C-323/87

My Lords, banderoles to be affixed to receptacles containing spirits intended for retail. The Italian legislation impugned in that case provided that the banderole tax was to be paid at different rates, which were, as far as spirits obtained from cereals and sugar cane 1. In this case the Commission contends were concerned, several times the rates that the Italian Republic's tax treatment of applicable to spirits obtained from wine and certain products, including rum, is contrary marc. The Court found that the main char­ to Article 95 of the EEC Treaty. The case acteristic of that tax system was that the thus takes its place in a series of cases in most typical domestic products, spirits which this Court has been called upon to obtained from wine and marc, were in the consider different aspects of the tax most favoured tax category whereas the two arrangements applicable to spirits in Italy. In types of product almost all of which is many respects those earlier judgments imported from other Member States, i. e. remain relevant for the purpose of deciding rum and spirits obtained from cereals, were the present case, notwithstanding that they subject to heavier taxation (paragraph 35 of may have concerned other aspects of the tax the judgment). The Court therefore ruled arrangements than those at issue here and that the Italian system of differential that the Italian tax legislation has been taxation in the form of tax banderoles was much amended over the years. contrary to Article 95 of the Treaty as regards the taxation of alcoholic beverages which were the result of the distillation of cereals and sugar cane, on the one hand, and spirits obtained from wine and marc on the other. 2. The present case concerns the 'manufac­ turing tax' on spirits made in Italy and the corresponding 'frontier surcharge' charged on spirits imported into Italy. Other aspects of the Italian tax arrangements which have come before the Court include the State taxes (now abolished) on spirits, the system of tax banderoles on receptacles containing spirits and value-added tax charged on spirits when they are sold. 4. Joined Cases 142 and 143/80 Amminis- trazione delle finanze dello Stato v Essevi andSalengo [1981] ECR 1413 concerned an Italian tax which has since been abolished, the ordinary State tax. The case arose from 3. Case 169/78 Commission v Italy [1980] a dispute over the payment of the tax on ECR 385 concerned the system of tax cognac of French origin imported into Italy.

It appeared from the orders for reference 6. Because the dispute in that case and the that imported spirits were subject to the tax question referred by the national court at the full rate whereas domestically concerned only whisky, the Court confined produced spirits were exempt from it its ruling to whisky, and held: 'Article 95 because only spirits the manufacture of prohibits a system of taxation affecting which could be made subject to inspections differently whisky and other spirits'. carried out at the production stage on However in the body of its judgment, the Italian territory qualified for the exemption Court, referring to its findings in (paragraph 20 of the judgment). Since the Case 169/78 Commission v Italy, already reduced rate of taxation was available only cited, made broader statements concerning to national production, the Court held that not only whisky but also rum. Thus it held it was discriminatory in nature and was at paragraphs 10 and 11 that 'spirits therefore contrary to Article 95 of the obtained from cereals and rum, as products Treaty (paragraph 22 of the judgment). The of distillation, share with spirits obtained Court ruled: 'a system of taxation of spirits from wine and marc sufficient common organised in such a way as to confine characteristics to form, at least in certain exemptions or reduced rates of tax to circumstances, an alternative choice for domestic production alone constitutes consumers. That finding constitutes discrimination prohibited by Article 95 of sufficient ground for holding that such the EEC Treaty'. products are in competition with each other and that it is not permissible for taxation imposed on them to have a protective effect in favour of national production. .

The fact (cognac) Case 216/81 Cogis v Amminis- that domestic production of those spirits trazione delle finanze dello Stato [1982] also exists does not alter this assessment, ECR 2701 concerned the importation into since it is not contested that only minimal Italy of spirits derived from cereals quantities are involved. Such differences in (whisky), which brings it closer to the issues taxation affect the market in the products in in the present case. Under the Italian tax question by reducing the potential arrangements then in force, the whisky consumption of imported products'. imported by the plaintiff from the United Kingdom was subject to State tax (whereas domestic spirits were exempt therefrom) and to the frontier surcharge at the full rate (whereas domestic spirits distilled from wine, whilst liable to the corresponding manufacturing tax, qualified for con siderable reductions (at pp. 2703-2704)). The Court held those tax arrangements also 7. The following year, in Case 319/81 contrary to Article 95. Commission v Italy [1983] ECR 601, the

9. Although the provision for a lower rate of tax took the form of a derogation, it covered spirits obtained from a much wider range of products than the provision laying 8. Following the judgments of the Court in down the normal (i.e. the higher) rate of the last two of these cases (to which it tax. In fact it appears that the higher rate of referred in its amending legislation) Italy tax applies only to synthetic alcohol or abolished the State tax and fixed the manu­ alcohol derived from sugar, whether raw or facturing tax on spirits made in Italy and contained in beverages. The Commission the corresponding frontier surcharge on took the view that the differentiated imported spirits at a single rate of taxation provided for by Law No 408 LIT 350 000 per anhydrous hectolitre of treated alcohol produced from most agri­ alcohol by Decree-Law No 232 of 15 June cultural products more favourably than 1984. As a result national and imported alcohol produced from sugar cane and spirits would have been subjected to products containing that alcohol, such as identical tax treatment. When the rum, of which it alleges that there is no Decree-Law was converted into a law by domestic Italian production (although in Law No 408 of 28 July 1984, however, the Cogis the Court found that there was

COMMISSION v ITALY

10. It is thus clear that the application is 12. The Commission contends that rum directed at all alcohol distilled from sugar and other spirits are similar products within cane and all products containing such the meaning of the first paragraph of alcohol (in so far as they come from other Article 95 of the Treaty. In the alternative, Member States) and not only rum. Rum is it contends that they are in any event cited by the Commission, with one competing products so as to fall within the exception, only as an example of products second paragraph of Article 95. Italy denies which contain alcohol distilled from sugar that rum can be considered as a similar cane. The exception to which I allude is a product to spirits made from wine and single isolated assertion in the application to cereals, in view of the respective organo­ the effect that tax at the full rate is essen­ leptic characteristics of those products. It tially charged on rum. That allegation has contends that rum and other spirits are at not been substantiated. On the contrary, most only competing products within the according to the subsequent pleadings and second paragraph of Article 95. This the evidence placed before the Court, rum dispute raises difficult issues, which the represents only a minor part of the total Court has examined in particular at para­ production caught by the tax at the full rate. graphs 11 to 13 of the judgment in

OPINION OF MR JACOBS —CASE 323/87

15. Italy states that it costs on average LIT 50 000 to 60 000 per anhydrous hectolitre more to produce alcohol from wine products and fruit than it does to produce alcohol from molasses. If the tax on the two 13. Applying that approach to the present kinds of alcohol were equalized, it would case, it is not necessary for the Court to become impossible to sell alcohol made decide whether rum is a similar product to from wine, the distilleries would shut and the types of spirits taxed at the lower rate the vine and wine market would collapse (in particular spirits made from wine, the because for a large part it relies on distil-

COMMISSION v ITALY

Treaty. Without therefore disregarding the importance of the criteria which may be 16. Since the protective nature of the deduced from statistics from which the differential tax arrangements in question is effects of a given tax system may be thus admitted and evident, it is clear that measured, it is impossible to require the those tax arrangements are in breach of the Commission to supply statistical data on the second paragraph of Article 95 as regards actual foundation of the protective effect of rum. In my view a number of arguments the tax system complained of'.

Therefore the Italian Government's argument to the effect that 17. Thus the Italian Government has the difference in taxation must be proven to argued that, in order to establish a breach produce actual protective effects, falls to be of the second paragraph of Article 95, it is rejected. not sufficient merely to compare the respective tax burdens on the products in question but it is necessary to establish concretely that the difference between the burdens is apt to produce protective effects. That argument has already been put to the Court and rejected, in particular in Case 170/78 Commission v United 18. The Italian Government also seeks to Kingdom (interlocutory judgment) [1980] rely on a number of decisions in which the ECR 417 where the United Kingdom Court has held that: 'In its present stage of

development Community law does not rules of Article 95 of the Treaty because it restrict the freedom of each Member State results in allowing Member States to to lay down tax arrangments which discriminate in their internal taxation differentiate between certain products on against products from other Member States the basis of objective criteria, such as the and in favour of domestic products, albeit nature of the raw materials used or the subject to certain conditions. In my view the production processes employed. Such exception cannot easily be reconciled with differentiation is compatible with the terms of Article 95 or with its place in Community law if it pursues economic the scheme of the Treaty as a complement policy objectives which are themselves to Articles 9 to 16, which have consistently compatible with the requirements of the been construed so as to give them their Treaty and its secondary law and if the fullest effect. The Court has emphasized detailed rules are such as to avoid any form that the provisions of Article 95 of discrimination, direct or indirect, in supplement, within the system of the Treaty, regard to imports from other Member States the provisions on the abolition of customs or any form of protection of competing duties and charges having equivalent effect; domestic products' (e.g. Case 140/79 that their aim is to ensure free movement of Chemical Farmaceutici v DAF [1981] goods between Member States in normal ECR 1, at p. 15; Case 46/80 Vinal v Orbat conditions of competition by the elimination [1981] ECR 77, at p. 93; and Case 196/85 of all forms of protection which result from Commission v France [1987] ECR 1597, at the application of internal taxation which

In any event, as objective which is compatible with apparently introducing a derogation from Community law, namely the support of the the Treaty, that exception (to which I shall wine and vine market; and the detailed rules refer as 'the case-law exception') may not be for applying the tax system do not involve construed extensively. (On this point I am in protection of competing national products. agreement with the view of Advocate In my view that line of case-law cannot be General Reischl in Cogis at p. 2720).

19. That other line of case-law in any 20. Indeed, it is noteworthy that in a event represents an exception to the basic number of cases in which the Court has

COMMISSION v ITALY

24. In any event I do not consider that the rule enunciated in that dictum is applicable to a case such as the present, in the light of 22. The Italian Government also refers in the ruling at paragraph 21 of the judgment particular to Case 243/84 Walker v Minis- in Case 106/84 Commission v Denmark at teriet for Skatter og Afgifter [1986] ECR 875 p. 872. There the Court again accepted that at pp. 884 and 885 where the Court held: at its present stage of development 'In the present stage of its development, Community law allowed tax arrangements Community law, and in particular the which differentiated between certain second paragraph of Article 95 of the EEC products on the basis of objective criteria if Treaty, does not preclude the application of they pursued objectives of economic policy a system of taxation which differentiates which were compatible with the

OPINION OF MR JACOBS — CASE 323/87

25. Although much of the discussion, particularly in the early stages of the case, centred on rum, the form of order sought by the Commission covers a wider range of products than rum alone. It became apparent from the Commission's answers to written questions put to it by the Court, that 27. The position is similar as regards the Commission considers the Italian tax 'flavoured spirits' (gin and vodka). The arrangements in question to be contrary to Commission has submitted figures for the Article 95 not only as regards rum but also amount of such alcohol imported into Italy as regards three other categories of product: from other Member States (in 1987 652 700 raw alcohol derived from sugar cane anhydrous litres, or approximately 0.5% of (including that derived from molasses and the total amount subject to the contested tax sweet juices of sugar cane); flavoured spirits at the higher rate), but is unable to indicate (such as gin and vodka) to the extent to what proportion of that alcohol, if any, is which they are made out of alcohol derived derived from sugar cane. from sugar cane; and, to that extent also, 'liqueurs and other spirits'.

26. For convenience I shall consider in 28. The Commission points out that both reverse order the different categories of liqueurs and 'flavoured spirits' can be made product which the Commission mentions as from alcohol of any agricultural origin, and being affected by the alleged discrimination. adds that the statistics available do not As regards, first, the category which the disclose what proportion is made from cane Commission defines as 'liqueurs and other alcohol. That is a difficult matter to

ascertain because, as is common ground in as a similar or competing product in relation this case, above a certain degree of purity it to potable spirits. Raw alcohol can be used is no longer possible to determine the raw to make potable beverages, from which it material from which alcohol is made. might be possible to show that it had at least an indirect competitive relationship with potable spirits. On the other hand, raw alcohol may be denatured for industrial use, and from that point of view a competitive relationship with potable spirits might be more difficult to establish. If the matter were fully examined, the conclusion might 29. Both in relation to liqueurs and in be that raw alcohol derived from sugar cane relation to 'flavoured spirits', the is neither a similar product nor a competing Commission has alleged that the Italian product with potable spirits for the purposes taxation in question discriminates, contrary of Article 95 but is such in relationship to to Article 95, against imports from other raw alcohol derived from other agricultural Member States to the extent to which they products or synthetic alcohol. This difficult are made out of alcohol derived from sugar question has hardly been examined in the cane. However, both those categories of present proceedings before the Court. products were first identified by the Commission at a very late stage in the proceedings: after the close of written pleadings, in answer to a written question put by the Court. In consequence, central issues of fact have not been adequately dealt with. Not only is there uncertainty as to what extent, if at all, those products contain cane alcohol; it has also not been estab­ lished whether, and if so, how, the Italian legislation actually taxes such products at the higher rate. The Commission has not 31. From the rejoinder and the answers to adduced evidence on those matters, and the written questions put by the Court (but not Italian Government has not had an oppor­ from any earlier stage of the case) it appears tunity to address them in writing. In the that the largest amount of a single product absence of evidence and adequate oppor­ subject to the contested tax at the higher tunity for argument on those fundamental rate is domestically-produced alcohol points, the application should, in my view, produced from molasses (whether beet or be dismissed in so far as it concerns those cane is not specified, although the Com­ two categories of product. mission estimates the proportions at 50:50). Of the 1987 total of approximately 130 000 000 litres of alcohol subject to tax at the full rate, it appears that 87 000 000 litres (i.e. over half) were domestically produced alcohol made from molasses. Taking this kind of alcohol along with 30. As regards raw alcohol derived from lesser quantities of other kinds of domes­ sugar cane (including that derived from tically produced alcohol, it appears that molasses and sweet juices of sugar cane), Italian domestic products accounted for the position is different. Raw alcohol is not roughly two-thirds of the total amount itself a potable beverage. Therefore the subject to the full rate of tax in 1987. The question arises whether it can be regarded pattern is confirmed, as far as they go, by

32. However, at the hearing the 33. As these questions emerged late in the Commission asserted that a large part of the proceedings, the parties have not had an alcohol ostensibly subject to the full rate of adequate opportunity to examine them. The tax does not in fact bear it because it is Court does not in my view have adequate denatured for industrial use or incorporated evidence or argument on which to found a in beverages which are exported in both of decision on the point. Therefore I consider which cases an exemption from the that it can only dismiss the claim as far as it contested tax arises. The Commission is directed to raw alcohol derived from estimated that 80% of the spirits ostensibly sugar cane. subject to the full rate of tax were exempted. The Italian Government did 34. In consequence the Commission's accept that a proportion of the products application succeeds only in relation to rum. were exempted but did not accept the figure Since, on the view I take, each party of 80%, which was also unsupported by succeeds in pan, they should bear their own evidence. The Italian Government, however, costs, in accordance with Article 69(3) of has had no opportunity to deal with the the Rules of Procedure.

35. Accordingly in my opinion the Court should declare that , by imposing heavier taxation on rum imported from other Member States than on other spirits of agri­ cultural origin, the Italian Republic has failed to fulfil its obligations under Article 95 of the EEC Treaty ; for the rest, should dismiss the application; and should order that each party should bear its own costs.