C-319/96

'Rolls of tobacco capable of being smoked as they are and which are not cigars or cigarillos (b) cigars and cigarillos as defined in Article 2 shall be deemed to be cigarettes'.

* Original language: English. 1 — Council Directive 72/464/EEC of 19 December 1972 on taxes other than turnover taxes which affect the consumption of 2 — Second Council Directive 79/32/EEC of 18 December 1978 manufactured tobacco, OJ, English Special Edition 1972 (31 on taxes other than turnover taxes which affect the consump- December) p. 3. tion of manufactured tobacco, OJ 1979 L 10, p. 8.

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4. Smoking tobacco was defined in Article (c) rolls of tobacco which, by simple non- 4(1) as provided: industrial handling, are wrapped in ciga- rette paper.'

'tobacco which has been cut or otherwise split, twisted or pressed into blocks and is capable of being smoked without further industrial processing'. 6. More recently the First and Second Direc- tives — which were subject to a number of other amendments not relevant to the present case — have been consolidated in a single text by Council Directive 95/59/EC. 4

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down under that provision. It is however trict customs authority that Westpoint was common ground between the parties to the taxable as fine-cut smoking tobacco. Later in main proceedings that the definitions of the same year one of Brinkmann's competi- tobacco products in the Second Directive are tors obtained an identical ruling from another directly applicable in Danish law. district authority. That ruling was upheld on appeal by the Told-og Skattestyrelse (the Cus- toms and Excise Authority) but then over- turned on further appeal by the Momsnævn (VAT Board), the highest Danish administra- tive authority in matters of taxation. By a The facts and the national court's questions decision of 14 May 1990, confirmed by a fur- ther decision of 23 October 1990, the Board ruled that Westpoint should be taxed as ciga- rettes, which attract a higher rate of duty than smoking tobacco.

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11. Brinkmann brought proceedings before same size, consistency and unifor- the referring court by an application of 8 mity; January 1991, claiming that the Danish Min- istry for Fiscal Affairs was obliged to classify Westpoint as smoking tobacco. It also claimed that, since the combined effect of the higher rate of duty on the rolls of tobacco and the duty payable on the cigarette papers and tubes had forced Westpoint out of the Danish — each roll of tobacco is 68.6 mm long market, it was entitled to compensation for and consists of approximately 833 mg all the losses thereby incurred. of fine-cut smoking tobacco wrapped in cellulose, and pressed out into a thin block;

12. Against that background the national court seeks a preliminary ruling from this — the wrapping is porous, and the roll Court on the following questions: of tobacco cannot be smoked as it is but must be inserted into a cigarette- paper tube or wrapped in ordinary cigarette paper, which in both cases can be done without the use of imple- ments?

'1. Should the definitions in the Council's Second Directive (79/32/EEC) of 18 December 1978 on taxes other than turnover taxes which affect the consump- tion of manufactured tobacco, in the If the answer to Question 1 is that the version in force on 14 May 1990, be product should be classified as smoking interpreted to the effect that a product tobacco, the Court is asked to reply to with the following characteristics should the following questions: be classified as cigarettes or as smoking tobacco:

3 (b) Does it matter, as regards the answer to Question 2, that the definitions in the Tobacco Directive were not implemented in the Member State if the national authority, in its decision, 15. As regards the wording of the Directive, referred to the definitions, and the it is true that there is no specific definition of parties to the case before the national a product such as Westpoint in the Second court are in agreement that the defi- Directive. Nevertheless, it seems to me that nitions in the Directive are directly the product corresponds more closely to the applicable? definition of smoking tobacco. The definition

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19. Moreover, the transitional provision in Article 3(1), which allows Germany to con- tinue to tax the rolls of tobacco referred to in (b) as fine-cut smoking tobacco, tends to sup- port the view that Westpoint fell outside the original definition. At the very least it shows 17. I am not persuaded by the argument put that the Council accepted that the original forward by the Danish Ministry and Finnish provision was sufficiently open to that inter- Government that cigars must sometimes be pretation to justify a transitional provision cut before they can be smoked and to that for a Member State where a manufacturer extent cannot be smoked 'as they are' either. established there had invested on the basis of What the term 'as they are' implies is that the that interpretation. product must be finished. A cigar, even where it must be cut, is a finished product. It does not entail assembly of two separately mar- keted products.

20. The conclusion that Westpoint did not meet the definition of a cigarette under the 18. Support for the above view is to be found Directive in its original form is moreover in Article 3(1) of the Directive, as amended supported by the account provided by the

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national court in its order for reference of the Directive by distinguishing between 'fine-cut rulings given by national authorities. It appears tobacco for the rolling of cigarettes' and 'other that the product was classified as smoking smoking tobacco'. The former is defined in a tobacco in Germany, the United Kingdom new Article 4a of the Second Directive intro- and, following an appeal, the Netherlands. duced by Article 2(4) of Directive 92/78. Moreover, it was also so classified in Den- mark by two district customs offices and the Customs and Excise authority; the Danish VAT Board alone took a different view.

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tion, if any, of smokers who prefer finished — the taste never alters; cigarettes Westpoint would be able to attract. The need for assembly will be inconvenient in many social contexts. Moreover, the degree of manipulation and dexterity still required and the disadvantage of the product being in two separate boxes seems likely in practice t o — there is always a uniform smoking ratio prove a significant deterrent for many (smoking time and draw); smokers.

— there is always a uniform, previously- determined content of harmful substances in relation to a particular cigarette-paper tube;

24. Competition with fine-cut smoking tobacco seems equally, if not more, likely. For some smokers the rolling of their own ciga- rettes may be motivated by factors uncon- nected with the price, such as image, which — it is extremely simple to make up a ciga- might make Westpoint unattractive (although rette directly comparable to a factory- Westpoint, like loose tobacco, can also be produced cigarette; wrapped in cigarette papers). However, for smokers whose primary motive for rolling their own cigarettes is that it is cheaper, West- point seems likely to be an attractive proposi- tion (provided that the price of the product compares favourably with self-rolled ciga- — there is no tobacco cylinder wrapping rettes). Indeed the characteristics of West- which has to be thrown away; point mentioned in the Danish patent suggest that it was designed to compete primarily with smoking tobacco for rolling cigarettes:

— it is subject to more favourable tax treat- ment as compared with industrially- prepared cigarettes'.

rate of tax, is shared by fine-cut smoking 26. Consequently, although the view taken tobacco. by the Council, when it amended the Direc- tive, that Westpoint was in sufficiently close competition with cigarettes to be classified as such can certainly not be said to be wrong or unreasonable, I do not think any conclusive arguments can be drawn from the Directive's aims for the purpose of interpreting the orig- inal provision. For similar reasons the Danish Ministry's reference to the principles laid down by the Court in the context of Article 95 of the Treaty does not get us any further. As the Danish Government states, in Com- mission v Denmark 5 the Court, referring to Rewe, 6 held that in order to determine whether products are similar for the purposes of the prohibition laid down in the first para- graph of Article 95 it was necessary to con- sider 'whether they have similar characteris- tics and meet the same needs from the point 25. It is true, as the Commission points out, of view of consumers'. As already noted, it is that the characteristics of Westpoint are such at least arguable that on that test Westpoint is as to make it resemble more closely an indus- closer to fine-cut smoking tobacco than t o cigarettes because, like such tobacco, it lacks trially produced cigarette. To that extent it the key characteristic of a cigarette, as defined more closely fulfils the same needs as such a in the legislation, of being ready to smoke cigarette. However, it might be replied that and to that extent also fails to serve the same Westpoint still lacks the main distinguishing need as an industrially produced cigarette. feature of an industrially produced cigarette, namely being ready to smoke. Indeed, if by virtue of being subject to a higher duty West- point were priced at the same level as ciga- rettes then, unless a consumer had a very strong preference for the particular taste of Westpoint, the aforesaid disadvantages seem such as to dissuade him from buying it. Taxing Westpoint as a cigarette when it failed to meet such an essential need would be likely to render it uncompetitive. O n the other hand, taxing the product as smoking tobacco would 27. I therefore conclude that under the Second allow it to compete on equal fiscal terms with Directive, in its original form, a product such fine-cut tobacco for rolling cigarettes, its par- as Westpoint was to be classified as smoking ticular advantages over such tobacco attracting tobacco within the meaning of Article 4(1) of some but certainly not all smokers who have the Directive. traditionally rolled their own cigarettes. In other words, classification as smoking tobacco might on balance produce the lesser distor- 5 — Case 106/84 [1986] ECR 833. tion of competition. 6 — Case 45/75 REWE v Hauptzollamt Landau [1976] ECR 181.

Questions 2, 3 and 4 and damage caused to individuals as a result of breaches of Community law for which the State can be held responsible is inherent in the system of the Treaty (see, in particular, Joined Cases C-46/93 and 48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029, paragraph 31, and Joined Cases C-178/94, 28. By its remaining questions, which may C-179/94, C-188/94, C-189/94 and C-190/94 conveniently be answered together, the Dillenkofer and Others [1996] ECR I-4845, national court inquires about the conditions paragraph 20). under which a Member State incurs liability for loss occasioned as a consequence of incor- rect classification of a product under the Directive (Question 2); in that connection the national court asks whether it is relevant that the authorities refused to suspend the opera- tion of the decision at the applicant's request (Question 4). The national court also asks whether the definitions of manufactured In those judgments, the Court, having regard tobacco products in the Directive are prop- to the circumstances of the cases, held that erly implemented if the Minister for Fiscal Community law recognises the existence of a Affairs is empowered to lay down definitions right to reparation when three conditions are of tobacco products but has not done so met: the rule of law infringed must be intended (Question 3(a)); if not, the national court also to confer rights on individuals; the breach asks whether it matters, as regards the answer must be sufficiently serious; and there must to Question 2, that the parties to the case are be a direct causal link between the breach of in agreement that the definitions in the Direc- the obligation resting on the State and the tive are directly applicable (Question 3(b)). damage suffered by the injured parties (Bras- serie du Pêcheur and Factortame, cited above, paragraph 51, and Dillenkofer and Others, cited above, paragraphs 21 and 23). The Court has in particular held that those conditions apply where a Member State incorrectly trans- poses a Community directive into national 29. In that regard the Court's ruling in Den- law (Case C-392/93 British Telecommunica- kavit 7 contains a useful statement of the rel- tions [1996] ECR I-1631, paragraph 40). evant principles:

It follows from the Court's case-law that a breach is sufficiently serious if a Community institution or a Member State, in the exercise of its rule-making powers, manifestly and gravely disregards the limits on those powers (Brasserie du Pêcheur and Factortame, cited above, paragraph 55, and Dillenkofer and Others, cited above, paragraph 25). One of the factors that may be taken into consider- 31. In my view it is clear that it did not. As ation in this regard is the clarity and preci- Denmark and the Commission point out, sion of the rule breached (Brasserie du Pêcheur Westpoint does not correspond exactly to and Factortame, cited above, paragraph 56, either of the relevant definitions in the Direc- and British Telecommunications, cited above, tive — it falls between two stools. N o r is paragraph 42).' 8 clear guidance to be obtained from the aims of the Directive. It was therefore necessary for the authorities of the Member States t o make a choice between the two definitions.

34. As regards Question 4, the fact that the authority refused to suspend its decision has 35. Finally, since it has not been suggested no bearing on Denmark's liability in damages that under Danish law Denmark would incur in the present case. The contrary view would liability in damages for an equivalent breach be liable to paralyse administrative decision- of national law, it appears that Denmark will making since administrative authorities would not incur liability under the principle that be unable to implement their decisions in claims based on Community law must not be other than the clearest of cases without treated less favourably than those based on exposing themselves to potentially substantial national law.

Conclusion

36. A c c o r d i n g l y I am of the o p i n i o n t h a t the questions referred b y the Ø s t r e L a n d - sret s h o u l d b e a n s w e r e d as follows:

(1) A p r o d u c t consisting of a roll of t o b a c c o w r a p p e d in p o r o u s cellulose w h i c h c a n n o t b e s m o k e d as it is b u t must first b e inserted i n t o a cigarette-paper t u b e o r w r a p p e d in o r d i n a r y cigarette p a p e r fell t o b e classified as s m o k i n g t o b a c c o u n d e r Article 4(1) of C o u n c i l Directive 7 9 / 3 2 / E E C in t h e version in force o n 14 M a y 1990.

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