C-482/98

I — The Community legislation (a) when distributed in the form of alcohol which has been completely denatured in accordance with the requirements of any Member State, such requirements having been duly notified and accepted A. Legislation on customs duties in accordance with paragraphs 3 and 4 of this Article.3 This exemption shall be conditional on the application of the provisions of Directive 92/12/EEC 4 to 2. Directive 92/83/EEC 2 provides that the commercial movements of completely Member States are to apply an excise duty denatured alcohol; on ethyl alcohol [Article 19(1)] which is to be fixed per hectolitre of pure alcohol at 20 °C and calculated by reference to the 3 — Paragraphs 3 and 4 lay down the procedure for the disclosure and authorisation, at Community level, of the number of hectolitres of pure alcohol at a national denaturing processes. Having regard to the notifi- rate which, in principle, is the same for all cations made by the Member States, the Commission adopted Regulation (EC) No 3199/93 of 22 November the products chargeable with the duty on 1993 on the mutual recognition of procedures for the complete denaturing of alcohol for the purposes of exemp- ethyl alcohol (Article 21). tion from excise duty (OJ 1993 L 288, p. 12). As regards Italy, the communication of an amendment to the formula of the dénaturant authorised in that Member State made it necessary for the Commission to adopt Regulation (EC) No 2559/98 (OJ 1998 L 320, p. 27) amending the basic * Original language: Spanish. Regulation. 1 — OJ 1998 L 295, p. 43. 4 — Council Directive 92/12/EEC of 25 February 1992 on the 2 — Council Directive 92/83/EEC of 19 October 1992 on the general arrangements for products subject to excise duty harmonisation of the structures of excise duties on alcohol and on the holding, movement and monitoring of such and alcoholic beverages (OJ 1992 L 316, p. 21). products (OJ 1992 L 76, p. 1).

move between the various Member States 6 — Commission Regulation (EEC) No 3649/92 of 17 Decem- ber 1992 on a simplified accompanying document for the under cover of an accompanying document intra-Cominunity movement of products subject to excise duty which have been released for consumption in the listing the main data from the document Member State of dispatch (OJ L .169, p. 17).

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92/12 refers. That document is defined in 9. Lastly, mention should be made of Regulation (EEC) No 2719/92. 7 Directive 78/768/EEC. 9 Article 1(1) defines 'cosmetic products' as follows:

'A "cosmetic product" shall mean any substance or preparation intended to be B. Legislation relating to cosmetics placed in contact with the various external parts of the human body (epidermis, hair system, nails, lips and external genital organs) or with the teeth and the mucous membranes of the oral cavity with a view exclusively or mainly to cleaning them, 7. Article 5 of Directive 80/232/EEC 8 perfuming them, changing their appearance states that the latter's aim is that Member and/or correcting body odours and/or pro- States should not 'refuse, prohibit or tecting them or keeping them in good restrict the placing on the market of condition'. prepackages which satisfy the requirements of this Directive, on the grounds of their nominal quantity in the case of prepackages listed in Annex I ...'.

II — Background to the dispute

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The following conditions were amongst 11. As the Italian Government points out in those laid down: its application, the imposition of the afore- mentioned conditions was suspended after an action for Treaty-infringement was brought against it for failing to give prior notification of technical rules. Neverthe- less, the Italian Revenue Authorities per- sisted in seeking authority to refuse exemp- tion from excise duty for products which — only pure alcohol, not reject-quality might give rise to avoidance, evasion or alcohol, should be denatured to pro- abuse. duce perfumes and cosmetics, and

12. In its reply, the applicant State explains the denaturing process and the risks of tax — the alcohol content of certain house- evasion in the following way. hold cleaning products should not exceed 40%.

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branes, it is necessary to use good quality sought. 11 The institution considered: alcohol to manufacture a perfume.

Although the alcohol used in a perfume is denatured to a lesser degree and is therefore easy to regenerate, is not usual for it to be regenerated because the operation would be very expensive, given the price of pure alcohol. On the other hand, the operation would be feasible if the rules allowed waste alcohol to be used to make a 'perfume'.

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(12) Moreover, since Article 27(1)(b) cov- III — Forms of order sought ers not only, or even mainly, cos- metics, but also products used niter alia for cleaning purposes, the use of goods described as cosmetics for 14. The Italian Government asks the Court cleaning purposes cannot affect their to annul the Commission's decision, to classification under Article 27(1 )(b) refer the matter back to the Commission and cannot be regarded as evasion, for review, and to order the Commission to avoidance or abuse. This seems parti- pay the costs. cularly clear in view of the fact that in some Member States it is not unusual for colognes and the like to be used for non-cosmetic purposes such as cleaning. The fact that the "comple- 15. The Commission contends that the tely denatured" alcohols of Art- Court should dismiss the application and icle 27(1 )(a) may also be used for order the Italian Republic to pay the costs. such purposes is not relevant.

IV — Pleas in law

16. The Italian Republic alleges an infringe- ment and misapplication of Article 27(1 )(a) and (b) and (5) of Directive 92/83, Article 1 of Directive 76/768 and point 7.4, of Annex I to Directive 80/232. It also alleges that the decision is vitiated by inappropri- ate conditions, a lack of logic and an inadequate statement of reasons.

(16) In addition, Italy has not shown that any of the products subject to refusal Specifically, the applicant Government con- of exemption have in fact given rise to siders that the contested decision is invalid any actual evasion, avoidance or and should be annulled because: abuse. Nor has any other Member State — most of which have much heavier duty rates than Italy — reported any problems of evasion, avoidance or abuse arising from the — it maintains, generally and in spite of exemption of these products.' the provisions of point 7.4 of Annex I,

— in removing any limits as to alcoholic content and therefore permitting the preparation of products which are 18. It is true that, in the first stage of the substantially similar, in terms of com- long negotiations leading to the adoption of position and potential applications, to Directive 92/12, 12 the Commission pro- completely denatured alcohol, which is subject to more favourable rules, the Commission is creating, between pro- 12 — The Commission's first proposals were published in 1972.

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posed that excise duty should be levied only — products of CN codes 2204, 2205 and on alcohols intended for human consump- 2206 which have an actual alcoholic tion. 13 However, it does not appear that strength by volume exceeding 22%, the Council pursued that initiative.

— potable spirits containing products, whether in solution or not.' 19. Indeed, after it is laid down, in Arti- cle 19(1) of Directive 92/83, that 'Member States shall apply an excise duty to ethyl alcohol in accordance with this Directive', Article 20 provides as follows:

20. Under Article 26 of Directive 92/83, references to the Combined Nomenclature codes are to be deemed to be the version in force at the time of adoption of the Directive. 14 Now, although it is true that almost all the products to which the codes 'For the purposes of this Directive the term mentioned in Article 20 refer are alcoholic "ethyl alcohol" covers: drinks, it is also true that CN code 2207 includes 'denatured ethyl alcohol and pot- able spirit, of any grade', which cannot, under any circumstances, be classified as alcoholic drink.

22. I do not believe that Article 25 of denaturing methods which, according to Directive 92/83, which the Commission the Commission, are accepted at Commu- cites, can lead to any other conclusion. nity or national level only means that it will According to that provision: 'Member be easy for operators to obtain exemption. States may refund the excise duty on However, the fact is that Article 27(1) of alcoholic drinks withdrawn from the mar- Directive 92/83 links the obtaining of the ket because their condition or age renders exemption to the use of one of the denatur- them unfit for human consumption.' In my ing methods approved by a Community opinion, it cannot be inferred from the fact (Article 27(1)(a)) or national (Art- that that article refers only to alcoholic icle 27(1)(b)) rule. If, for any reason, the drinks that excise duty is chargeable only denaturing method which is used does not on products intended for human consump- fall into either of those two categories, the tion. As I have pointed out, the scope of resulting alcohol may not benefit from the this excise duty is defined in Article 20, exemption made available by those two whereas Article 25 is merely a particular provisions, irrespective of how the operator provision applicable to a specific type of who acts in this way may be described. the dutiable products.

iele 27(1 )(a) and (b) of Directive 92/83 are sarily fall within subparagraph (a), as the closely linked to the various types of applicant State seems to suggest. On the products, inasmuch as the denaturing for- contrary, I believe, as does the Commission, mulae have been decided upon taking into that the essential thing, when it comes to account the specific use to which each of granting or refusing exemption, is the them is put. Every product must therefore denaturing method. If it is one of those be given a precise classification, according approved at Community level, the alcohol to its composition and use, to prevent it is exempt from excise duty under subpar- benefitting unfairly from a more favourable agraph (a). If, on the other hand, the system than the one which corresponds to alcohol contained in a product not intended it, entailing not only a risk for the public for human consumption has been de- purse but also a distortion of competition natured in accordance with a procedure to the detriment of honest operators. approved in a Member State, it is appro- priate to apply the exemption available under subparagraph (b). Finally, if the denaturing method is not one of those approved by Community rules or by the national legal systems, the product docs not It claims that, by denying it the authority to qualify for exemption. refuse the exemption established in sub- paragraph (b) of the aforementioned provi- sion to products presented as 'perfumes' but manufactured with waste alcohol, the Commission has not taken into considera- tion the fact that Directive 80/232 requires that pure alcohol be used, at least for the 28. It would therefore be contrary to manufacture of certain categories of cos- Directive 92/83 to refuse to exempt a metics. product which satisfies the conditions laid down in Article 27(1 )(b) merely because it is discovered that its actual use does not correspond to the designation which the operator has given it. As the Commission rightly states, neither the use of pure The applicant Government also contends alcohol nor the maximum alcohol content that the Commission, by considering that it was considered by the Community legisla- is irrelevant, from a tax point of view, ture to be a criterion for applying the whether 'cosmetic' products may be used exemption. for household cleaning, is overlooking the provisions of Directives 76/768 and 93/35.

Directive 80/232 refers only to pure alco- (Article 1(1)) may be classified as 'cosmetic hol, a product presented as a cosmetic and products' and that Member States must containing impure alcohol may not and adopt the provisions necessary to ensure must not be penalised by loss of the that the labelling, presentation and advert- exemption, provided it satisfies the condi- ising of cosmetic products do not suggest tions laid down in Article 27(1) of Direc- that those products possess characteristics tive 92/83. On the other hand, Member which they do not (Article 6(3)). Thus, a States may, in accordance with the Com- household cleaning product, such as a munity directives, prohibit it from being detergent, may not be presented under the marketed and, if necessary, impose the designation 'cosmetic product'. economic or even criminal sanctions pro- vided by their respective national legal systems. The same can be said about the other condition laid down by the Italian Government, regarding the maximum alco- hol content of household cleaning pro- As I have already said, the fact that a ducts. household cleaning product cannot be called a cosmetic product does not mean that the denatured alcohol with which it is manufactured has to forfeit the benefit of the exemption from excise duty established by Directive 92/83 if it satisfies the condi- 30. Consequently, I consider that the claim tions laid down in Article 27(1)(a) or (b). based on an alleged infringement of Direct- In this situation too, what Member States ive 80/232 on cosmetic products should be may — and must — do is prohibit it from rejected. The Commission, in the contested being marketed as a cosmetic product and, decision, does not say that those products if appropriate, impose economic, or even may be made with impure alcohol. What it criminal, sanctions on those responsible, in maintains — rightly, in my view — is that accordance with the rules in force in each the use of that type of alcohol in products State. which have been presented as cosmetics does not prevent the exemption from applying if the alcohol used has been denatured in accordance with one of the procedures mentioned in Article 27(1) of Directive 92/83.

It believes that if products which are not necessary for evasion, avoidance or denatured in accordance with subpara- abuse to have occurred: the risk that they graph (b) and, as such, do not satisfy the may occur is enough. conditions laid down in subparagraph (a), are used, in practice, as substitutes for the products covered by subparagraph (a), in order to benefit from more favourable tax rules, this constitutes an abuse against which Member States must be accorded the right to take action. It therefore con- siders that the contested decision is invalid because it treats avoidance, evasion and abuse as the same thing and does not acknowledge that the attempt to benefit from more favourable tax rules constitutes an abuse. 35. The Commission replies that, accord- ing to the case-law of the Court of Justice, '... the need for a uniform interpretation of Community regulations makes it impossi- ble for the text of a provision to be considered in isolation but requires, on 33. In connection with this claim, the the contrary, that it should be interpreted Commission points out, first, that under and applied in the light of the versions Article 27 of Directive 92/83, for avoid- existing in the other official lan- ance, evasion or abuse to be able to justify a guages ...'. 15 It points out that the adjective decision not to grant or to revoke an 'eventuale' which appears in the Italian exemption, it has to be proved that such version of Article 27(5) does not have an an irregular action has actually taken place. equivalent in the other language versions. It It states that, as it indicated in para- adds that there is a clear contradiction graph 16 of the statement of reasons of between the adjective and the verb which the contested decision, Italy has not shown, precedes it, which is conjugated in the in the present case, that any of the products indicative ('dà luogo') and is not preceded, affected by its refusal of exemption have as would be logical, by the verb 'potere' in given rise to avoidance, evasion or abuse. the conditional ('potrebbe dar luogo'). The other language versions confirm that the sentence is in the indicative. For these reasons, the Commission believes that the Italian Government cannot rely on the adjective 'eventuale' in the Italian version 34. The applicant Government states, in of Article 27(5) to argue that the mere that connection, that, in the Italian version, possibility of avoidance, evasion or abuse is Article 27(1) of Directive 92/83 refers to sufficient to enable the Member State to lay the need to 'prevenire' (prevent) evasion, down conditions for a product to benefit avoidance and abuse, and that Art- from exemption. icle 27(5) and the twenty-second recital in the preamble to the Directive refer to 'eventuale' (possible) evasion, avoidance 15 — Case C-219/95 Ferriere Nord v Commission | I 9 9 7 | HCM. I-4411, paragraph 15, and in Case C-296/95 Emu or abuse, from which it infers that it is Tabac and Others |199H| ECR 1-1605, paragraph .16.

36. Reading the versions in the different exemption, paragraph 5 refers to the languages does not make it easier to revocation of an exemption ex post facto interpret Article 27(5). Some lead to the in the event of avoidance, evasion or abuse. conclusion that, as the Commission main- tains, avoidance, evasion or abuse must have occurred for the Member State to be able to lay down conditions for the applic- ation of the exemption. 16 Others, on the contrary, seem to suggest that the mere 38. I think this is an artificial distinction. possibility that such circumstances may First of all, paragraph 5 does not refer only occur is sufficient for Member States to to the revocation of an exemption, but also take action. 17 to the refusal to grant it.

late two different situations. Whereas para- cific, proven cases of avoidance, evasion or graph 1 allows Member States to lay down abuse, there would be no point to its final general conditions to ensure, as a preven- sentence, which says Member States shall tive measure, the correct application of the not be obliged to give retroactive effect to the decision taken by the Commission after obtaining the report of the Committee on 16 — That is true of the French version ['Si un État membre Excise Duties. estime qu'un produit qui a fait l'objet d'une exonération en vertu du paragraphe 1 points (a) ou (b) est à l'origine d'une fraude, d'une evasion ou d'un abus, it peut refuser d'accorder l'exonération ou retirer l'exonération déjà accordée'], the English version ['If a Member State finds that a product which has been exempted under para- graphs 1 (a) or 1 (b) above gives rise to evasion, avoidance or abuse, it may refuse to grant exemption or withdraw the relief already granted'], the German version ['Stellt ein Mitgliedstaat fest, daß ein gemäss Absatz 1 Buchstabe (a) 39. In my view, the aim of Article 27(1) oder (b) befreites Erzeugnis zu Steuerflucht, Steuerhinter- ziehung oder Missbrauch führt, so kann er die Befreiung and (5) is to allow Member States to adopt versagen oder die bereits gewährte Befreiung zurückzie- hen'] and the Spanish version ['Si un Estado miembro measures to prevent evasion, avoidance and considera que un producto exento con arreglo a las letras abuse, irrespective of whether it has been (a) o (b) del apartado 1 del presente artículo origina fraudes, evasiones o abusos, podrá negarse a conceder una proved that fraudulent practices have exención o anular la ya concedida e informará inmedia- tamente de ello a la Comisión']. occurred. 18 For such measures to be valid, they must not unduly restrict application of 17 — That is the position in the Portuguese version ['Se um Estado-membro considerar que um produto isento ao

It is ad eventuale evasione, frode o abuso, tale Stato può interesting to point out, with regard to the present case, rifiutare di concedere l'esenzione o revocare lo sgravio già that, in answer to a question put to them at the hearing by concesso. Lo Stato membro ne informa immediatamente la this Advocate General, the representatives of the parties Commissione'], although, in this latter case, as the stated that there was no record, either in Italy or the other Commission states, there may be doubt owing to the use Member States, of other cases of 'abuse' like the one which of the indicative ('dà luogo'). led the applicant Government to submit its initial request.

the exemption established by the Directive, ance, as the Commission claims, but must a matter which must be determined by be taken to bear its usual meaning of any means of the procedure laid down in unlawful behaviour, other than avoidance paragraph 5. If, on the basis of the report or evasion. from the Committee on Excise Duties, the Commission verifies that the measures are in conformity with the scope of the exemp- tion, it will proceed to approve them. Otherwise, it may refuse to authorise them. 43. The Commission replies that the three concepts mentioned are characterised by leading to the same result, that of im- properly escaping the obligation to pay 40. It is therefore unimportant whether the taxes on a product subject to excise duty. It measures for which the Italian Republic states that the only distinction permitted by had requested authorisation under para- the Court of Justice relates to the concepts graph 5 were motivated by the need to of evasion and avoidance. Thus, in its control proven tax evasion practices or judgment in Direct cosmetics II, 1 9the merely to prevent them from occurring. Court held, in respect of those two terms The prescribed procedure was followed, in Article 27 of the Sixth Council Directive and therefore the Commission had to verify on value added tax, 20that: not whether such practices were occurring but whether the aforementioned measures unreasonably and unjustifiably restricted the scope of the exemption established by the Community rules. It is clear from the contested decision that the Commission That distinction is confirmed by the his- considered that the planned measures dis- torical background to Article 27. Whilst proportionately restricted the scope of the the Second Council Directive on value exemption. It is that assessment which is added tax ... referred exclusively to the being examined in the present case. concept of "fraud", the Sixth Directive mentions in addition the concept of tax avoidance. This means that the legislature intended to introduce a new element in relation to the pre-existing concept of tax evasion. That element lies in the inherently 41. The parties also disagree about the objective nature of tax avoidance; intention interpretation to be given to the concept on the part of the taxpayer, which consti- of 'abuse' for the purpose of applying tutes an essential element of evasion, is not Article 27(1) and (5). required as a condition for the existence of avoidance.'

For the Commission, if the Community constitutes an attempt to benefit from more legislature had wished to include in the favourable tax rules or, consequently, that concept of abuse the behaviour of an it is an 'abuse' which justifies the refusal or operator benefitting without justification withdrawal of the exemption. from more favourable monitoring and movement rules, it would have had to make express provision for that infringe- ment, by separating the concept of abuse from the parallel concepts of tax evasion and avoidance. In the absence of any distinction in Article 27(5), the Commis- 46. For the sake_of completeness, it is sion comes to the conclusion that 'abuse' apposite to recall, as the Commission has must be taken to mean a course of action done, the case-law of the Court of Justice which is technically lawful, carried out concerning Article 13B(h) of the Sixth intentionally by the taxpayer, with the sole Council Directive, which has similar word- aim of avoiding payment of excise duty. ing to Article 27 of Directive 92/83. In its judgment in Gemeente Emmen,11 the Court stated:

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pretation of Article 8(1) of Directive refusing the Italian Government's request 92/81/EEC, 23 the Court of Justice declared: and that this claim should therefore be rejected.

'... Second, the degree of latitude afforded to Member States by the introductory wording of Article 8(1), whereby exemp- tions are granted by the Member States "under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of D. The claim based on tax discrimination such exemptions and of preventing any between products evasion, avoidance or abuse", cannot detract from the unconditional nature of the obligation imposed by that provision to grant exemption ...'

E. The claims relating to the other condi- tured alcohol to be able to benefit from the tions which denatured alcohols must satisfy exemption is that it has been denatured by in order to benefit from the exemption a method approved at Community level (subparagraph (a)) or in the Member State of origin (subparagraph (b)). For the for- 52. Finally, I think it is appropriate to deal mer, although it is true that they have be briefly with two issues which have been transported under cover of the simplified discussed by the parties in their written accompanying document, the lack of that submissions; they both relate to the other document may give rise only to an admin- conditions which denatured alcohols must istrative penalty but not, under any circum- satisfy in order to benefit from the exemp- stances, to loss of entitlement to exemp- tion under Article 27(1)(a) and (b) and tion, which would be a disproportionate which I consider properly fall outside the consequence for which provision is not scope of these proceedings. made in Community law. With regard to the latter, the Commission believes that they may move freely between the Member States, without any procedural conditions.

53. The first point which was discussed concerns the procedural conditions, speci- fically the requirement that alcoholic pro- ducts move under cover of an accompany- ing document.

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55. Nor do I think it is appropriate for the ducts' rather loosely, since it sometimes Court of Justice to give a decision on means finished products ready for con- another of the points disputed by the sumption (as in the third recital or the parties, which is whether the exemption second indent of Article 20), and some- provided for in subparagraph (b) applies times alludes to raw materials used to only to alcohol denatured in accordance manufacture finished products (as in Art- with the provisions of a Member State icle 27(2)(d) and (e)), including the den- which has already been used to manufac- atured alcohols covered by Arti- ture a product not intended for human cle 27(1 )(b). Therefore, it must be possible consumption. to apply the exemption under subpara- graph (b) to the denatured alcohol 'pro- duct' used to manufacture any product not intended for human consumption. It is for the national tax authorities to check that The Italian Government states that subpar- the product is actually intended for a use agraph (b) refers to denatured alcohol other than human consumption. already used to manufacture any product not intended for human consumption. If it has not yet been used, alcohol thus de- natured cannot benefit from the exemption in subparagraph (b) and must be consid- 56. I, for my part, believe that — as I have ered as a product subject to duty-suspen- already said and as the Commission has sion arrangements. pointed out — this issue falls outside the scope of these proceedings since there is no reference to the matter either in the Italian Government's initial application or in the contested decision. In my view, therefore, The Commission, for its part, points out the Court of Justice should not give a ruling that Directive 92/83 uses the term 'pro- on it.