C-41/82

JUDGMENT OF THE COURT 7 DECEMBER 1982 '

Commission of the European Communities v Italian Republic (Failure of a State to fulfil an obligation — Directive on the excise duty on manufactured tobacco)

Case 41/82

Member States — Obligations — Implementation of directives — Failure to fulfil — Justification based on internal legal system — Not possible (EEC Treaty, Arts 169 and 189, third paragraph)

A Member Sute may not plead order to justify a failure to comply with provisions, practices or circumstances obligations and time-limits resulting from existing in its internal legal system in Community directives.

In Case 41/82

Advocate General : Sir Gordon Slynn Registrar: P. Heim

gives the following:

JUDGMENT

Facts and Issues

The facts of the case, the course of order progressively to eliminate from the the procedure and the conclusions, various national systems those factors submissions and arguments of the parties which are likely to hinder free movement may be summarized as follows: and distort the conditions of com­ petition, whether at national level or at Community level. I — Facts and written procedure To attain those objectives, the As is stated in the third recital in the Community legislature created a system preamble thereto, the aim of Council which provides for a degression in the Directive 72/464 is the harmonization of incidence of the tax and which, for the the tax structures affecting the tax affecting the consumption of consumption of manufactured tobacco in cigarettes (excise duty), consists of a

COMMISSION » ITALY

The entry into force of Directive 77/805 Article 8 of the above-mentioned marked the beginning of the second directive required Member States to fix suge of harmonization, which involved the amount of the specific excise duty the reduction of the upper limit of the levied on cigarettes under common rules bracket and at the same time the incor- and for the first time by reference to poration of turnover tax into the basis cigarettes in the most popular price for calculating the excise duty. In Italy category according to the date available the percenuge of the specific component on 1 January 1973. in relation to the toul revenue from the tax fell from 3.96% to 2.36%, although Article 8 (2) provided that the amount the prescribed minimum remained at 5%. should not be lower than 5% or higher By letter of 11 February 1980, the than 75% of the aggregate amount of Commission again formally drew the the excise duty (the specific and pro- attention of the Iulian Republic to its portional ad valorem components) levied failure to observe the provisions of on those cigarettes. Directive 77/805. That letter received no reply from the Iulian Government.

application dated 22 January 1982 which date was 1 January 1973 (Article 8 (1)), was lodged at the Court Registry on 4 any change in one or more of the February 1982. components in the system necessiutes a re-adjustment of the ratio between the various components so as to ensure that Upon hearing the report of the Judge- the minimum and maximum percentages Rapporteur and the views of the are adhered to. In particular, as the Advocate General, the Court decided to proportional component of the excise open the oral procedure without any duty is expressed as a percenuge, any preparatory inquiry. increase in the price of cigarettes causes that component to increase, with the result that, if the specific component is not re-adjusted, it may fall below the II — Conclusions of the parties minimum of 5% of the toul excise duty, as occurred in Iuly. The Commission claims that the Court should: The Iulian authorities sought to interpret Article 8(3) of Directive 74/464 erroneously to the effect that it (a) declare that, by not adopting the esublished machinery for adjusting the provisions necessary to comply with proportions of the tax components only Council Directives 72/464 and when the rates were altered, thus 77/805 on taxes other than turnover excluding any obligation to make any re- taxes which affect the consumption adjustment when the price was changed. of manufactured tobacco, the Iulian Republic has failed to fulfil its This interpreution is unacceptable. In obligations.under the Treaty; the first place, the wording of Article 8 (3) does not impose any limitation (b) Order the Iulian Republic to pay the regarding the circumstances in which a costs. re-adjustment is necessary. A change in the toul amount of the excise duty may result from a variation in the rates of ux The Government of the Italian Republic but it may equally result from a variation did not put forward any conclusions. in the basis of calculation and therefore from a variation of prices. In any case, if the view put forward by Iuly were accepted, the directive would become III — Submissions and argu- meaningless as its practical effect would ments of the parties be negated merely by variations of prices.

Secondly, Anicie 10 (b) (1), which was has already been approved by the inserted in Directive 72/464 by Directive Commissione Affari Costituzionali 77/805, clearly sutes that: [Constitutional Affairs Committee] and by the Commissione Bilancio [Budget Committee] of the Chamber of Deputies 'The amount of the specific excise duty and is at present being examined in the on cigarettes shall be established by Commissione Finanze e Tesoro [Finance reference to cigarettes in the most and Treasury Committee]. popular price category according to the information available at 1 January each year, beginning 1 January 1978." The Iulian Government expresses the hope that the legislative process will be completed very soon, so that this action This means that each Member Sute is will become devoid of purpose. under a duty as from 1 January of each year to review its calculations and, if The Commission sutes in its reply that necessary to change the amount of the the draft law which was presented to specific component of the excise duty, Parliament on 16 May 1980 has not yet which Italy has yet to do. been adopted and that the Iulian Government gives no indication as to the expected duration of the legislative In reply the Italian Government sutes process. that, in order to ensure that the internal provisions conform fully to the directive in question, it presented ,a draft law to In its rejoinder, the Iulian Government Parliament on 2 November 1978. declares that it is unable to estimate with However, that draft law was not sub- any certainty the duration of that sequently adopted as a result of the early process. dissolution on Parliament.

2 The aim of Council Directive 72/464 is the harmonization of the tax structures affecting the consumption of manufactured tobacco in order progressively to eliminate from the various national systems those factors which are likely to hinder free movement and distort the conditions of competition. To accomplish this, the Community legislature created a system which provides for a degression in the incidence of the tax and which, for the tax affecting the consumption of cigarettes (excise duty), consists of a proportional excise duty combined with a specific excise duty, the amount of which is fixed by each Member State in accordance with Community criteria. Under Article 4 of the directive the proportional excise duty is to be calculated on the maximum retail selling price, including customs duties, whilst the specific excise duty is calculated per unit of the product. The rate of the proportional excise duty and the amount of the specifc excise duty must be the same for all cigarettes.

3 Article 8 of the above-mentioned directive requires Member States to fix the amount of the specific excise duty levied on the cigarettes under common rules and for the first time by reference to cigarettes in the most popular price category according to the data available on 1 January 1973. Article 8 (2) provides that the amount must not be lower than 5% or higher than 75% of the aggregate amount of the excise duty (the specific and pro- portional ad valorem components) levied on those cigarettes.

t Article 12 of the directive provides that the Member States are to bring into force the provisions laid down by law, regulation or administrative action necessary to comply with the provisions of the directive not later than 1 July 1973 and are to inform the Commission immediately that they have done so.

9 Paragraph (2) of the same article provides that the specific component of the excise duty may not be less than 5% or more than 55% of the amount of the

JUDGMENT OF 7. 12. 19Í2 — CASE 41/82

total tax burden resulting from the aggregation of the proportional excise duty, the specific excise duty and the turnover tax levied on those cigarettes.

10 This produced the result that in Italy the percentage of the specific component in relation to the total revenue from the tax fell from 3.96% to 2.36%.

1 1 By telex message of 23 October 1978, the Italian Government informed the Commission that the draft law implementing the second phase of harmon- ization envisaged in Directive 77/805 had been approved by the Consiglio dei Ministri [Italian Council of Ministers] and was before Parliament. It stated that that measure also provided "a solution to the problem raised by the Commission in its letter No 7295 of 8 July 1977 concerning calculation of the ratio between the specific component and the ad valorem component of the tax".

12 As the draft law was not subsequently adopted by Parliament, the Commission, by letter of 11 February 1980, again gave the Iulian Government an opportunity to submit its observations. That letter received no reply.

Costs

17 Under Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs.

18 Since the defendant has failed in its submissions, it must be ordered to pay the costs.

On those grounds

THE COURT

hereby:

Delivered in open court in Luxembourg on 7 December 1982.

P. Heim J. Mertens de Wilmars Registrar President

OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN DELRŒRED ON 17 NOVEMBER 1982

My Lords, excise duty on manufactured tobacco in several suges.

This is an application by the Com- mission, pursuant to Article 169 of the The Member States, other than the EEC Treaty, for a declaration that the United Kingdom and Ireland, were to Republic of Italy has failed to fulfil its have implemented the former by 1 July obligations under the Treaty in that it 1973, but in 1977 the Commission has not adopted the measures which observed, in a letter to the Italian are necessary to implement Council Government, that Article 8 of the Directive 72/464 of 19 December 1972 directive was not being complied with. (OJ L 303, 31. 12. 1972, p. 1), as That article required that the amount of amended by Council Directive 77/805 of the specific excise duty levied on 19 December 1977 (OJ L 338, 28. 12. cigarettes should be established for the 1977, p. 22). These measures provide for first time by reference to cigarettes in the the harmonization of the structure of the most popular price category according to