C-16/69

3. Agriculture — Establishment of the Common Market — Exceptions —Strict interpretation

1. The taxation of potable spirits im­ December 1959) they are not subject ported from one Member State on to the provisions of Articles 39 to the basis of a notional alcoholic con­ 46 of the Treaty. tent amounts to discrimination in­ compatible with Article 95 of the 3. In agriculture the permitted deroga­ tions from certain rules laid down for EEC Treaty. the establishment of the Common 2. As potable spirits are not agricultural Market are exceptions and as such products (Regulation No 7 (a) of 18 must be strictly interpreted.

In Case 16/69

Commission of the European Communities, represented by Cesare Maestripieri, acting as Agent, with an address for service in Luxembourg at the offices of Emile Reuter, Legal Advisor of the Commission, 4 boulevard Royal, applicant,

v

Government of the Italian Republic, represented by Adolfo Maresca, Minister Plenipotentiary, acting as Agent, assisted by Pietro Peronaci, Sostituto Avvocato generale della Stato, (Deputy State Advocate-General) with an address for service in Luxembourg at the chancery of the Italian Embassy, defendant, 1 — Language of the Case: Italian. 2 — CMLR.

JUDGMENT

Issues of fact and of law

I — Facts In its observations (contained in its letter of 15 April 1967) the Italian The facts of the case may be summar­ Government maintained that the taxa­ ized as follows: tion system in force applicable to the In a letter dated 4 November 1965 to product in question could only be modi­ the Italian Government the Commission fied by means of a re-adjustment of the of the EEC stated that in its opinion existing alcohol monopolies in the EEC. Article 95 of the EEC Treaty had been As these observations did not appear to infringed, because under the system for the Commission to be satisfactory, it the taxation of alcohol and wines in sent the Italian Republic by letter of Italy the tax on manufacture and 7 May 1968 a reasoned opinion in ac­ the State tax were applied to imported cordance with the first paragraph of potable spirits on the basis of a mini­ Article 169 of the Treaty, in which it mum alcoholic content of 70% whereas found that there was an infringement of the equivalent national products were Article 95 of the Treaty and called upon assessed according to the actual per­ the Italian Republic to put an end to centage of their alcoholic content. this state of affairs within the period After it had received a letter of 12 of one month. February 1966 from the Italian Govern­ The Italian Government informed the ment in which it denied that it had Commission by letter of 23 July 1968 infringed the Treaty, the Commission that it could not comply with this opin­ initiated the procedure provided for by ion and on 31 March 1969 the Commis­ the first paragraph of Article 169 of sion lodged an application dated 27 the Treaty. March 1969 iat the Court Registry.

II — Conclusions of the vides that 'if in the opinion of the cus­ parties toms authorities the alcoholic content of any potable spirits exceeds 70%, such The applicant claims that the Court spirits shall be analysed and the duty should: shall be calculated on their actual alco­ — declare that the Italian Republic, by holic content if this proves to be greater applying a system of taxation which than 70%'. imposes a higher tax burden on pot­ In its observations of 15 April 1967 the able spirits imported from Member Italian Government submitted that the States than on the corresponding taxation of potable spirits at a fixed national products has infringed uniform rate was justified by the exist­ Article 95 of the Treaty establishing ence of national monopolies in the other the European Economic Community; Member States and that this taxation was — order the Italian Republic to bear one of the measures of the economic the costs. policy for the protection of important The defendant contends that the Court sectors of Italian agriculture. should: In the opinion or the applicant these — dismiss the application of the Com­ arguments are invalid for the following mission' of the European Commun­ reasons: ities: — order the Commission to bear the 1. Action taken by the Commission costs. against a Member State on the ground of infringement of the Treaty is not conditional upon parallel action being III — Submissions and taken against infringements by other arguments of the Member States. parties 2. Potable spirits are not agricultural The submissions and arguments of the products, because they are not listed parties may be summarized as follows: in Annex II to the Treaty and indeed are expressly excluded by Regulation A — The admissibility of the applica­ No 7(a) of the Council (of 18 Decem­ tion ber 1959). Further there is no na­ The defendant does not challenge the tional market organization in Italy for admissibility of the application. the products in question and this is confirmed by the decisions applying B — The substance Article 226 of the Treaty to Italy The applicant states in its application (Decisions of 18 May 1969 and 13 that since the tax on manufacture and December 1961). the State tax are calculated in the case The defendant first of all states that it of potable spirits on each anhydrous regards as unfounded the Commission's hectolitre and in the case of imported argument that the problem turns on the potable spirits on a minimum alcoholic difference between potable spirits and content of 70%, it follows that the tax alcohol, when in fact there is no such burden on imported potable spirits hav­ distinction, because by using the same ing an alcoholic content of less than method of distilling, potable spirits as 70% is greater than the charge on the well as alcohol properly so-called can be corresponding home-produced potable produced from the same raw material. spirits. This would mean that the distinction The normal alcoholic content of potable would depend upon die different na­ spirits distilled from cereals is 42%. tional laws: what one national law re­ further, the Italian customs tariff pro- gards as potable spirits is regarded as

alcohol by another national law and would no longer achieve its objectives. conversely. In its reply the applicant retorts: This actual situation was also taken into (a) The distinction between potable account by the departments of the Com spirits and alcohol exists as is shown by mission when they considered the draft the different definitions in the Brussels regulations to be adopted in this sector. Nomenclature and by the distinctions Therefore the tax arrangements which made by the national laws including the Commission considers to be dis

a national market organization in Italy. ducts obtained from the processing of In this case neither of these two con those which the market organization ditions is fulfilled. seeks to protect. It would be impos Potable spirits are not included in Annex sible to exclude the application of ar II to the Treaty and are not therefore rangements from these provisions, be agricultural products as is clear from the cause in these circumstances the tax ap case-law of the Court (Joined Cases 2 pears to be an instrument of agricultural and 3/62 [1962] E.C_R_ 434-435). policy adopted in this sector. In stating that it is tor the defendant to In this case an examination of the situ prove the existence of a national market ation in the sector of the market in vine organization the Commission calls atten products discloses the existence of a tion first to the fact that, so far as Italy complex organization based on national is concerned, neither potable spirits nor agricultural policy which enables the far even alcohol are included in the list of mer's income to be maintained and the agricultural products subject to a na entire production of alcohol and potable tional market organization established in spirits and the raw material intended 1961 by the departments of the Com for such production to be sold, and at mission in collaboration with experts of prices which could not be obtained in the Member States; the Commission other circumstances. next refers to the decisions of the Com According to the Italian Government the mission of 18 May 1961 and 13 Decem entire structure described above cannot ber 1961 which have already been men be modified (by the abolition of one of tioned in the application. its constituent parts) as long as a com In its rejoinder the defendant maintains mon policy has not been adopted in this that the distinction drawn by the appli sector. cant between alcohol and potable spirits In fact if the system of taxing at a fixed. is not relevant for the determination of uniform rate, which is challenged by the the dispute and that there is in fact in Commission, were abolished, the system Italy a national market organization for of protection worked out on this basis wine as is proved, inter alia, by the would be substantially modified and system relating to alcohol.

(a) The defendant calls attention to the to vine-growers an acceptable standard fact that, the definition of potable spirits of living. The permanent features of in the Brussels Nomenclature is not this organization are the compulsory dis exhaustive, because it is limited to a tilling of wines having a low alcoholic list of the raw materials used in the dis content and the guarantee to the market tilling process and to a brief description of a relatively high floor price. More of the products but neither states the over the specific factors in the proposal necessary percentage of alcohol or the for a regulation relating to the pro nature of the 'bouquet' or aroma. The gressive establishment of a common Council was aware of the actual position organization of the market in vine pro when it adopted Regulation No 7(b) of ducts put to the Council by the Com 1959, which includes ethyl alcohol in the mission are precisely the ones found list referred to in Article 38 of the in the Italian national market organiza Treaty, whereas it excluded potable tion. spirits from it but obviously not the Even if the existence in Italy of a application of Community regulations to national market in wine were to be the alcoholic content of potable spirits. called in question, there is no doubt The provision of national law, which is whatever that there has been for thirty the subject-matter of the present applica years an Italian national market tion, does not refer to potable spirits as organization for alcohol which is such but to their alcoholic content. established on the following lines: There would be no point in making (1) Synthetic alcohol and alcohol made natural imported alcohol subject to a from certain raw materials cannot in national market organization if the alco practice either be produced or sold on hol in the diluted products were exclu the market because these are subject to ded and, in consequence, all the national a special countervailing duty (6000 lire legislative systems were to make the to one hectolitre of pure alcohol) which alcohol in the products subject to the makes them almost completely uncom system applicable to alcohol. On this petitive, and this enables alcohol de point the defendant relies on the example rived from agricultural raw materials, of the French and German systems. for which it is essential to find a market (b) The defendant submits that Italy has with the distillers, to be sold at satis never accepted the position taken up by factory prices.

JUDGMENT OF 15. 10. 1969 — CASE 16/69

prices of other agricultural raw materials lished the first stage of a common the use of which the Government wishes organization by Regulation No 24 of to encourage. Therefore countervailing the same date, the before-mentioned duties play the part of an indirect bonus decision being the first measure taken for the national agricultural raw materials in implementation thereof. and amount to a system comparable to After stating that by protecting the the existing French system of mono­ national production of potable spirits polies. the Italian regulations are aimed mainly As the Italian regulations alleged by the at the alcoholic content in them, the defendant to infringe the Treaty are an defendant disputes the applicability to integral part of this system, their removal this case of the principles laid down by would radically alter the system and the the Court in Joined Cases 2 and 3/62. results achieved would be jeopardized In fact gingerbread is a processed pro­ which would be contrary to the letter duct whereas potable spirits are only and spirit of the Treaty. one of the stages in the process of dis­ During the oral procedure the applicant tilling alcohol. called attention to the fact that, although the Italian Government by a memoran­ IV—Procedure dum of 14 November 1959 had asked for potable spirits to be added to the The written procedure followed the list in Annex II to the Treaty, the Coun­ normal course. cil adopted Regulation No 7(a)—and The Court upon hearing the report or moreover unanimously—without agree­ the Judge-Rapporteur and the views of ing to this addition. the Advocate-General decided to open Although the Council based its Decision the oral procedure without any prepara­ of 4 April 1962 relating to the fixing of tory inquiry. import quotas of wine on Article 43 of The parties presented oral argument at the Treaty, it did so, not because it the hearing on 16 September 1969. thereby acknowledged the existence in The Advocate-General delivered his Italy of a national market organization opinion at the hearing on 20 September in vine products, but because it estab- 1969.

5 The question of the nature of the criteria for distinguishing potable spirits from alcohol is not relevant in this case. It is sufficient to note that both Community law and Italian national law make such a distinction. The pro­ visions which define the common market in agriculture, upon which the application of the exceptions relied on by the defendant is based, distinguish between potable spirits and alcohol.

6 In particular Regulation No 7(a) of the Council of 18 December 1959, which adds to the list of agricultural products in Annex II to the Treaty ethyl alcohol, whether or not denatured, obtained from agricultural products fisted in the said Annex II, states unequivocally that 'liqueurs and other spiritous beverages' are excluded. Since, in the case of agriculture, the permitted de­ rogations from certain rules laid down for the establishment of the Common Market are exceptions which must be construed strictly, it follows from this unequivocal statement that Articles 38 to 46 of the Treaty cannot be applied to products classified as potable spirits.

7 This case refers only to the fiscal treatment of products coming from other Member States which the Italian authorities consider to be potable spirits within the meaning of Heading 22.09 of their own national customs tariff, which in this respect corresponds to the Community customs rules.

8 It is true that the defendant alleges that the contested provisions do not refer to potable spirits as such but exclusively to the alcohol in it which is an agricultural product. This objection conflicts with the distinction expressly made by Community provisions between potable spirits and alcohol and can­ not in any way be used to justify discrimination against products coming from other Member States as compared with comparable national products.

THE COURT

hereby: I. Declares that the Italian Republic by continuing after I January 1962 to levy on potable spirits imported from other Member States frontier dues and all other duties which apply to alcohol in its national territory on the basis of a minimum alcoholic content of 70% has failed to fulfil the obligations imposed upon it by Article 95 of the Treaty establishing the European Economic Community; 2. Orders the defendant to bear the costs.

Lecourt Monaco Pescatore

Dormer Trabucchi Strauß Mertens de Wilmars

Delivered in open court in Luxembourg on 15 October 1969.

A. Van Houtte R. Lecourt Registrar President