The recent decision of the Federal Fiscal Court (BFH, judgment of 21.11.2024, case no. VII B 76/23) concerns the question of how to classify a product consisting of LEDs and a thermistor mounted on a circuit board, which can be used to generate ultraviolet light. The difficulty with this classification decision lies in the fact that the product is suitable for various technical applications, but is used primarily in industrial and medical technology. In an application for Binding Tariff Information (BTI), the claimants proposed classification under heading 8541 40 10, that is, “light-emitting diodes,” carrying a duty rate of 0%. This was justified on the basis of the product’s principal use. The Main Customs Office (Hauptzollamt, HZA) countered that other components were also built into the device, which meant that it had to be classified as an “electrical apparatus with an individual function” under heading 8543 70 90, carrying a duty rate of 3.7%.
In this decision, the BFH explains that recourse to Note 3 to Section XVI of the CN, under which classification is to be based on the “principal function” (as the claimants argued), is only possible where classification cannot already be achieved under General Rule for the Interpretation of the Combined Nomenclature (GRI) 1, that is, by reference to the wording of the headings and the notes to the sections and chapters. According to the HZA, and as confirmed by the BFH, this was indeed the case for the product in question.
The case illustrates two interesting points:
- Classification involves substantial interpretative work. The first step must always be to attempt classification based on the wording of the headings (GRI 1). Only where this is not possible should the further rules be relied upon, that is, GRI 2 et seq., together with the notes to the individual chapters.
- Classification is not straightforward even in the present case, since the claimants prevailed at first instance. Following the complaint against the denial of leave to appeal on points of law, the BFH sided with the HZA’s view, but reached its decision in a very surprising manner: rather than overturning the first-instance judgment of the Fiscal Court (FG), the BFH explained at considerable length why the FG was wrong, while nevertheless declining to admit the appeal on points of law for decision. The BFH held that it has no jurisdiction over first-instance judgments that are simply incorrect; the case lacked the requisite fundamental importance. “Errors in the interpretation and application of substantive law in an individual case do not, by themselves, justify granting leave to appeal on points of law” (judgment text, para. 32, freely translated; no official translations avl.). This may seem odd, but it clearly shows that all arguments must be raised and emphasised already at first instance. A second instance, or even a reference to the CJEU, may, as the case may be, never be reached.
