C-287/96

KYRITZER STÄRKE ν HAUPTZOLLAMT POTSDAM

OPINION OF ADVOCATE GENERAL LÉGER delivered on 19 March 1998 *

1. Economic operators who use natural starch, which can be processed back into a starch to produce certain goods are entitled basic product, thus enabling the manufac- to production refunds. These are granted on turer wrongfully to cumulate production condition that the starch is processed into refunds. The Community legislature has 'approved products' 1 and the manufacturer therefore specified that the esterified or must lodge a security for the effective etherified starch must leave Community ter- completion of the processing operation. ritory or may only be processed within it for specified purposes, failing which the security will not be released.

2. If the starch is to be processed into esteri- 4. The Court is requested to specify the fied or etherified starch 2 the manufacturer is nature of this obligation of prescribed use of also required to use the processed products the processed starch and in particular for a specific purpose (hereinafter a 'pre- whether it constitutes a primary requirement scribed use'), either for export to third coun- calling for proof of compliance within a tries or for use within Community customs given period, without which the security is territory in the manufacture of products forfeit. other than the basic products or certain derived products from which they are obtained.

I — The relevant Community legislation

3. These special rules are justified by the Commission Regulton (EEC) No 2220/85 particular nature of esterified or etherified

' 1 . A security shall be forfeited in full for the quantity for which a primary requirement 3. A secondary requirement is a requirement has been breached. to respect the time-limit for fulfilling a pri- mary requirement.

4. A subordinate requirement is any other 2. A primary requirement shall be consid- requirement imposed by a regulation. ered to have been breached if the relevant evidence is not produced within the time- limit set for the production of that evidence 3 — The 1985 regulation', OJ 1985 L 205, p. 5. except in cases oí force majeure...'

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9. Article 28 reads as follows: Commission Regulation (EEC) No 2169/86

10. Article 4(1) of Commission Regulation N o 2169/86 of 10 July 1986 laying down detailed rules for the control and payment of '1 Where no period is laid down for produc­ the production refunds in the cereals and rice ing the evidence needed to release a sum sectors 4 provides that '[a] manufacturer secured, such period shall be: wishing to obtain a production refund shall apply in writing to the competent authority in the Member State where the starch is to be processed for a refund certificate.'

However, where the product indicated on paragraph, shall only be released if the com­ the certificate falls within Common Customs petent authority has received proof that the Tariff subheading N o 39.06 Β I ( C N product under C N code 3505 10 50 is: 3505 10 50), the security shall equal to 105% of the production refund to be granted for the manufacture of the product in question.'

(a) used to manufacture products other than those listed in Annex I; or

12. Article 7(2) provides that:

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16. The first of these securities is provided 18. According to that provision: 'Where the for in Article 8, which states that: product mentioned on the certificate falls within C N code 3505 10 50, the notification referred to in paragraph 1 shall be accompa­ nied by the lodging of a security equal to the production refund payable on the manufac­ ture of the product in question.'

' 1 . The issue of a certificate shall be subject to the lodging of a security by the manufac­ turer with the competent authority, equal to 19. The conditions for releasing the security E C U 15 per tonne of basic starch, where referred to in Article 9 are set out in Article appropriate multiplied by the coefficient cor­ 10(1), which states: responding to the type of starch to be used as shown in Annex II.

'1. The security provided for in Article 9(2) shall be released only once the competent authority has received proof that the product falling within C N code 3505 10 50 has been: 2. The security shall be released in accord­ ance with Regulation (EEC) N o 2220/85. The primary requirement within the mean­ ing of Article 20 of that regulation shall be the processing of the quantity of starch (a) used within the customs territory of the stated on the application into approved Community to manufacture products products (as defined) within the period of other than those listed at Annex II; validity of the certificate. However, if a manufacturer has processed at least 90% of the quantity of starch stated on the applica­ tion, he shall be deemed to have fulfilled the aforesaid primary requirement.' or

25. Evidence that this modified starch was used for a prescribed purpose was supplied on 24 February 1995, but only for quantities 21. The plaintiff in the main proceedings, of 706 870 tonnes and 587 061 tonnes respec- Kyritzer Stärke GmbH (hereinafter tively. The Principal Customs Office there- 'Kyritzer' or 'the plaintiff in the main pro- fore declared the securities forfeit by a ceedings') processes natural starch, and in decision of 9 May 1995. The amounts were particular esterified starch, into approved DEM 74 060.58 due from 17 March 1995 and products and receives production refunds in DEM 33 869.95 due from 25 March 1995, the that respect. dates on which the period specified in Article 28(2) of the 1985 regulation expired.

22. In December 1991 and January 1992 26. The objections challenging that decision consignments of 1 000 and 700 tonnes were rejected, as was the action on the merits respectively of potato starch were placed before the Finance Court. under official supervision. Production refunds for the manufacture of products fall- ing within C N code 3505 10 50 were fixed by refund certificates dated 9 December 1991 (amended by the refund certificate of 16 March 1992) and 22 January 1992 (amended 27. In its appeal to the Federal Finance by certificate of 24 March 1992). Court the plaintiff in the main action con-

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tended in particular that evidence that pro­ be produced within the period pre­ cessed products were for a prescribed use scribed by Article 28(2) of Regulation was not a primary requirement within the N o 2220/85, so that, in any other case, meaning of Article 20(2) of the 1985 regu­ security lodged pursuant to Article lation, so that the contested judgment was 22(1) and (2) of that regulation becomes not supported by either Article 22(1) or the forfeit? combined provisions of Article 22(2) and Article 28(2) of that regulation. N o r could it be regarded as a secondary requirement; it was a subordinate requirement, which would not entail the forfeiture of part of the secu­ rity under the terms of Article 24 of the 1985 regulation, the object of which was to sanc­ tion failure to fulfil an obligation rather than (2) If the answer to Question (1) is in the a delay in doing so. negative:

33. Furthermore, although the main action A — Determining the applicable rules arose from an application for production refunds made in 1991 and ought therefore to be outside the scope of the 1993 regulation, which came into force on 1 July 1993, 10it is subject to the provisions of Article 10 of the 1993 regulation in accordance with Article 14 thereof. 31. I must say, first, that the 1985 regulation is applicable to this case. Article 1 thereof states that it 'lays down the rules governing securities to be given, either under the fol- lowing regulations or under any implement- ing regulations, unless other rules are laid down by those regulations...'.

40. The emphasis is therefore on the impor­ 37. The wording of the thirteenth recital in tance of processing that basic product into the preamble to the 1993 regulation indicates that the regulations have the same purpose specified products, which is a precondition and that their contents are similar, the only for the payment of production refunds. 13 distinctions being certain adjustments made necessary by the present state of the market.

41. The requirement that processed products must be for a prescribed use is not subject to a similar qualification Β — The nature of the prescribed use

42. The introduction of rules solely for 38. In order to decide whether prescribed products falling within C N code 3505 10 50 use is a primary obligation we must refer to stems from the changes made to the 1986 the wording of the applicable regulations, to regulation in 1987 and 1989, which amended the intentions of the Community legislature Article 7 by adding a second subparagraph and to the general logic of the scheme to paragraph (1) and a new paragraph, para­ imposed by the provisions, in accordance graph (4). with the Court's settled case-law. 11

43. The initial legal provision was thus supplemented by fixing the amount of the The content of the regulations security for manufacturing these products

11 — See, for example, Case 91/87 Gutshof-Ei [1988] ECR 2541, paragraph 9 et seq., Case C-22/90 France ν Commission 12 — Article 7(2) of the 1986 regulation and Article 8(2) of the [1991] ECR I-5285, paragraph 14 et seq., and Case 1993 regulation. C-315/96 Lopex Export [1998] ECR I-317, paragraph 18. 13 — Fourth recital in the preamble to the 1986 regulation.

46. We must therefore decide whether this restricted definition is deliberate and should consequently be interpreted literally, or whether it is the result of an omission, which 50. The first recital in the preamble to the would justify a wider interpretation. 1993 regulation states that the special situa- tion of the market in starch, and particularly the need to keep prices competitive in rela- tion to starch produced in third countries and imported as goods in respect of which the import arrangements do not provide suf- ficient protection for Community producers, 47. This is a question of some importance: justifies the grant of a production refund to failure to fulfil a primary requirement enable the user industries concerned to have involves the total forfeiture of the security access to starch and certain derivatives at a under the 1985 regulation, so the manufac- lower price than that which would result turer who fails to fulfil the prescribed use from applying the rules of the common obligation may forfeit either all or only part organisation of markets in the products in of his security, depending on the answer. question.

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51. The regulations aim in particular to the basic product and those obtaining in establish detailed rules for the control and third countries. payment of production refunds in the cereals and rice sectors so that the same rules are 14 applied in all Member States.

55. It is thus clear that the legislature regards the processing into approved products as an 52. It is provided that production refunds essential operation, and it is the only one are to be paid for the use of starch and cer­ which justifies the granting of production tain derived products in the manufacture of refunds when it is completed. certain goods 1 5 and that payment of the pro­ duction refunds should not be made until processing has taken place. 16

54. The purpose of the Community rules, therefore, is to protect Community products manufactured from starch by a system of 57. The Community legislature considered production refunds to compensate for the that in order to avoid such speculation mea­ difference between Community prices for sures were necessary to ensure that esterified or etherified starch was not processed back into a basic product the use of which would give the right to apply for a refund. 19 14 — First recital in the preamble to the 1986 regulation and sec­ ond recital in the preamble to the 1993 regulation. 15 — Third recital in the preamble to the 1986 regulation and sixth recital in the preamble to the 1993 regulation. 16 — Fifth recital in the preamble to the 1986 regulation and 18 — First recital in the preamble to Regulation N o 3642/87 tenth recital in the preamble to the 1993 regulation. amending the 1986 regulation and ninth recital in the pre­ 17 — Sixth recital in the preamble to the 1986 regulation and amble to the 1993 regulation. twelfth recital in the preamble to the 1993 regulation. 19 — Ibid.

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OPINION OF MR LÉGER — CASE C-287/96

58. It should be recalled that Article 20(2) of nity grants for certain products manufac- the 1985 regulation defines a primary tured from starch to compensate for price requirement as one which is basic to the pur- differences between Member States' produc- poses of the regulation imposing it. tion and that of third countries.

59. There is no doubt that since 1987 the campaign against fraud in the processing of 63. Production refunds are therefore central esterified or etherified starch has been one of to the provision, forming both the purpose the Community legislature's objectives in of the regulation and the main instrument drafting regulations and the prescribed use of for implementing it. They give effect to the processed products is its chosen method of economic operations which it is intended to attaining it. protect.

70. The regulation would obviously be inef­ fective as a deterrent if the maximum risk was equal to 15% of the security, as a manu­ 67. Furthermore, it is my opinion that if the facturer could obtain a further production prescribed use of processed products was not refund for the whole amount of the security a primary requirement, it could only be a if he resorted to fraud. 2 0 subordinate requirement, which Article 20(3) of the 1985 regulation defines as a require­ ment to respect the time-limit for fulfilling a primary requirement; this cannot be true for prescribed use under Article 7(4) of the 1986 regulation and Article 10(1) of the 1993 regulation, which specify an obligation to perform without mentioning any time-limit. 71. Furthermore, it is evident from Article 3 of the 1985 regulation that a security is a sum which is to be paid or forfeit if a specific obligation is not fulfilled, so that the possi­ bility of total loss of the security can never be excluded.

68. That being so, the penalty for infringing a subordinate requirement, specified in Article 24 of the 1985 regulation as '... forfei­ ture of 15% of the relevant part of the sum secured', does not appear to be compatible either with the requirement of a security for 72. It must be accepted that the campaign prescribed use in the 1993 regulation or with against fraud relating to products falling the purpose of agricultural securities in within C N code 3505 10 50 has a fundamen­ Community law. tal place in the system established by the Community regulations. The financial risk to the system arising from the illegal receipt of several refunds for the same product justifies qualifying prescribed use as a primary

76. Article 21 of the 1985 regulation states that a security is released on the production 74. Moreover, a discussion of how the dis- of evidence that all the primary, secondary puted requirement is to be qualified is only and subordinate requirements have been ful- of interest in determining the penalty for filled. non-compliance. I consider that Kyritzer was bound to respect the deadline laid down in Article 28 of the 1985 regulation, regard- less of the categorisation of the requirement regarding the prescribed use, as the text does not restrict the application of this deadline to 77. Article 7(4) of the 1986 regulation and evidence of primary requirements and no Article 10(1) of the 1993 regulation confirm particular issue justifies such an interpreta- that fulfilment of the prescribed use require- tion. 22 This being so, the obligation on the ment is a precondition for the release of the plaintiff in the main proceedings to prove guarantee. prescribed use within a given time-limit was not in the least ambiguous and was not affected by the uncertainty which might arise

21 — In this respect, see Case C-354/95 National Farmers' Union 78. Article 28 of the 1985 regulation covers and Others [1997] ECR I-4559, paragraph 58. 22 — The release of the security depends on compliance with the cases such as this, where there is no time- time-limit in Article 28 but Article 21 provides for the limit for the production of the evidence release of the security when evidence has been provided that all requirements have been fulfilled. required to release a security. The time-limit

81. Prescribed use is not subject to any time- 84. That provision makes it clear that manu­ limit under Article 7(4) of the 1986 regu­ facturers are not subject to any time-limit for

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the prescribed use of processed products. 88. Consequently, the whole of the security Article 28(1 )(b) of the 1985 regulation is thus should be declared forfeit in accordance with applicable. Article 22(1) and (2) of the 1985 regulation.

89. Kyritzer contends that if the Commu- nity legislation is interpreted as imposing forfeiture of the security if proof was pre- 85. The evidence of prescribed use must sented out of time, the manufacturer of a therefore be produced within a maximum of product falling within C N code 3505 10 50 twelve months from the date on which such would be the victim of unfair discrimination processing took place, as the Federal Finance compared with other manufacturers of Court suggests. approved products. That contention does not appear to me to be justified.

90. As the plaintiff in the main action has 86. However, under Article 28(2) of the pointed out, the principle of distinguishing 1985 regulation, this time-limit 'shall not between a manufacturer of esterified or exceed three years from the time the security etherified starch and a manufacturer of was assigned to a particular obligation, another approved product is justified by the risk of fraud inherent in the activity of the except in cases of force majeure'. former. Their situations are different, so it is compatible with the principle of non- discrimination for them to be treated differ- ently and for special rules to cover the pro- duction of this type of starch. 23

95. Furthermore, such a situation would be contrary to the purpose of the security, 92. The loss of the whole of the security which is defined by Article 3(a), first sub­ where proof of prescribed use is out of time paragraph, of the 1985 regulation as '... an undeniably serves the legislature's aim of assurance that a sum of money will be paid preventing fraud. or forfeited to a competent authority if a par­ ticular obligation is not met'. 2 5 The security is not, therefore, to remain suspended pend­ ing proof of fulfilment of an obligation which it has become impossible to fulfil. It should be released or forfeit, depending on whether or not the manufacturer has fulfilled 93. As to whether the means used were nec­ his obligation. The only way to establish essary, I am not convinced that retaining the whether the obligation has been fulfilled security until proof of fulfilment is lodged when the manufacturer himself has presented would be sufficient to encourage the manu­ no proof of it is to set a deadline beyond facturer to fulfil the prescribed use require­ which silence is taken as non-performance. ment, as Kyritzer maintains. That is the option chosen by the Commu­ nity legislature.

96. The prescribed use of processed prod­ ucts must therefore be proved within the 94. Making the release of the security sub­ period laid down in Article 28(1 )(b) of the ject to proof of prescribed use without a spe­ 1985 regulation, or in Article 28(2), which­ cific time-limit would involve serious incon­ ever is the shorter. Failure to meet the dead­ venience, as it would create a situation in line entails forfeiture of the security. which the exact status of the security was uncertain. If the prescribed use requirement were not fulfilled for various reasons, forfei­ ture would be impossible, as proof of fulfil­ ment could be lodged at any time, in theory at least, and the security would be frozen 97. As the reply to national court's first question is in the affirmative, there is no need to reply to the second.

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