C-29/68

JUDGMENT OF 29. 6. 1969 — CASE 29/68

In Case 29/68

Reference to the Court under Article 177 of the Treaty establishing the Euro­ pean Economic Community by the Finanzgericht (Finance Court), of the

MILCHKONTOR v HAUPTZOLLAMT SAARBRÜCKEN

Saarland for a preliminary ruling in the action pending before that court between

Milch-, FETT- und EIERKONTOR GMBH, Hamburg,

and

JUDGMENT

Issues of fact and of law

I — Origin of the case amount of which had already been paid, should be reimbursed. 1. In March 1967 the Milch-, Fett- und As reasons for its appeal it made the Eierkontor company, (hereinafter re­ following points in particular. ferred to as the 'Milchkontor company') — the similar domestic product is not obtained customs clearance in Germany subject to a turnover tax, or is sub­ for slaughtered poultry imported from ject to it only to an insignificant the Netherlands, upon which under extent; German law the relevant customs office — the Milchkontor company is there­ levied a turnover equalization tax (Um- fore the victim of discrimination, satzausgleichsteuer — UASt; hereinafter which it is entitled to bring to the referred to as 'equalization tax'). attention of the national court, since The Milchkontor company appealed Article 97 of the EEC Treaty con­ against this imposition to the Finanz- stitutes a provision implementing gericht of the Saarland, asking for the Article 95 which, according to the notice of taxation, in so far as it referred case-law of the Court, gives this right to the equalization tax, to be annulled to those subject to its jurisdiction; and for an order that this tax, the — even if Member States exercise the

JUDGMENT OF 29. 6. 1969 — CASE 29/68

of Article 97? ber 1966, paragraph 7 of the German (5) To the extent to which Article 97 Law concerning turnover tax provides of the EEC Treaty is an indepen that the rates of equalization tax ap dent legislative provision, does the plicable to goods corresponding to first paragraph thereof produce similar or comparable domestic goods direct effects and does it create are average rates. individual rights which national The Hauptzollamt (Principal Customs courts are bound to uphold, or does Office), the defendant in the action thus Article 97 only give to the Com brought, replied to that argument in the mission the right to address appro following manner: the disputed rate priate directives or decisions to the amounts to an average rate and must State concerned in accordance with therefore be considered exclusively in the second paragraph thereof? relation to Article 97; consequently, if it (6) To the extent to which Article 97 appears that this rate exceeds the limits alone or in conjunction with Article fixed by Article 95, only the Commission 95 of the EEC Treaty creates in of the European Communities is entitled dividual rights, is there not a legal to take action against the Member State average rate, in particular? concerned (second paragraph of Article (a) When the total burden of the 97). turnover tax on national pro

to 31 December 1961; (2) Can a general rate of taxation which (c) When the national products in was imposed in 1951 and which respect of which the system has remained unchanged since that of production and of distribu date be regarded as an average rate tion varies or for which the within the meaning of Article 97 of total burden of turnover tax the EEC Treaty? varies by more than 0.5%, or (3) Is Article 97 of the EEC Treaty an which are not similar, have been independent legislative provision or combined in a single group of a special case of Article 95 which products? goes no further than altering the (7) .

MILCHKONTOR v HAUPTZOLLAMT SAARBRÜCKEN

(a) Only those amounts of turnover on the means of production tax levied upon similar products used to obtain the primary at one or more prior stages of products, for example incuba­ distribution; or tors or brood hens? ...'

(b) Also the amounts or turnover tax imposed on raw materials The Court decided these questions by a or semi-finished products which judgment of 4 April 1968 (Case 25/67, have been used in the manu­ Rec. 1968, p. 307 et seq.) the operative facture of similar domestic part of which includes in particular the products; or following (loc. cit. p. 325): (c) Also the amounts of turnover '(1) The first paragraph of Article 97, tax imposed on accessory prod­ which applies where Member ucts, for. example packaging States operating a turnover tax ac­ materials or auxiliary materials, cording to the cumulative multi­ that is to say, those which are stage system have actually exercised destroyed during the manu­ the right therein granted to them, facture of the product or ab­ does not create individual rights sorbed by the latter without themselves being the subject of which national courts must pro­ tect; manufacture; or (2) In States which have exercised the (d) Amounts of turnover tax charged power made available to them by upon the means of production, Article 97 rates are considered as transport costs and sales costs? 'average rates' if they are estab­ (9) (a) Does the expression 'imposed lished as such by the States in directly' appearing in the first question, without prejudice to the paragraph of Article 95 of the EEC Treaty mean that account operation of the second paragraph of that article: must be taken only of the first ...'

must protect, the said grounds of judg­ gericht of the Saarland that questions ment refer to the negative answer which should be submitted to the Court on that the Court gave to that question in its point also. judgment of 3 April 1968, given as a It also maintained that its appeal was preliminary ruling in Case 28/67 well founded, notwithstanding the afore­ (Molkerei-Zentrale Westfalen/Lippe v mentioned judgments of the Court, Hauptzollamt Paderborn, Rec. 1968, p. claiming that it was impossible to con­ 214 et seq.). The operative part of that sider the disputed rate of equalization judgment includes in particular the fol­ tax as an average rate, since the Federal lowing passage (loc. cit. p. 230): Republic had not exercised the power Since [Article 97] gives the Member granted to it by Article 97, and pointing States a discretion of which they may out that the amount of the rate which or may not avail themselves to have re­ the administration intended to impose course to average rates, it implies, in the on it also precluded its being accepted case of States which have used this as an average rate.

MILCHKONTOR v HAUPTZOLLAMT SAARBRÜCKEN

JUDGMENT OF 29. 6. 1969 — CASE 29/68

alone. The Finanzgericht is on the inferred that it amounts to an 'aver contrary of the opinion 'that it is also age rate'. necessary that at the time when it (c) Questions 3 and 4 introduces the legislative or regula These questions require a decision tory measure, the body entitled to do so should also have, within the as to the criteria (physical properties, number of stages of production, util context of the exercise of the power made available under the Treaty, the ization, absolute or approximate equivalence of taxes borne, etc.) ac intention substantially to modify the previous state of the legislation, in cording to which products may be such a way, either that the procedure

which it made in Case 25/67 (which created, its function and its amount, are summarized in the judgment corresponds materially to the re which the Court gave in that case, quirements of Article 97, . . . should loc. cit., p. 311). be defined as an average rate by a formal act, which could take the form (e) The interpretation of the first para of a simple declaration'. The Finanz graph of Article 7 and of the second gericht explains that this much is subparagraph of Article 40 (3) of clear from the wording of Article 97 the EEC Treaty ('may . . . establish average rates'): In respect of the observations of the the States which signed the Treaty Milchkontor company reproduced appear to have started from the idea below (IV, 2, D), the Finanzgericht that, at the time when it entered states the following: Contrary to the into force, no average rates within claim made by the defendant in the the meaning of the Treaty could have main action, it is not true that the

German legislature failed to observe mission expressed no doubt on the ad­ the provisions mentioned above. As missibility of the questions submitted to to Article 7, it refers only to cases the Court. where a difference of nationality re­ On the other hand, the Federal Govern­ sults in different legal effects when ment sets out the following points: provision for the same legal matter (a) The questions currently put to the is made. Such is not the case in the Court coincide broadly with those present instance. As to the second which the same Finanzgericht has subparagraph of Article 40(3), this already submitted to it at an earlier provision must give way before the stage in the proceedings in which special provisions of Articles 95 et it has to give judgment (Case 25/67); seq. which particularly relate to mat­ at the very most one may say that ters of taxation. Questions 3 and 4 currently put be­ fore the Court remain unanswered III — Procedure after the preliminary ruling which it gave in the said case, 25/67. De­ The order referring the matter was re­ cisions which the Court gives by ceived at the Registry of the Court on 29 November 1968. way of preliminary rulings bind all courts hearing the main proceedings. In accordance with Article 20 or the Consequently, it is doubtful whether Protocol on the Statute of the Court of it is possible to regard all the ques­ Justice of the European Economic Com­ tions which are submitted to it at munity the Milchkontor company, the present as admissible. Government of the Federal Republic of Germany and the Commission of the (b) Furthermore, to a great extent those European Communities submitted state­ questions concern the application of the EEC Treaty and even, on certain ments of case and presented their oral observations at the hearing on 25 March points, the interpretation and appli­ 1969. cation of national law. It appears in The Advocate-General delivered his oral, fact from the judgments of the Court reasoned opinion at the hearing on 29 mentioned above that the question April 1969. what should be understood by aver­ The Milchkontor company was represen­ age rates and how they should be ted by Mr Wendt and Mr Wiech, Ad­ fixed depends on national law. vocates, Hamburg, the Government of the Federal Republic of Germany by Mr 2. The reply to be given to the questions Everling, Ministerialdirigent, and by put to the Court Messrs. Morawitz and Hahnfeldt, Minis- A — Questions 1 and 2 terialräte, and the Commission of the European Communities by its Legal Ad­ (a) The observations submitted by the viser, Mr Wägenbaur. Milchkontor company may be sum­ marized as follows:

Article 97 (that is to say, that should have been expressed in the the Member State in question law. '[should levy] a turnover tax cal­ (2) The Milchkontor company goes culated on a cumulative multi­ on to state that Article 97 is ap­ stage tax system') is not fulfilled plicable only when the following with sufficient generality when it conditions are fulfilled: is fulfilled for most categories of — it is necessary that the legisla­ product, but only when it is ful­ ture (and not merely certain filled in each particular case for Ministries) should have had the category of product or group knowledge of the charge im­ of products for which an average posed upon similar national rate must be fixed. products in respect of turn­ Where the Court of Justice has over tax at each stage of their stated in previous judgments that production; it is necessary that an average — it is necessary that the legisla­ rate should have been 'established ture should have calculated the as such', the only meaning which charge imposed in respect of that statement can be taken as turnover tax on similar nat­ having is that rates established ional products, or that it has before the entry into force of had at its disposal calculations the EEC Treaty cannot be 'aver­ which it has checked; age rates' within the meaning of — it is necessary that the rate Article 97, because the very ex­ should have been fixed on the pression thus used prevents it basis of these calculations (and from being accepted that such it is not sufficient that the rates were established in applica­ legislature should have known tion of Article 97. When, excep­ of these calculations); in other tionally, such a rate satisfies the words, it is not permissible requirements of Articles 95 and that the basis for the fixing of 97, it does so quite by chance; the rates should amount to no but even in such a case this rate more than general and arbit­ could not be regarded as an 'aver­ rary estimates; age rate' within the meaning of — it is necessary that these cal­ Article 97 unless a legislative culations should be reliable measure adopted after the entry and capable of being checked into force of the Treaty had given and that they should enable it this character. It is possible to the charge imposed upon simi­ establish average rates only for lar domestic products to be the future; it is impossible to do determined with all possible so with retroactive effect. Article accuracy; 97 constitutes a 'true 'power' con­ — it is necessary that these cal­ ferred on the legislatures of culations should not refer to Member States; it is proper for too remote a time in the past, the Finanzgericht to require that otherwise they would not be the legislative body concerned representative. What is impor­ 'should also have, within the con­ tant is that there should not text of the exercise of [that] have been any noticeable power . . . , the intention sub­ change in conditions since the stantially to modify the previous end of the period to which the state of the legislation'. It is calculations refer; necessary that this intention — it is permissible to classify

amount of the general rate can (b) The Federal Government stated the never correspond to that of an following in particular: average rate within the meaning — It appears from the operative part of Article 97. Even for products of the judgment given by the which at one or more stages or Court in Case 28/67 that rates preliminary stages are not liable of tax which the national legis­ to turnover tax on the national lature itself regards as average territory, or are subject there only rates amount to such rates within to a reduced rate of turnover tax, the meaning of Article 97. The it must be accepted that 'it would decision whether the rate of a be an extremely rare coincidence tax has been established as an for the general rate to correspond average rate must be taken on to the average charge imposed the basis of the peremptory word­ on national products'. It follows ing of the law or on the basis of in any case that, to be permitted objectives which it has set within to convert into an average rate the framework of the cumulative a general rate which corresponds multi-stage tax system. Where, as to the normal charge imposed on in Germany, a law has declared a single production stage, the nat­ that rates of equalization tax are ional legislature must previously average rates, it must be accep­ have checked in a particularly ted that, at the latest as from the careful manner what is the cumu­ entry into force of that law, they lative taxation levied on domestic have been established as average products. rates within the meaning of (4) The Milchkontor company states Article 97. that the national legislature can­ — Already at the time of the sign­ not content itself with a statement ing of the EEC Treaty, turnover that a particular rate amounts to tax was collected in accordance an average rate. What is necessary with a cumulative multi-stage tax is that it should 'show by means system in five of the signatory of documents' ('erkennbar doku- States. Under this system, tax is mentieren') that it is acting on collected on turnover at each

less the rate of equalization tax considerations which led the Ger­ takes into account various charges man legislature to declare that imposed by way of turnover tax under the law the rates of equal­ on comparable domestic products ization tax applicable to goods at earlier stages; in other words, equivalent to similar or compar­ unless the rate of equalization able domestic goods are average tax is an average rate. rates. Furthermore, the wish to — Average rates owe their existence sanction existing legislation is therefore to the fact that, in the equally likely to prompt a legis­ case of a cumulative multi-stage lative measure as the wish to tax system, they are the only modify the state of that legisla­ means of compensating between, tion. on the one hand, the charge im­ — Although it is only in relatively posed by way of equalization tax recent times that the German on imported products and, on the legislature has used the expres­ other hand, the charge imposed sion 'average rate', it cannot be by way of turnover tax on com­ concluded from this that it has parable products. It is in conse­ not fixed genuine average rates. quence to the extent to which — In a cumulative multi-stage tax States which have a cumulative system, the average rate can be multi-stage tax system have tried only a median value, 'which, al­ to compensate in this way that though not totally correct for one average rates existed before the or more cases considered in iso­ signing of the EEC Treaty. lation, is approximately correct — It follows from this that, far from for a range of cases'. applying only to the future, the (c) The observations of the Commission expression 'may . . . establish may be summarized as follows: average rates' which appears in The statement of the Court that in

power made available to them it should be decided whether the meas­ unless, by referring expressly to ure by which an average rate is fixed Article 97 and giving that article must conform to the requirements set substantive effect, they immedia­ out in Questions 2(b) and 2(c). tely converted the rates of equal­ ization tax in force until then B — Questions 3 and 4 into average rates; the conse­ quence of this would be that (a) The Milchkontor company puts for­ hardly any equalization tax would ward the following arguments in come within the ambit of Article particular: 97. That is a sense in which none — It is permissible to classify in the of the Member States to which same group only products which Article 97 may apply ever under­ are comparable by reason of their stood that provision. physical properties, of the number — The other extreme argument con­ of stages of production through sists in claiming that where which they pass and of the use Member States maintained the for which they are intended. It is rates of equalization tax applic­ further necessary that the taxes able at the time of the entry into to which they are liable should force of the Treaty that sufficed be approximately the same. to satisfy the requirements of — Technically, it is perfectly poss­ Article 97. According to this ible to make up small groups. argument all such rates 'auto­ — In repect of Question 4, it should matically became average rates in be stated that the argument of the 1958. Federal Government would result The truth is to be found more or less in one and the same group of midway between these two extremes: products within the meaning of it is necessary that the Member Article 97 including a whole series State concerned has shown, either by of headings of the German cus­ a legislative or regulatory measure or toms tariff, the number of which by some significant behaviour, that it is somewhat in excess of 9 000. wished to exercise the power made It is self-evident that this cannot available by Article 97 and to fix as be correct, all the more so since average rates either the equalization the majority of tariff headings rates which existed at the time of the also include numerous subdivis­ entry into force of the Treaty, or ions at two levels, so that the newly created equalization rates. The argument in question would imply authorities competent to take such that more than 100 000 categories action and the formal conditions of product could constitute one which must be fulfilled for this pur­ and the same group. Furthermore, pose must be decided in accordance in such a case, it is not possible with national law. Community law that the cumulative charge im­ does not require that in addition this posed by way of turnover tax on measure should refer expressly to each of the categories of product Article 97. or each of the groups of products Taking account of the judgments of should have been checked on the the Court in Cases 25/67 and 28/67, basis of calculations which are Question 1(b) must be answered in correct and sufficiently recent to the affirmative. be representative. In conclusion, the Commission states that (b) The Federal Government contends it is in accordance with national law that that it is appropriate to give the

lature is free to make up groups as it It refers further to the directive of

thinks fit. According to the wording the Council of 30 April 1968 on a of the second paragraph of Article 97 common method for calculating the it is not for national courts but for average rates provided for in Article the Commission to ascertain whether 97 of the Treaty (Official Journal the principles set out in Article 95 No L 115 of 18 May 1968, p. 14) have been adhered to in the forming which in its view shows clearly that of groups. it is permissible to take the fullest (c) In respect of the answer to be given possible account of all indirect to Question 3 the Commission refers charges. to the observations which it submit­ (c) The Commission states that if Ques­ ted in Case 25/67. tion 2 is answered in the way which In respect of Question 4, it points it recommends, it would become pur­ out that it appears from these ob­ poseless to reply to the first part of servations that the mere fact that the Question 5; in respect of the second importation of certain products is part, it refers to the considerations taxed only at the general rate does which it set out in Case 25/67.

MILCHKONTOR v HAUPTZOLLAMT SAARBRÜCKEN

Grounds of judgment

1 By an order dated 4 October 1968, received at the Registry of the Court of Justice on 29 November 1968, the Finanzgericht of the Saarland, under Article 177 of the Treaty establishing the EEC, has submitted several ques­ tions for the purpose of obtaining an interpretation of Article 97 of the said Treaty.

I — The jurisdiction of the Court

2 (1) The Government of the Federal Republic of Germany contends that Questions 1(a), 1(b), 2(a), 2(c) and 5 are inadmissible.

It points out that the Court has already replied to these questions in its preliminary ruling of 4 April 1968 given in Case 25/67 on a reference made by the same court in the same main proceedings.

JUDGMENT OF 29. 6. 1969 — CASE 29/68

Whether this article leaves the solution of problems wholly or partly to the national law of Member States is another question. If the Court were to hold that such is the case this decision would none the less involve an interpretation of the Treaty and would not therefore go out­ side the scope of Article 177.

6 This objection cannot therefore be sustained.

II — The substance of the case

7 Although Article 95 creates direct individual rights which national courts must protect, the same is not the case with Article 97.

8 Consequently, in order to ascertain whether or not they are faced with in­ ternal taxation the conformity of which with the Treaty they are bound to ascertain, the said courts must be in a position to decide whether the Member State in question has or has not applied Article 97.

It is therefore solely in the light of this requirement that the questions sub­ mitted should be considered.

12 In order to enable the national court to decide whether the case before it is governed by Article 97, it is only necessary for it to be in a position to decide, on the one hand, whether the said case involves a turnover tax cal­ culated on a cumulative multi-stage tax system and, on the other hand, whether the Member State has actually exercised the power made available to it by the said article.

If the national court can establish the existence of these two factors, it merely remains for the Commission and the other Member States to put into opera­ tion the machinery provided for them by the second paragraph of Article 97 and by Articles 169, 170 and 173, to review the legality of the measures adopted or to have it reviewed.

If, in a particular case, it appeared possible that there were an infringement of Article 97, since national courts are deprived of such power of review, it would be the responsibility of the Commission, under the system instituted by the Treaty, to ensure with even greater vigilance the protection of persons concerned.

JUDGMENT OF 29. 6. 1969 — CASE 29/68

14 It is, therefore, solely for the purpose of enabling the national court to decide whether the Member State has actually exercised the power that it is necess­ ary to interpret the provisions of the said article which seem necessary and sufficient for the performance of that examination.

15 The question whether the power made available by Article 97 has actually been exercised in a particular case is, from the point of view of Co mm unity law, a question which national courts must decide within the context of national law.

19 In States which have exercised the power made available by Article 97, an 'average rate' is any rate established as such by the State concerned, even if it was established prior to the entry into force of the Treaty.

The opposite interpretation would subject the exercise of the power in ques­ tion to the introduction of new measures, even in cases where the existing rates conformed to the principles of Article 95.

20 With regard to the second part of the question, it follows from the above considerations that it is possible, although it depends on the circumstances of the case, that a rate applicable at a single stage of marketing may constitute an 'average rate' within the meaning of Article 97.

MILCHKONTOR Ó HAUPTZOLLAMT SAARBRÜCKEN

As far as national courts are concerned, infringement of Articles 95 and 97 would not mean that the rate in question was no longer an 'average rate', but would merely render it liable to the measures laid down in the second para­ graph of Article 97.

21 It follows from all these considerations that the answer to Question 1(b) must be in the affirmative.

In its fourth question it asks the Court to rule whether all goods corres­ ponding to identical or comparable domestic products for which the rate of turnover equalization tax applicable does not differ from the normal rate, may form a group of products within the meaning of Article 97.

26 By permitting Member States to establish average rates for groups of prod­ ucts the Treaty merely intended to indicate that the States are not bound to establish separate rates for each product.

Nothing in Article 97 allows the conclusion to be drawn that the status of 'average rate' depends on the composition of the groups covered by the rate in question.

27 Consequently, Article 97 does not exclude the possibility that products liable to a rate of turnover equalization tax which does not differ from the general rate may form a group of products within the meaning of the said Article 97.

JUDGMENT OF 29. 6. 1969 - CASE 29/68

Question 5

33 The costs incurred by the Commission of the European Communities and by the Government of the Federal Republic of Germany, which have submitted their observations to the Court, are not recoverable and as these proceedings are, in so far as the parties to the main action are concerned, a step in the action pending before the Finanzgericht of the Saarland, a decision on costs is a matter for that court.

On those grounds,

Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the oral observations of the plaintiff in the main action, the Government of the Federal Republic of Germany and the Commission of the European Communities; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Com­ munity, especially Articles 95, 97, 169, 173 and 177. Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community, especially Article 20; Having regard to the Rules of Procedure of the Court of Justice of the Euro­ pean Economic Community,

MILCHKONTOR v HAUPTZOLLAMT SAARBRÜCKEN

THE COURT

in answer to the questions referred to it by the Finanzgericht of the Saarland by an order of that court of 4 October 1968, hereby rules: On Question I(a): (a) The power made available by Article 97 of the EEC Treaty permits the States concerned to tax an imported product at a single rate deemed to correspond to the aggregate tax burden borne by domestic products; (b) The question whether, in a particular case, this power has actually been exercised is, from the point of view of Community law, a question which national courts must decide within the context of national law; (c) If a State has exercised this power, the rates which it has establish­ ed are governed by Article 97, even where it could be shown that they do not correspond to the aggregate tax burden borne by domestic products.