1987 (28) E.L.T.

93 (Tribunal)

BEFORE THE CEGAT, SPECIAL BENCH ‘B2’, NEW DELHI

Smt. S. Duggal, Member (J) and Shri 1.J. Rao, Member (T)

KELTRON POWER DEVICES LTD.

Versus

COLLECTOR OF CUSTOMS, COCHIN

Order No. 1044 to 1057/86-B 2, dated 29-10-1986

‘Silicon Power Transistor Chips’, selectively diffused and having acquired characteristic of semi-
conductivity, classifiable under Item 85.18/27 (1) of the Customs Tariff Act, 1975 and not
Chapter 38 thereof - Note 2(s) to Chapter 38 - Rule 2(a) of the Rules for Interpretation ibid.

- The ‘Silicon Power Transistor Chips’, when imported, had been ‘selectively diffused’. This
positively takes them out of the stage of Chapter 38 because of the clear and unmistakable
wording of Note 2(s) thereto which takes within its ambit only those ‘silicon chips’ which have
not crossed the stage of doping. The essential characteristic of semi-conductivity, for the purpose
of a semi-conductor device, is acquired by silicon chips only after selective diffusion and mere
doping does not serve that purpose. Further, the end-product in the instant case is semi-conductor
device. The chips, when imported, had acquired a definite shape and size, had crossed the stage
of raw material, and had a given market connotation. Rule 2(a) of the Interpretative Rules takes
even unfinished or incomplete articles to the category of finished and complete products for the
purpose of classification under a given Tariff heading or sub-heading, once the article had
acquired essential character of the finished product. Since the diffusion had imparted the
character of semi-conductivity to the silicon chips after they had been doped, the Collector was
correct classifying the imported in goods under T.I. 85.18/27(1)under the category of ‘semi-
conductor devices’. [paras 17, 18, 1 &. 16}

“Silicon Power Transistor Chips”, being diffused, classifiable under Chapter 85 and not Chapter
38 of the Customs Tariff Act, 1975 - Interpretation by Serial No.49 of Notification No. 231/83-
Cus., dated 18-8-1983.

- Notification No.231/83-Cus. grants partial exemption to silicon-both in the form of diffused as

well as un-diffused wafers, chips etc. - vide Serial No.49 thereof. The chapter Headings given
against Serial Ko.49 are both 38 or 85. This clearly implies that only, ‘undiffused wafters and
chips’ (emphasis supplied) are to go under Chapter 38 whereas the ‘diffused ones’ shall be
treated as falling under Chapter 85. Therefore, that part of the order of the Collector, classifying
the imported ‘Silicon Power Transistor Chips’ under T.l.85.18/27(l), has to be upheld. [para 18]

Electrical equipments and parts thereof - Semi-conductor devices -Silicon Power Transistor
Chips, being of the nature of components for manufacture of semi-conductor devices, and not a
finished product, not excludible from benefit of Notification No. 172/77-C.E., dated 3-8-1977-
Chapter 85 of the Customs Tariff Act, 1975.

- What was to be excluded from the benefit of Notification, No. 172/77-Cus., vide Column 4
against Serial No.8(ii) was; ‘diodes, transistors and similar semi-conductor devices’. This would
refer to goods, as finished product, in the known and commercial sense of the term, and not to
those semi-finished or unfinished articles, which have been taken to that category only with the
aid of Interpretative Rule 2(a). The ‘exclusion clause’ of Column 4 to the Notification would not
take within its compass the imported ‘Silicon Power Transistor Chips’, which were in the form
of ‘diffused chips’ and had to undergo various intricate and technical processes to reach the stage
of ‘semi-conductor devices’ and which have been certified by the Department of Electronics
(DGTD) to have been only in the nature of ‘raw material’ or components for manufacture of
‘semi-conductor devices’. Therefore, the appellants are entitled to benefit of Notification No.
172/77 in respect to the imported goods. [paras 19 to 21]

Customs - Interpretative Rules - Resort thereto permissible for determination of classification but
not for determining eligibility to benefit of Notification - Item 85.18/27(I) of the, Customs Tariff
Act,1975 - Rule 2(a) of the Interpretative Rules ibid-Notification No.l72/77-Cus., dated 3-8-
1977.

-There can be no gainsaying the proposition that whereas for classification of an article for
purposes of Tariff Heading or Sub Heading, resort to Interpretative Rules is permissible, it is an
entirely different proposition when considering benefit of a notification to specifically given
articles. Therefore, the authorities below fell in error in holding that the imported ‘Silicon Power
Transistor Chips’, selectively diffused, having been once treated as ‘semi-conductor devices’ and
classified under T.I.85. 18/27(1) with, the aid of Interpretative Rule 2(a), stand excluded from
the ambit of Notification No.l72/77-Cus.,on the basis of the exclusion clause vide Column 4
against Serial No.8(ii) of the notification. [paras 19, 2 &. 13]

Customs - CCN Explanatory Notes - How unlike Rules for Interpretation of the First Schedule to
the Customs Tariff Act, 1975.

- While Explanatory Note to the CCCN cannot be treated as a governing factor for
determination of classification under the Customs Tariff Act, the same cannot be said about the
Interpretative Rules to the Act. [para 18]

Customs - Rules for Interpretation of the First Schedule to the Customs Tariff Act, 1975. - Scope
of Rule 2(a).

- Rule 2(a) of the Interpretative Rules covers even unfinished or incomplete articles, and takes
them to the category of finished and complete products for the purpose of classification under a
given Tariff heading or sub-heading, once the article had acquired essential character of the
finished product. [Para 18]

Appellate Order - Eligible to be endorsed by the Appellate Tribunal when neither challenged nor
controverted.
 - The order of the Collector (Appeals) inter-partes remaining unchallenged, and without any
further material being disclosed which could establish that the view was erroneous, can certainly
be endorsed with approval by the Appellate Tribunal, though the Tribunal is not bound by such
an order. [para 20]

REPRESENTED BY : Shri S. Venkataraman, Consultant for the appellants.

Shri J. Gopinath, S.D.R; for the Respondent.

[Order per : S. Duggal, Member (J)]. - The subject-matter of imports in all these appeals is an
item described uniformly as : ‘Silicon Power Transistor chips’ in specified number of pieces.
These were assessed to duty, at the time of respective clearance, under T.I. 85.18/27(1) of the
CTA on the view that they fall within the category of : ‘Diods, Transistor and similar semi-
conductor devices’. Appellants’ claim for refund of duty, seeking re-assessment of the goods
under Chapter 38.01/19 of the CTA or, alternatively, for benefit of Notification No.l72/77-Cus
assuming that the goods were classifiable under TI 85.18/27(1) CTA, was rejected on the view
that, having regard to the wording of Section Note 2(s) to Chapter 38 (Section VI), read in
conjunction with Note 5 to Chapter 85, the goods imported in a given number of pieces and
described as ‘Silicon Power Transistor Chips’ would stand excluded from the category of
‘miscellaneous and chemical products’ as they have acquired the essential characteristics of a
‘semi-conductor device’, and that the entry under Sub-Heading 85.18/27(1) was wide enough to
cover these type of ‘diffused chips’ of silicon because of the expression employed; namely,
‘similar .semiconductor devices’.

2. Appeals, taken to the Appellate Collector of Customs, against the individual orders of
rejection of refund applications, were also rejected on the same view by means of impugned
orders,listed above. Barring the last case (of Appeal No.C/2324/83-B.2), all the previous orders
were passed by the same Appellate Collector holding that goods having been once treated as
‘semi conductor devices’, they stand excluded from the ambit of Notification No.l72/77-Cus.
However, the Collector of Customs (Appeals), Madras in the last-mentioned case, dealt with an
additional argument advanced on behalf of the appellants; namely that Notification No.30/81
dated 1-3-1981 indicated, vide column 3 against Serial No. 7, that silicon in all forms, excluding
‘Silicon diffused chips’, have been given a concessional rate of duty and the description of goods
has been correlated, vide column-2, with Chapter 38 of the CTA. It seems to have been argued
that this indicated the intention of the legislature to have treated ‘diffused silicon chips’ to be
falling under Chapter 38. This line of argument was rejected by the Collector of Customs
(Appeals), holding that mere exclusion-clause in a notification did not determine the
classification of an item under a specified chapter. Order-in-Appeal in all the cases also has
reference to Explanatory Note to CCCN under Heading 85.21, which has been shown to be
including : ‘Transistor and similar conductor devices’.

3. The appellants assail the finding of the authorities below in this set of appeals on identical
grounds. After explaining the meaning of expression ‘semi conductor devices’, it is pleaded that
‘Silicon Chips’ and when imported, had merely acquired a shape, which represents one of the
individual circuits of a ‘wafer’. It is asserted that these ‘chips’, by themselves, have not acquired
the character of a finished product known as ‘semiconductor device’, as known commercially
and in common parlance, but furnish only a raw material on which a number of processes - of
varying degree and character - are carried out and it is only those post-importation processes
which impart the character of ‘semi conductivity’ to these chips.

4. It is further explained that ‘silicon chips’ or ‘wafers’, in the original form of purity, are not
in a position to conduct electricity which is the ultimate operational requisite for their being used
as ‘semi conductors’ and, thus, it becomes technically necessary first to dope them by an element
known as ‘dopant’, which process alters the conductivity of the ‘silicon ‘wafer’. But, in order to
invest it with the properties of semi-conduction, a further process, which the appellants describe
as “secondary process”, known as : ‘diffusion’, by introducing some minute amounts of
impurities into surface of the ‘silicon wafers’ in such a manner that the said impurities get spread
into the substrata, is carried out and at that stage, the ‘silicon wafers’ can be said to have a
primary position where they acquire the basic ability to conduct electricity.

5. A reference is made to an observation of the Collector of Customs (Appeals), in a part of the

impugned order of appeal, to the effect that : “No doubt the diffused chips or wafers, by
themselves, could not be treated as semi conductor devices in the commercial sense of the term”.
It is pleaded that having said so, the Collector of Customs (Appeals) went wrong in coming to
the conclusion that, nevertheless, the imported chips had acquired all the essential characteristics
of ‘semi conductor devices’. This part of the appellate order; namely, that imported goods have
acquired the essential characteristics (emphasis supplied) of a ‘semi conductor device’, is
assailed on the view that the ‘Process Flow Chart’ of power transistors, filed before the Collector
(Appeals), clearly indicated numerous and intricate processes to convert the imported ‘silicon
diffused chips’ into a ‘semi conductor device’. It is pleaded that, till that stage is reached, the
goods clearly fell under Chapter 38 as one of the ‘miscellaneous chemical products’ and that the
Collector of Customs (Appeals) erred in classifying them under Chapter 85.18/27(1) CTA, by
invoking Interpretative Rule 2(a) of the Customs Tariff Act. The appellants plead for a realistic
approach to the classification of ‘chips’ as being of an inter-mediary stage between ‘inorganic
chemicals’ of Chapter 28 and ‘finished products’ of Chapter 85, and treating them only as one of
the ‘miscellaneous chemical products’, to be used as raw material or components for a given
product, as contemplated by Chapter 38.

6. While contending that classification of an article, for the purpose of Customs Tariff Act, by
reference to Explanatory Note to CCCN, was in no way justified; it is pleaded that, even if those
notes are taken into consideration, there is no corresponding note under Chapter 38 of the CTA,
as is found in the same Chapter to the CCCN, to the effect that : “Those more extensively work,
e.g. by selective diffusion, fall in Heading 85.21 as ‘semi conductor devices’. It is contended that
this omission in the CTA in the relevant Chapter Notes and Section Notes, is a clear indication of
the fact that there was no intention to treat selectively ‘diffused chips’ as ‘semi conductor
devices’, falling under Heading 85.21, i.e. T.I. 85.18/27(1).

7. Appellants plead in the alternative that, even if the imported goods were to be treated in their
semi finished stage, as viewed by the authorities below with the help of Interpretative Rule 2(a),
to be falling under TI 85.18/27(1); even then they were entitled to the benefit of Notification No.
172/77 because the ‘exclusion’ clause, vide column-4 of the said Notification, has reference only
to such type of ‘diods , transistors and similar semi-conductor devices; as are finished-products
known so commercially, and shall not take within its scope the semi-finished products, which
can be given the stretched meaning, only by resort to Interpretative Rule 2(a). In support of this
plea, they also place reliance on a letter, addressed by the Department of Electronics, DGTD,
containing clarification to this effect, where, vide letter dated 29-5-1981/21-6-1981, it is
categorically stated that: “it is clarified that the item of import; namely, silicon power transistor
chips, is not a finished device and it is only: ‘a component for manufacture of power transistors.’

8. After notice of hearing, and on the request of the appellants, all the above-captioned appeals
have been listed together for hearing as they involve identical questions on facts, and
interpretation. Shri S. Venkataraman, Consultant, represented the appellants in all these appeals
of the hearing whereas Shri J. Gopinath, SDR, appeared for the respondent.

9. Shri Venkataraman elaborately explained the meaning and import of the expression
‘diffusion’ vis-a-vis the characteristics of ‘semi conductivity’ starting with the primary raw
material; namely, ‘silicon’ and, then, the very first process of doping. He also invited our
attention to the ‘Process Flow Chart’ filed by the appellants in the paper-book which, very
lucidly, explains the various processes which are carried out on the chips, imported in a
‘diffused’ stage, and before they are invested with the character’ of a : ‘semi conductor device’,
and that the authorities below fell in error by holding them to be so, with the aid of interpretative
Rule 2(a).

10. He further argued that reliance on Explanatory Notes to the CCCN, which seems to have
been, the guiding factor for the Collector of Customs (Appeals) while passing all the orders, did
not reflect a correct approach as this Tribunal has held in a number of cases that the Explanatory
Notes to the CCCN have no binding force and could, at the most, have a persuasive value. He
contended that, when the relevant Chapter Note of the CTA did not contain reference, like the
one contained under Chapter 85.21 of the Explanatory Notes, indicating that ‘chips’ which were
extensively worked by selective diffusion would fall under Heading 85.21; there was no
justification to go by the description covered by Chapter Note 2(s) to Chapter 38 of the CTA
because, according to him, diffusion did not make such a difference to the chips so as to take
them to the stage of a ‘semi conductor device’ and that, it was only one step further than doping,
and since doped silicon wafers, by virtue of Note 2(s) of Chapter 38, fall under that Chapter,
there was no reason why ‘diffused chips’ could not be held to be so.

11. The learned Consultant, thus, fervently pressed the plea of the appellants for classification
of these goods under Chapter 38, further arguing that the stages, at which the chips were
imported; were neither the ‘primitive stage’ of goods covered by Chapter 28, nor that of the
‘finished stage’ of a sophisticated product, like ‘semi conductor device’ of Chapter 85 and that
the only possible classification for them was as ‘miscellaneous chemical products’ under Chapter
38. The samples of the chips, when imported, were also shown at the time of hearing, high-
lighting the fact that they were in the shape of a ‘square chip’ and ‘thin wafer’ made of silicon-
dope for use in electronics and, thus, fully fitting with the description as contained in Note 2(s)
of Chapter 38. He also made a passing reference to Notification No. 30/81-Cus dated 1-3-1981,
indicating that silicons in all forms have been teamed to be falling under Chapter 38 and that
‘silicon diffused chips’, though excluded from the benefit of Notification, find a specific mention
against goods falling under Chapter 38.
12. Shri Venkataraman also made reference to subsequent notifications issued by the
Government; namely, Notification No. 233/83-Cus., dated 18-8-1983 and No. 231/83-Cus.,
dated 18-8-1983, which made the position clear to the effect that ‘silicon’ in the form of
‘diffused chips’ were regarded only as raw materials/components for the manufacture of: ‘diods,
transistors and similar semi-conductor devices’ vide Serial No. 49 of the latter notification. He,
thus, argued that ‘silicon diffused chips’ definitely fall in a different category than the ‘finished
products’ known as ‘semiconductor devices’ and that the two could not be equated.

13. While strongly canvassing for classification of the goods under Chapter 38, Shri
Venkataraman argued, in the alternative, that even when the imported chips could be treated with
the aid of Interpretative Rule 2(a) to be falling under T.I. 85.18/27(1) of the CTA; the authorities
below have definitely erred in treating them as excluded from the scope of Notification No.
172/77-Cus., dated 3-8-1977, on the basis of the ‘exclusion clause’ vide column-4 against Serial
No. 8(ii) of the aforesaid Notification. He argued that a plain reading of this Notification gave a
clear indication to the effect that all goods, falling under Sub Heading No. (1) of Heading
85.18/27 of the CTA, were entitled to concessional rate of duty at 60% ad valorem, barring those
which fall in the category of ‘diods, transistors and similar semi conductor devices’. In the light
of the processes - explained earlier - carried out on these imported chips to reach the stage of
‘silicon power transistors’ (semi conductor devices), Shri Venkataraman contended that the two
were definitely distinct entities and the appellants could not be denied the benefit of this
Notification by virtue of the aforesaid ‘exclusion clause’. He fortified his contention by placing
reliance on a clarification issued by Department of Electronics (DGTD), by means of letter dated
29-5-1981.

14. Shri Venkataraman lastly made reference to an order passed by Collector of Customs
(Appeals), Madras, vide Order No. C27AP/79/83 AND OTHERS, dated 6-2-1985, in the case of
the appellants in connection with a later import of identical goods, where benefit of Notification
No. 172/77-Cus has been accorded to them, conceding that the Collector of Customs (Appeals),
in the said order, had declined to accept the plea for classification under Chapter 38. Though he
added that the Collector of Customs (Appeals) fell in error to that extent, Shri Venkataraman
strongly relied on that part of the order where it was held that the imported chips could not be
treated as ‘semi conductor devices’ in the normally recognised and commercial sense, and that
this exclusion, contemplated in Notification No. 172/77-Cus, will be confined only to ‘diods,
transistors and similar semi conductor devices’, as finished products, and not to those which are
merely classified, for the purpose of levy of duty, under the same heading and sub-heading,
based on Interpretative Rules. He concluded by saying that, in case his arguments on first
principles were not accepted as to classification, then the appellants’ plea for benefit of
Notification No. 172/77-Cus dated 3-8-1977/, be accepted on the analogy of the order-in-appeal
passed in their favour, and which remained unchallenged by the Revenue.

15. Shri J. Gopinath, SDR, while disputing the plea for classification of these goods under
Chapter 38 on the ground that ‘diffusion’ was definitely a process that was a step further to
‘doping’, and that Chapter Note 2(s) to Chapter 38 took within its ambit only those ‘silicon
chips’ which had not crossed the stage of doping; with the result that ‘selectively diffused chips’,
which impart the characteristics of semi-conductivity to the silicon, are definitely excluded by
the Tariff, from Chapter 38. He also defended orders of the authorities below while invoking
Interpretative Rule 2(a) which clearly brought articles, once they had acquired the essential
character of a finished-and-complete product, even when imported in incomplete or unfinished
state, for the purpose of classification under the Tariff, within the category of finished products.
He, thus, strongly defended the classification of the imported chips under TI 85. 18/27(1) of the
CTA. When asked about the scope of Notification No. 172/77-Cus, particularly in view of the
order passed by the Collector of Customs (Appeals), Madras, on 6-2-1985 which, according to
the appellants, had not been challenged by the Revenue, he had no comments to offer. It was,
however, conceded that no appeal has been taken by either side, challenging the view taken in
this order.

16. Shri Venkataraman, in a short rejoinder, reverted to his plea for classification under
Chapter 38 on principle, adding that for practical purposes, the appellants’ refund claim would be
equally satisfied, even if it was not so held, in case the goods are held to be falling within the
purview of Notification No. 172/77-Cus.

17. We have given our earnest consideration to the matter in the light of lucid exposition
offered by the learned Consultant as regards the nature and composition of the imported articles,
and the materials supplied in support thereof, in the form of ‘Process Flow Chart’, which remains
undisputed, and the clarification issued by the Department of Electronics (DGTD), which view
has also not been controverted by any other expert opinion. After a careful thought, we have
reached the conclusion that there is express admission on the part of the appellants in the appeal
itself, while giving description of the goods, and processes involved, and there is rather
unequivocal averment, to the effect that the chips, when imported, had been ‘selectively
diffused’. This positively takes them out of the stage of Chapter 38 because of the clear and
unmistakable wording of Note 2(s) to Chapter 38. It is established from the elaborate process,
again detailed in the appeal itself, that the essential characteristic of semi-conductivity is
acquired by the silicon chips only after selective diffusion and that mere doping does not serve
that purpose.

18. It is also not disputed that the end-product are ‘semi conductor devices’. The chips, when
imported, have also acquired a definite shape and size, and have crossed the stage of primary raw
material, and have a given market connotation. There is no denying the proposition, as contended
on behalf of the appellants, that Explanatory Note to the CCCN cannot be treated as a governing
factor for determination of classification under the Customs Tariff Act, but same cannot be said
about the Interpretative Rules to the Act. These rules, on the other hand, act as a sure guide. Rule
2(a) of the Rules covers even un finished or in-complete articles, and takes them to the category
of finished and complete products for the purpose of classification under a given Tariff heading
or sub heading, once the article had acquired essential character of the finished product. In view
of this position being manifestly clear from record, that the diffusion imparts character of semi
conductivity to the silicon chips after they had been doped, we find no infirmity in the view held
by the Collector of Customs (Appeals), while classifying the imported goods under TI 85.18/
27(1) of the CTA, by reference to Interpretative Rule 2(a). It is pertinent to note that Notification
No. 231/83-Cus also gives an indication to that effect inasmuch as against Serial No. 49, as
quoted by the appellants, silicons - both in the form of diffused as well as un-diffused wafers,
chips, etc. - find mention, and the Chapter Headings given are both as 38 or 85. This clearly
implies that only ‘un-diffused wafers and chips’ (emphasis supplied) are to go under Chapter 38
whereas the ‘diffused ones’ shall be treated as falling under Chapter 85. We, therefore, have no
hesitation in upholding that part of the orders of the Collector of Customs (Appeals).

19. However, we note that, thereafter, the Collector of Customs (Appeals) fell in error because
there can be no gain-saying the proposition that, whereas for classification of an article for
purposes of Tariff Heading or Sub Heading, resort to Interpretative Rules is permissible; it is an
entirely different proposition when considering benefit of Notification to specifically given
articles. A reference to Notification No. 172/77-Cus, which the appellants have set up in support
of their alternative plea from the very beginning, makes it abundantly clear that what was to be
excluded from the benefit of this Notification vide Column 4 against Serial No. 8(ii) was: ‘diods,
transistors and similar semi conductor devices’. We have no hesitation in helding that this would
refer to goods, as finished product, in the known and commercial sense of the term, and not to
those semifinished or un-finished articles which have been taken to that category only with the
aid of the Interpretative Rule 2(a). No material has been placed on record from the side of the
respondent to show that this was not the intention or import of the Notification.

20. It is pertinent to note that a view held by the Collector of Customs (Appeals), in respect to
identical goods concerning the same importers, has remained un-assailed by the Revenue,
although a remedy of appeal to this Tribunal was available under the provisions of the Customs
Act. We are alive to the proposition that this Tribunal is not bound by such an order but it cannot
be disputed that an order inter-partes remaining unchallenged, and without any further material
being disclosed which could establish that the view was erroneous, the Tribunal can certainly
endorse such an order, with approval. Thus, keeping that factor in view, while in no manner
being guided by the said order-in-appeal; we, on our own, come to the conclusion that the
‘exclusion clause’ of Column-4 to Notification No. 172/77-Cus would not take within its
compass the imported goods, which were merely in the form of ‘diffused chips’ and had to
undergo various intricate and technical processes to reach the stage of ‘semi conductor devices’,
and which have been certified by the Department of Electronics (DGTD) to have been only in
the nature of ‘raw material’ or components for manufacture of ‘semi conductor devices’.

21. We have already observed that the respondent has not placed any material before us to
show them otherwise. We, therefore, in the result hold the appellants entitled to benefit of
Notification No. 172/77-Cus dated 3-8-1977, in all these cases, in respect to the said goods while
holding them classifiable under T.I. 85.18/27(1) of the CTA.

22. The appeals are allowed accordingly, with consequential relief.