C-50/80

In Case 50/80

REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht [Finance Court] Hamburg for a preliminary ruling in the action pending before that court between

JOSZEF HORVATH, Hamburg,

and

1 — Language of the Case: German.

JUDGMENT OF 5. 2. 1981 — CASE 50/80

JUDGMENT

Facts and Issues

The facts of the case, the course of July 1977 Joszef Horvath, the plaintiff in the procedure and the observations the main action, was sentenced to five submitted pursuant to Article 20 of the years' imprisonment for dealing in drugs Protocol on the Statute of the Court of in substantial quantities and evading tax Justice of the EEC may be summarized by means of smuggling. as follows:

I — Facts and written procedure According to the findings of the Land- 1. By a final judgment of the Land- gericht, Mr Horváth, who resides in gericht [Regional Court] Hamburg of 18 Hamburg, bought in Amsterdam on

HORVÁTH v HAUPTZOLLAMT HAMBURG-JONAS

JUDGMENT OF 5. 2. 1981 — CASE 50/80

In the grounds of the order No 803/68?" making the reference it explains the different views and practices on this 3. According to the grounds of the point in the Federal Republic of order making the reference the Finanz- Germany. gericht is of the opinion that Community The Finanzgericht Hamburg is of the law contains no provisions dealing with opinion that the provisions of Regu- the question whether in cases of lations (EEC) Nos 803/68 and 603/72 smuggled goods there is any liability to and of Regulations Nos 375/69 and pay customs duty and, if so, who is 1343/75 are applicable to the extent to

time. This occurs in particular when the normal price at the stage of the first imported goods are not presented to presumed buyer resident in the the competent customs authorities. Community must be determined, if According to Article 57 (2) of the necessary by estimation. Zollgesetz, a person liable to pay customs duty includes any person who : The decisive time to take into consideration in order to determine the — for the first time withholds goods "normal price" at the place of entry into subject to customs control from such the customs territory of the Community control; or is the date at which the liability to — takes delivery of or acquires goods customs duty arises under national law. after the liability to pay customs duty Having regard to the fact that heroin is has arisen but before it has been disposed of rapidly it may be supposed discharged and knows or ought to that in this case the situation at the date know that the goods in question are when the heroin was imported into the subject to customs control. Federal Republic of Germany had not

The Finanzgericht 4. The Finanzgericht then points out has in earlier decisions taken a price for that the questions have been submitted heroin of DM 60 per gram.

As against that, according to a recent Office, Cologne], which are based on judgment of the Finanzgericht information from the Bundeskriminalamt Rheinland-Pfalz, the "normal price" to [Federal Criminal Investigation Office]. be taken as the criterion for value for customs purposes is to be determined The Finanzgericht states that, although with reference to the black-market price the customs authorities have used values at the place of introduction into the for customs purposes ranging from DM Federal Republic of Germany. This 80 to DM 300 per gram for heroin and would be the price which the smuggler from DM 2.25 to DM 3.50 per gram for paid abroad, in this case in Amsterdam. hashish, it has itself valued hashish for customs purposes at between DM 625 When the German customs authorities per kilogram and DM 0.85 per gram. determine the value for customs purposes of goods such as those in this case they usualy take the price which the person 5. The order making the reference was liable to pay customs duty paid his registered at the Court Registry on suppliers. This practice has resulted in 6 February 1980. the value for customs purposes varying considerably according to whether it is a question of the ultimate consumer, who Pursuant to Article 20 of the Protocol on pays the top price, or of a small or large- the Statute of the Court of Justice of the scale dealer. EEC written observations were submitted by the Commission of the European Communities, represented by Manfred The administration finds that it has no Beschel, a member of its Legal choice but to accept this view in cases Department, acting as Agent. where the person liable to pay the duty cannot supply any particulars of the price paid by the previous buyer. By virtue of In view of the information given in the Article 21 of the Allgemeine Zollordnung order malting the reference on the [General Customs Order] the price paid practice of the customs authorities and by the previous buyer can be taken as a certain judgments in the Federal criterion only if the previous buyer Republic of Germany concerning the himself supplies the necessary particulars. assessment of the value for customs Where goods have passed through purposes of smuggled goods, the Court several hands on Community territory requested the Commission to furnish it only the price paid by the subsequent with particulars of the existence and buyer must therefore be taken and this scope of such practices and decisions in rules out an estimated price. the other Member States.

criminal law are applied. This According to the grounds of the order of explains the absence of any national 8 July 1980 the national court is inclined case-law relating to the problem to the view that it is incompatible with raised in this case; the fundamental idea of the customs union for one Member State to charge, in accordance with the provisions of its (b) in France and Belgium drugs which domestic law, customs duty on illegally have been seized are by way of imported drugs which have been sub- exception sold to the pharmaceutical sequently destroyed when the other industry. In the case of those goods Member States merely prosecute persons the value for customs purposes is responsible for the illegal importation of calculated on the basis of the drugs under the criminal law. purchase price paid by that industry. That price is much lower than the In any case it is pointless to charge black-market price. There is no customs duty on unlawfully imported case-law bearing on this particular goods which are subsequently destroyed case. when, as is well known, only a fraction of the amount of customs duty charged can be recovered because the person 6. After this information had been liable to pay such duty has no significant supplied to it the Finanzgericht assets. Hamburg, by an order of 8 July 1980, supplemented and amended the questions 7. The new order making the reference referred to the Court for a preliminary was registered at the Court Registry on ruling by its order of 15 January 1980 by 11 July 1980. the following additional paragraphs : Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the " 1 . Are the provisions of the EEC EEC written observations were submitted Treaty on the customs union (Article by the Commission of the European 9 (1) and Articles 12 to 29) to be Communities, represented by Manfred interpreted as meaning that a Beschel, a member of its Legal Member State is not entitled to Department, acting as Agent. charge customs duty on unlawfully imported drugs which have sub- Upon hearing the report of the Judge- sequently been destroyed when all Rapporteur and the views of the the other Member States do not Advocate General the Court decided to charge customs duty on drugs which open the oral procedure without any have been unlawfully imported but preparatory inquiry. seized and destroyed? Might the charging of customs duty in one Member State alone also infringe Article 7 of the EEC Treaty? II — S u m m a r y of w r i t t e n o b s e r - v a t i o n s s u b m i t t e d to the Court 2. The questions previously referred to the Court in the order of 15 January 1980 are raised only in the event of Questions submitted by the order of the Federal Republic of Germany 15 January 1980 being entitled to charge customs duty on drugs which have been In regard to the first question, the smuggled in and destroyed." Commission observes at the outset that

when the Community legislature adopted Consequently the Commission is of the Community provisions on value for opinion that the provisions relating to customs purposes it had in mind value for customs purposes cannot be primarily imports resulting from normal applied in so far as the latter is more commercial transactions. On this point it especially linked to normal customs draws attention to Article 5 (a) of Regu- treatment. lation No 803/68 which mentions "goods declared for direct home use" and to Article 1 of Regulation No Subject to this reservation the first 375/69 which presupposes that importers question may be answered in the affirm- participate actively in the normal ative. procedure for determining value for customs purposes. It is not easy to fulfil such conditions when the goods in The Commission points out that the aim question have been smuggled in. of the second question, which presupposes an affirmative answer to the first, is to clarify the area in which Community However, the Commission shares the provisions and German law impinge on prevailing opinion of the German one another, as mentioned by the academic lawyers and practitioners that Finanzgericht concerning the factors of the Community provisions on value for time and place to be taken into customs purposes, at least in principle, consideration in order to determine value also apply to smuggled goods (cf. the for customs purposes according to the case-law quoted by the court malung the principle of the "normal price" (Article 1 reference and Zepf, Wertverzollung" (1) of Regulation No 803/68). 3. Auflage, 18. Ergänzungslieferung, February 1979, Anmerkung A 1 zu Par. 57, 58 des deutschen Zollgesetzes). As far as concerns the time to be taken the Community provisions have this in common, that their application In this respect the Commission stresses presupposes that the goods in question that the purpose of Regulation No are lawfully cleared through customs. 803/68 is to provide objective and The same applies not only to the general uniform criteria for determining value rules set out in Articles 1 (1) and 5 of for customs purposes with a view to Regulation No 803/68 but also to the applying the Common Customs Tariff. special provisions of Article 10 of the In order to apply the regulations on same regulation and the implementing value for customs purposes it is therefore measures based on that article. necessary and sufficient for the goods in question to be included in the nomenclature of the Common Customs Since in this case the requirement of a Tariff. In this respect it is immaterial that lawful clearance is not fulfilled trade in the product in question is subject Community rules determining the to restrictions or absolutely prohibited decisive time for fixing the value for under domestic law. Pure heroin in fact customs purposes cannot be applied. falls within tariff heading 29.42 A II.

1968 (II), p. 416) does not cover illegal It follows that, if the price paid for imports into Community territory. That smuggled goods is compared with their subject was not covered until later by "normal price" on the black market of a Council Directive 79/623/EEC of 25 non-member country, the latter may be June 1979 on the harmonization of used as a basis for determining value for provisions laid down by law, regulation customs purposes, it being understood or administrative action relating to that transport costs have to be included customs debt (Official Journal 1979, in that price in accordance with the L 179, p. 31). However, this latter applicable Community provisions. directive is subsequent to the facts of this case and only reveals the existence of a lacuna in the legislation (cf. the fourth As far as concerns the third question recital) at the time when the illegal submitted by the Finanzgericht the imports in question were effected in this Commission considers that Regulations case. Nos 375/69 and 1343/75 which lay down provisions governing the procedure for furnishing the customs authorities with information and which In these circumstances, as far as concerns presuppose that the importer takes the the time to be taken for determining initiative cannot apply directly to cases value for customs purposes, Community such as this. law does not preclude a solution based on German domestic law. However, it points out that the customs authorities may invoke Article 14a of The Commission then gives an account Regulation No 803/68 in order to of the provisions set forth in Articles 1 require from any subsequent purchaser (2), 6, 7 and 8 of Regulation No 803/68 having his place of, business on which refer to the "place" to be taken Community territory other than the first for determining value for customs purchaser, found in possession of purposes. smuggled goods, the information necessary for determining value for customs purposes. It is for the responsible customs authorities to decide It emphasizes that the Community whether the price paid by that sub- legislature has not taken "the place of sequent purchaser may be regarded as introduction into the customs territory of the "normal price" within the meaning the Community" as the decisive criterion of Regulation No 803/68. as such. In fact the place of introduction serves mainly as a reference point for apportioning delivery costs, that is to say more particularly for the purpose of The supplementary question referred to the calculating transport costs. This view is Court by the order of 8 July 1980 confirmed by the Customs Valuation Committee of Brussels and the Customs Co-operation Council. The Commission takes the view that the fresh question referred to the Court by the Finanzgericht must be answered in the negative. In any case whether the goods concerned have been imported in the proper manner or smuggled in is not a material As far as concerns the concept of the factor when interpreting the factor of "customs union" and especially its "place" to be taken into consideration. external aspect, the Commission points

The Commission states that with the exception of the Federal Republic of Germany the rules governing customs procedures in all the Member States are The matters which the Community primarily directed towards the Common legislature has so far regulated only Customs Tariff's function of protecting imperfectly include, in particular, illegal imports. In that field, as in that of trade. According to that concept, liability customs procedural requirements, to pay customs duty runs only from the national legal provisions apply to a large moment when goods from a non- extent. Thus Community criteria for member country are allowed into calculating when liability to pay customs commercial circulation in the customs duties arises did not exist prior to territory of the Community. Conse- Council Directive 79/623/EEC of 25 quently customs duty is not charged on June 1979. smuggled goods seized by the customs authorities if the goods are officially destroyed. Conversely smuggled goods are subject to customs duty in the same way as any other goods where they are introduced — after payment, if appro- priate, of a customs penalty — into But, in the opinion of the Commission, commercial circulation in the customs the issue in this case is the disparity in territory by the importer himself or by the customs treatment of smuggled the customs authority, if the goods are goods which have been seized and confiscated. destroyed in the Federal Republic of Germany, on the one hand, and in the other Member States, on the other hand, which stems from the fact that under the national provisions relating to the procedure for customs clearance liability to pay customs duty does not arise at the On the other hand German law on same time. customs procedures is directed more

towards the Common Customs Tariff's nationality of the smuggler nor the function as an instrument for raising origin of the smuggled goods have been public funds. Consequently the the cause of the unequal treatment. provisions of German law relating to Therefore the question referred to the liability to pay customs duty are based Court must be understood as being on a point of view prompted by formal concerned with the problem which, rules of fiscal law. According to that having regard to the general principle of view, liability to pay customs duty arises equality, is raised by the unequal at the moment when the goods to be treatment.

In principle the ultimate fate widely differing taxation of goods at the of the goods is not to be taken into external frontiers of the Community was consideration. Such a set of rules brings unacceptable and gave an interpretation out very clearly the independent nature of the relevant Community provisions in of rules of customs procedures. accordance with the Treaty and on the According to the Commission, both lines of equal treatment of all importers. types of procedural rules on the time But this dispute concerns a case in when liability to pay customs duty arises which, as a result of a lacuna in come within the framework of the Community law, national customs pro- Common Customs Tariff. Therefore, cedural requirements give rise to unequal having regard to the state of Community treatment in the different Member States. law at the time of the events giving rise However, given that a smuggler may not to this case, it is necessary to accept the plead that he is entitled to be tried under disparity in the customs treatment of the criminal law which, in customs smuggled goods which have been seized matters, is the least severe of the

customs debt. At the present time equality either. however the concept of a customs union, as defined in Article 9 and in related III — Oral procedure provisions of the Treaty, does not permit the conclusion that a Member State is At the sitting on 16 October 1980 required to refrain from charging the Commission of the European customs duty in cases such as the Communities, represented for the present. purpose of the oral procedure by As far as concerns the possible Manfred Beschel, a member of its Legal incompatibility of German practice with Department, acting as Agent, presented Article 7 of the Treaty, the Commission oral argument. points out first that in this case there is The Advocate General delivered his no question of any "discrimination on opinion at the sitting on 27 November grounds of nationality", since neither the 1980.

4 The main proceedings are concerned with determining the customs duty chargeable on a quantity of heroin purchased on the black market in Amsterdam and discovered when it was being taken across the Netherlands- German frontier. The heroin was seized and destroyed and the smuggler was sentenced by a German criminal court to five years' imprisonment for illegal dealing in heroin and smuggling. Subsequently the German customs auth- orities claimed payment from him of the sum of DM 1 296 by way of customs duty on the smuggled goods.

5 In its first order of 15 January 1980 the Finanzgericht referred to German legislation, case-law and administrative practice relating to the determination

JUDGMENT OF 5. 2. 1981 — CASE 50/80

of value for customs purposes of smuggled imported drugs, especially in regard to the time when liability to pay customs duty arises. It questioned whether, and if so, to what extent, Community regulations on the deter- mination of value for customs purposes, in particular Regulation No 803/68 of the Council of 27 June 1968 on the valuation of goods for customs purposes (Official Journal, English Special Edition 1968 (I), p. 170), apply.

6 In its second order of 8 July 1980 the Finanzgericht reacted to the infor- mation which the Commission had supplied to the Court at its request and which was to the effect that in the eight Member States other than the Federal Republic of Germany illegally imported drugs are seized and, as a rule, immediately destroyed without any customs duty being charged. However, in some Member States drugs which have been seized are occasionally sold to the pharmaceutical industry at a price corresponding to that which the industry usually pays for the drug in question; in such a case the value for customs purposes is calculated on that price.

11 Although in these circumstances the Common Customs Tariff includes such a product amongst its classifications for the purpose of fixing the applicable rate of customs duty — 13.6% in the case of subheading 29.42 A II — it can only apply to imports of the product which are intended for an authorized use. Indeed, ad valorem customs duty cannot be determined for goods which are of such a kind that they may not be put into circulation in any Member State but must on the contrary be seized and taken out of circulation by the competent authorities as soon as they are discovered.

1 2 It should be noted in this connexion that all the provisions of Regulation (EEC) No 803/68 of the Council on the valuation of goods for customs purposes are based on the assumption that the imported goods are capable of being put on the market and absorbed into commercial circulation.

13 Furthermore, since Article 18 of the EEC Treaty indicates that the setting-up of the Common Customs Tariff is seen as a contribution to the development of international trade and the lowering of barriers to trade, it cannot relate to the importation of narcotics which are intended for unlawful use and are withdrawn from circulation as soon as they are discovered.

1 4 This interpretation of the Common Customs Tariff is confirmed by the practice followed by the customs authorities of eight Member States. The same conception also underlies Articles 10 and 11 of Council Regulation No 1430/79 of 2 July 1979 on the repayment or remission of import or

JUDGMENT OF 5. 2. 1981 — CASE 50/80

THE COURT (First Chamber),

in answer to the questions referred to it by the Finanzgericht Hamburg by orders of 15 January and 8 July 1980, hereby rules:

The introduction o£ the Common Customs Tariff no longer leaves a Member State the power to apply customs duties to drugs which have been smuggled in and destroyed as soon as they v/ere discovered but does

HORVÁTH v HAUPTZOLLAMT HAMBURG-JONAS

leave it full freedom to take criminal proceedings in respect of offences committed, with all the attendant consequences, including fines.

Koopmans O'Keeffe Bosco