United Kingdom VAT & Duties Tribunals (Customs) Decisions

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Cite as: [2005] UKVAT(Customs) C00206, [2005] UKVAT(Customs) C206

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Panasonic Industrial Europe Gmbh v Revenue and Customs [2005] UKVAT(Customs) C00206 (21 November 2005)

CO00206

Customs classification - whether a particular microphone that had a frequency range that spanned but also greatly exceeded the frequency range specified for a particular description of microphone for tariff classification purposes "had" that frequency range

LONDON TRIBUNAL CENTRE

PANASONIC INDUSTRIAL EUROPE GmbH Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman)

PROFESSOR ROY G SPECTOR MD, PhD, FRCP, FRCPath

Sitting in public in London on 18 October 2005

Corinne Nabavi of PCE Systems Ltd, for the Appellant

Owain Thomas for the Respondents

© CROWN COPYRIGHT 2005

DECISION

INTRODUCTION

This was a relatively simple case of tariff classification for Customs Duty purposes because it revolved entirely around whether a microphone manufactured by Panasonic and imported into the UK by Panasonic Industrial Europe GmbH ("Panasonic") fell within one particular tariff category. If it did, it attracted a nil duty rate. If it did not fall into the relevant category, it fell into the residual or "Other" category, and attracted duty at the rate of 2 ½%. The case accordingly involved no points concerning the various rules for interpreting tariff categories, and the order in which those rules should be applied. There was also no guidance in the Chapter Notes or any Explanatory Notes as to how the particular description in the relevant tariff category was to be interpreted, so that everything revolved around an ordinary interpretation of the description.

The description of the particular category of microphones in dispute was that under heading 851810 10, which read as follows;

"851810 10 Microphones having a frequency range of 300 Hz to 3.4 kHz, of a diameter not exceeding 10 mm and a height not exceeding 3 mm, of a kind used for telecommunication"

It was clear that if the microphones being imported into the UK by Panasonic did not fall into the above description and category, then they fell into Heading 851810 80, simply described as "Other".

THE FACTS AND THE EVIDENCE

Evidence was given by the only witness, Mr. Christopher Nabavi. We were indebted to Mr. Nabavi for a very clear and professional explanation of the meaning of the various terms used in indicating the performance of a microphone; for a certain amount of useful background information in relation to the long accepted required characteristics of microphones used in telecommunications; and for a description of the particular microphone being imported by Panasonic in this case.

Measuring and specifying the performance characteristics of microphones.

We may not summarise the evidence given to standards of accuracy that would satisfy an Electronics Sound Engineer, but the summary should be sufficient to identify the only points in dispute. The most fundamental point in dispute is indeed a perfectly simple matter of ordinary English, and not a technical definition at all.

Microphones of course pick up sounds and sounds have different frequencies from low notes to high notes. The frequency range of a microphone denotes the range of frequencies (i.e. low notes to high notes) over which the microphone will operate satisfactorily. As we understand matters, when a microphone is intended solely to pick up the human voice, and when perfection of sound quality is not absolutely vital (for instance with a microphone for use in telephones) the frequency range that is considered adequate to pick up the sounds of a wide variety of people speaking is, and has for a long time been recognised to be, the range from 300 Hz to 3.4 kHz. The frequency of 300 Hz is the frequency of the deep notes spoken by someone with a deep voice; whilst the high frequency at the other end of the range, 3.4 kHz is the frequency of the highest notes likely to be encountered in a phone conversation.

Microphones cannot be manufactured to pick up sound perfectly, since there is always an element of distortion or lack of sensitivity. This is measured on another scale, where the greater the decibel or dB figure indicated, the greater the amount of distortion.

Just as microphones never pick up sound without any distortion, so outside the indicated frequency range (i.e. with lower notes than the low frequency figure indicated for a microphone, and higher notes than the indicated high frequency figure) microphones will not suddenly fail to pick up the sound altogether, but will pick it up with increased distortion. And the distortion will increase as the frequency of the notes diverges further from the indicated frequency range.

When a frequency range is quoted for a microphone, this is often accompanied by the dB figure indicating the maximum distortion over the frequency range indicated It is possible to quote performance characteristics of any given microphone in different ways in that if the maximum distortion and decibel rating for a microphone intended for speech with a frequency range of 300 Hz to 3.4 kHz is stated to be (3 dB to - 3 dB, it may be that the same microphone will pick up notes within the wider frequencies of 200 Hz to 4.5 kHz with increased distortion of (5 dB to - 5dB. And it might equally be possible to demonstrate that the microphone had lower dB figures, and thus performed with less distortion than it did in the initial 300 Hz to 3.4 kHz range, if a narrower band of frequencies was selected.

Frequency range figures are not always quoted with stated levels of distortion or figures indicating the maximum dB figure of the microphone over the stated frequency range. As the human ear does not pick up distortion when distortion is at or below the figure of (3 dB to - 3 dB it is sometimes assumed in the industry that when no dB figure is indicated then the maximum distortion will probably be at the level where it is relatively insignificant, in other words within the range just quoted.

We should mention one final point relevant to our understanding of microphone performance. Microphones have been in production for approximately 100 years and naturally technology has improved. The significant factor to note is that if the performance of a microphone with a frequency range, say of 300 Hz to 3.4 kHz is improved, so that the level of distortion is reduced right across that range, then this improvement in quality will not be confined to the stated range. It will naturally follow that acceptable performance will be obtained over a wider frequency range. Thus if the dB figure over the range 300 Hz to 3.4 kHz is improved from ... 3 dB to - 3 dB to say ( 2 dB to - 2 dB, then it will follow that if the microphone previously gave slightly unsatisfactory performance for sounds above and below its initial frequency range, the microphone will now give satisfactory performance outside the originally specified frequency range. What this means in practice is that if a manufacturer seeks to improve the sensitivity quality of a microphone over the speech range with which the manufacturer is primarily concerned, then whether or not the manufacturer is keen to widen the frequency range, or whether the manufacturer considers that the target market will be particularly concerned about any wider frequency range, the frequency range will be increased automatically.

The conventional required specification of telephone microphones.

Mr. Nabavi explained that the usual or at least minimum frequency range of microphones used in telephones and other telecommunications equipment has been 300 Hz to 3.4 kHz for at least 30 years. This unchanged specification has not been because technology has stood still, but rather because the relevant microphones are only going to be used to transmit speech, and the frequency of the sound of human speech and the sensitivity of the human ear to distortion in microphone quality have of course not changed at all.

Mr. Nabavi accepted under cross-examination that although far more accurate information was obtained if the specification of a microphone indicated its frequency range, coupled with its sensitivity rating, if a specification referred only to a frequency range it would usually be implicit that the distortion level would be within the ... 3 dB to - 3 dB range. This inference might perhaps be particularly appropriate with telephone equipment since distortion that could not be detected when the microphone was used for its intended purposes would self-evidently be immaterial.

The specification of the Panasonic microphone in question.

We were told that the microphones being imported in the present case were being imported and sold to one manufacturer of telephones.

The microphone's size apparently satisfied both of the size tests in that its diameter and its height were both less that the specified maximum sizes, i.e. 10 mm and 3 mm, in the relevant tariff heading.

The frequency range was very materially wider however than 300 Hz to 3.4 kHz. It was said to be 50 Hz to 10 kHz, in other words to be capable of picking up very much lower notes or sounds, and much higher ones as well. In answer to our question of whether at these wider frequency levels there was unacceptable distortion we were told that there was acceptable sound quality over the whole range. If we understand one particular figure correctly, it appears that if the dB distortion figure is to be calculated solely over the more limited frequency range of 300 Hz to 3.4 kHz, then the distortion figure is only ... 1 dB to - 1 dB, but distortion is still within the acceptable level at the wider range specified.

CONTENTIONS ON BEHALF OF PANASONIC

Three basic arguments were advanced on behalf of Panasonic, the first and second being somewhat technical points, and the third a simply stated but nevertheless difficult point of interpretation, which is intelligible without the aid of the information that we have summarised above.

First it was argued that because the relevant tariff definition required the qualifying microphones to have a stated frequency range, but did not specify the maximum dB level of distortion over the range, the range test was unworkable on the ground that either all microphones failed the test, or that on the other approach none failed it. This was because if the absence of a dB figure meant that no distortion tolerance was acceptable, then no microphone could be manufactured that would meet this requirement, so all would fail. On the other hand, as already indicated, it was probably possible to quote a whole variety of frequency ranges at different distortion levels, and it would not be difficult to find a very minor distortion level at which it would very likely emerge that the frequency range of the particular microphone would be close to the specified one.

So either all microphones failed the test or all passed it, and the test was unworkable.

The second technical contention was that because an exact frequency range was specified, and it was virtually impossible to manufacture a microphone (with or without some specified dB factor being indicated), whose frequency range was exactly as specified, the only sensible way to interpret the frequency range was to treat it as a minimum. Accordingly microphones with a wider frequency range could obviously be said to have a range that spanned the range 300 Hz to 3.4 kHz, and more in one or both directions. But at least on this interpretation in one sense the present microphone would have precisely the range indicated.

The third argument was a purely linguistic one. On this argument it is said that all that the tariff description requires is that the microphone "has a frequency range of 300 Hz to 3.4 kHz". More exactly it described the microphones as follows: "Microphones having a frequency range of 300 Hz to 3.4 kHz, of a diameter not exceeding 10 mm and a height not exceeding 3 mm, of a kind used for telecommunication". Plainly as a matter of language this microphone does have that range. Indeed it has more but that is irrelevant because the only point is that the microphone must have the specified range. And arguably this point of interpretation is slightly reinforced by the point that two of the other specification requirements are worded in terms of measurements "not exceeding …" some exact measurement. Possibly this indicates that the frequency range must "at least" meet the minimum specified, not least because if that range was taken to be required for picking up the human voice 30 years ago, it is unlikely that anything less would now be suitable. But there is nothing actually to say, nor indeed in practical or logical terms to require, that the frequency range of the microphone cannot exceed the specified range.

CONTENTIONS ON BEHALF OF HMRC

The following arguments were advanced on behalf of HMRC.

It was said that in so short a description of the specification of a microphone the absence of any quoted dB factor, to be coupled with the frequency range figure, was irrelevant. The obvious meaning, particularly with a microphone that was only to be used to pick up speech, was that it could have the conventional dB tolerance of ... 3 dB to - 3 dB. This was because that was an industry norm figure, and if the microphone was only to be used for speech and the dB figure quoted is a level of distortion that the human ear could not generally detect, it obviously made sense to assume this figure.

It was next argued, this being the most fundamental point, with the later points essentially being supporting points, that as a matter of language the third contention on behalf of Panasonic was wrong. When a frequency range was specified, then a microphone only realistically had one range, and the microphone had to have that specified range to fall within the particular heading. It could not have a greater range or a lesser range. To make sense of the provision some latitude around the figures of 300 Hz and 3.4 kHz would of course be permitted at both ends of the scale. Admittedly the tariff description did not say "approximately", but this was still implicit.

It was then argued, in support of the interpretation just advanced, that we had to give an interpretation to the frequency range requirement that precluded any part of the product description from being otiose or superfluous.

It was said that if the interpretation, "no more, and no less", just summarised was right then it did add something to the further requirement concerning "suitability for use in telephones". For microphones that both fell within the specified size limits and were "of a kind used for telecommunication" could theoretically have considerably broader frequency bands but for the further "no more, no less" frequency limit. So on this interpretation the frequency figures did cut down the categories of microphone that could satisfy the test, and so the limits were not superfluous. If however the third contention on behalf of Panasonic is considered, all microphones that passed the size test, and that were "of a kind used for telecommunication" would inevitably pass the "at least" test. It was suggested that Panasonic could hardly contend that a microphone with a lower frequency range would be excluded by the frequency range requirement, because such a microphone would not have passed the other test of being of a kind for use in telecommunications anyway. For its performance would not have been satisfactory. Accordingly no microphone that had passed the other two tests could fail the frequency test on the Panasonic interpretation. And we should strive to arrive at an interpretation that does not render any part of the description otiose.

The fourth argument advanced on behalf of HMRC was that a search of various Binding Tariff Informations ("BTIs") across Europe revealed that some microphones had failed to qualify within the relevant tariff heading, simply on the ground that they had a wider frequency range. We were not bound by the BTIs but they should be treated as strongly supportive of the case anyway being advanced. And it was manifestly important that every description should be applied consistently by different countries.

OUR DECISION

We reject the first argument on behalf of Panasonic. In the context of a very brief description, the absence of a dB figure, alongside a stated frequency range, seems to us to be irrelevant, particularly as we are told that the industry often automatically assumes a dB tolerance of (3 dB to -3 dB. This seems to us to be all the more obvious when dealing with a relatively poor quality microphone for use in telephones, only designed to pick up speech, and particularly because we are told that the human ear can barely detect distortion within the band of the assumed figures. Thus if we conclude that HMRC's contention that the frequency range must be applied on the "no more and no less" basis, we conclude that that test would not be unworkable. Nor is it a test that either all microphones would pass or all fail.

We do not find the second argument on behalf of Panasonic to be particularly compelling either. If we decide that the "no more and no less" argument on behalf of HMRC is fundamentally right, than we again think that in the context of a very shortly stated description (albeit one that is meant to be applied accurately) some tolerance would have to be implicit. We do not know what it would be but we imagine that Panasonic would accept that the frequency range of its microphone is so much greater, and so superior to the stated range that it would be miles outside any minor tolerance figure. Accordingly we say that if we decide that HMRC's fundamental argument is right, we would not fault it on the second, relatively tenuous, ground advanced on behalf of Panasonic.

Whilst we do not think that this argument directly influences our decision on the difficult issue, we do observe that if Panasonic is right to contend that the better interpretation of the description is that the microphone must simply "have" the stated frequency range, with nothing then hinging on whether its range is greater or considerably greater, then it would conveniently follow that the minor dilemma addressed in Panasonic's second contention would automatically disappear. And as a matter of evidence, we accept that Panasonic's contention is right that it is extraordinarily unlikely that any microphone would have a frequency range that precisely matched the stated range, whether the range figures were accompanied by dB figures indicating levels of distortion or not.

Before dealing with whether we prefer the third contention advanced on behalf of Panasonic or what we have described as HMRC's fundamental argument, we will deal next with HMRC's two supporting arguments, concerning elements of the description becoming superfluous and the influence of other European BTIs.

We again do not consider that either of these arguments is decisive.

The draftsman was clearly intending to identify telephone microphones. It appears that the draftsman asked for information about the objective technical descriptions of such microphones, and doubtless he was given the information that to be suitable, microphones would have to have the stated frequency range, and would obviously have to be small. Accordingly, in two requirements that were inherently repetitious in a sense, the draftsman required the microphones to have the frequency range that was self evidently required, and chose two arbitrary measurements that also had to be satisfied. They obviously conformed to the required very small measurements of most telephone microphones. So in a sense the draftsman was inherently expressing the requirements in two different ways.

We accept that if Panasonic's contended meaning of "having a frequency range" is to be preferred to HMRC's "no more and no less" definition, then the only frequency characteristic that could disqualify a microphone from satisfying the definition would be for it to have a lesser range. While it is said that the microphone would then anyway fail the more descriptive element of the test, we observe that with a microphone that only failed the frequency test fairly marginally, failure on the other score might not be so clear cut. And this interpretation still leaves the frequency test making or at least accurately confirming the essential frequency range point in relation to a speech microphone. In other words it could fairly be regarded as very significant that it should have this required range, but it would potentially be of no great significance whether or not the microphone had a wider range, particularly if it still satisfied the descriptive element of the definition, by still being a microphone "of a kind for use in telecommunication".

We agree thus that HMRC's point is tenable, but we think that it is not decisive.

We were referred to several BTIs where the Customs authorities in different countries had given binding rulings on whether microphones fell within the key description, or whether they ranked as "other microphones".

We note that one or two German decisions indicated that a wider frequency range alone appeared to have disqualified microphones from falling within the relevant description.

We also note however that other microphones with a wider range had also plainly failed the size test. The size test admits of no ambiguity of course, because the size simply must be equal to or less than the two stated sizes. Accordingly whether it was the clear failure under the size test or the failure to satisfy one of two interpretations of the frequency test that occasioned the decisions we do not know.

We also note that there is at least one Dutch ruling where a microphone was held to have satisfied the definition when the height of the microphone was 5.66 mm, in other words very nearly twice the height of the stated, and unambiguous, minimum.

We also note that in relation to numerous decisions, and descriptions of microphones that have passed the test, that the description of the frequency range has been re-expressed in a way that neither conforms to the interpretation advanced by HMRC, nor indeed to any conceivable reading of the actual text. The range has often been expressed as "a frequency range of 300Hz or more yet no longer than 3.4 kHz". Since however the required frequency range is "300 Hz to 3.4 kHz", and on no sensible interpretation can a lesser frequency range satisfy the requirement that the microphone must have the stated frequency range, we find this re-casting of the test particularly surprising.

We also note that another microphone was categorised as one within the required definition, when it had a "frequency range of 330 Hz or more yet it has been introduced no longer than 3.4 kHz" (in the "Babelfish English" translation). We note with some interest that at least one manufacturer thus seems to think that a slightly inadequate range can still be suitable for use in telecommunications, which seems to undermine somewhat HMRC's suggestion on the point about superfluous elements of the description that any microphone with a lesser range than the stated one would fail the descriptive element of the test. Aside from that, unless HMRC's argument that the frequency range requirement must be applied on an approximate basis even where the microphone fails the strict test in the much more material manner of not having the required range at all, this microphone should also have failed the test.

We accordingly find these BTI's to be somewhat in conflict, and do not find them decisive in relation to the fundamental point of interpretation to which we now turn.

The critical point, thus, is how we interpret, simply as a matter of ordinary language, the expression that the microphone must have "a frequency range of 340 Hz to 3.4 kHz". Is it enough, as Panasonic contends, that the range can exceed the stated range, provided critically that the microphone does actually span or cover, "and have" the required range? Or is it required, as HMRC contend, that the microphone must have approximately the relevant range, no more and no less, at an assumed dB figure of ... 3 dB to - 3 dB.

We find this question difficult.

Taking different contexts in which the required frequency range might be stated, it seems self-evident that the relevant range might bear either of the contended interpretations.

If one imagines a list of frequency ranges being specified for different microphones, the stated ranges would self evidently be the maximum ranges. In this context one would say that the technical specification of the particular Panasonic microphone in this case would record a frequency range of 50 Hz to 10 kHz, and one would not refer to the countless other frequency figures within that maximum. Similarly, if a field gun had a range of 5 miles, it would be pointless to say, in giving the technical military specification of the gun or in comparing one gun with others that it had a range of 4 miles, 3 miles and so on. Self-evidently it would perform satisfactorily at those lesser ranges, but 5 miles is the maximum range, and it is plainly that that would be relevant in the context indicated.

If on the other hand one contemplated the Ministry of Defence inviting tenders to deliver a field gun with a range of 3 miles, it is equally obvious that if the manufacturer of a field gun with a range of 5 miles put that particular gun forward as having the required range, no-one would dream of suggesting that the gun did not have the required stated range of 3 miles.

And similarly if a manufacturer of telephones invited tenders for the supply of microphones with a range of 300 Hz to 3.4 kHz, then a microphone with a wider frequency range would manifestly meet that requirement, it being of very little consequence that it had a wider range. The wider range would in no way render the microphone unsuitable for the purpose. Indeed because the wider range would almost certainly mean that the distortion or dB factor would be less than, i.e. better than, the ... 3 dB to - 3 dB level over the material required range, the microphone might perform slightly better than the norm in the required frequency range, and it might indeed be that improved performance that the manufacturer of the microphone had sought to provide. If of course the manufacturing cost of the improved microphone was materially greater than a microphone with only the conventional speech range, then this cost factor might render the particular microphone unsuitable "for use in telecommunication". But since in this case we are told that the microphone is being imported at present simply to be sold to one manufacturer of telephones, we can only infer that this is not a consideration in the present case.

We accept that the context in which the tariff description arises for Customs purposes is neither that of a technical journal indicating the frequency range of microphones, and nor is it a customer specifying what are in substance its performance requirements. The description is simply an objective description of a microphone where we still have to decide which of the two interpretations is the better. We do not think that the fact that we must then look at the objective characteristics of the product for customs purposes is instructive in either direction. Although on an objective basis the present microphone has a range of 50 Hz to 10 kHz, so too in an objective sense it also has a range of 300 Hz to 3.4 kHz.

Having found this a difficult decision, we find in favour of the Panasonic interpretation. We do this for the following reasons:-

(a) It seems sensible to assume that the stated frequency range derived from the long established acceptance that because telephone microphones have to pick up all the conventional frequencies of different human speech, they need "to have" a frequency range that spans 300 Hz to 3.4 kHz. Nothing of any significance turns on whether they have wider ranges. Because that must be why the specified range was selected, it seems sensible to approach the interpretation as if the context was a question of "what was required", and not as if one was looking at a catalogue of different microphones with their frequencies listed for comparison purposes.

(b) We understand that it is very unlikely that even at a stated dB tolerance level, any microphone would have precisely the frequency range of that specified, or indeed anything particularly close to it. This was indeed Panasonic's second contention. Although we found this argument less compelling than the purely linguistic one, it does follow that it is only by having a greater range that a microphone could sensibly be said to have the stated frequency range. We are indeed a bit surprised that several of the BTIs refer to microphones with exactly the specified frequency range of 300 Hz to 3.4 kHz, and we question in what sense it is meant that those microphones can be said to have that exact range.

(c) It would seem perverse and contrary to common sense to disqualify a microphone which is still "of a kind for use in telecommunications", and which is indeed only being imported so as to be sold at present to one manufacturer of telephones, from falling into the relevant category when it is merely better than microphones that would qualify on any interpretation. When increased frequency range will automatically be obtained by improving quality and reducing distortion over the critical frequency range, it would seem to be a poor reward for improved quality in a microphone that is presumably still competitive on cost grounds for telephone usage, to rule that it falls out of the tariff category intended for telephone microphones.

The factor that ultimately resolves this question in our judgment is that the Panasonic microphone does have the required frequency range. The description indicates what the microphone must have, and it has it. The description does not indicate that it must not have good sensitivity to a broader range of sound, and there seems little logic as to why it should have done, and little relevance to the capacity of this particular microphone to pick up sound unlikely to be material in phone conversations.

HOWARD M NOWLAN

CHAIRMAN

RELEASED: 21 November 2005

LON/04/7054