, in accordance with them, the sound cards described at 1 are covered by heading 8543 of the Combined Nomenclature?
Legal precedents
19. Before analysing the above questions, it should be remembered that the present dispute is part of a wider dispute concerning the customs classification of electronic equipment or components and, more specifically, information technology products. The Court has already resolved a number of questions relating to such products; of particular interest to the present case are the important precedents established in Techex, already cited above, and the more recent judgment in Peacock which respectively dealt with the classification in the CN of Vista board video cards and network cards.
20. In the first of those judgments the Court held that the Vista board consists of a unit which is intended to be incorporated into automatic data-processing machines; since such cards do not perform a function different from that of data processing (in the case in question, image processing), the Court reasoned that they cannot be regarded as having a specific function within the meaning of Note 5(B) to Chapter 84 of the Combined Nomenclature and therefore should be classified under heading 8471 of the CN. The same principles were outlined and clarified in Peacock in which the judgment was delivered between the close of the written procedure and the hearing in the present case.
The first question
Arguments of the parties
21. In its written observations CBA Computer also maintained that sound cards do not have a specific function within the meaning of Note 5(E) to Chapter 84 of the Combined Nomenclature and therefore should be classified under subheading 8471 80 90 of the CN as units of automatic data-processing machines. According to the claimant in the main proceedings, the conclusions reached by the Court in Techex should also apply in this case since sound cards can be used only after being inserted into a computer to perform a function that is no different from that performed by video cards; like video cards, sound cards are used for data processing, the only difference being that the former are used for converting data into images and the latter for converting data into sounds. Accordingly, sound cards should also be classified under heading 8471 of the CN.
22. In its written observations, the Commission objected that the cards in question could not be classified under heading 8471 of the CN as those cards are not mentioned in that heading. Moreover, the data-processing criterion referred to by CBA Computer is not of itself a determining characteristic for the purposes of classification under that heading as the function of sound cards, according to the Commission, is not that traditionally associated with computers. Their function is closer to that of a CD reader, that is to say equipment classified under heading 8543. Finally, sound cards should not be classified under heading 8473 of the CN since they do not constitute an indispensable part of an automatic data-processing machine on which the latter's function depends.
23. The Commission maintains that sound cards should instead be classified under heading 8543 of the CN which includes, inter alia, equipment for recording and reproducing sound. Since such cards cannot be classified as upgrade kits under subheading 8543 89 79 of the CN, having neither speakers nor a microphone, the Commission considers that they should be classified under subheading 8543 89 of the CN (other), that is to say as parts of automatic data-processing machines having a special function.
24. However, at the hearing, while insisting that those arguments were valid, the Commission accepted that in the last few months, since the close of the written procedure, certain developments have taken place with regard to the matter in question which place the argument put forward by CBA Computer in a more favourable light. It refers, first, to the judgment in Peacock, cited above, and, second, to the debate held in the framework of the WCO and its committee on the harmonised system.
25. As regards the former point, the Commission has not excluded the possibility of applying to sound cards the Court's reasoning in Peacock with regard to network cards, accepting that there are good arguments for classifying sound cards under heading 8471 of the CN. However, it has not completely abandoned its own position and still maintains that the classification of sound cards under heading 8543 of the CN can be justified. It bases its argument, already expounded in its written observations, primarily on the fact that sound, unlike images, is not an essential function of an ADP machine: a computer without a sound card and without speakers would still be a computer, but it could not be considered as such if it had no images or screen.
26. As regards the debate in the WCO, the Commission has recognised the change of direction at international level concerning the classification of sound cards. Indeed, it cited a WTO statistic from July 1999 to prove that up until that date only three countries - Australia, New Zealand and the Philippines - classified sound cards under subheading 8471 80 of the CN, while the majority of other countries classified them under subheading 8543 89 of the CN. It was only in November 2000 that it emerged, as a result of the debates and votes held during the 26th session of the HS committee, that there was a clear majority in favour of classifying sound cards under subheading 8471 80 of the CN.
Interpretation of the Combined Nomenclature
27. In light of the above summary of the arguments presented by the parties, I will now give my opinion on the first question referred by the national court, starting with the Court's case-law on the matter.
28. It is common knowledge that the Court has repeatedly held that the decisive criterion for the customs classification of goods must be sought in their objective characteristics and qualities, as defined in the relevant headings of the Common Customs Tariff and in the notes to the sections or chapters. It follows that, even for the goods under consideration, the functions that the product (unit) enables an automatic data-processing machine, as a whole, to perform are not decisive.
29. That is particularly true as regards network cards. Such cards, in fact, in so far as they are designed solely for automatic information processing machines, ... are directly connected to those machines and their function is to supply and accept data in a form which those machines can use, are comparable to any other means whereby an ADP machine accepts or delivers data. Hence, they do not perform a specific function which they would be able to exercise independently without the assistance of such machines. It was precisely on that basis that the Court concluded in Peacock that Note 5(B) to Chapter 84 of the Combined Nomenclature does not exclude network cards from being classified under heading 8471 of the CN.
30. To complete the classification of the cards in question, the Court queried, in the same judgment, whether they should be regarded as units of automatic data-processing machines, coming under heading 8471 of the CN, or as parts or accessories of those machines, thus coming under heading 8473 of the CN. To this end, the Court explained that the units referred to in Note 5(B) to Chapter 84 of the Combined Nomenclature meet the requirements established therein since they can be connected to the central unit and are specifically designed as parts of an automatic data-processing system; the word part, on the other hand, implies a whole for the operation of which the part is essential. Since network cards, which come in the form of slot-in cards, may also take other forms, in particular that of a standalone unit, the Court concluded that they, like video cards, must be classified as units of automatic data-processing machines under heading 8471 of the CN.
The applicability of Community case-law to the customs classification of sound cards
31. Can this case-law also be used to resolve the question referred by the national court in relation to the customs classification of sound cards? In reply to that question it is necessary to ask whether the technical and functional characteristics of sound cards are such as to differentiate them from video cards and network cards, thus requiring different criteria to be laid down for their classification.
32. The answer to that question can, in my opinion, only be a negative one. In the first place, like video cards and network cards, sound cards also perform a data-processing function and, on the one hand, convert external analogue signals into digital information so that they can be processed by the machine and, on the other hand, convert digital data contained in certain software into analogue signals.
33. As CBA Computer points out, there are three fundamental components of a sound card just as there are of a video card:
(1) an analogue/digital converter which converts analogue signals into digital signals so that the automatic data-processing machine can process and possibly record them;
(2) a graphics or audio processor which processes data and directs the electronic operations and
(3) a digital/analogue converter which converts digital signals processed or recorded by the automatic data-processing machine into analogue signals processed by the output unit (the screen or the speakers).
34. The only difference, then, is that in one case images are processed and in the other sounds. Furthermore, the Commission itself accepted at the hearing that there are no differences between the two types of cards as far as their use and function is concerned.
35. It can therefore be concluded, on that point, that sound cards, that is to say electronic assemblies which enable ADP machines and units thereof to process audio signals, do not perform a specific function within the meaning of Note 5(B) to Chapter 84 of the Combined Nomenclature, but rather a data-processing function.
They should therefore be regarded as units of automatic data-processing machines and thus be classified under heading 8471 of the CN.
36. I noted above that, although the Commission agrees with that appraisal of the function of sound cards, it considers that they should nevertheless be classified under heading 8543 of the CN, either on the ground that there is a similarity between their function and that of a CD reader, or because sound, as distinct from images, is not an essential or traditional function of a computer.
37. In light of the considerations which I have set out above, I consider that from a functional point of view a sound card cannot be compared to a CD reader. The former is a means by which an automatic data-processing machine accepts or delivers data, but outside the machine a sound card has no functions which it could perform independently. Moreover, as CBA Computer noted at the hearing, there is no comparison with sound recording or sound reproduction equipment because, unlike sound recording or sound reproduction cards, sound cards cannot store a sound for recording or reproduction, but they can process data consisting of sounds. It must therefore be concluded that, unlike CD readers, sound cards cannot perform an independent function outside the machine.
38. Second, I do not think that it can seriously be argued, as the Commission contends, that on-screen representation and the screen itself are essential components of a computer, while sound and speakers cannot be regarded as such. As CBA Computer noted at the hearing, there are computers, such as mainframe computers, which perform their function without necessarily being connected to a screen. On the other hand, in more general terms it seems to me that the criterion of the traditional function of a computer is too vague to be of any use for specifying the typical features of that function in so far as it is not based on the technical characteristics of the product in question and takes no account of the extremely rapid developments which have occurred in recent years in the information technology sector.
39. In light of the above, I therefore conclude that electronic assemblies which enable automatic data-processing machines and units thereof to process audio signals (sound cards), in so far as they do not perform a specific function within the meaning of Note 5(B) to Chapter 84 of the Combined Nomenclature, must be classified as units of automatic data-processing machines under heading 8471 of the CN.
The second question
40. By its second question, the national court asks the Court of Justice to rule on the validity of Regulations Nos 1153/97 and 2086/97 in so far as they provide for sound cards to be classified under heading 8543 of the Combined Nomenclature. In the order for reference, the national court notes that the European Community, under Article 3(1)(a) of the international Convention on the harmonised system of 14 June 1983, entered into a commitment not to modify the scope of the customs headings established therein, which it has in fact done by the incorrect classification of the sound cards referred to. As the case-law of the Court has also confirmed, while the Commission has considerable latitude, for the purposes of Article 9(1) of Regulation No 2658/87, in defining the scope of the customs headings established on the basis of the HS, it is not authorised to alter their subject-matter.
41. According to CBA Computer, as is to be expected, the doubts expressed by the national court are well founded: Regulations Nos 1153/97 and 2086/97 should be regarded as invalid in relation to the classification of sound cards on the ground that they provide an incorrect interpretation of headings 8471 and 8543 of the HS.
42. For its part, the Commission supports the opposite argument, albeit with the changes I referred to at length above. In particular, during the hearing it claimed that, on the one hand, Regulation No 1153/97 is not invalid in so far as the HS does not provide for the classification of sound cards under a subheading distinct from 8543 89 and, on the other hand, that Regulation No 2086/97 is inapplicable to the facts of the case as the imports referred to in the proceedings before the national court had occurred in July 1997, whereas the regulation only entered into force on 1 January 1998. According to the Commission, that means that the question of validity is irrelevant for the purposes of the proceedings pending before the national court.
43. In my opinion there is some truth in the positions adopted by each of the parties, but neither provides an appropriate reply to the question under consideration.
44. First, I note that Regulation No 1153/97 does not contain any provision concerning the classification of independent sound cards, in other words without speakers and/or a microphone, such as those with which we are concerned in this case. It is only by means of interpretation that the Commission is able to contend that the cards in question should be classified under subheading 8543 89 of the CN. If that is the case, then it is clear that no question about the validity of that regulation arises, not even if it could be demonstrated, as I believe I have done in the preceding paragraphs, that the interpretation proposed by the Commission is without foundation.
45. On the other hand, in Regulation No 2086/97 the Commission specifically classified independent sound cards under subheading 8543 89 79 of the CN. The validity of that regulation could well be questioned because, if one subscribed to the view that such a classification was incorrect, it would mean that the Commission's appraisal was manifestly mistaken and that it had exceeded the limits of its powers to define the subject-matter of a heading of the Combined Nomenclature.
46. It should also be remembered that Regulation No 2086/97 entered into force on 1 January 1998 and does not have retroactive effect. Nor could such effect, as the Hauptzollamt Aachen contends, be regarded as the presumed intention of the regulation because, as noted above, that regulation instead departs from the rules previously established by Regulation No 1153/97. Moreover, the Court itself has held that a regulation specifying the conditions for classification in a tariff heading or subheading is of a legislative nature and cannot have retroactive effect.
47. Although the doubts of the national court about the validity of the regulation in question may to a large extent be well founded, the fact remains that that regulation is not applicable to the facts of the case, which relate to imports that occurred in July 1997. The question of its validity is therefore not relevant to resolving the dispute pending before the national court and consequently the circumstances in which the Court would be required to rule on that question do not, in my opinion, exist.
Conclusion
48. In light of the above, I therefore propose that the Court answer the questions referred to it by the national court for a preliminary ruling as follows:
(1) Electronic circuit boards which enable automatic-data processing equipment and units thereof to process audio signals (sound cards) and which were released for free circulation into the Community in July 1997, in so far as they do not perform a specific function within the meaning of Note 5(B) to Chapter 84 of the Combined Nomenclature, must be classified under heading 8471 of the CN as units of such machines.
(2) In so far as Commission Regulation (EC) No 1153/97 of 24 June 1997 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff does not provide for the classification of sound cards without speakers and/or a microphone under heading 8453 and in so far as Commission Regulation (EC) No 2086/97 of 4 November 1997 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff is not applicable to the facts of the case in the main proceedings, the circumstances which would require the Court to declare the two abovementioned regulations invalid do not exist.
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