C-21/79

T H E 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: H. Mayras Registrar: A. Van Houtte

gives the following

COMMISSION v ITALY

JUDGMENT

The facts of the case and the arguments (a) Any undertaking which intends to developed by the parties during the obtain petroleum products by any written procedure may be summarized as process whatsoever from products of follows: the same kind which have already been used within the national territory must obtain a licence and abide by the conditions specified in the Decree-Law of 28 February 1939 I — Facts and p r o c e d u r e (the first paragraph). If such an undertaking intends to "regenerate" petroleum products it must obtain the prior authorization of the 1. In Italy the manufacture of mineral Minister for Finance (fourth oils is regulated by a Decree-Law of 28 paragraph). February 1939 — which has since then been amended on several occasions — and is in particular conditional upon a Products obtained under those licence being granted by the Ufficio conditions are liable to an "imposta Tecnico delle Imposte di Fabbricazione di fabbricazione" at the reduced rate [Technical office for production taxes]. of 2 5 % of the full rate applicable to An internal tax called "imposta interna these products. di fabbricazione" [internal production tax] is imposed on these products. The same tax is levied on imported products (b) Products obtained within the at the frontier (Decree-Law of 28 meaning of the first paragraph and February 1939, Articles 1 and 4). released to the market without the prior authorization of the Minister for Finance are chargeable at the full 2. In order to promote the recycling of rate of the imposta di fabbricazione waste petroleum products Article 12 of (sixth paragraph of Article 12). Italian Law No 1852 of 31 December 1962 (Gazzetta Ufficiale della Repubblica Italiana [Official Journal of (c) Subject to compliance with the the Italian Republic] No 26 of 29 detailed rules to be fixed by decree, January 1963) provides for granting mineral lubricating oils (oli minerali reductions of or exemption, according to lubrificanti) recovered by one or the circumstances, from the tax in more of the processes of elutriation, question for the benefit of products filtering or drying in industrial which have thus been recycled. premises are exempt from the imposta di fabricazione, if the recovery and recycling are carried out on the same premises as those where 3. The system introduced by Article 12 the oils were first used (seventh may be analyzed as follows: paragraph of Article 12).

4. The Commission, by a letter of 24 June 1976, informed the Italian Republic that it regarded these rules as an 6. By a telex message of 14 May 1978 infringement of the first paragraph of the Italian Government laid stress on the Article 95 of the EEC Treaty. Pursuant connexion between Council Directive to the provisions of Article 169 of the No 75/439/EEC of 16 June 1975 on the EEC Treaty relating to the procedure disposal of waste oils (Official Journal when the Commission considers that a .1975, L 194, p. 23) and the Italian tax Member State has failed to fulfil an system and on the consequences of the obligation under the Treaty the failure of Member States to apply that Commission requested the Italian directive. The Italian Government gave Government to submit its observations notice in a telex message of 5 July 1978 within a period of one month. The that it had started to prepare special Italian Government, in the observations legislation abolishing the reduced rate of which it submitted by a letter of 29 June tax on regenerated oils, which at that 1976, made a distinction between "re- time was provided for as means of used and recovered" products which are encouraging the disposal of used oils, exempted in full and "regenerated" and replacing it by granting the products which are charged to tax at a indemnities provided for by Directive N o reduced rate. As far as the former are 75/439. The Italian Government gave concerned the purpose of the exemption notice "of the decision of the Italian is to prevent double taxation which authorities to comply with the reasoned would otherwise inevitably occur since opinion of 10 January 1978" and asked they are products that have already been the Commission to consider a stay of the taxed and that are re-used in the same contentious procedure. manufacturing process. In the case of "regenerated" products the application of a reduced rate is justified by the special nature of the regenerating process 7. Having found that, in spite of the which meets a good many economic and assurances which had been given, the

The Italian Government, relying on the After hearing the report of the Judge- wording of the reasoned opinion of 10 Rapporteur and the views of the January 1978, points out that the Advocate General the Court decided to Commission's original complaints related open the oral procedure without any to the tax treatment of petroleum preparatory enquiry. products which have been recovered and re-used and also of regenerated products but that the Commission has withdrawn the complaints in so far as recovered and re-used products are concerned. II — C o n c l u s i o n s of t h e p a r t i e s The Commission's reply to this is that there has not been any partial retreat from the position which it adopted in its reasoned opinion because the operative The Commission claims that the Court part of that opinion defined the subject- should: matter of the action as relating to regenerated products only. The Italian Government in its rejoinder considers 1. Declare that the Italian Republic, by that that definition also shows that the taxing regenerated petroleum action is not well-founded as far as products imported from the other regenerated products are concerned. Oils Member States at a discriminatory which have been "recovered", on the rate, pursuant to Law No 1852 of 31 one hand, and "regenerated" oils December 1962, has failed to fulfil its imported from other Member States, on obligations under Article 95 of the the other, are in fact accorded identical EEC Treaty. treatment for tax purposes on arrival at the Italian frontier, since both are oils derived from products on which, as distinct from domestic oils that have 2. Order the Italian Republic to pay the been recovered or regenerated, the full costs. production tax at the normal rate has not been paid. If it is conceded that taxing imported recovered oils is not discrimi- nation which is incompatible with the The Government of the Italian Republic first paragraph of Article 95 of the contends that the Court should: Treaty, the same concession must be made as far as concerns regenerated oils. In both cases the reduction of and 1. Dismiss the Commission's application. exemption from the domestic tax are in fact allowed only if the oils have already been used within the State concerned and the rules which have to be complied 2. Order the Commission to pay the with in order to obtain exemption or the costs. reduction have been observed.

B — The connexion between Council Furthermore the tax relief allowed for Directive No 75/439/EEC and the Italian products cannot be compared to Italian measures in question the optional indemnity provided by Article 13 of Directive No 75/439, since this indemnity is limited to the service rendered and must not exceed the actual The Italian Government refers to the costs. connexion between the Italian provisions at issue and Council Directive No 75/439/EEC on the disposal of waste oils. The Italian Government in its rejoinder stresses that the directive, as a means of obliging Member States to attain a specific objective, while leaving "to the By means of that directive principles and national authorities the choice of form procedures similar to those underlying and methods" sometimes appears to be the Italian provisions have been accepted an instrument whose nature has been on a Community level. Concerning the distorted and changed by current implementation of that directive the Community practice, and in reality lacks Italian Government, before the matter its essential characteristic of a statement became contentious, called attention to of principles, and has in fact the same the possibility of abolishing the reduced effect as international treaties. rate of the imposta di fabbricazione allowed on products obtained by regeneration of oils already used on national territory by replacing it with the indemnity provided for by Council As far as the system of refunds provided Directive No 75/439/EEC. That does for by Article 13 of the directive is not mean that before the Community concerned the Italian Government points directive was implemented the Italian out that the actual result of the rules and regulations could be regarded Community directive has, in substance, as an infringement of the first paragraph been absolutely the same as that already of Article 95 of the EEC Treaty. On the achieved by the Italian rules and regu- contrary unacceptable distortions of lations now in force. If the aim is to trade would occur if the reduced rate of ensure that used oils are recycled for tax — which is applied to regenerated ecological and energy considerations the oils obtained from products already high cost of the process of regenerating taxed at the full standard rate of excise used petroleum products in fact duty — was abolished before the necessitates a reduction of the implementation of the directive. production costs borne by the commercial operator.

The Commission takes the view that The Commission, relying on the there is tax discrimination, contrary to judgment of the Court of 10 October the first paragraph of Article 95 of the 1978 in Case 148/77 (H. Hansen jun. & EEC Treaty, against imports into Italy of O. C. Balle GmbH & Co v Hauptzollamt regenerated mineral oils from the other Flensburg [1978] ECR 1787), replies that Member States. the similarity of the products must be determined in the light of the way they are used and of the needs which they meet, the raw materials used and the The Italian Government considers, on manufacturing process being irrelevant. the other hand, that there is no risk of the tax rules at issue leading to discrimi- nation against imported Community Furthermore the reasoning based on products and relies on two arguments in Italian provisions which provide for support of its view: constant supervision of the production cycle of regenerated mineral oils cannot be upheld since, if that were correct, all production taxes would escape Article 95 — Account must be taken of the fact of the Treaty, because products subject that the taxation of regenerated oils to those taxes are always placed under at a reduced rate is in addition to the the supervision of the tax authorities. standard tax already paid on the The application of Article 95 of the products when used on national Treaty cannot be limited by the territory. In the other Member States requirements of national laws and no separate tax on consumption is consequently does not admit of any chargeable on regenerated oils and derogation for reasons of tax this is specifically on the basis of the supervision. principle that the same product may not be subjected to double taxation if it is intended for the same use. In its rejoinder the Italian Government expresses the view that Article 95 does not apply to the matter in question, on — Furthermore, in order to avoid the one hand, because the national discrimination by according the same measures at issue do not seek to protect treatment to different situations it is intra-Community trade but are guided

Decision

1 By an application of 31 J a n u a r y 1979 the Commission b r o u g h t before the C o u r t an action p u r s u a n t to Article 169 of the E E C T r e a t y for a declaration that the Italian Republic has failed to fulfil its obligations u n d e r Article 95 of the E E C T r e a t y " b y taxing regenerated petroleum p r o d u c t s i m p o r t e d from the other M e m b e r States, p u r s u a n t to Law N o 1852 of 31 D e c e m b e r 1962, at a discriminatory r a t e " .

General considerations

2 U n d e r Italian law — in particular u n d e r D e c r e e - L a w N o 334 of 28 February 1939 in the version in force in 1978 — an "imposta interna di fabbricazione"

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[internal production tax], fixed at a certain amount of Lire per quintal, which varies according to the products, is chargeable on mineral oils and processed products derived from them. A similar tax called "sovrimposta di confine" [frontier surcharge] is chargeable on similar foreign products when they cross the frontier.

JUDGMENT OF 8. 1. 1980 — CASE 21/79

7 Pursuant to the second paragraph of Article 12 of the above-mentioned Italian Law an imposta di fabbricazione at 2 5 % of the full rate is imposed on regenerated oils. This reduced tax is chargeable on regenerated products not only if they are offered for sale but also if they are re-used by the under- taking which had used them first.

s The Italian Law does not allow this reduced rate to be applied to imported oils whether they be recovered or regenerated oils and the latter pay the sovraimposta di confine which is the tax corresponding to the imposta di fabbricazione chargeable at the full rate, although it must be pointed out that the importation from the other Member States of recovered oils seems to be a theoretical assumption and that even intra-Community trade in regenerated oils is, if not non-existent, at the very least very restricted, even though it is likely to expand having regard to the trend of the market conditions for petroleum products.

COMMISSION v ITALY

and Articles 13 and 14 of which allow an indemnity to be given to under- takings engaged in those operations. The tax reductions at issue were in actual fact a form of subsidy which was authorized, especially as the directive had still not been implemented by most of the Member States. The Italian Government added that it was considering the possibility of replacing the tax advantages by direct subsidies, the grant of which is authorized by the directive.

i2 The Court takes formal note of this statement which puts an end to the ambiguity both in the observations sent to the Italian Government on 24 June 1976 and in the reasoned opinion so that examination can be limited to the tax rules applicable to regeneraged oils.

JUDGMENT OF 8. I. 1980 — CASE 21/79

T h e tax r u l e s a p p l i c a b l e t o r e g e n e r a t e d oils

i3 During the oral procedure the Commission stressed the fact that regenerated oils and oils of primary distillation "are not only similar products within the meaning of Article 95 but are also indentical". The identical nature of the products is not disputed by the Italian Republic. Nevertheless the Commision's observation seems to suggest that the tax rules applicable to imported oils, whether they be oils of primary distillation or regenerated oils, should be the same as the rules applicable to Italian regenerated oils. This appears to explain the position taken up and developed by the Commission during the oral procedure, namely that the Italian Government, in order to comply with Article 95, should abolish the tax advantage accruing to Italian regenerated oils rather than extend that advantage to regenerated oils imported from the other Member States.

COMMISSION v ITALY

rendered nugatory by the introduction of internal taxation discriminating against imported products in comparison with domestic products — implements a fundamental principle of the Common Market. Consequently the disparities prohibited by it must be eliminated in spite of the difficult problems of comparison which may arise when assimilating the imported product to the various domestic products (which are subject to different taxes) and to which it may have some similarity.

i6 Although the first paragraph of Article 95 therefore places Member- States under an obligation to extend the tax advantages accruing to domestic products to similar products imported from the other Member States as well provided that the latter products satisfy the conditions to which a reduced rate or an exemption have been made subject, it does not however, impose upon the Member States the duty to abolish as regards internall taxes on domestic products differences which are objectively justified and which may be introduced by domestic legislation unless such abolition is the only way of avoiding direct or indirect discrimination against the imported products.

i7 It is also necessary to reject the Commission's argument that the abolition of the tax advantages at issue is the only way of applying the first paragraph of Article 95 of the Treaty correctly, having regard to the fact that the above- mentioned Council Directive N o 75/439/EEC provides that undertakings which collect, dispose of or regenerate waste oils must have a licence and may be granted indemnities by the authorities of the Member States for the service rendered, provided that these indemnities are not such as to cause "any significant distortion of competition or to give rise to artificial patterns of trade in the products".

2i The first argument cannot be accepted as justification of the alleged differential treatment. It is for the importers of mineral oils from the other Member States who wish to qualify for the reduced rate to produce evidence that the oils imported by them into Italy are regenerated oils and the Italian administration, without being able nonetheless to set a higher standard of proof than is necessary, is entitled to require in particular that the evidence be adduced in a form that removes the risk of tax evasion, for example by producing certificates from the authorities or other appropriate bodies of the exporting Member State permitting the regenerated oil to be identified as from the premises where it was regenerated. The practice in the Community, especially in relation to the discontinuance of public health inspections at the frontiers between Member States, offers numerous examples of such forms of permissible inspection.

22 The foregoing considerations also answer the Commission's argument that the alleged infringement of the first paragraph of Article 95 can be remedied only by abolishing the reduced rate on a national level. The Italian Republic

COMMISSION v ITALY

has the choice between abolishing the reduced rate and retaining it provided only that, if it opts for the latter solution, it must allow regenerated oils from the other Member States, in respect of which evidence of regeneration has been produced, to benefit from the same reduced rate so as to avoid any form of discrimination between the imported product and the similar domestic product.

JUDGMENT OF 8. 1. 1980 — CASE 21/79

takings in question or to allow regenerated oils to benefit from more favourable tax treatment, or even to combine the two systems. Nevertheless, if in the exercise of their discretion in this field they opt for a system of lower internal taxation, they must accept the consequences of that choice and ensure that the system chosen complies with the fundamental principle laid down in Article 95 of the EEC Treaty that there must be no tax dis- crimination against imported products.

27 It follows from the foregoing considerations that by maintaining, pursuant to Law N o 1852 of 31 December 1962 modifying the tax system applicable to petroleum products, different rates for the imposta di fabbricazione [internal production tax] on regenerated mineral oils produced in Italy and for the sovraimposta di confine [frontier surcharge] on regenerated oils from other Member States, the Italian Republic has failed to fulfil its obligations under the first paragraph of Article 95 of the EEC Treaty.

Costs

28 Under Article 69 (3) of the Rules of Procedure the Court may order that the parties bear their own costs.

29 In the view of the Court, having regard to the uncertainty during both the administrative proceedings and the proceedings before the Court as to the real scope of the complaints made by the Commission, the parties should bear their own costs.

2. Orders the parties to bear their own costs.

Kutscher O'Keeffe Touffait Mertens de Wilmars Pescatore

Mackenzie Stuart Bosco Koopmans Due

Delivered in open court in Luxembourg on 8 January 1980.

A. Van Houtte H. Kutscher Registrar President

O P I N I O N OF MR ADVOCATE GENERAL MAYRAS DELIVERED O N 15 NOVEMBER 1979 *