C-28/67

judgment of 3. 4. 1968 — case 28/67

is necessary and sufficient that the very the EEC Treaty must be widely inter­ nature of the provision of the Treaty in preted. By internal taxation imposed question should make it ideally adapted directly or indirectly on similar domestic to produce direct effects on the legal products, this provision refers to all relationship between Member States and taxation which is actually and specifically those subject to their jurisdiction. imposed on the domestic product at all Cf. paragraph 3, summary, Case 26/62 earlier stages of its manufacture and [1963] E.C.R 2. marketing or which correspond to the stage at which the product is imported 2. The first paragraph of Article 95 pro­ from other Member States. duces direct effects and creates individual rights which national courts must pro­ 4. The first paragraph of Article 97, which tect. Nevertheless, Article 95 does not applies where Member States operating restrict the powers of the competent a turnover tax according to a cumulative national courts to apply, from among the multi-stage tax system have actually various procedures available under exercised the right therein granted to national law, those which are appropri­ them, does not, in the present state of ate for the purpose of protecting indi­ Community law, create individual rights vidual rights conferred by Community which national courts must protect. It is law. In particular when internal taxation therefore not for national courts to is incompatible with the first paragraph appraise whether average rates establish­ of Article 95 only beyond a certain ed by Member States conform to the amount, it is for the national court to principles of Article 95. decide, according to the rules of its national law, whether this illegality 5. In States which have exercised the power affects the taxation as a whole or only so made available to them by Article 97, much of it as exceeds that amount. rates are considered as 'average rates' if Cf. paragraph 2, summary, Case 57/65, they are established as such by the States Rec. 1966, p. 294. in question, without prejudice to the operation of the second paragraph of 3. The terms 'directly or indirectly' appear­ that article. ing in the first paragraph of Article 95 of

THE COURT

composed of: R. Lecourt, President, A. M. Donner and W. Strauß (Rapporteur),

MOLKEREI-ZENTRALE WESTFALEN v HAUPTZOLLAMT PADERBORN

Presidents of Chambers, A. Trabucchi, R. Monaco, J. Mertens de Wilmars and P. Pescatore, Judges,

Advocate-General: J. Gand

Registrar: A. Van Houtte

I — Statement of facts EEC Treaty produces direct effects and creates individual rights which 1. Origins of the case national courts must protect? (b) Taking into account its wording, On 15 June 1962 the undertaking Molkerei- can Article 95 of the EEC Treaty, as Zentrale Westfalen/Lippe GmbH, a dried a so-called "self-executing" pro­ milk factory incorporated, with limited vision, confer upon individuals the liability under German law (hereinafter right to require before national referred to as 'Molkerei-Zentrale'), ob­ courts that, despite the as yet un­ tained customs clearance for 'Roller' whole- amended terms of the law, they milk powder which it had imported from should be placed in the same posi­ Belgium. tions as if the Member State had Pursuant to German law, the relevant fulfilled the obligation which this customs office imposed on this import turn­ article imposes on it with regard to over equalization tax (Umsatzausgleichs­ legislation, whilst under the Treaty steuer) at the rate of 4%. (Articles 169 and 170), only the In its action pending before the supreme Commission and the other Member court, Molkerei-Zentrale maintains in States may require the Member particular that the turnover equalization State to implement it; in other tax constitutes an infringement of Article 95 words, must it be concluded from of the EEC Treaty, on the ground that this that in this connexion the third German law exempts from the turnover tax paragraph of Article 95 has created both deliveries of domestic whole-milk a breach in the legislative sovereignty powder and those of the basic product of the Member States in the field of ('Vorproduct'), that is to say, of domestic internal taxation as well? milk. 2. Is Article 97, under the terms of which only the Commission is authorized to 2. Tenor and grounds of the order referring intervene (the second paragraph of the matter Article 97), also directly applicable ("self-executing"), in the sense that it A — On 18 July 1967, the Bundesfinanzhof accords to all citizens the right to cause decided to ask the Court to give a prelimin­ the national court, by means of an ary ruling on the following questions: application for annulment of the tax assessment and in an individual case, to '1. (a) Does the Court maintain the judg­ rule whether the average rate, fixed by ment given on 16 June 1966 in Case the law, is compatible with the principles 57/65 under the terms of which the set out in Article 95? first paragraph of Article 95 of the 3. What must be understood by average

rates within the meaning of Article 97? The judgments in which the Court of Having regard to the reply to this Justice has affirmed the direct applicability question, does the disputed rate of turn of certain provisions of the EEC Treaty over equalization tax of 4 % applicable have generally been interpreted to mean that to whole-milk powder constitute an when a person subject to national jurisdic average rate? tion claims with justification that a Member 4. Do citizens of the Community continue State has infringed the Treaty, the national to derive from Article 97 the right to court must place this individual in the same have an average rate reviewed by the position as if the State in question had national courts, even if the Commission already fulfilled its obligations.

. . or to make good its which constitutes the basis of the other failure to act', especially since Articles 169 questions. et seq. of the EEC Treaty confer on the Community the means to compel the States In this connexion it states as follows: to observe the Treaty. (a) The preliminary rulings given by the Moreover this question of tax law to a large Court of Justice are only binding with re extent comes within the sphere of fact and, gard to the dispute in connexion with which in a cumulative multi-stage tax system, it is the reference was made. Consequently there frequently impossible to settle such ques is nothing to prevent a court from asking tions without recourse to estimates.

MOLKEREI-ZENTRALE WESTFALEN v HAUPTZOLLAMT PADERBORN

ings on 5, 6 and 7 December 1967. The Commission expresses the opinion that The Advocate-General delivered his opin the considerations set forth by the Bundes ion at the hearing on 25 January 1968. finanzhof do not justify abandoning the The plaintiff in the main action was rep interpretation given by the Court in Case resented by Messrs Wendt and Dräger, 57/65. Advocates of Hamburg, the Government of In support of its argument it makes the

one another. This is all the more expedient cerned as practical reasons frequently mean that the Commission is prevented for a long 1. Question 1 time from commencing and completing a procedure on the basis of Article 169. Molkerei-Zentrale puts forward the follow It may happen that individuals can have ing considerations: themselves placed in the same position as if The Bundesfinanzhof fails to recognize the national law had already been amended, fact that, in order to oblige the Member whereas the sole result which the Commis States to fulfil their obligations, the EEC sion or the other Member States may bring Treaty does not merely provide 'political' about is that the State which is found to means: in fact recourse is also had to the have failed to fulfil its obligations shall take method of direct effect which primarily the 'necessary measures to comply with the serves the interests not of individuals but judgment of the Court of Justice' (Article rather of the Community. The principle of 171 of the EEC Treaty).

cases of this type. It is untrue, moreover, mission puts forward in this connexion (cf. that this supreme court cannot eliminate below: Question 2) is such as to reduce the inconsistencies which may exist between the number of applications pending in Ger decisions of the lower courts with regard to many to reasonable proportions. the questions at issue here: these are pure questions of law. 2. Question 2 The Court of Justice is called upon not to give a ruling on the German judicial system The observations of Molkerei-Zentrale may but to find that there is a duty on the part of be summarized as follows:

The direct applicability of Article 97 is clear the immediate applicability of Article 97. from the judgment in Case 57/65. (a) This provision cannot have such an ef Article 97 merely constitutes a particular fect because it does not lay down a 'clear instance of Article 95; thus the national and unconditional obligation', as is pro courts have the power and the duty to check vided for by the judgment in Case 57/65: whether the rates of taxation which the — it merely refers to the 'principles' of State concerned states are average rates are

. . indirectly on similar as authorizing the usual unavoidable domestic products' (Article 95); this applies estimates and calculations on a flat rate with equal force to instances where Article basis. 95 alone applies. The outcome is the same when Article 97 is (b) The correctness of these considerations examined in isolation. This provision gives is proved by the fact that Article 97 provides to the Member States a discretion only to special arrangements derogating from Ar the extent to which it leaves them free to ticle 169 for the procedure which the Com decide whether they wish to fix average mission must employ if the Member States rates and form groups of products. On the infringe the Treaty. The reason is that the other hand, there is no discretion in deter assessments and estimates necessary for the mining the charge under the turnover tax, application of Article 97 require Commun the calculation of the average rates and the ity supervision; the authors of the Treaty decision as to which products may be wished to avoid the use of the power of grouped. appraisal being directly called in question The second paragraph of Article 97 does not before the Court of Justice. weaken this view but, on the contrary, cor If the national courts were able to review roborates it. It is intended to strengthen the the average rates directly, the Commission's position of the Commission as against the power to issue directives would become Member States: in fact the Commission pointless. may take immediately binding measures (c) It is impossible to raise against this view and has no need to begin by issuing an the objection that it gives different results in opinion which is not binding under Article each Member State. As the legal provisions

MOLKEREI-ZENTRALE WESTFALEN v HAUPTZOLLAMT PADERBORN

Con result in too many disadvantages for all sequently Article 97 does not fulfil the con persons concerned. ditions required for producing direct effects. (e) Article 97 is an independent provision, The national courts, however, have the addressed to the Member States which levy power to consider whether they are faced a turnover tax calculated on a cumulative with a case for the application of Article 97, multi-stage tax system, and thereby governs that is to say, whether they are concerned cases in which it is impossible to make an with an equalization tax intended to replace actual comparison of the taxes. Although it the turnover tax charged according to a refers to Article 95, this is merely to avoid cumulative multi-stage tax system or an repetition.

It might at the most ing considerations: be considered as a 'lex specialis', although that theory does not take into account the The term 'average' implies that a weighted fact that the cumulative multi-stage tax average must be calculated. A real average system is applied in five Member States. rate must of necessity involve an actual The Commission in effect agrees with the comparison of charges, based on up-to-date opinion of the Federal Government. and reliable statistical data. Moreover account must be taken of the same rate for It makes the following observations: import and for export (Article 96).

The domestic

products are often manufactured by very into account any slight variations, the effort different production processes. The amount would be out of proportion to the result, as of the turnover tax varies in accordance on the whole modifications to the charges, with the number of commercial processes whether up or down, would end by off which the product is required to undergo. setting one another. In principle it is for the Other difficulties arise when the indirect tax legislature to decide the groups into which is determined. The comparison must relate products are to be formed in order to to the total tax and cannot be calculated establish the average rates.

servations : moreover be out of proportion with the result, as, once again, to whatever lengths (a) Only the rates which were fixed on the the consideration was taken, it could only basis of a comparison made in concreto give approximate figures. with the turnover tax on domestic products Consequently the only remedy for those constitute genuine average rates. It follows difficulties is to have recourse to assess from this that the expression does not cover, ments and flat rates; this is in fact the basic for example, the rates established by a idea of the signatory States in adopting the Member State before the entry into force of concept of 'average rates' in Article 97. In the Treaty, by exact alignment on the level of those circumstances, far from being equiv the rates imposed on domestic products at alent to the 'average' of rates calculated the stage corresponding to that of the exactly, those rates can only represent an imports. In cases of this type Article 97 is exact median value for an aggregate not applicable. Nevertheless in practice the number of cases. rates so fixed generally represent only a These are the reasons why in the States minimum charge and they consequently concerned all the rates of equalization tax conform to Article 95.

The years or that it has been calculated on the 'imposition of a flat rate' ('pauschalieren') basis of statistical data relating to an earlier is only admissible in connexion, within the period. If, for all the products liable to the specific framework of Article 97, with the equalization tax, continual examination of establishment of the charge which is per the criteria were to be made in order to take missible on imported products.

(b) A rate calculated on the basis of an on comparable domestic products. This estimate can only be an average rate if the objective can only be attained if the total tax estimate is restricted to a minimum average on domestic products is taken into account. charge which can be justified by valid But from the outset 'natural barriers' are reasons. erected, as the imposition of turnover tax Although it is true that the turnover tax has less effect on the price of the final pro levied on similar domestic products must be duct the further back one goes in consider calculated on the basis of the most up-to- ing prior taxation at earlier stages of the date statistical information available, the basic products in an endeavour to determine question of the reference period is neverthe the tax.

4. Question 4 duct, since, in one way or another, it is connected to the product and consequently Molkerei-Zentrale considers that Question constitutes an element of its final price. 4 should be answered in the affirmative. The Commission makes the following re Although it admits that cases referred to in marks : this question will be rare, since it may be conceded that the Commission will always The ratio legis of Articles 95 et seq. indicates ensure complete observance of the Treaty, that they only refer to 'taxes pertaining to it declares that if those hypothetical situa the products' ('produktbezogene Steuern'), tions nevertheless came about, it must be which are governed by the principle of the considered that in the final analysis only the country of destination in almost all modern Court of Justice can give a binding ruling on tax systems. Moreover, the term 'indirectly' Community law. The Federal Government must nevertheless be widely interpreted, and the Commission express the opinion because the logical application of this that it is unnecessary to reply to Question 4, principle requires that charges imposed on since Question 2 must be answered in the domestic products be wholly offset.

ing points: rials, the semi-finished products and the As a general rule, the objective of the equal finished products'. ization tax (and this is established by the Treaty) is to offset the turnover tax imposed

A — The Bundesfinanzhof states first of all that it finds no support in the provision in question for the interpretation given to the judgment of the Court.

Whether or not this argument is well founded must be considered in the light of both the wording of Article 95 and the character and spirit of the Treaty establish­ ing the EEC. The objective of the EEC Treaty, which is to establish a Common Market the functioning of which is of direct concern to interested parties in the Community, implies that this Treaty is more than an agreement which merely creates mutual obligations between the contracting States. The Community con­ stitutes a new legal order, for the benefit of which the States have limited their sovereign rights, albeit within limited fields, and the subjects of which comprise not only the Member States but also their nationals. Independently of the legisla­ tion of Member States, Community law therefore not only imposes obligations on individuals but is also intended to confer upon them rights which become part of their legal heritage. These rights arise not only where they are expressly granted by the Treaty but also by reason of obligations which the Treaty imposes in a clearly defined way upon individuals as well as upon the Member States and upon the institutions of the Community.

In this connexion it is necessary and sufficient that the very nature of the provision of the Treaty in question should make it ideally adapted to produce direct effects on the legal relationship between Member States and those subject to their jurisdic-

It is not possible to base an argument—contrary to the interpretation of Article 95 as it follows from the judgment in Case 57/65 — on a comparison of the rights con­ ferred by this provision on individuals, on the one hand, and the powers conferred on the Community institutions, on the other. Every time a rule of Community law confers rights on individuals, those rights, without prejudice to the methods of recourse made available by the Treaty, may be safeguarded by proceedings brought before the competent national courts. Such actions are different from the exercise of the powers conferred on the Community authorities under the Treaty, in particular by Articles 95 and 97, together with Articles 155 and 169. In fact pro­ ceedings by an individual are intended to protect individual rights in a specific case, whilst intervention by the Community authorities has as its object the general and uniform observance of Community law.

It thus appears that the guarantees given to individuals under the Treaty to safe­ guard their individual rights and the powers granted to the Community institutions with regard to the observance by the States of their obligations have different objects, aims and effects and a parallel may not be drawn between them.

C — With regard to the interpretation arising from the judgment in Case 57/65 the Bundesfinanzhof objects that it has resulted in a large number of applications to the national fiscal courts.

This argument is not by itself of such a nature as to call in question the correctness of that interpretation.

Furthermore a large proportion of the said applications appears to be based on the mistaken view, as will be shown in the. consideration of Question 2, that the effect which Article 95 is acknowledged to have automatically extends to Article 97.

In particular, the prohibition laid down by Article 95 would lose the effect which it derives from the Treaty if the force of this provision depended on national im­ plementing measures not provided for in the Treaty and without which the pro­ hibition itself would have no effect.

Resort by the national courts to Article 177 makes it possible for the Court to ensure a uniform interpretation of the Treaty and is capable of bringing about its identical application. The interpretation arising from the judgment in Case 57/65 applies only to rates of taxation which the national legislature itself does not con­ sider as 'average rates' and with regard to which it has thus admitted that the difficulties indicated by the court making the reference do not exist. Furthermore Article 95 does not restrict the powers of the competent national courts to apply, from among the various procedures available under national law, those which are appropriate for the purpose of protecting individual rights conferred by Com­ munity law.

In particular, when internal taxation is incompatible with the first paragraph of Article 95 only beyond a certain amount, it is for the national court to decide, according to the rules of its national law, whether this illegality affects the taxation as a whole or only so much of it as exceeds that amount.

MOLKEREI-ZENTRALE WESTFALEN v HAUPTZOLLAMT PADERBORN

For all those reasons, there are no grounds for giving a fresh interpretation of the first paragraph of Article 95 of the Treaty.

(2) The Bundesfinanzhof's fifth question seeks to obtain a ruling from the Court on what must be understood by 'internal taxation imposed... indirectly on similar domestic products' within the meaning of the first paragraph of Article 95 of the Treaty.

In addition, in its fourth question, the Bundesfinanzhof asks the Court to rule whether 'citizens continue to derive from Article 97 the right to have an average rate reviewed by the national courts, even if the Commission has fulfilled its obligation of ensuring that the Treaty is observed or if the Member State has modified the average rate in accordance with the requirement of the Commission'.

The objective of Article 97 is to empower Member States which levy a turnover tax

JUDGMENT OF 3. 4. 1968 — CASE 28/67

calculated on a cumulative multi-stage tax system to establish average rates without however permitting them to infringe the principles of Articles 95 and 96.

Although the objectives of Article 95 and 97 thus appear connected and guided by the same aims, Article 97, which provides a rule peculiar to the complexities of the cumulative multi-stage tax system, must nevertheless be distinguished from Article 95 both because of the characteristics peculiar to this system and because of the special methods provided for the implementation of the said Article 97.

Since this provision gives the Member States a discretion of which they may or may not avail themselves to have recourse to average rates, it implies, in the case of States which have used this power properly, the interposition between the rule of Community law and its implementation of legal acts implying a discretion; this means that, in the present state of Community law, such discretion excludes their choice and its consequences from any possibility of the direct applicability of the relevant provisions of Article 97.

MOLKEREI-ZENTRALE WESTFALEN v HAUPTZOLLAMT PADERBORN

of Article 169, against the failure to conform to the principles set out in Article 95, without prejudice to the rights conferred by Article 170 on the other Member States.

In these circumstances it is not for the national courts to appraise whether average rates have been established in accordance with the principles of Article 95, although it does not follow that those courts may not in any case be required to decide whether they are faced with an average rate coming under Article 97 or with taxation coming under Article 95.

The application of Article 97 is subject to a double condition; first that the Member State levies a turnover tax based on the cumulative multi-stage tax system and secondly that it has in fact exercised the power made available to it by the said provision and established average rates.

Consequently, in States which have exercised the power made available to them by Article 97, rates are considered as 'average rates' if they are established as such by the States in question, without prejudice to the operation of the second paragraph of that article.

The second part of the third question relates not to the interpretation but to the possible application of the Treaty to a specific case and consequently falls outside the jurisdiction of the Court within the framework of the procedure under Article 177.

THE COURT

in answer to the questions referred to it by the Bundesfinanzhof, by order of that court of 18 July 1967, hereby rules:

1. The first paragraph of Article 95 produces direct effects and creates individual rights which national courts must protect;

2. By the expression 'internal taxation imposed directly or indirectly oh similar domestic products' the first paragraph of Article 95 refers to all taxation which is actually and specifically imposed on the domestic product at all earlier stages of its manufacture and marketing or which correspond to the stage at which the product is imported from other Member States;

3. The first paragraph of Article 97, which applies where Member States operating a turnover tax according to the cumulative multi-stage tax system have actually exercised the right therein granted to them and established average rates does not create individual rights which national courts must protect;

4. In States which have exercised the power made available to them by Article 97, rates are considered as 'average rates' if they are established as such by the States in question, without prejudice to the operation of the second paragraph of that article;

Registrar President