C-46/80

S P A ORBAT, having its registered office in Milan,

on the interpretation of Article 95 of the EEC Treaty in relation to Italian legislation concerning a special revenue charge on denatured alcohol,

THE COURT

composed of: P. Pescatore, President of the Second Chamber, Acting as President, T. Koopmans (President of the First Chamber), Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco, A. Touffait and O. Due, Judges,

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

gives the following

The facts of the case, the course of should take delivery of the goods and the procedure and the observations make payment of the price including the submitted pursuant to Article 20 of the special revenue charge of LIT 12 000 per Protocol on the Statute of the Court of hectolitre of pure alcohol and value- Justice of the EEC may be summarized added tax. as follows: At the hearing on 29 January 1980 Orbat did not dispute that the basic price of LIT 50 000 per hectolitre of pure alcohol I — Facts and written p r o c e d u r e was payable, together with the value- added tax; however, it maintained that payment of the special revenue charge On 5 January 1980 SpA Vinal, which has was not due since, in its opinion, it was its registered office at Casteggio, Pavia, incompatible with the prohibition of addressed to SpA Orbat, which has its discrimination in taxation contained in registered office in Milan, a “note Article 95 of the EEC Treaty. confirming sale” following a verbal order for 10 hectolitres of pure denatured On 30 January 1980 the Pretura, synthetic alcohol imported from another Casteggio, made an order under Article Member State of the EEC. The selling 177 of the EEC Treaty whereby it stayed price was LIT 62 000 per hectolitre. the proceedings until the Court of Justice has given a preliminary ruling on the By a letter of 9 January 1980 Orbat following questions: challenged the price since it included, in its opinion wrongly, the special revenue (a) Must the first paragraph of Article charge on denatured ethyl alcohol 95 of the Treaty of Rome be created by Decree-Law N o 1200 of 6 interpreted as meaning that two October 1948 (Gazzetta Ufficiale [Italian products derived from different raw Official Journal] N o 233 of 6 October materials but capable of being put to 1948) as amended by Decree-Law No the same uses and having the same 836 of 16 September 1955 (Gazzetta practical application must be Ufficiale No 215 of 17 September 1955) considered to be “similar”? and fixed at LIT 12 000 per hectolitre of pure alcohol by Article 3 of Law N o 506 (b) If the reply to Question 1 is in the of 18 August 1978, amending the tax affirmative: arrangements for alcohol (Gazzetta Must the first paragraph of Article Ufficiale N o 247 of 4 September 1978). 95 of the Treaty of Rome be interpreted as meaning that it must By a writ which was served on 16 and be considered to be prohibited to 21 January 1980 Vinal instituted impose charges which, whilst proceedings against Orbat in the Pretura, appearing to place an identical Casteggio, for an order to implement the burden on the Community product contract concluded between the parties and the similar domestic product, in and in particular an order that Orbat fact amount to discrimination in tax

matters to the detriment of similar of questions before the opening of the products from other Member States oral procedure; that request was duly in that the products subject to complied with. heavier taxation are exclusively imported and the products subject to lighter taxation are principally domestic? II — W r i t t e n o b s e r v a t i o n s sub- mitted to the Court (c) If the reply to either of the foregoing questions is in the negative: SpA Vinal, the plaintiff in the main Must the second paragraph of Article action, considers that the imposition of 95 be interpreted, in relation to the the special revenue charge on denatured facts of this case, as meaning that ethyl alcohol does not entail any tax that provision prohibits the discrimination. imposition of heavier taxation on a product which principally comes The alleged discrimination in relation to from other Member States, thereby the origin of the products affording protection to competing national production? (a) The same special revenue charge, amounting to LIT 12 000 per hectolitre of pure alcohol is payable on denatured The order of the Pretura of Casteggio synthetic alcohol whether it is of Italian was received at the Court Registry on or foreign origin; likewise, denatured 4 February 1980. alcohol obtained by fermentation, whether it is of Italian or Community In accordance with Article 20 of the origin, is liable to the same revenue Protocol on the Statute of the Court of charge of LIT 1 000 per hectolitre of Justice of the EEC written observations pure alcohol. Thus no discrimination is were lodged on 2 April 1980 by to be discerned in the letter of the law. the Commission of the European Communities, represented by its Legal (b) There is likewise no discrimination Adviser, Antonino Abate, on 18 April by in fact. SpA Vinal, the plaintiff in the main action, represented by Giuseppe It is indeed the case that, for incidental Marchesini, of the Milan Bar, and on the reasons, the Italian industry markets little same date by the Government of the or no synthetic alcohol; this fact does Italian Republic, represented by Arnaldo not mean that the production of that Squillante, Head of Contentious type of alcohol by national undertakings Diplomatic Business, Treaties and is excluded either on technical or Legislative Matters at the Ministry for practical grounds. Foreign Affairs, acting as Agent, assisted by Marcello Conti, Avvocato dello Stato. Ethylene, which is the principal source of synthetic alcohol, is produced on a large The Court, having heard the report of scale in Italy and there is a well- the Judge-Rapporteur and the views of organized and efficient petro-chemical the Advocate General, decided to open industry. The preference for other the oral procedure without any products is based not on any technical or preparatory inquiry. However, it objective impossibility but on a choice requested SpA Vinal and the which may vary in accordance with time Commission to reply to a certain number and circumstances.

The Court of Justice in its decisions particular, according to the judgment of precisely in the sphere of competition 9 January 1980 (Case 21/79 Commission and intra-Community trade has properly v Italian Republic [1980] ECR 1: taken account of potential market regenerated petroleum products), the situations. first paragraph of Article 95 places Member States under an obligation to extend the tax advantages accruing to Furthermore, denatured synthetic al- domestic products to similar products cohol produced in the Community is in imported from the other Member States fact in demand in and imported into as well provided that the latter products Italy. satisfy the conditions to which a reduced rate or an exemption have been made There is no truth in the statement that subject, but it does not impose upon the foreign alcohol obtained by fermentation Member States the duty to abolish as does not qualify for the same tax regards internal taxes on domestic treatment as Italian alcohol, purely products differences which are because in practice it is technically objectively justified and which may be impossible to verify whether the foreign introduced by domestic legislation. product originated through fermentation or synthesis when it is submitted as a That case-law confirms that the finished product to the competent Italian contested revenue charge, which is officials. Article 20 of Decree-Law N o applied solely on the basis of the 46 of 18 March 1976 (Gazzetta Ufficiale objective verification of the raw material N o 73 of 18 March 1976), which became used, is a neutral charge. Qualification Law N o 249 of 10 May 1976 (Gazzetta for the reduced revenue charge is linked Ufficiale No 129 of 17 May 1976), to an objective condition which can be implemented by the Ministerial Decree fulfilled by both Italian and Community of 24 August 1977 (Gazzetta Ufficiale producers. No 243 of 7 September 1977), states that a certificate of origin issued by the State of origin has probative value. (b) In this case there is a specific justi- fication for the difference in tax treatment. It is in no way intended to penalize Community products but is The alleged discrimination with regard to aimed at providing an incentive for the raw materials used products which deserve particular protection and is in line with the (a) The reduction in the revenue requirement which today is of ever-in- charge is not granted on the basis of the creasing moment, namely a reduction in the consumption of petroleum products. "national" origin of the products, the sole circumstance which could be contrary to Article 95, but on the basis The purpose of the tax advantage in of objective conditions which apply dispute is to ensure that agricultural without distinction to Italian and producers of the raw materials used in Community products. this sphere (wine, fruit, beet and sorghum) have an adequate level of employment and income and that agri- The case-law of the Court indicates that Article 95 does not restrict the power of cultural distilleries can survive. each Member State to establish the tax arrangements which it considers most Furthermore, it is intended to restrict in appropriate for each product; in the general interest the use of ethylene in

The admissibility of the request for a pre- In Italy the taxation of synthetic alcohol liminary ruling is not governed by special provisions but comes within a general system which applies the same rate to an unspecified series of products without giving rise A clear alternative is unavoidable: either to unlawful discrimination between the agreement concluded between Vinal domestic and imported products. and Orbat for the supply of alcohol produced solely by synthesis (to the exclusion of denatured alcohol obtained by fermentation) is well-founded and is (b) Taken as a whole, the Italian in fact in accordance with the genuine arrangements for the taxation of interests of the purchaser; that finding is denatured alcohol do not entail any the clearest possible contradiction of the violation of the principles laid down by statement contained in the order making Article 95 of the EEC Treaty, even if it the reference to the effect that the two is conceded for the sake of argument types of product are identical or similar that all kinds of denatured ethyl alcohol in nature, and indeed deprives that order are identical or at least similar. of all meaning; or the agreement merely constitutes an expedient devised in order to call in question before the Court of The case-law of the Court of Justice Justice, on the flimsy basis of a case shows clearly that Article 95 of the which in fact constitutes a friendly suit, Treaty does not limit the power of each the Italian tax arrangements concerning Member State to lay down the system of denatured alcohol. The case-law of the taxation which it considers the most Court of Justice, in particular the appropriate for each product, that judgment of 11 March 1980 (Case Community law does not prohibit the 104/79 Foglia), shows clearly that this Member States from granting tax request is inadmissible. advantages in the form of exemptions

t ypes of alcohol or for certain categories the possibilities laid down for the producers and that the Treaty does corresponding domestic product. That not prohibit in relation to domestic tax argument cannot be upheld; it would legislation the imposition of different entail in practice the complete negation taxation on products which may have the of the Member States' independence in same economic uses. There is nothing to matters of taxation since the latter would prevent the Member States from creating amount to the absurd power to create tax arrangements based on differentiated adverse discrimination at the sole taxation of the same product on the basis expense of given domestic products. of objective factors which distinguish different situations, in particular on the basis of the raw materials used. It is differentiated taxation of a discrimi- natory or protective nature which is (d) The provisions of Article 95 must prohibited. be related to the tax categories in fact created by each national legal system; it is thus necessary to make a separate finding that the principle of non-dis- crimination has been observed for each of such tax categories and not to make (c) Tax arrangements according inappropriate comparisons between different treatment to the same product products belonging to different cate- or to similar products may be declared gories. The treatment allotted to each incompatible with Article 95 only in two group of products, determined ob- cases: that of failure to apply the jectively, must be applied both to arrangements for each of the subcate- domestic and to imported products; that gories fixed by national law to products uniformity of treatment is present in all imported from other Member States its aspects in the Italian legislation on which fulfil the objective requirements denatured ethyl alcohol: no discrim- for classification in the subcategory in ination exists between domestic and question; and that of unlawful discrimi- imported products in any of the three nation in the abstract determination of groups into which the kinds of alcohol tax subcategories so that a group of are divided. products liable to a given tax is distinguished not in terms of objective features discernible in both domestic and imported products but of characteristics which are related more or less explicitly to their provenance. Neither of those According to the case-law of the Court cases obtains within the framework of importers who wish to claim a reduced the Italian tax arrangements for rate which is provided for a cor- denatured alcohol. responding domestic product must prove that the imported product displays the necessary characteristics; the Italian legislation provides for alcohol imported from other Member States the same treatment as for corresponding domestic For a system of differentiated taxation products, provided that it is stated on a applicable to the same product to be in special certificate, recognized as valid by accordance with Article 95 it is not the Italian authorities, that the manu- necessary that the imported product facture and characteristics of the should invariably receive the most imported products with regard in

particular to the raw materials employed Since Article 95 does not restrict the wholly conform to those which qualify independence of the Member States in the domestic products for exemptions matters of taxation, they are entitled to from or reductions in taxation. apply different tax treatment to products which are or could be produced domestically and which may be considered as identical or similar; in that case the differentiated taxation essentially forms an obstacle to any domestic production; it does not give rise to any problem of equality of treatment (e) The Italian tax arrangements for denatured alcohol do not display with products from other countries of discriminatory characteristics either in the Community which, in endeavouring respect of the treatment reserved for to penetrate the Italian market, imported and domestic products within encounter the same obstacle as the various subcategories fixed by the tax corresponding domestic products and legislation or in respect of the actual not a greater or more difficult obstacle. determination and the diversification of those subcategories. In particular, no discrimination resides in the fact that the ordinary, unreduced, rate is applied to synthetic alcohol, which is not produced In Italy synthetic alcohol does not in significant quantities in Italy. qualify for reduced rates but is liable to the normal rate of LIT 12 000 per hectolitre of pure alcohol in order to ensure market conditions providing an adequate level of employment and income for the agricultural producers of specified raw materials, in particular wine, fruit, beet, sorghum and sugar Synthetic alcohol can be obtained easily cane, and the survival of agricultural in all industrialized countries and thus in distilleries. The Italian tax arrangements Italy also. Italy produces ethylene, the fall wholly within that class of differen- raw material from which synthetic tiated tax arrangements which are alcohol is obtained, on a large scale; it intended to guarantee the continuation possesses the industrial organization of given products, which arrangements necessary for the production of synthetic have been found fully lawful in the alcohol from ethylene, since the Italian case-law of the Court of Justice. petro-chemical industry is amongst the most advanced in the Community. There is no objective obstacle, whether natural or inherent in the existing industrial structure, which prevents the develop- Equal treatment for tax purposes of ment of synthetic alcohol production in synthetic alcohol and alcohol of agri- Italy. The fact that such development has cultural origin is also inappropriate for not hitherto taken place is merely due to economic and social reasons since the a lawful choice of economic policy, petrol crisis requires a drastic reduction reinforced also by tax mechanisms; the in consumption and careful choice as to absence of a consistent production of the use of resources. It would be illogical synthetic alcohol results from tax to pursue a tax policy favouring the arrangements which have been volun- production of alcohol from petroleum. It tarily and deliberately adopted. is entirely logical and proper for Italy to

decide to impose increasingly stringent the Court of Justice of 27 February 1980 limits on the use of ethylene for a (Case 170/80 Commission v United product such as alcohol which, even Kingdom) shows that it is impossible to from the point of view of energy conser- refrain from clarifying the tax- vation, may be obtained much more relationship which may be considered beneficially for the general public from appropriate as between products which other sources. That decision does not are in competition but which have entail any discrimination between different conditions of production.

The difference between the conditions of production leads, in the case of both (c) In the case under consideration an products, to price structures which are so infringement of Article 95 can exist completely different that despite any only if the sole objective in fixing competitive relationship between the differentiated rates is to present an finished products it is impossible to make obstacle to products which, for a direct and immediate comparison from objective reasons, it is impossible to the tax point of view. The judgment of produce on the national territory.

The Commission considers that in this extent or the exercise of the individual case the conditions laid down in Article right or the right to institute proceedings 177 of the EEC Treaty for referring enjoyed by traders who subsequently a case to the Court of Justice have participate in the production or been fulfilled and that the marketing process. Orbat is fully entitled Italian arrangements concerning the to exercise independently and special revenue charge are contrary to unconditionally the rights conferred Article 95. upon it by the Treaty; it has a genuine interest in prosecuting its claim and The procedural aspect of the case obtaining a preliminary ruling from the Court, upon which depends the (a) There in fact exists between the protection of the individual right parties to the main action a dispute as to conferred by Article 95 of the Treaty whether Vinal's claim to recover from and the certainty of avoiding the tax Orbat the amount of the special revenue discrimination inherent in the provisions charge paid at the time of the import- on the special revenue charge.

The revenue charge paid at the time of the national courts are obliged to deliver customs clearance of the goods it must rulings on all cases brought before them, be stated that Article 95 creates including those concerning "matters of individual rights for all citizens principle" which arise in disputes over regardless of the nature of their activity. matters of negligible economic Whoever enjoys an individual right also importance. Without the mechanism of has a right to institute proceedings, Article 177 the courts, in the per- which he exercises in complete formance of their duties, would be independence and at his entire discretion obliged to apply the provisions of every time he has an interest in obtaining Community law in accordance with protection for the individual right which criteria relevant to the interpretation of is threatened by the claims of another, national law; they would thus develop a whether a private person or a public varied case-law differing from State to

VINAL v ORBAT

JUDGMENT OF 14. 1. 1981 — CASE 46/80

Furthermore, in this case factors of an The reason for the difference in tax economic or social nature cannot be treatment is that in Italy the entire relied upon in order to justify the consumption of denatured ethyl alcohol reduced rate reserved for denatured (655 038 hectolitres of pure alcohol in alcohol obtained from beet molasses. 1977) is met by domestic alcohol, Such factors cannot justify the failure to obtained largely from beet molasses; on comply with Article 95 and the adoption the other hand, synthetic alcohol is not of any measures of support for the manufactured in Italy and importations production of beet or beet molasses now

VINAL v ORBAT

Decision

1 By an o r d e r of 30 J a n u a r y 1980 which was received at the C o u r t on 4 February 1980 the P r e t u r a Civile [Civil C o u r t ] , Casteggio, referred t o the C o u r t for a preliminary ruling u n d e r Article 177 of the E E C T r e a t y three questions o n the interpretation of Article 95 of the E E C T r e a t y in o r d e r t o m a k e it possible t o assess w h e t h e r the system of differential taxation applied by virtue of D e c r e e - L a w N o 1200 of 6 O c t o b e r 1948, as a m e n d e d by D e c r e e - L a w N o 836 of 16 September 1955, and Article 3 of L a w N o 506 of

JUDGMENT OF 14. 1. 1981 — CASE 46/80

18 August 1978 to denatured synthetic ethyl alcohol and denatured ethyl alcohol obtained by fermentation is compatible with the requirements of the Treaty.

2 These questions have been submitted in the context of civil proceedings concerning the performance of a contract concluded in January 1980 between the plaintiff in the main action, SpA Vinai, a producer and importer of alcohol, and SpA Orbat, relating to the supply of a consignment of denatured synthetic alcohol from France.

3 The order making the reference for a preliminary ruling shows that SpA Orbat, the defendant in the main action, does not dispute that it is bound to pay the agreed price but challenges the imposition in this case of the special revenue charge of LIT 12 000 per hectolitre of pure alcohol, stating that it is prepared to reimburse the plaintiff only the special charge of LIT 1 000 per hectolitre applicable to denatured alcohol obtained by fermentation. The defendant claims in fact that the levying of the said revenue charge of LIT 12 000 per hectolitre of denatured synthetic alcohol is unlawful by virtue of Article 95 of the EEC Treaty since it constitutes tax discrimination which is prohibited by that provision.

5 The Italian Government has put in issue the admissibility of the request for a preliminary ruling submitted by the Pretura, Casteggio. It raises the question whether the action brought before the national court is not really a fictitious dispute and whether the procedure under Article 177 has not been employed in this case to impeach the Italian State in the absence of any actual dispute giving rise to questions of Community law as between the parties. In these circumstances the Italian Government asks whether the situation should not be compared to that which formed the subject-matter of the judgment of the Court of 11 March 1980 in Case 104/79 Foglia v Novello [1980] ECR 745 in which the Court held that it had no jurisdiction to give a ruling on the questions put by the national court.

6 In view of that contention, which the Italian Government set out in its written observations, the Court requested the parties to supply it with additional information.

7 Having studied the replies given to those questions the Court considers that in this case it is possible to set aside the doubts expressed by the Italian Government and to broach the substance of the case.

Substance

8 It appears from the order making the reference for a preliminary ruling that the defendant in the main action contends that the Italian tax arrangements are incompatible with Article 95 of the Treaty in reliance on two facts. It is

JUDGMENT OF 14. 1. 1981 — CASE 46/80

9 That position is supported in principle by the Commission which has expressed the opinion that, despite the different origins of the two products in question — namely synthetic alcohol, which is derived in particular from petroleum, and alcohol obtained by fermentation, which is produced by distilling products of the soil (cereals, wine, fruit, potatoes, beet and molasses) — the two kinds of alcohol in question are chemically identical and fully interchangeable in their uses. There is thus not only similarity between these two products but actual identity in regard to the needs which the two products are called upon to fulfil. Furthermore, the two kinds of alcohol fall within the same tariff subheading, 22.08 A, under the description "denatured spirits (including ethyl alcohol and neutral spirits) of any strength". In the absence of production of synthetic alcohol in Italy, the difference in the rate of tax prescribed by Italian law for denatured synthetic alcohol on the one hand and denatured alcohol obtained by fermentation on the other has the result of preventing practically all imports of synthetic alcohol from other Member States and of directly favouring national production of alcohol by fermentation. The Commission thus considers that, being a product similar to denatured alcohol obtained by fermentation, denatured synthetic alcohol imported from other Member States should qualify for the same rate of tax as the former.

12 The arrangements challenged before the national court meet these requirements. In fact the different taxation of synthetic alcohol and of alcohol produced by fermentation in Italy is the result of an economic policy decision to favour the manufacture of alcohol from agricultural products and, correspondingly, to restrain the processing into alcohol of ethylene, a derivative of petroleum, in order to reserve that raw material for other more important economic uses. It accordingly constitutes a legitimate choice of economic policy to which effect is given by fiscal means. The implementation of that policy does not lead to any discrimination since although it results in discouraging imports of synthetic alcohol into Italy, it also has the consequence of hampering the development in Italy itself of production of alcohol from ethylene, that production being technically perfectly possible.

1 3 As the Court has stated on many occasions, particularly in the judgments cited by the Italian Government, in its present stage of development Community law does not restrict the freedom of each Member State to lay down tax arrangements which differentiate between certain products on the basis of objective criteria, such as the nature of the raw materials used or the production processes employed. Such differentiation is compatible with Community law if it pursues economic policy objectives which are themselves compatible with the requirements of the Treaty and its secondary law and if the detailed rules are such as to avoid any form of discrimination, direct or indirect, in regard to imports from other Member States or any form of protection of competing domestic products.

18 With regard to the third question the reply should be that where, by reason of the taxation of synthetic alcohol, it has been impossible to develop profit- able production of that type of alcohol on national territory, the application of such tax arrangements cannot be considered as constituting indirect protection of national production of alcohol obtained by fermentation within the meaning of the second paragraph of Article 95 on the sole ground that

VINAL v ORBAT

their consequence is that the product subject to the heavier taxation is in fact a product which is exclusively imported from other Member States of the Community.

Costs

19 The costs incurred by the Government of the Italian Republic and by the Commission of the European Communities, which have submitted obser- vations to the Court, are not recoverable. As the proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court the decision on costs is a matter for that court.

On those grounds,

Pescatore Koopmans Mackenzie Stuart

O'Keeffe Bosco Touffait Due

Delivered in open court in Luxembourg on 14 January 1981.

A. Van Houtte P. Pescatore Registrar President of the Second Chamber, Acting as President

OPINION OF MR ADVOCATE GENERAL REISCHL DELIVERED ON 11 NOVEMBER 1980 1

Mr President, LIT 62 000 per hectolitre of alcohol Members of the Court, together with value-added tax. That price included a special revenue charge The reference for a preliminary ruling on (diritto erariale speciale) which, in which I am today to give my opinion accordance with Article 3 of Law N o again concerns the interpretation of 506 of 18 August 1978 amending the tax Article 95 of the EEC Treaty in relation arrangements for alcohol (Gazzetta to differing internal taxation on alcoholic Ufficiale [Italian Official Journal] products. N o 247 of 4 September 1978), was fixed at LIT 12 000 per hectolitre of pure As SpA Vinaľs note confirming sale alcohol and was paid by Vinal on the shows, SpA Orbat, which has its importation of the goods in question. registered office in Milan, placed a verbal order with the former, which has When Orbat refused to pay the special its registered office in Casteggio, for 10 revenue charge, which in its view had hectolitres of pure denatured synthetic been unlawfully imposed, Vinal ethyl alcohol imported from another instituted proceedings before the Member State of the EEC at a price of Pretura, Casteggio, calling upon the