C-7/69
ECLI:EU:C:1970:15
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JUDGMENT OF THE COURT 10 MARCH 19701
Commission of the European Communities ν Government of the Italian Republic2
Case 7/69
Summary
Obligations of Member States — Failure to fulfil — Application by the Commission — Subject-matter — Alteration in the course of the proceedings — Inadmissibility (EEC Treaty, Article 169)
Because of the importance which the Treaty the course of the proceedings without there attaches to the action available to the Com by adversely affecting the rights of the munity against Member States for failure to Member State to put forward its arguments fulfil obligations, this procedure is in Article in defence based on complaints formulated 169 surrounded by guarantees which must according to the procedure laid down by not be ignored, particularly in view of the Article 169. In such circumstances it is for obligation imposed by Article 171 on Mem the Commission to commence new pro ber States to take as a consequence of this ceedings under Article 169 with regard to action the necessary measures to comply the effects of the legislation, and if necessary with the judgment of the Court. According to refer to the Court the specific short ly the Court cannot give judgment on a coming upon which it desires the Court to failure to fulfil an obligation occurring pronounce. after legislation has been amended during
In Case 7/69
Commission of the European Communities, represented by Giuseppe Marchesini, acting as Agent, with an address for service in Luxembourg at the Chambers of Émile Reuter, 4, boulevard Royal, applicant,
ν
Government of the Italian Republic, represented by Adolfo Maresca, Minister Plenipotentiary, acting as Agent, assisted by Pietro Peronaci, Deputy State Advocate-General, with an address for service in Luxembourg at the Italian Embassy, defendant, 1 — Language of the Case: Italian. 2 — CMLR.
Ill
JUDGMENT OF 10. 3. 1970 — CASE 7/69
Application for a declaration that the Italian Republic, by applying a system of turnover tax which places a heavier burden on skin wool and carded or combed wool imported from other Member States of the EEC than on similar domestic products, has failed to fufil the obligation placed on it by Article 95 of the Treaty establishing the European Economic Community,
THE COURT
composed of: R. Lecourt, President, R. Monaco and P. Pescatore, Presidents of Chambers, A. M. Donner (Rapporteur), A. Trabucchi, W. Strauß and J. Mertens de Wilmars, Judges,
Advocate General: K. Roemer
Registrar: A. Van Houtte
gives the following
JUDGMENT
Issues of fact and of law
I — Facts and procedure Since the Italian Republic did not comply with the reasoned opinion within the period The facts and procedure in this case may be laid down, the Commission brought the summarized as follows : matter before the Court by means of the Proceedings under Article 169 of the Treaty present application which was lodged at the were initiated by the (then) Commission of Registry on 4 February 1969. the European Economic Community by a The alleged contraventions were described letter of 12 July 1966 against the Italian in the reasoned opinion as follows: Republic, on the ground that it had in fringed Articles 95 and 96 of the EEC '(a) The "imposta generale sull'entrata" Treaty by the manner in which it applied its (IGE) applicable to imported wool ob 'imposta generale sull'entrata,' (general tained by the dewoolling of skins turnover tax) the additional rate thereon, and the 'imposta di conguaglio' (equaliza Skins intended to be used for the production tion tax) to all the products. of wool by dewoolling, whether local or Subsequent discussions largely disposed of imported, are subject to the IGE at a rate of the infringements complained of but the 2.4%. On completion of dewoolling, the Commission considered that certain contra resultant wool is subject to an additional ventions of Article 95, to which it referred rate of 4%. The result of this system of in its letter of 12 July 1966, continued to taxation is that wool obtained in Italy by exist and it therefore delivered a reasoned dewoolling skins bears a charge at a maxi opinion on the matter to the Italian Republic mum rate of 6.4% (2.4% on skins+4% in on 16 July 1968. addition on the wool). Only in one case,
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where the national producer who has done (b) a reduction of 3.6% on the special the dewoolling sells the wool thus obtained, additional tax provided for by Decree-Law do the tax authorities apply the IGE at the No 1118 of 7 October 1965 and in its sub basis rate of 7.2%, plus the additional rate sequent amendments and extensions, and of 4 %. That is an extremely rare case, how applicable to new materials of wool destined ever, since the Italian industry is unusually to become carded and combed wool; well integrated, to such an extent that the account is taken (as regards the greasy wool dewoolling and subsequent operations are referred to by the Commission in its com carried out by the same producer. parison) of the fact that it is subsequently Skin wool imported from abroad, however, chargeable with the IGE at the rate of 2.8 % is subject to the IGE at the rate of 7.2 % plus on the cost of the carding and combing pro the additional 4 %. In other words, the total cesses.
tax which it bears is always 11.2% and that It considered that in view of this the neces is far higher than that ordinarily borne by sary requirements for the Commission to similar domestic products. withdraw its application could be met. In a letter of 4 August 1969 the applicant (b) The "imposta generale sull'entrata" on stated that in its opinion the facts set out in sheep's or lamb's wool, whether or not the statement were not sufficient to show carded or combed that the infringement against Article 95 had been completely eliminated and, as a result, Wool in the above categories is subject to a it was continuing the proceedings. comprehensive tax levied once and for all The written procedure followed the normal at the rate of 11.2%. course.
Whilst there is only one tax, however, the After hearing the report of the Judge- taxable value varies according to whether Rapporteur and the views of the Advocate- the products are domestic or imported. General the Court decided to open the oral In the former case, the rate is applied on procedure without any preparatory inquiry. each occasion to the value of the bulk wool, The parties presented oral argument at the irrespective of whether it is in fact such, or hearing on 26 November 1969. has been carded or combed. In the second The Advocate-General delivered his opin case however the rate is applied to the value ion at the hearing on 20 January 1970. at the time of importation. Thus for im ported wool that is carded and combed, the tax is calculated on the basis of its actual value, whilst for similar domestic products II — Conclusions of the parties this tax is payable on the value of the raw wool, which is obviously less. The applicant claims that the Court should: These facts, and those described at (a) above constitute an infringement of Article 95 of — declare that the Italian Republic has the Treaty of Rome which forbids Member failed to fulfil the obligation imposed on States to impose on the products of other it by Article 95 of the Treaty establishing Member States any internal taxation in the EEC by applying a system of turn excess of that imposed on similar domestic over tax which levies on imported skin products.' wool and imported carded or combed In a statement dated 15 July 1969 the wool from other Member States of the defendant indicated that it had adopted on EEC a higher rate than on similar 2 July 1969 Decree-Law No 319, Articles domestic products; 7 and 8 of which provide in particular for : — order the defendant to pay the costs. (a) payment of the IGE at the rate of 2.5 % on wool obtained by dewoolling of skins The defendant contends that the Court when it passes from the dewoolling shop to should: the processing works; — dismiss the application by the Commis-
JUDGMENT OF 10. 3. 1970 — CASE 7/69
sion of the European Communities; subject to turnover tax at a rate of 7.20%, is in fact an extremely rare case. The Italian — order the Commission to pay the costs. industry is very well integrated in this sector, inasmuch as—in virtually every case—the skins are dewoolled and the wool thus obtained is subsequently processed by a III — Submissions and arguments of single manufacturer. the parties Consequently domestic wool obtained by dewoolling skins is not generally liable to the The submissions and arguments of the tax of 7.2 % but only to the supplement of parties may be summarized as follows : 4 %. On the other hand, imported skin wool is in every case subject to payment of both the rate of 7.2 % and the special supplement A — Admissibility of the application of 4%. As a result it is subject to the turn over tax at a higher rate than that payable The applicant considers its application to be on domestic wool, and this constitutes a admissible. failure to fulfil the obligation not to impose The defendant did not contest this in its directly or indirectly any taxation on pleadings. products of other Member States in excess However, in the course of the oral procedure of that imposed on similar domestic the defendant claimed that as a result of products. amendment made to the Italian fiscal law The defendant considers the Commission's by Decree-Law No 319 of 2 July 1969 the observations not pertinent to the issue. application has lost its purpose and must The Treaty does not lay down the principle therefore be declared inadmissible. that a producer, once he has reached a The applicant replied by claiming that on certain point in the industrial process, must the one hand the modifications made did not sell the semi-finished product to someone eliminate all infringements of the provisions else, since there is an inflow of Community of the Treaty and that on the other hand imports at the later processing stage. The even if this were so it was desirable that the principle laid down by Article 95 is that the Court should declare that prior to 2 July internal taxation imposed by a Member 1969 the Italian Republic failed to fulfil its State on the products of another Member obligations. State must not be in excess of that applicable to similar domestic products. This principle has been strictly observed in В — The substance of the case the present case since, as the Commission itself acknowledges, the rates of tax are the (a) Infringement of Article 95 by reason of same irrespective of whether the products the fact that the turnover tax levied on concerned are domestic or come from Mem imported wool obtained by the dewool ber States, and therefore the allegation of an ling of skins was in excess of that on infringement of Article 95 of the Treaty is similar domestic products quite unfounded. Furthermore the Commission has not taken
The applicant describes the system of taxa into account the fact that the manufacturer tion introduced by the Italian Law No 757 of who undertakes both the dewoolling and 12 August 1957, as subsequently amended the subsequent treatment of the wool incurs and supplemented. in the course of the whole cycle all the costs Despite the apparent similarity between the of processing, including those relating to system applicable to domestic wool and the the depreciation of machinery and, more one applicable to imported wool, examina significantly, losses arising during pro tion of the actual position reveals a serious cessing. discrimination. The sale of wool to another In its reply the applicant repeats that whilst manufacturer by a national producer who the conditions in which the tax applies are has carried out the dewoolling, a sale always present in the case of imported wool
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they are never or almost never all present in Italian wool industry or of the actions of the the case of similar domestic wools. Article heads of undertakings, who cannot be 2 (a) of Law No 757 of 12 August 1957 coerced, and so. cannot amount to an in stipulates that the turnover tax shall apply fringement of Article 95 of the Treaty. The 'to domestic products when sold by the difference in treatment complained of lies, producer and, in the case of products which it states, in the advantages with regard to have to be placed in stock, when sold by the taxation enjoyed exclusively by the Italian stockers.' The sale of semi-finished products producers and made possible by express is thus a rare occurrence in the case of legal provisions. domestic products in this sector. The defendant contends in its rejoinder that The anomaly of the special treatment if the practical consequences of the applica reserved in practice for domestic wool is tion of the provisions in question are con confirmed by a comparison with the last sidered it will be seen that the rate of 11.2 % paragraph of Article 3 of Decree-Law No borne by imported wool is in fact lower than 1118 of 7 October 1965 as it stands after the tax on domestic products (12.24%). subsequent amendments, which provides This is explained, in particular, by the fact that 'undertakings which carry out the de that whilst the tax of 2.4% is calculated on woolling of skins at their own places of the basis of skins with the wool still on them business or those of third parties.
. ., shall the tax is in fact eventually charged at the be obliged to pay the special supplement of rate of 5.74 % on wool on the back. 4 %. . . on the wholesale price of the wool, In the course of the oral procedure the at the time of sale of the product or at the defendant remarked that when the IGE is time when this passes from the dewoolling charged on the sale of wool obtained by the section to the section where it is to be. pro dewoolling of skins by the producer who cessed.' carried this out it is intended to apply to any The result is that domestic wool which sale between different legal or natural passes on to the final processing stage within persons. It follows that the transfer from the undertaking which has already done the one legal person to another of wool obtain dewoolling is subject to the special supple ed by dewoolling is chargeable with the ment without ever having been subject to IGE even where those legal persons are the turnover tax at the basic rate. parts of a single economic unit. All the above points to Article 2 (a) of Law No 757 of 12 August 1957 as being the (b) Infringement of Article 95 by reason of origin of the discrimination complained of the turnover tax levied on imported inasmuch as it limits to one instance only carded and combed wool being in excess (sale) the application of the basic rate of tax of that on similar national products on domestic wool. Alter producing a table of the practical The applicant explains that according to the results of the application of the Italian last paragraph of Article 2 of Law No 757 of legislation in question, the applicant replies 12 August 1957, as far as these products are to the Italian Government's objection that concerned, the turnover tax paid in the the applicant did not take into account the course of processing 'absorbs' that charge costs incurred by the producer who carries able on the turnover of the products ob out both dewoolling and subsequent pro tained at the end of the processing.
As a cessing, and claims that it is precisely the result all tax liability in respect of domestic function of the equalization tax—a tax carded or combed wool could have been dis wholly distinct from that in question here— charged once and for all at the time of sale to compensate for those costs. (as regards sheared wool) or at the time when At the end of its reply the applicant, both it passed to later stages in the processing with regard to the present complaint and the cycle (skin wool), when such wool was still following one, contests the conclusions of not combed or carded, so that it has an the defendant in which it is claimed that the advantage by reason of the lower chargeable situation complained of is merely the value for tax purposes constituted by wool natural result of the special structure of the which is not combed or carded.
JUDGMENT OF 10. 3. 1970 — CASE 7/69
Conversely, carded or combed wool coming one hand, and carded or combed wool, on from abroad, including Member States of the other hand, is not therefore relevant. the Community, is subject to tax on the In the reply the applicant claims that the tax actual, and higher, value which it constitutes advantage constituted by the 'absorption' in this state when it is imported. system is virtually unobtainable for wool All carded or combed wool which is im which has already been carded or combed ported is therefore at a disadvantage by and coming from other Member States, reason of the fact that the chargeable value since the basic rate and the supplementary for tax purposes is different from that which charges apply solely to the value at the time applies to the similar domestic products. of importation. The difference in the charge Such a situation amounts to a further in able value for tax purposes in the two cases fringement of Article 95 of the Treaty. (domestic products and imported products) The defendant considers that this claim is could be as much as 20%. equally devoid of foundation because the The Commission observes further that the wool is taxed at the same rate and because discrimination complained of under the it is quite normal in practice for the amount present sub-heading also applies to wool of tax on the product having the higher which is not combed or carded obtained by value to be greater than the amount of tax dewoolling skins, so that it almost always on the product having the lower value. becomes an additional discrimination to the On the other hand wool sold in the raw one complained of under subheading (a). state, coming from abroad, is subject to the In the rejoinder the defendant repeats its same tax as that produced in Italy. submissions, declaring in particular that the The equal treatment with regard to tax laid action brought by the Commission has been down by Article 95 of the Treaty concerns deprived of any foundation as a result of the similar products and a comparison between amendments recently made to the Italian two different products such as raw wool, on legislation in question.
Grounds of judgment
1 After issuing its reasoned opinion of 17 July 1968 the Commission, in an application lodged on 4 February 1969, requested the Court under Article 169 of the EEC Treaty 'to declare that the Italian Republic, by applying a system of turnover tax which places a heavier burden on skin wool and carded or combed wool imported from other Member States of the EEC than on similar domestic products, has failed to fulfil the obligation placed on it by Article 95 of the Treaty'.
2 In a written statement submitted on 26 July 1969 the Italian Republic observed that a Decree-Law of 2 July 1969, which amended the tax system in dispute was, in its opinion, of such a nature as to call for the withdrawal of the application. The Commission replied that the provisions of this Decree-Law did not make it possible to draw the conclusion that in the present case any infringement of Article 95 of the Treaty had ceased and that consequently it could not consider any course of action other than to continue with the case.
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3 However, the parties have devoted since then the major part of their arguments to the effects and the burden of the tax system brought into operation by the said Decree-Law. The Commission does not, moreover, refer to any objective other than that of putting an effective end to the specific violation alleged against the Italian Republic, so that its only aim appears to be to terminate any violation which may still exist.
4 It follows from the foregoing that, although the parties still disagree about the effects of the above-mentioned Decree-Law, they have nevertheless taken the view that this measure substantially affects the outcome of the present dispute and they have accordingly requested the Court to consider the resulting situation as a whole. In so doing the applicant has thus amended the subject-matter of its application so that it is no longer concerned only with the question whether at the time when the application was lodged there was a failure on the part of the Italian Republic to fulfil its obligations under Article 95, but principally with the question whether this failure still continues after the coming into force of the Decree-Law.
5 In the present action it is not possible for the Court to decide whether the situation created by Decree-Law No 319 is compatible with the obligations imposed upon Member States under Article 95 of the Treaty. Because of the importance which the Treaty attaches to the action available to the Community against Member States for failure to fulfil obligations, this procedure in Article 169 is surrounded by guarantees which must not be ignored, particularly in view of the obligation imposed by Article 171 on Member States to take as a consequence of this action the necessary measures to comply with the judgment of the Court. Accordingly the Court cannot give judgment in the present case on the failure to fulfil an obligation occurring after legislation has been amended during the course of the proceedings without thereby adversely affecting the rights of the Member State to put forward its arguments in defence based on complaints formulated according to the procedure laid down by Article 169.
6 In such circumstances it is for the Commission to commence new proceedings under Article 169 with regard to the effects of Decree-Law No 319, and if necessary to refer to the Court the specific shortcoming upon which it desires the Court to pronounce. In view of the change in the subject-matter of the dispute, the request as originally formulated in the application must therefore be dismissed.
Costs
7 The reason for the dismissal of the application lies in the amendment of the Italian legislation and the consequent change in subject-matter of the application, as suggested by the defendant and accepted by the applicant.
OPINION OF MR ROEMER — CASE 7/69
This is an exceptional circumstance justifying application of the first subparagraph of Article 69 (3) of the Rules of Procedure. Therefore, the parties should be ordered to bear their own costs.
On those grounds,
Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties; Upon hearing the opinion of the Advocate-General ; Having regard to the Treaty establishing the European Economic Community, especially Articles 95, 169 and 171; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community; Having regard to the Rules of Procedure of the Court of Justice of the European Communities,
THE COURT
hereby :
1. Dismisses the application;
2. Orders the parties to bear their own costs.
Lecourt Monaco Pescatore
Donner Trabucchi Strauß Mertens de Wilmars
Delivered in open court in Luxembourg on 10 March 1970.
A. Van Houtte R. Lecourt
Registrar President
OPINION OF MR ADVOCATE-GENERAL ROEMER DELIVERED ON 20 JANUARY 19701
Mr President, vinced that some of the rules concerning the Members of the Court, import of wool and wool products from other Member States infringed Articles 95 On examining the Italian system of turn and 96 of the EEC Treaty. It therefore con over tax, the Commission of the European sidered it necessary to initiate proceedings Economic Community came to be con- to establish these infringements of the
1 — Translated from the German.