United Kingdom VAT & Duties Tribunals (Customs) Decisions

 


Sonance Ltd v Revenue & Customs [2007] UKVAT(Customs) C00232 (10 January 2007)

CO0232

CUSTOMS DUTY – tariff classification – product consisting of an LCD screen, a microprocessor which reads a memory card, and software – when a memory card is inserted into the product the screen displays a sequence of still or moving images – whether product should be classified under Heading 8471 (units of automatic data processing machines) as argued by the Appellant – no – or under Heading 8528 (video monitor) as argued by the Appellant – no – or under Heading 8543 (electrical machines or apparatus not specified elsewhere) as argued by the Appellant – no - or under Heading 8521 (video reproducing apparatus) as argued by HMRC – yes – appeal dismissed - Council Regulation (EEC) 2658/87

LONDON TRIBUNAL CENTRE

SONANCE LIMITED

Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Respondents

Tribunal: DR A N BRICE (Chairman)

MR R K BATTERSBY

Sitting in London on 18 December 2006

Alan Froy of A F Consultancy for the Appellant

Owain Thomas of counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The appeal

1. Sonance Limited (the Appellant) appeals against a decision on review dated 10 November 2005 given by The Commissioners for Her Majesty's Revenue and Customs (Customs). The decision was that a product called the Dsign Lightbox was correctly classified under commodity code 852190 00 90 and not under commodity codes 8471, 8528 or 8543.

The legislation

2. Council Regulation (EEC) No. 2658/87 contains the provisions about the tariff classification of goods coming into the Community and the rates of duty. Article 1 establishes a combined nomenclature (CN) and Annex I sets out the combined nomenclature together with the rates of duty of the common customs tariff. Annex I is amended annually.
3. Heading 8471 reads:

8471 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.

4. Heading 8521 reads:

8521 Video recording or reproducing apparatus, whether or not incorporating a video tuner.

5. Heading 8528 reads:

8528 Reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus; video monitors and video projectors

6. Heading 8543 reads:

8543 Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter.

The issue

7. What we had to decide was whether the Dsign Lightbox was correctly classified as video reproducing apparatus under heading 8521 as decided by Customs or whether it should be classified under either heading 8471 (as a unit of an automatic data processor), heading 8528 (as a video monitor) or heading 8543 (as a machine not specified elsewhere) as argued by the Appellant.

The evidence

8. A bundle of documents was produced by the parties. Oral evidence was given on behalf of the Appellant by Mr Murray Baker, the Managing Director of the Appellant. Mr Baker produced a Dsign Lightbox and demonstrated its use to us. Oral evidence of fact and opinion was given on behalf of Customs by Mr Bevan John Clues, a chartered electrical engineer and a member of the Institution of Electrical Engineers.

The facts

9. From the evidence before us we find the following facts.

The Appellant and the product

10. The Appellant is based in the United Kingdom and developes and distributes LCD and Plasma display products. The Dsign Lightbox (the product) is a combination of a 15" LCD screen and a memory card reader. It also contains two small loudspeakers for audio music or commentary. The screen can display text or still or moving pictures from a variety of memory cards. Normally the data is previously inserted onto the memory card by an automatic data processor (a personal computer). Alternatively, the product can be connected to a personal computer with a USB port to enable data from the personal computer to be downloaded onto a memory card already inserted in the product. If this is done, however, the product cannot display any images until after all the data has been downloaded.
11. Visually, the product demonstrated to us appeared as a flat LCD 15" screen. Turned sideways it had very little depth. It was connected to an electrical supply. Initially the product showed a still image on the screen. Mr Baker inserted a very small memory card into the side of the screen and there then appeared on the screen a number of coloured moving images which were advertisements. Initially the images were of dishes as might be prepared in a restaurant. The images were moving in the sense that, even if one dish was being shown, then one part of the dish would be shown before another. The camera recording the images was clearly focussing first on one part of a dish and then on another and then moving from dish to dish. The later images were advertisements for other products and these advertisements included considerable dramatic action such as might be seen in an advertisement shown on commercial television. There was also sound accompanying the images. The sequence of images was pre-determined by the memory card and a different memory card would produce different sequences of images. It was possible to arrange for the sequence of images from a single memory card to be repeated indefinitely. Mr Baker operated the product by means of a remote control which could also regulate the volume of sound. We were told that the product was sold to businesses to be used as display advertising. The Appellant did not prepare the data on the memory cards; that would be prepared by specialist advertisement firms.
12. We were informed that the product cannot be purchased in a shop and is neither designed nor suitable for domestic use.

The BTI application

13. In June 2005 the Appellant's agent applied for a Binding Tariff Information in respect of goods described as "LCD design advertising display 15 inch LCD panel". The application indicated that the Appellant was of the view that the goods should be classified under CN Code 8528219030 (as a video monitor). In an annex to the application the goods were described in more detail in the following way:

"Product overview

High bright advertising/marketing display screen with 15" LCD Panel, the unit has:- integrated 'C' based application processor with installed 'C' base media player applications, external video input/output, and operates from DC input voltage of 12V.

Detail

Hi bright wide-view-angle LCD display

Integrated C code based application processor

Field upgradable firmware

Storage Medium :CF Type I/II

Standard 'C' program applications execution

Pre-loaded applications include:-

Photo: JPEG with Music Slide Show Function

Video: MPEG1, MPEG2 (up to Mb/sec VBR)

Audio: MP3

Composite Video input for direct display of externally connected content …".

14. On 22 July 2005 further information about the goods was sent to Customs. This described the goods as:

"TFT-monitor with integrated Digital Videoplayer

Hi-bright view angle LCD-display

Integrated compact flash drive

Slide show with MP3 function

Combined playing of video and freezed images

Linux system software

In-built stereo loudspeaker

Horiz/vert. Fixation, single or in combination."

15. On 2 August 2005 Customs asked if the goods "had inputs to take a signal from another source, i.e. a video/DVD player and was not just able to play inbuilt images". The reply was that the monitor did not have inputs to take a signal from another source.

The original decision – the BTI

16. On 8 August 2005 Customs issued a Binding Tariff Information that the goods were classified in the combined nomenclature as 8521900090 (as video reproducing apparatus). The goods were described in the Binding Tariff Information as:

"A 15 inch LCD TFT monitor with integrated digital video player. It is used for displaying advertising material and does not have inputs to take signals from anther source. "

17. Customs' letter of 8 August 2005 stated that the product had not been classified under tariff heading 8528 (as a video monitor) as it was not considered to be a video monitor used for displaying video signals from an external source such as a DVD player; it was essentially a play back device with a built in display and loudspeakers.

The request for a review

18. On 1 September 2005 the Appellant requested a review of the decision of 8 August 2005. Its letter stated:

"The product is a 15" LCD monitor with a built-in card reader. The card reader is for playback of JPEG, MPEG1, MPEG2, Wave and MP3 files which are stored on a compact flash card. It has integrated speakers and a remote control. It is used for displaying advertising material.

The description in the BTI is incorrect because it states that the product included an integrated digital video player and does not have any inputs to take signals from another source. The product has an inbuilt card reader that can read data stored on the compact flash card. It has a USB connection that enables it to be connected to a personal computer. It does not contain an integrated digital video player.

The data on the compact flash card can be stored in 2 ways-

The compact flash card can be inserted directly into a computer and the data can be stored on it. The card can then be removed from the computer and inserted into the Dsign unit.

The Dsign unit can be connected directly to a PC. The compact flash card is inserted into the Dsign unit and the unit is powered on. Then using the USB cable the Dsign unit is connected to your PC. The Dsign unit will perform as an external USB storage device."

19. The letter of 1 September went on to say that the Appellant did not agree with the classification of the product under heading 8521 as video recording apparatus and suggested that classification should be under one of headings 8471 (as a storage device or stand alone reader); or 8528 (as a video monitor); or 8543 (as an electrical machine having an individual function not elsewhere specified). The letter of 1 September also referred to a number of other Binding Tariff Informations.

The visit and Mr Clues' report

20. On 10 October 2005 Mr Steve Palmer of Customs and Mr Bevan Clues visited the Appellant and met Mr Murray Baker and Mr Froy. The product was demonstrated at the visit.
21. On 25 October 2005 Mr Clues completed a report on the product. The product was described in the report as:

"3.1 The product is a 15" display constructed around an LCD [Liquid Crystal Display] Colour Display panel and a microprocessor control board using the ESS [a manufacturer of Silicon Processor products, like Intel] chip set. It is powered from a 12 volts mains power adaptor imported as part of the product. The power consumption is 48 watts. The product has built in loudspeakers. A stand is available but this is optional and not shipped with the product.

3.2 [Paragraph 3.2 referred to photographs of the product which are not reproduced in this Decision]

3.3 The product is capable of displaying still pictures in JPEG [Joint Photographic Experts Group] format or moving pictures in MPEG [Moving Picture Experts Group] format. Audio files can also be played in MP3 format.

3.4 A USB [ Universal Serial Bus] port is fitted to facilitate a connection to a host PC.

3.5 Memory for the storage of files which are to be played is provided in the form of a CF [Compact Flash (Memory)] card which can be plugged nito the product. The CF card can have up to 20 GB of storage.

3.6 Files can be loaded onto the CF card in two ways. The first is to plug the CF card into a host PC where the files can be transferred from the PC onto the CF card. The card can then be unplugged from the PC and plugged into the product. The files can then be played. The alternative approach is to plug the CF card into the product. The PC is connected to the product using a USB interface. Files can then be downloaded from the PC to the product where these will be stored on the CF card. Files have to be fully downloaded before these can be played.

3.7 It is possible to install a hard disc in the product.

3.8 Play mode will be entered automatically upon power on. In the most basic configuration all files stored on the CF card will be played sequentially regardless of how files are placed in sub directories. More complex configurations are possible.

3.9 The software loaded on board the product is a single application written using the C programming language and using a single threaded programming technique. The product is loaded with the application at the time of importation."

22. Mr Clues' report concluded that the objective characteristic of the product was that it was a device for the playing or displaying of still or moving images and/or audio content which had to be pre-loaded. He concluded that Heading 8521 (video reproducing apparatus) was the appropriate heading and not heading 8471 (unit of automatic data processing machine) or heading 8528 (video monitor) or heading 8543 (machine not specified elsewhere).

The review decision

23. On 10 November 2005 Customs gave the review decision which is the subject of this appeal. The review decision confirmed the original decision that classification should be under heading 8521 as video reproducing apparatus. The letter accepted that there had been some confusion over the description of the product leading to some inaccuracy in the description in the BTI. The review letter was given on the basis that the product did not contain an integrated digital video player and that it had a USB connection that enabled it to be connected to a personal computer. The review letter considered classification under headings 8471 (as a unit of an automatic data processor, specifically as a storage device or stand alone reader); or 8528 (as a video monitor); or 8543 (as an electrical machine having an individual function not elsewhere specified) and concluded that none of these headings was appropriate. The review letter concluded that classification under heading 8521 (video reproducing apparatus) was correct on the basis that the function of the product was to reproduce video.
24. On 29 November 2005 a replacement Binding Tariff Information was issued with an accurate description of the product and a classification under heading 8521.

Reasons for decision

25. In giving the reasons for our decision we have found it convenient first to consider the framework of the legislation; then to consider the legal principles which we should apply; and finally to consider separately each of the four headings argued for by the parties.

The framework of the legislation

26. Council Regulation (EEC) 2658/87 (the 1987 Regulation) deals with the tariff classification of goods coming into the Community and the rates of customs duty. Article 1 establishes a goods nomenclature, called the combined nomenclature (CN), which applies for all Community policies on the importation or exportation of goods, including customs duty. Annex I to the 1987 Regulation sets out the combined nomenclature together with the rates of duty of the common customs tariff. Article 12 provides that the Commission shall adopt each year a regulation updating the combined nomenclature together with the rates of duty. Accordingly, Annex I to the 1987 Regulation is updated annually.
27. At the beginning of Annex I are the six general interpretative rules (the GIRs) and these have to be applied in interpreting the tariff in Annex I. GIR 1 provides that the titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes classification shall be determined according to the terms of the headings and any relative section of chapter notes. GIR 3(a) provides that where goods a prima facie classifiable under two or more headings, the heading which provides the most specific description shall be preferred to headings providing a more general description. GIR 6 provides that, for legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and mutatis mutandis to the other rules on the understanding that only subheadings at the same level are comparable. For the purposes of GIR rule 6 the relative section and chapter notes also apply unless the context otherwise requires.
28. Articles 9(1)(a) and 10 of the 1987 Regulation describe a procedure for the adoption of explanatory notes (combined nomenclature explanatory notes or CNENs) to the headings in the tariff. The combined nomenclature is based on the International Convention on the Harmonised Commodity Description and Coding System which introduced an agreed international system for describing and coding commodities for international trade purposes. The harmonised system also has explanatory notes (HSENs).

The legal principles

29. The legal principles to be applied when classifying goods for the purposes of customs duty were summarised by the Court of Justice in Holz Geenen GmbH v Oberfinanzdirektion München (Case C-309/98) Judgment of 20 March 2000 in the following way;:

"14 It is settled case law that, in the interests of legal certainty and for ease of verification, the decisive criterion for the classification of goods for customs purposes is in general to be sought in their objective characteristics and properties as defined in the wording of the relevant heading of the CN. The explanatory notes drawn up, as regards the CN, by the Commission and, as regards the HS, by the Customs Co-operation Council, (the HSENs), may be an important aid to the interpretation of the scope of the various tariff headings but do not have legally binding force.

15. In addition the intended use of a product may constitute an objective criterion for classification if it is inherent to the use of the product, and that inherent character must be capable of being assessed on the basis of the product's objective characteristics and properties."

30. Pausing there, we record that in our view the objective characteristics of the product the subject of this appeal are that it reproduces moving visual images, with or without accompanying sound, in a sequence previously recorded on a memory card and the intended use of the product is to display such moving visual images by way of advertisement. The product is also capable of displaying still images either alone or in sequence. The product is designed and intended to be used as a stand-alone unit for the display of advertising or other information in a business environment

The four headings

31. The four headings suggested by the parties are 8471 (unit of an automatic data processor); 8521 (video reproducing apparatus); 8528 (video monitor) and 8543 (machine sot specified elsewhere). All four headings appear in chapters 84 and 85 both of which appear in section XVI.

Section XVI – Machinery etc

32. Section XVI applies to:

"Machinery and mechanical appliances; electrical equipment; parts thereof; sound recorders and reproducers; television image and sound recorders and reproducers, and parts and accessories of such articles."

33. Notes 3 and 4 to section XVI provide:

"3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complimentary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.

4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to constitute together a clearly defined function covered by one of the headings in Chapter 84 or 85, then the whole falls to be classified in the heading appropriate to that function."

34. GIR 1 provides that classification shall be determined according to the terms of the section notes and so notes 3 and 4 are relevant in this appeal. We are of the view that the product the subject of this appeal could be regarded as a composite machine consisting of the LCD screen, the memory reader, and the microprocessor with software. The principal function of the product is to display moving images on the LCD screen which images have been pre-recorded on the memory card and read by the product. All the components of the product are intended to constitute together the clearly defined function of reproducing the moving visual images pre-recorded on the memory card.

Chapter 84

35. Chapter 84 applies to:

"Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof.

36. Note 5 to Chapter 84 defines the expression "automatic data-processing machines" for the purposes of heading 8471. The relevant parts of Note 5 provide:

"(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 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

© 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 heading appropriate to their respective functions or, failing that, in residual headings."

37. GIR 1 provides that classification shall be determined according to the terms of the chapter notes and so note 5 is relevant in this appeal. We consider the effect of note 5 after we have considered the terms of heading 8471.

Heading 8471 – unit of automatic data processor

38. Heading 8471 applies 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

39. As a result of GIR 1 classification has to be determined according to terms of the headings.

The arguments relating to heading 8471

40. For the Appellant Mr Froy argued that the product was a combination of an LCD screen and a card reader and both such products were classified under heading 8471 as an output unit and a storage unit of an automatic data processing machine. Normally such products were incorporated in an automatic data-processing machine (or personal computer) which was classified under heading 8471 and a personal computer could read and display exactly the same data as the product. Mr Froy argued that Note 5(E) did not exclude the product from this heading as the reading of data and data display were both data processing functions and not specific functions elsewhere specified. He relied upon Commission Regulation (EC) 2171/2005 which he said confirmed the classification of such LCD screens. He drew a parallel with the treatment of printers which were connected to an automatic word-processor; despite there being a specific heading for printers (8443), printers connected to an automatic data processor were classified under heading 8471 because such a printer functioned by receiving data to its own internal memory before printing. The product similarly received data onto the memory card and then displayed it; he referred to BTI GB 111663796 and BTI GB 115574770.
41. For Customs Mr Thomas argued that as well as the screen and card reader the product also contained a micro-processor and software. The product was a stand-alone machine and did not need to be connected to an automatic data processor and did not require any peripherals. Accordingly, it could not be said that the product was an output of an automatic data processor. Mr Thomas relied upon note 5(B) of the notes to chapter 84 and argued that the product was a stand alone device and not part of an automatic date processing system. Also, the product was not "of a kind solely or principally used in an automatic data processing system" within the meaning of note 5(B)(a). In any event he argued that the product performed the specific function of reproducing video images. This was a function other than data processing and so, relying upon note 5(E), the product should be classified in the heading appropriate to its respective function. Mr Thomas argued that the product was not a printer nor was it a digital photo frame. Not all the facts about the BTIs relied upon by the Appellant were known and although the BTIs were binding on the Respondents, they were not binding on the Tribunal.
42. In considering the arguments of the parties we first record the opinion evidence of Mr Clues, which we accept. We then form our own views about the classification of the product under heading 8471 after which we consider the Regulation and BTIs referred to by Mr Froy

The opinion evidence of Mr Clues

43. In his report Mr Clues rejected the argument that heading 8471 was appropriate. His report stated:

"4.9 Heading 84717090 covers Input/Output units of an ADP [automatic data processor]. The product is a standalone machine and has no dependency upon an ADP for playing the audio/video files. Although a host PC [personal computer] is used for writing data to the memory of the product this is a process which is simply a pre-requisite to the primary task of playing the audio video files. Mr Froy [for the Appellant] appears to be arguing that the product is a "storage device". Of course, data is stored on the CF Card but this is secondary to the primary function as a display device. The software on board the product has a single task of being able to display the data stored on the CF card.

4.10. Heading 84719000 is suggested as appropriate by Mr Froy as being a stand alone reader. However, a stand alone device cannot be part of an ADP machine. In any event, the storage of data on the CF card is secondary to the primary function as a display device."

44. In oral evidence which we accept Mr Clues told us that a monitor for a personal computer was intended for human interaction and allowed the automatic data processor to display data in real time. When a monitor for a personal computer was connected to the automatic data processor through a cable the automatic data processor could generate a picture in real time and the monitor could display it. Also an automatic data processor usually had a keyboard which permitted interaction and feedback from the user. There was no user interaction or feedback with the product which merely read data and displayed it. The product could not be described as a storage unit because the data was stored on the memory card which was inserted and removed. If the memory card were inserted into the product first then it was possible to download data from an automatic data processor using the USB connection but it was not possible to download data and display it at the same time.

Our views about heading 8471

45. In our view the product the subject of this appeal does not come within the terms of heading 8471. It is not an automatic data-processing machine nor a unit thereof. Although the product combines components, like the LCD screen, which might form part of an automatic data processor, it has no central processing unit which is an essential part of an automatic data processor. We have to apply note 5 to chapter 84 and note 5(B) tells us that a unit of an automatic data processing machine has to be of a kind solely or principally used in an automatic data processing system. That could not be said of the product the subject of the appeal which is a stand alone product. Note 5(E) tells us that a machine which works with an automatic data processor but which has its own specific function is to be classified in the heading appropriate to the specific function. In our view the product the subject of the appeal has its own specific function of reading and displaying moving visual images. Even though the product can be connected to an automatic data processing machine through a USB connector, for the purpose of downloading data, its specific function is not that of an automatic data processor and it should be classified in the heading appropriate to the specific function of reproducing and displaying moving visual images. .

Commission Regulation (EC) 2171/2995

46. Mr Froy relied upon Commission Regulation (EC) 2171/2005 of 23 December 2005 which classified under heading 8471 60 80 a colour monitor of the LCD type which was designed for working only in conjunction with a product classifiable under heading 8471. The intended use of the product in the Regulation was that of accepting signals from the central processing unit of an automatic data processing system. However, the product the subject of this appeal is not a monitor which is part of an automatic data processing system, and interactive with it, but is a stand alone device. Also the product the subject of this appeal does not need to receive signals from the central processing unit of a data processing system as it is able to read data from an inserted memory card. Accordingly, we do not consider that it is comparable with the product classified in Commission Regulation (EC) 2171/2005.

The BTIs

47. Mr Froy also relied upon BTI GB 111663796 and BTI GB 115574770.
48. BTI GB 111663796.was issued on 18 July 2003 and classified under heading 8471800000 (other units of automatic data processing machines) a product described as:

"A multi input digital printer. For use with digital still cameras, digital video or analogue camcorders. Can also work with a personal computer. Compatible with both Windows and MacIntosh. Can download images directly from a range of storage media, including CF cards, Smartmedia cards and PCMCIA Type II cards. Works by thermal sublimation dye transfer. Can print multiple images on one sheet."

49. We do not think that such a product is comparable to the product the subject of this appeal which is not a printer.
50. BTI GB 115574770 was issued on 4 September 2006 to the Appellant and classified under heading 8471608090 (other input or output units) a product described as:

"A 32" LCD monitor with a VGA connector for connecting the monitor to an ADP machine. It also has inputs for USB memory sticks and cards. The cards supported include compact flash, multimedia, microdrive, SD, smartmedia etc. It has integrated speakers and a remote control. Used for displaying digital signage it is not capable of receiving a composite video signal. There is no DVI or CATV connectors present. The product also does not have a slot/space for the insertion of optional terminal boards."

51. In evidence which we accept Mr Clues told us that a VGA connector was a video graphics adaptor which was the usual interface for connecting to a display. The display the subject of BTI GB 115574770 had no storage and the automatic data processor was constantly updating it with a real time video signal. In that respect the product the subject of BTI GB 115574770 differs from the product the subject of this appeal which does not have a VGA connector, nor indeed any external connector, and is a stand-alone machine. Also the product the subject of this appeal can read the data stored on the memory card which is inserted into it. .

Our conclusions on heading 8471

52. For all of the above reasons we conclude that the product should not be classified under heading 8471.

Chapter 85

53. The other three headings with which we are concerned appear in chapter 85 which applies to:

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.

54. Our attention was not drawn to any of the chapter notes of chapter 85 but of course the section notes to section XVI are also relevant to Chapter 85. .

Heading 8521- video reproducing apparatus

55. Heading 85.21 reads:

8521 Video recording or reproducing apparatus, whether or not incorporating a video tuner.

56. For the Appellant Mr Froy argued that the product was a display device and display devices were not covered by the terms of heading 8521. The primary function of the product was as a display device and not video reproduction. He argued that the product was a composite machine comprising two machines namely an LCD display and a card reader. Relying on note 3 to section XVI the principal function of the product was to display and so the product should be classified either under heading 8471 as an automatic data processor display monitor or under heading 8528 as a video monitor and not under heading 8521 because video reproducing was not the primary or principal function of the product.
57. For Customs Mr Thomas relied upon GIR 1 and argued that the product clearly came within the terms of heading 8521. The specific function and use of the product was to reproduce video signals from a recorded source and so was described by the terms of heading 8521. Mr Thomas also relied upon note 4 of the notes to section XVI and argued that the clearly defined function of the product was to reproduce video images. Accordingly although the product included a combination of a screen, a card reader, a microprocessor and software they were all intended to contribute together to the clearly defined function of displaying video images and so should be classified in heading 8521 as the heading appropriate to that function.

Our views about heading 8521

58. In considering the arguments of the parties we first recall that classification should be by reference to the objective characteristics of the product. We have already expressed the view that the objective characteristics of the product the subject of this appeal are that it reproduces moving visual images, with or without accompanying sound, in a sequence previously recorded on a memory card and the intended use of the product is to display such visual images by way of advertisement. The product is also capable of displaying still images either alone or in sequence. The product is designed and intended to be used as a stand-alone unit for the display of advertising or other information in a business environment
59. We now turn to consider the section notes and we have already expressed the view, when considering the notes to section XVI, that the product the subject of this appeal could be regarded as a composite machine consisting of the LCD screen, the memory reader, and the microprocessor with software. The principal function of the product is to display moving images on the LCD screen which images have been pre-recorded on the memory card and read by the product. All the components of the product are intended to constitute together the clearly defined function of reproducing the moving visual images pre-recorded on the memory card.
60. The application of the principle of objective characteristics, and the application of the terms of the section notes, lead us to conclude that the product is video reproducing apparatus within the meaning of heading 8521. The product reproduces video images from the memory card and displays them

Our conclusions on heading 8521

61. For all of the above reasons we conclude that the product should be classified under heading 8521

Heading 8528 – video monitor

62. Heading 85.28 reads:

8528 Reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus; video monitors and video projectors

63. The HSEN's for heading 85.28 include the following:

"This heading includes:

(6) Video monitors which are receivers connected directly to the video camera or recorder by means of co-axial cables, so that all the radio-frequency circuits are eliminated. … These apparatus consist essentially of devices which can generate a point of light and display it on a screen synchronously with the source signals. "

64. For the Appellant Mr Froy argued that the product was a video monitor. The terms of the heading did not require that the product had to be capable of displaying a real time video signal. (We understand the term "real time video signal" as used in this context to be a signal received from real time transmission as distinct from a pre-recorded memory card.) Mr Froy also relied upon Binding Tariff Informations BTI GB 114160421, NLRTD-2005-001398, NLRTD-2004-002802, ES- ADUANUS- 2006- 000099 where digital photo frames were classified under heading 85282190 as video monitors. He also relied upon a French BTI FR-E4-2004- 004036 which classified a product very similar to the product in the appeal as a video monitor. None of these products had video inputs and none could receive an external composite video signal.
65. For Customs Mr Thomas argued that the product could not be a video monitor as it had no ability to receive a video signal; what it did was to reproduce video images from pre-recorded data. He relied upon Note (6) of the HSENs which although not legally binding indicated the right approach.
66. In considering the arguments of the parties we first record the opinion evidence of Mr Clues which we accept. We then form our own views about the classification of the product under heading 8428 after which we consider the BTIs referred to by Mr Froy.

The opinion evidence of Mr Clues

67. In his report Mr Clues rejected the argument that heading 8528 was appropriate. His report stated:

"4.5 Files have to be fully downloaded onto the memory within the product before the still or moving images can be displayed. Thus, the product cannot meet the text of heading 8528. To be capable of being reception apparatus for television there would have to be the capability to receive a streaming television signal in real time. Examples of television transmissions are (a) terrestrial analogue (b) terrestrial digital (c) satellite analogue (d) satellite digital (e) IP based transmissions e.g the Internet.

4.6 The product reproduces video images from a pre-recorded source i.e. the MPEG or JPEG files stored on the CF card.

4.7 The alternative for heading 8528 is if the product is a video monitor or a video projector. Clearly it is not a video projector. Neither is it a video monitor since there is no input which would permit a real time video signal to be displayed. The product specification requires that a complete file is downloaded before it can be displayed."

68. In oral evidence Mr Clues told us that he considered that a real time video signal was an external signal coming in from another source, eg a television signal. Only a unit which could monitor such a real time signal was properly called a monitor. The product the subject of the appeal was a unit which displayed pre-written data and was not a monitor. It did not display data which was generated elsewhere but generated a picture from information which had been previously downloaded

Our views about heading 8528

69. Looking solely at the terms of heading 8528 we are of the view that the product the subject of the appeal has nothing in common with reception apparatus for television. We accept that there is a semi colon before the words "video monitors and video recorders" and so have considered the latter separately. We accept the evidence of Mr Clues that the word "monitor" means a unit which can monitor a real time video signal coming from another source and does not extend to a unit which can only generate a picture from pre-recorded information. We are reinforced in this view by the terms of HSEN (6) which describes video monitors as being able to display images synchronously with source signals from the video camera or video recorder.
70. Even if we had concluded that the product was a monitor, and that heading 8528 might be appropriate, we would also have concluded that heading 8521 was appropriate. That means that we would have concluded that the product was classifiable under two or more headings, Following GIR 3(a) the heading which provides the most specific description must be preferred to the heading providing a more general description and, in our view, the most specific description is in heading 8521. The product the subject of the appeal is not just a screen (or monitor). It also has a card reader which is essential to the primary function of displaying moving visual images. It is therefore in total more specifically described as video reproducing apparatus.

The BTIs

71. We have considered the BTIs relied upon by Mr Froy and we begin with those which relate to digital photo frames.
72. BTI GB 114160421 was issued on 16 May 2005 and classified under heading 8528219030 a product described as:

"This digital photo frame has a plastic frame and a 5.6 inch LCD?TFT display with a resolution of 320 x 234 pixels. It is used for viewing still image digital photos in JPEG format. It has 4MB of on board memory to allow a slide show of stored pictures. It also features a clock display on the screen. Pictures can be transferred directly from a digital camera via secure digital or multi media memory card or from PC images via USB. Mains powered with a 12V AC?DC adaptor. Dimensions 220 x 220 x 31.5 mm. Aspect ration 4.3."

73. We note that the product the subject of the BTI only displayed still and not moving images unlike the product the subject of this appeal.
74. BTI NLRTD-2005-001398 was issued on 29 July 2005 and classified under heading 85282190 a product described as:

""PhotoFrame", a device for displaying photographs direct from a digital camera or via memory cards or the internal memory. The device, being an LCD screen set in a plastic frame, includes the following features:

- memory capacity 14 MB;

- dimensions (LXB) approx 21.2 x 16.4 cm;

- a "CF/Memory stick/SD/MMC (card) reader"

- a USB connector for a PC or a digital camera;

- an on/off button;

- six control knobs.

The device is supplied with a holder, an adaptor and two USB cables."

75. Again, we note that the product the subject of the BTI only displayed still and not moving images unlike the product the subject of this appeal.
76. BTI NLRTD-2004-002802 was issued on 26 May 2004 and classified under heading 85282190 a product described as:

"Digital photo frame, in the form of a screen designed for displaying digitally recorded photographs. It has a 7 inch diagonal screen with liquid crystals (LCD). Behind the screen is a card reader for CF, SM, SD?MMC, MS, MS Pro and Microdrive cards. The frame around the screen is enclosed in a detachable frame which is for decorative purposes. The digital photo frame has a rotation, zoom and thumbnail function. The screen has an integral loudspeaker, a USB connection for connecting to an automatic data processing machine and an infra-red receiver for the remote control (supplied). The unit is powered by 12 volt AC via the transformer (supplied)."

77. From the information supplied it appears that the product the subject of the BTI only displayed still and not moving images unlike the product the subject of this appeal.
78. BTI ES- ADUANUS- 2005- 00134 was issued on 27 April 2005 and classified under heading 8528219090 a product described as:

"Portable multi-functional unit incorporating an audiovisual recorder/player, a hard disc with 20GB capacity, a 3.5 inch LCD TFT screen and speakers. It has a USB port to connect it to data-processing equipment and an audiovisual outlet for a television. It enables pictures and sound to be recorded and played in MP3, WMA, JPEG and WMV formats."

79. We note that the product the subject of the BTI was not stated to be able to play pictures in MPEG format.
80. Mr Froy also relied upon French BTI FR-E4-2004- 004036 which was issued on 7 December 2004 and classified under heading 8528219020 a product described as:

"Monitor LCD integrated in a terminal of information presented in a tower in frame metal. It is useful for the presentation. The storage of films is made on compact flash. Retransmitted formats photographs JPEG-video MPEG1 and audio MPEG2 at MP3. Connection USB for fast download by a PC. The screen interior is 10.4 inches."

81. It may be that something has been lost in translation but we are unable to equate the product the subject of the BTI with the product the subject of this appeal.

Our conclusions on heading 8528

82. For the above reasons we conclude that the product should not be classified under heading 8528

Heading 8543- machine not specified elsewhere

83. Heading 85 43 reads:

8543 Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter.

84. For the Appellant Mr Froy argued that the primary function of the product was to display. If it were not classified under heading 8471 or 8528 it should be classified under heading 8543.
85. However, in our view the product the subject of the appeal should properly be classified under heading 8521 as video reproducing apparatus and so heading 8543 is not appropriate.

Decision

86. Our decision on the issue for determination in the appeal is that the Dsign Lightbox was correctly classified as video reproducing apparatus under heading 8521 as decided by Customs and that it should not be classified under either heading 8471 (as a unit of an automatic data processor), 8528 (as a video monitor) or 8543 (as a machine not specified elsewhere) as argued by the Appellant.
87. That means that the appeal must be dismissed.

DR A N BRICE

CHAIRMAN

RELEASE DATE: 10 January 2006

LON/2005/7092

88. ..01.07