C-169/78

treatment of domestic products and view of the difficulty of making imported products; it is therefore sufficiently precise comparisons necessary to interpret the concept of between the products in question, the "similar products" with sufficient second paragraph of that article is flexibility. It is necessary to consider based upon a more general criterion, as similar products which have similar in other words the protective nature characteristics and meet the same of the system of internal taxation. needs from the point of view of 4. Whilst Community law as it stands at consumers. It is therefore necessary to present does not prohibit certain determine the scope of the first exemptions or tax concessions, in paragraph of Article 95 on the basis particular so as to enable productions not of the criterion of the strictly or undertakings to continue which identical nature of the products but would no longer be profitable without on that of their similar and those special tax benefits because of comparable use. the rise in production costs, the 3. The function of the second paragraph lawfulness of such practices is subject of Article 95 is to cover all forms of to the condition that the Member indirect tax protection in the case of States using those powers extend the products which, without being similar benefit thereof in a non-discrimi- within the meaning of the first natory and non-protective manner to paragraph, are nevertheless in imported products in the same competition, even partial, indirect or situation. potential, with certain products of the 5. The classifications in the Common importing country. For the purposes Customs Tariff, which were designed of the application of that provision it with the Community's foreign trade is sufficient for the imported product in mind, do not provide conclusive to be in competition with the evidence as to whether different protected domestic production by products in relation one to another reason of one or several economic are similar within the meaning of the uses to which it may be put, even first paragraph of Article 95 of the though the condition of similarity for EEC Treaty or in competition, even the purposes of the first paragraph of partial, indirect or potential, and so Article 95 is not fulfilled. covered by the second paragraph of Whilst the criterion indicated in the that article. first paragraph of Article 95 consists The same conclusion applies to in the comparison of tax burdens, customs statistics the aim of which is whether in terms of the rate, the to record the volume of movement of mode of assessment or other detailed goods coming under the various tariff rules for the application thereof, in headings.

THE COURT

composed of: H. Kutscher, President, A. O'Keeffe and A. Touffait (Presidents of Chambers), J. Mertens de Wilmars, P. Pescatore, Lord Mackenzie Stuart, G. Bosco, T. Koopmans and O. Due, Judges,

Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

annum, and '.the production of spirits 18 December 1970 (Gazzetta Ufficiale obtained from cereals even smaller. della Repubblica Italiana No 323 of In Italy an excise duty is levied on 23 December 1970, p. 8543), consider- alcoholic beverages intended for the ably increased the rate of the tax band- retail trade in the form of tax banderoles eroles on spirits obtained from cereals attached to bottles containing up to 2 and sugar-cane; on the other hand, the litres. rates of the tax banderoles remained unchanged with regard to other spirits, Article 6 of Decree Law N o 745 of in particular spirits distilled from wine 26 October 1970 on special measures for and marc, and was maintained at a stimulation of the economy (Gazzetta markedly lower level. Ufficiale della Repubblica Italiana [Official Journal of the Italian Republic] The comparative price in Italian lire of No 272 of 26 October 1970, p. 7193), the tax banderoles for the various types which became Law No 1034 of of spirits is as follows : Tabelle D 2011

(in LIT)

Capacity of the container Spiriu obtained from Spirits obtained by Up to Spirits obtained from marc cereals and sugar-cane distilling wine

0.10 litres 80 25 10 0.25 litres 100 25 10 0.50 litres 220 40 20 0.75 litres 340 55 20 1.00 litres 420 60 20 1.50 litres 560 85 20 2.00 litres 640 105 20

to the Commission in accordance with Commission to reply in writing to several the first paragraph of Article 169 of the questions. That request was complied Treaty. In those observations it claimed with within the prescribed period. in particular that there was no similarity between the various spirits, that the complaint of discrimination was I I I — C o n c l u s i o n s of t h e p a r t i e s unfounded and that other national products were not protected. The Commission claims that the Court should: On 23 January 1978, the Commission delivered to the Italian Republic the reasoned opinion provided for in the first — Declare that the Italian Republic, by paragraph of Article 169 of the Treaty. levying, after 26 October 1970, a In that opinion it found that the Italian differentiated tax which penalizes Republic, by applying differentiated imported spirits (tax banderoles), has taxation, essentially handicapped im- failed to fulfil its obligations under ported products in comparison with Article 95 of the EEC Treaty; similar home-produced products and was therefore failing to fulfil its obligations — Order the Italian Republic to pay the under Article 95 of the Treaty. The costs. Italian Republic was requested to adopt within 15 days the necessary measures to comply with the Treaty. The Government of the Italian Republic contends that the Court should: By letter of 20 April 1978, the Italian Government informed the Commission — Declare that the Commission's that it saw no reason to abandon the application is inadmissible, or, in any present system of tax banderoles or the case, dismiss it as unfounded; tax practice which that system makes possible. — Order the Commission to pay the costs.

cane by comparison with national The Commission rejects the objections of products obtained from wine or marc. inadmissibility put forward by the Italian However, according to the case-law of Government. the Court of Justice, discrimination with regard to internal taxation cannot be appraised separately; on the contrary, it is necessary to verify as a whole whether (a) On the first point, it claims that it is any difference in treatment exists. In this necessary to state that the taxation levied respect it is necessary also to take into in Italy on spirits is regulated by separate account charges levied solely on national legislative instruments and that it is products but it is unfair to take them impossible to remedy by means of into account by reference to only one of another law the effects of a national the components of the total taxation measure flowing from a law which is levied on imported products.

In view of the variety and the complexity of the various national tax systems, a (b) It follows from the case-law of the solution to all the questions cannot be Court of Justice that Article 95 requires sought in piecemeal legal procedures the abolition of all discrimination in each relating to certain specific aspects trade between the Member States and of the fiscal charge. that the second paragraph of that article forms the necessary supplement to the prohibition laid down in the first paragraph; the prohibition laid down in the second paragraph refers therefore to all taxation which is levied more heavily (b) It claims that the Commission refers on imported products, regardless of the without distinction to the infringement level of the increase. Since the legal of the first and second paragraphs of treatment laid down in Article 95 is Article 95 of the Treaty.

Article 95.

B — The substance of the case Italian ministerial authorities; moreover, they consist only of assessments and The Commission takes the view that the estimates. As far as alcohol obtained taxation in Italy in the form of tax ban- from cereals is concerned, the official deroles levied on spirituous beverages statistics transmitted by the Italian intended for the retail trade is contrary Ministry of Finance show a production to the first and second paragraphs of of 78 hectolitres in 1975, 4 hectolitres in Article 95 of the EEC Treaty. 1976 and no production in 1977. Moreover, it is impossible on the basis of (a) Having regard to the first para- the Community rules on origin and of graph of Article 95, it is necessary to the nomenclature of the Common state that the Italian Republic imposes on Customs Tariff to consider spirits which spirits produced in other Member States are the result of a mixture and are internal taxation in excess of that obtained by adding water and pure imposed on similar domestic products. alcohol obtained from Italian wine to Spirits obtained from cereals and sugar- genuine whisky or rum imported from cane should in fact be considered to be the countries of origin to be an (orig- products similar to other spirits: inating) "domestic product" within the regardless of their consumer use, those meaning of Article 95. products must all display certain

In fact, the Italian Government is with one another. Consequently, since attempting to justify the failure to fulfil the Italian production of spirits obtained its obligations under the Treaty which from cereals and sugar-cane is negligible, forms the subject-matter of this case by the effect of taxing the latter products relying upon measures which are more heavily is to protect the very large themselves the subject-matter of other national production of spirits obtained by procedures under Article 169. distilling wine and spirits obtained from

In

this instance, the most favourable rate of conditions, not forgetting fashion); the tax banderole, which is that reserved however, on the market, spirits, as to spirits obtained from marc, grappa, "finished" products, are, from the point which is an exclusively Italian product, of view of consumers, no longer sup- should be applied to all imported spirits plementary but parallel products; in as products similar to grappa without the other words, they are similar products. raw material from which those spirits are derived coming into consideration.

In fact, it follows from the case-law of the Court (f) The basic problem posed by the of Justice that "similarity between second paragraph of Article 95 is that of products within the meaning of the first determining criteria enabling "internal paragraph of Article 95 exists when the taxation of such a nature as to afford products in question are normally to be indirect protection" to other products to considered as coming within the same be identified. fiscal, customs or statistical classification, as the case may be"; moreover, "a It follows from the case-law of the Court comparison must . . . be made between that internal taxation incompatible with the taxation imposed on products which, the second paragraph of Article 95 is at the same stage of production or that which taxes imported products more marketing, have similar characteristics heavily than domestic products with and meet the same needs from the point which they are in competition and which of view of consumers". The latter is therefore likely to produce protective condition is certainly fulfilled in this effects. This protective effect must be case. abolished whatever the extent of it because it constitutes per se a barrier to The fact that the domestic product and trade and is as such incompatible with the imported product are classified under the objectives of Article 95.

influenced by various factors (habits, contest the protective effect of a measure individual preferences, local and national which imposes on imported products a traditions, social, seasonal and climatic duty 20 times higher than that to which

comparable domestic products are be substituted for one another. In fact, as subject on the pretext that imports of the the ' Italian Government admits, its product in question have developed traditional economic policy in the field considerably; it is necessary in fact to of spirits tends, on the one hand, to consider the potential increase in imports direct production towards the distillation in a market free of all barriers to the free of fruit products of which there is movement of goods. generally a surplus in Italy, and, on the other, to check the increase in the production of beverages obtained by the distillation of raw materials other than cereals, sugar-cane and potatoes. (g) According to the case-law of the Court, the prohibition on tax discrimi- nation extends to cases in which the products are not in "direct competition" : even in the absence of all direct (h) With regard to the alleged need to competition with domestic products, appraise as a whole infringements of protection would exist if it were shown Article 95 in the field of alcoholic that imported products are subject to a beverages, it is sufficient to state that the special fiscal charge on the basis of their Commission has initiated procedures state of manufacture or marketing or any against several other Member States with other economic fact such as to protect regard to the taxation of alcoholic certain activities separate from those beverages in a whole series of significant which served for the manufacture of the cases. In initiating those procedures, the imported products. The field of Commission rejects by implication the application of the second paragraph of argument that it is necessary to have Article 95 is undoubtedly very wide. The recourse to the instrument of harmo- interchangeability may not be total but nization for the purpose of abolishing limited to several uses; it may, moreover, trade barriers of a fiscal nature; the vary according to the nature and prohibition on tax discrimination laid characteristics of the product, on the one down in Article 95, which has direct hand, and the needs and tastes of effect, cannot be made subject to the consumers, on the other. The criterion of adoption of "implementing" provisions the "typical nature" of the products has forming the subject-matter of harmo- nothing to do with the requirements nization directives within the meaning of laid down in the second paragraph of Article 99 of the Treaty. Article 95.

identical tax burden, a problem of the even if they are all domestic, may be infringement of Article 95 cannot arise. considered to be similar; the effect of this is to give preferential treatment to certain categories of products in (b) Contrary to the Commission's comparison with others, which are also statements, Italy has a production of domestic, but not to constitute a breach spirits obtained from cereals and sugar- of Article 95. cane: in 1974, 4 435 hectolitres of whisky and 11 470 hectolitres of rum were produced; in 1975, 9 355 hectolitres (d) In any case, spirits obtained from of whisky and 9 553 hectolitres of rum cereals and those obtained from wine were produced. and marc are not similar products: they are, on the contrary, absolutely different The fact that a certain quantity of those products, both by virtue of the basic raw products was obtained by coupage of material and of the manufacturing 80 hectolitres of anhydrous alcohol process, of the characteristics of the produced directly is irrelevant: the tax products and of the very composition banderole which is payable only for as regards alcohol. The products in products in bottles is fixed according to question, having regard to their the name of those products; it follows respective characteristics, cannot be that domestic spirits, whatever the considered to be similar.

hectolitres, whereas the consumption of (c) For the purposes of the application spirits obtained from wine and marc of the first paragraph of Article 95 the stayed at considerably lower levels with a fact that domestic production, albeit total increase of barely 10%. unimportant, exists and, even more, that a production of that kind may exist, is decisive. The first paragraph of Article (e) An analysis carried out on the basis 95 is in fact a provision supplementary to of the Common Customs Tariff is only the provision prohibiting customs duties of subsidiary value; it confirms, however, and charges having an equivalent effect; the fact that the spirits in question are it is intended solely to guarantee not similar. competitive neutrality where products are equal and not to restrict the tax The Common Customs Tariff unites autonomy of Member States. The under the same heading a series of Member States may, by virtue of their products which may represent a type tax autonomy, reserve different treat- within which, by means of the sub- ment for tax purposes to products which, headings, the kinds, in other words, the

various products with a personality of Article 95, which are to ensure normal their own and a specific individual conditions of competition and to remove characteristic, are then more appro- all restrictions of a fiscal nature capable priately sought. The question of of hindering the free movement of goods similarity should be determined having within the Common Market" with the regard to the products listed in the sub- result that it is necessary to decide "the heading with a corresponding separate level below which the tax in question number; those products were considered would cease to have the protective to be different when the Common effects prohibited" by Article 95.

Just like Article III, No 2 of the General (g) In any case, spirits obtained from Agreement on Tariffs and Trade, with cereals, on the one hand, and those which it displays a strong analogy, the obtained from wine and marc, on the second paragraph of Article 95 merely other, are not in competition. The prohibits taxation of such a nature as to second paragraph of Article 95 envisages protect other products, in other words direct competition; it therefore takes into without imposing uniformity of the rates consideration an affinity between of tax, and merely intends to prevent products such that the consumers' taxation from being able to constitute decision may in fact only be influenced "indirectly" protection for other by extrinsic factors, in particular the products. price which, in its turn, is influenced by

JUDGMENT OF 27. 2. 1980 — CASE 169/78

Thus Article which, left to the discretion of the 95 does not restrict the tax autonomy of Council on the basis of broader needs, the Member States which may provide justify the adoption of the measures laid for differentiated treatment in each trade down in Articles 99 and 100 of the sector. Treaty. The tax policy intended to harmonize taxation in particular with regard to excise duties and other indirect Since what is involved is a tax which is taxation, may seem appropriate in differentiated according to the type of respect of a series of products with product, the requirements laid down in regard to which the jurisdiction of the Article 95 are fully satisfied where in Member States remains intact because respect of each type of product uniform the conditions laid down in Article 95 rates of tax have been laid down for have not been fulfilled.

ances. The inappropriate nature of that domestic products should be subject solutions by sector by means of decisions to less favourable treatment. If it were relating to individual cases is emphasized always necessary to make imported ' by the very actions of the Commission products subject to the most favourable which lodged applications simultaneously system of those applicable to the various against several Member States whilst types of a product on the national insisting therein on the need for a joint territory, the tax autonomy of the examination. Member States would be reduced to the absurd power of creating onerous discrimination against a certain number

COMMISSION v ITALY

JUDGMENT OF 27. 2. 1980 — CASE 169/78

those products being expressly governed whilst constituting differentiated by the Community rules on wine treatment from a tax point of view as (Council Regulation (EEC) N o 337/79 regards rates and the structure of the of 5 February 1979 on the common tax, so as to benefit specific types of organization of the market in wine, national product, is imposed on imported Official Journal 1979 No L 54, p. 1). products without discrimination, in other The Community already has appropriate words which extends to imported economic means for settling the most products the more favourable treatment important problem, that of the for tax purposes reserved to certain compensation for the difference between similar and/or competing domestic the production costs of spirits obtained products within the meaning of Article by distilling wine on the one hand and 95, on the other, is compatible with products based on other agricultural raw Article 95. The essential factor is that the materials, in particular cereals, on the principle of the neutrality of taxation in other. These mechanisms can only intra-Community trade should be operate correctly if they act on a market observed unconditionally. These which is neutral from a tax point of view. statements are in accordance with the The delay which has been noted in the case-law of the Court, in particular the progress of the Council's work on the judgment in Case 148/77 (Hansen). proposals put forward by the Commission is largely due to the existence on the internal level of dis- VI — Oral p r o c e d u r e criminatory national tax measures ensuring national products additional protection which is in no way justified The Commission, represented by against competing products from other Antonino Abate, and the Italian Member States. Government, represented by Ivo Maria Braguglia, presented oral argument and Taxation which is levied on national replied to questions put by the Court at products and similar and/or competing the hearing on 9 October 1979. imported products within the meaning of Article 95 not only at the same rate but The Advocate General delivered his according to the same structure, on the opinion at the sitting on 28 November one har·I. and internal taxation which, 1979.

4 The above-mentioned provisions supplement, within the system of the Treaty, the provisions on the abolition of customs duties and charges having equivalent effect. Their aim is to ensure free movement of goods between the Member States in normal conditions of competition by the elimination of all forms of protection which result from the application of internal taxation which discriminates against products from other Member States. As the Commission has correctly stated, Article 95 must guarantee the complete neutrality of internal taxation as regards competition between domestic products and imported products.

5 The first paragraph of Article 95, which is based on a comparison of the tax burdens imposed on domestic products and on imported products which may be classified as "similar", is the basic rule in this respect. This provision, as the Court has had occasion to emphasize in its judgment of 10 October 1978 in Case 148/77, H. Hansen jun. & O. C. Balle GmbH & Co. v Hauptzollamt Flensburg [1978] ECR 1787, must be interpreted widely so as to cover all taxation procedures which conflict with the principle of the equality of treatment of domestic products and imported products; it is therefore necessary to interpret the concept of "similar products" with sufficient flexibility. The Court specified in the judgment of 17 February 1976 in the

JUDGMENT OF 27. 2. 1980 — CASE 169/78

REWEcase (Case 45/75 [1976] ECR 181) that it is necessary to consider as similar products which "have similar characteristics and meet the same needs from the point of view of consumers". It is therefore necessary to determine the scope of the first paragraph of Article 95 on the basis not of the criterion of the strictly identical nature of the products but on that of their similar and comparable use.

8 The application in this instance of the criterion of similarity, which determines the scope of the prohibition laid down in the first paragraph of Article 95, has given rise to differences of opinion between the parties. According to the Commission, all spirits, whatever the raw materials used for their manufacture, have similar properties and in essence meet the same needs of consumers. Therefore, whatever the specific characteristics of the various products coming within that category and whatever the consumer habits in the various regions of the Community, spirits as finished products represent, from the point of view of consumers, a single general market. It is necessary to observe that this concept is expressed in the proposals submitted by the Commission to the Council for the establishment of a common organization of the market in alcohol, based on the application of a single rate of tax for all the products in question on the basis of their pure alcohol content.

COMMISSION v ITALY

9 This concept is contested by the governments of the three defendant Member States. In their opinion, it is possible to distinguish in the case of spirits various categories of product which differ either in terms of the raw materials used or of their typical characteristics or of the consumer habits observed in the various Member States.

10 In this connexion, the Commission points out however that the appraisal of the characteristics of the various alcoholic beverages, in the same way as consumer habits, is variable in time and space and that such factors cannot provide valid criteria as regards the Community taken as a whole. It draws attention moreover to the danger of hardening such habits by means of tax classifications made by the Member States.

JUDGMENT OF 27. 2. 1980 — CASE 169/78

owe their individuality only to flavouring additives with a more or less pronounced taste. On the other hand, it is necessary to draw attention to the fact that in the case of spirits there are products which may be consumed in very different forms, either neat or diluted or, again, j n the form of mixtures. These products may therefore be in competition with a range of varying size of other alcoholic products of more limited use. A characteristic of the three cases brought before this Court is however the fact that in each there are, in addition to well-defined spirits, one or several products with a broad range of uses.

M In the various procedures, the parties have relied, with regard to the distinction between several categories of alcoholic product, upon certain statements made by the Court of Justice in the judgment in the Hansen & Balle case, supra, which was delivered at a time when these applications were pending. Reference has been made more particularly to a passage in that judgment which states as follows: "At the present stage of its development and in the absence of any unification or harmonization of the relevant

COMMISSION v ITALY

provisions, Community law does not prohibit Member States from granting tax advantages, in the form of exemption from or reduction of duties, to certain types of spirits or to certain classes of producers. Indeed, tax advantages of this kind may serve legitimate economic or social purposes, such as the use of certain raw materials by the distilling industry, the continued production of particular spirits of high quality, or the continuance of certain classes of undertakings such as agricultural distilleries".

JUDGMENT OF 27. 2. 1980 — CASE 169/78

T h e s u b j e c t - m a t t e r of the d i s p u t e a n d t h e a d m i s s i b i l i t y of t h e application

i7 The application lodged by the Commission relates to the affixing, laid down by the Italian tax legislation resulting from the provisions of Article 6 of Decree Law N o 745 of 26 October 1970 (Gazzetta Ufficiale della Repubblica Italiana, p. 7193), ratified by Law N o 1034 of 18 December 1970 (Gazzetta Ufficiale della Repubblica Italiana, p. 8543), of tax banderoles on receptacles containing spirits intended for retail. It appears from those provisions that those rates, which are on a graduated scale according to the capacity of the receptacles, are, as far as spirits obtained from cereals and sugar-cane are concerned, several times the rates applicable to spirits obtained from wine and marc. The Commission considers that this tax system is contrary to the provisions of Article 95 of the EEC Treaty in that the heaviest rates of tax are levied on products which are, essentially, imported products, whereas the most favourable rates of tax are reserved to spirits obtained from wine and marc which are typically Italian products.

is In its application, the Commission points out the fact that the system of tax banderoles forms only one of the aspects of the Italian system of tax on spirits which contains in addition other taxes, in other words the "State tax", levied at the production stage, and the value-added tax, which is levied at the marketing stage. Procedures for a declaration that the Italian Government has failed to fulfil its obligations under the Treaty based on Article 169 of the Treaty are pending owing to the discriminatory features of those two tax systems.

22 It is sufficient to point out that this defence put forward by the Italian Government in fact comes within the substance of the dispute and must therefore be examined with the substance of the case.

23 As regards the substance of the case, the Italian Government puts forward two series of arguments as regards

— the lack of similarity within the meaning of the first paragraph of Article 95 between the products which are subject to differential taxation and — the absence of indirect protection for national production under the second paragraph of Article 95.

T h e a p p r a i s a l of t h e c o n t e s t e d t a x s y s t e m

24 In a c c o r d a n c e with the viewpoint recalled above, the Commission considers that the p r o d u c t s classified by the Italian legislation in separate tax categories — spirits obtained from cereals and sugar-cane on the one hand, and spirits made from wine and marc, on the other — must be considered to be "similar" products within the meaning of the first paragraph of Article 95 of the Treaty.

25 T h e application lodged by the Commission is based in the alternative on the complaint that the Italian Republic has been in breach of the second p a r a g r a p h of Article 95 if the C o u r t does n o t r e c o g n i z e the existence of a relationship of similarity between the p r o d u c t s referred t o . T h e Commission considers that in spite of their typical characteristics, the various types of spirits in question, in that they are substitute p r o d u c t s , are at least in the competitive situation referred to by the second p a r a r a p h of Article 9 5 . T h a t situation is illustrated by the efforts m a d e b y certain M e m b e r States t o obtain protection for the registered designations of origin of certain spirits which w o u l d n o t be of interest if those p r o d u c t s w e r e entirely distinct from o t h e r competing products.

28 Moreover, the Italian Government relies upon the customs classification as appears in the subdivisions of tariff subheading 22.09 C of the Common Customs Tariff within which, to be precise, rum and whisky form specific subdivisions. In addition it draws attention to the fact that in the nomenclature of the customs statistics, whisky and spirits obtained from wine and marc bear separate statistical numbers.

29 T h e Italian G o v e r n m e n t considers that the complaint of discrimination put forward by the Commission is u n f o u n d e d w h e r e a s , in its view, the price of the tax banderole levied o n spirits from cereals and sugar c a n e is identical as regards both imported spirits a n d those p r o d u c e d in Italy. In the same w a y , imported spirits obtained from w i n e and m a r c are taxed at the same rate as the corresponding national spirits. T h u s the principal of equality of t r e a t m e n t is complied with in respect of the same products whatever their origin.

30 As regards the application of the second p a r a g r a p h of Article 9 5 , the Italian G o v e r n m e n t claims that t h a t provision does not refer, as the Commission

COMMISSION v ITALY

seems to believe, to the difference between the taxation imposed on domestic products and imported products but to the protective nature of a given national tax system. However, in spite of the difference in the rates of tax applicable, it appears that imports of whisky into Italy have undergone a massive increase whereas the consumption of spirits obtained from wine and marc has only grown slightly. In short, the Commission is attempting by its action to compel a levelling of the rates of tax by stating that all spirits are similar or at least competing within the meaning of Article 95.

32 The Italian Government is no doubt correct when it emphasizes the importance of the raw materials and the manufacturing processes for the purposes of determining characteristic differences between various spirits. The Court took that factor into account in its judgment in the REWE case, in which it adopted, as a criterion of similarity, the characteristics of the products as much as the needs of the consumers. However, even if it were possible to identify certain typical beverages with clear characteristics which therefore correspond to specific uses, it is impossible to deny that there are on the market other alcoholic beverages which may be consumed in a great variety of circumstances, either neat or with water or in the form of mixes and which as such are capable of meeting the widest needs; this is inter alia the case of whisky and rum, the taxation on which forms the subject-matter of this dispute. This flexibility in particular enables the beverages of that type to be considered to be similar to a particularly large number of other alcoholic beverages or as being at least partially in competition with those beverages.

33 After considering all these factors, the Court takes the view that it is not necessary for the purposes of solving this dispute to give a ruling on the question whether or not the spirituous beverages concerned are partly or

JUDGMENT OF 27. 2. 1980 — CASE 169/78

wholly similar products within the meaning of the first paragraph of Article 95, since it is impossible reasonably to contest that they are without exception in competition, at least partially, with the domestic products to which the application refers and, moreover, the protective nature of the Italian tax system within the meaning of the second paragraph of Article 95 cannot be denied.

38 As the defendant has failed in its submissions, it must be ordered to bear the costs.

COMMISSION v ITALY

On those grounds,

THE COURT

hereby:

1. Declares that, by the application of differential taxation on spirits in the form of tax banderoles affixed to receptacles containing spirits intended for retail, as provided for by the Italian tax legislation resulting from the provisions of Article 6 of Decree Law No 745 of 26 October 1970, ratified by Law No 1034 of 18 December 1970, as regards, first, spirits obtained by the distillation of cereals and sugar- cane and, secondly, spirits obtained from wine and marc, the Italian Republic, has failed, as regards products imported from the other Member States, to fulfil its obligations under Article 95 of the EEC Treaty.