C-3/97

2. Mr Goodwin and Mr Unstead were both convicted of the offence of being knowingly 4. While agreeing with the Inner Crown concerned in the taking of steps with a view Court that, on the facts, VAT was payable, to the fraudulent evasion of VAT, contrary to the Court of Appeal considered that it Section 72(1) of the Value Added Tax Act would be helpful to obtain a preliminary rul­ 1994. Mr Goodwin was accused of having ing on this point. It therefore referred the purchased counterfeit perfume products and following question to the Court of Justice: of having sold them when he was not regis­ tered for VAT, ensuring thereby that he did not have to pay any VAT. Mr Unstead was accused of having participated in the manu­ facture, production, distribution and sale of such products through a business organisa­ 'Does the supply of counterfeit perfume products fall within the scope of Council * Original language: French. Directive 77/388/EEC of 17 May 1977 on 1 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the the harmonisation of the laws of the Member harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uni­ States relating to turnover taxes (the Sixth form basis of assessment (OJ 1977 L 145, p. 1). Directive)?'

I - 3259

OPINION OF MR LÉGER — CASE C-3/97

Relevant legislation and case-law 7. However, the Court has recognised cer­ tain exceptions to that principle.

9. Two kinds of product have already been recognised as possessing such special charac­ 6. In keeping with the general terms in teristics. The first is narcotics, such as which that provision is framed, the Court considers the nature of transactions to be irrelevant for the purposes of VAT liability, 3 — In Case 50/80 Horváth [1981] ECR 385, Case 221/81 Wolf since 'the principle of fiscal neutrality [pre­ [1982] ECR 3681 and Case 240/81 Einberger [1982] ECR cludes], as far as the levying of value added 3699 (hereinafter 'Einberger I'), the Court took the view that no customs debt arises upon the importation of drugs such tax is concerned, a generalised differentiation as morphine, heroin and cocaine, which do not pass along 2 the economic channels strictly controlled by the competent between lawful and unlawful transactions'. authorities for use for medical and scientific purposes. 4 — Mol, paragraph 18, and Happy Family, paragraph 20. 5 — Lange, paragraph 12. 6 — Happy Family, paragraph 17, Mol, paragraph 15, and Case 2 — Case 269/86 Mol [1988] ECR 3627, paragraph 18, Case C-343/89 Witzemann [1990] ECR I-4477, paragraph 19. See 289/86 Happy Family [1988] ECR 3655, paragraph 20, and also Case 294/82 Einberger [1984] ECR 1177 ('Einberger Case C-111/92 Lange [1993] ECR I-4677, paragraph 16. II'), paragraph 20, and Lange, paragraph 12.

I - 3260

GOODWIN AND UNSTEAD

amphetamines or hashish, whose supply or 12. Finally, I would refer to Case C-283/95 importation independently of an economic Fischer, currently pending before the Court, channel strictly controlled by the competent in which Advocate General Jacobs proposes authorities for use for medical and scientific in paragraph 20 of his Opinion that the purposes '... can give rise only to penalties Court should conclude that 'unlawful rou­ 7 under the criminal law'. Similarly, and 'a lette transactions such as those in issue fall fortiori', VAT is not payable on imports of within the scope of VAT [and] are therefore counterfeit currency, there being no circum­ taxable under Article 2(1) of the Directive stances in which such imports could be 8 authorised.

I - 3261

OPINION OF MR LÉGER — CASE C-3/97

the territory of a Member State by a taxable not be marketed or incorporated into econ­ person, likewise on all imports of goods. For omic channels'. VAT purposes, therefore, unlawful trade and lawful trade must be treated in the same way, so that unlawful traders will not be given an advantage over their law-abiding competi­ tors. 18. The argument put forward by the appel­ lants, whereby they seek to have the transac­ tions at issue brought within that exceptional category, on the ground that they undermine the functioning of the common market and can therefore only be 'alien' to the Sixth Directive, first of all creates a sense of unease 16. In the present case, in conformity with which is hard to dispel. In flagrant disregard the principle of fiscal neutrality, and thus of the principle 'nemo auditur turpitudinem notwithstanding the reprehensible nature of propriam allegans', the appellants are seeking the counterfeiting involved, the products in to rely on the unhealthy, and even danger­ question ought to rank among those in ous, nature, from an economic point of view, whose case transactions involving them give of their activities, in order to prove that they rise to the payment of VAT. The information are not liable to pay VAT. before the Court does not disclose whether the counterfeit perfumes marketed by the appellants are manufactured within the Community or imported from a non- member country. In either case, however, the 19. More importantly, however, their argu­ transactions in question — whether involv­ ment fails if the tests already adopted in the ing a 'supply of goods or services effected for case-law are applied to it in the circum­ consideration within the territory of the stances of this case. country by a taxable person acting as such' or an 'importation of goods' — rank among those specified in Article 2(1) or (2) of the Sixth Directive.

22. Counterfeit products such as the per­ 24. The Community procedure which has fumes at issue are not, as such, banned in the been established opens as a rule with the Community by reason of their intrinsic lodging of an application by the holder of nature. Obviously there is a lawful trade in 1 the right which has been infringed. 4 Regu­ perfumes, as indeed in any product which lation No 3295/94 also provides for the cus­ can be counterfeited. While the marketing of toms authorities to initiate a proceeding of counterfeit products may be banned, the their own motion by notifying the holder of object of this is not the direct protection of a a right of a suspected risk of infringement general interest; rather, the aim is either to and withholding the goods to enable him to prevent consumers from being cheated as a lodge an application for suspension of result of purchasing goods other than those 15 release. The fact remains that, even in such covered by the guarantees attaching to the cases, continued suspension of release mark that is infringed, or, above all, to pro­ depends on the holder of the right having tect the individual interests of the holder of a applied to the competent authority for a right. Although transactions involving such decision on the merits. products infringe rules such as those govern­ ing intellectual property, the ensuing prohi­ bition is not linked to the nature or essential characteristics of the products.

25. Similarly, in cases involving not imported products, but goods manufactured in the Community (the position in the 23. Counterfeiting is admittedly a plague present case cannot be determined from the which causes serious damage to lawful com­ order for reference), the sale of those goods 1 mercial activities, 2 and against which the must be presumed to be lawful unless and

26. Thus, counterfeit goods, such as the per­ fumes at issue, are not unlawful at Commu­ nity level by reason of their inherent charac­ 28. As the United Kingdom Government teristics. They can only be prohibited if it is and the Commission rightly point out, proved that they infringe a valid property unlike counterfeit currency or narcotics (in 17 right. As the Commission has pointed out, respect of which either there is no lawful the marketing of such products could at market or there is trading, but subject to most be subject to a conditional prohibition such strict controls that it can never compete but not, as in the case of narcotics or coun­ with lawful trade), there is obviously a law­ terfeit currency, wholly banned. By contrast ful market in perfume products which forms with those cases, the circumstances here are an integral part of the Community economy. similar to those in Lange, cited above, where However, even though trade in counterfeit the goods were not prohibited by reason of products is prohibited — because of the their very nature, and their exportation was harm it causes to the lawful business activi­ banned only in respect of certain countries ties which are liable to be supplanted by it, 18 where they could be used for strategic pur­ and in order to protect consumers — and poses. This is also the line of reasoning however much its existence may be deplored, which Advocate General Jacobs, in his the fact that it still goes on cannot be denied. Opinion in Fischer, mentioned above, pro­ Refusal to take account of this (particularly poses that the Court should follow with from the tax aspect, which is the one in point regard to the unlawful organisation of rou­ here) on the ground that, if such goods are lette games. banned, they are extra commercium and can­ not therefore be subject to VAT, would con­ fer on unlawful traders an unfair competitive advantage over their legitimate rivals who, alone, would have to pay VAT.

case-law concerning exceptions to the prin­ kept entirely separate from the question ciple of fiscal neutrality. It may very well be whether or not those goods are counterfeit. that the appellants calculated that, notwith­ standing the risk of prosecution entailed, trading in counterfeit perfume products would nevertheless be worthwhile on the 31. One last point. In all the cases cited basis that VAT did not apply to those prod­ above, the Court has taken care to make it ucts. By the same token, there can be no clear that the question whether a transaction question of encouraging transactions of that is subject to VAT is independent of the type by guaranteeing them the benefit of an operation of other rules of domestic law, par­ unjustified tax exemption. ticularly in the field of criminal law. In the present case, it is clear that this continues to hold true and that the Court's judgment will be wholly without prejudice to '... the pow­ ers of Member States to impose appropriate 30. Furthermore, as the United Kingdom penalties, including those with financial con­ Government and the Commission empha­ sequences, for contraventions of their legisla­ 19 sise, if levying of VAT were to depend on 2 tion ...'. 0 whether or not a product is counterfeit, the whole integrity of the internal market would be undermined. Given the lack of harmoni­ sation in this field, the catalogue of counter­ 32. Accordingly, I conclude that transactions feit goods varies from one Member State to involving counterfeit products, such as the another. Consequently, if the same tax treat­ perfume products at issue, fall within the ment is to be accorded to all transactions scope of VAT. They are therefore subject to within the Community, the question taxation under Article 2 of the Sixth Direc­ whether VAT is payable on goods must be tive.