C-240/01

COMMISSION v GERMANY

OPINION OF ADVOCATE GENERAL GEELHOED delivered on 8 May 2003 1

I — Introduction ary 1992 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products 3('Directive 92/12') is worded as follows: 1. In this case, under Article 226 EC, the Commission seeks a declaration by the Court that, by applying Paragraph 4(1)(2) (b) of the Mineralölsteuergesetz, the Federal Republic of Germany has failed to fulfil its obligations under Article 2(2) of Council Directive 92/81/EEC of 19 October 1992 on the harmonisation of the structures of excise duties on mineral oils 2since it has 'Whereas, in order to ensure the establish- not made subject to excise duty all mineral ment and functioning of the internal mar- oils intended for use as fuel. ket, chargeability of excise duties should be identical in all the Member States'.

I I— Legislative background 3. Under Article 1(1), Directive 92/12 lays down the arrangements for products sub- ject to excise duties and other indirect taxes which are levied directly or indirectly on the A — Community law consumption of such products, except for value added tax and taxes established by the Community. Pursuant to Article 1(2) of that directive, the particular provisions 2. The fourth recital in the preamble to relating to the structures and rates of duty Council Directive 92/12/EEC of 25 Febru- on products subject to excise duty are to be set out in specific directives.

1 — Original language: Dutch. 2 — OJ 1992 L 316, p. 12. 3 — OJ 1992 L 76, p. 1.

6. According to the third recital in the preamble to Directive 92/81, 'it is impor- tant to the proper functioning of the internal market to determine common 'Mineral oils other than those for which a definitions for all mineral oil products level of duty is specified in the rates which are to be subject to the general excise Directive 92/82/EEC shall be subject to monitoring system'. excise duty if intended for use, offered for sale or used as heating fuel or motor fuel. The rate of duty to be charged shall be fixed, according to use, at the rate for the 4 —OJ 1992 L 316, p. 19. equivalent heating fuel or motor fuel.'

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9. Article 8(1)(d) of Directive 92/81, as for mineral oils injected into blast furnaces amended by Council Directive 94/74/EC of for chemical reduction purposes in order to 22 December 1994 5 ('Directive 94/74'), prevent distortions of competition arising provides as follows: from different taxation arrangements in Member States.

'1. In addition to the general provisions set out in Directive 92/12/EEC on exempt uses of excisable products, and without preju- dice to other Community provisions, Mem- B — National law ber States shall exempt the following from the harmonised excise duty under condi- tions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemp- 11. The national legislation at issue in this tions and of preventing any evasion, avoid- case is the Mineralölsteuergesetz (Law on ance or abuse: the Taxation of Mineral Oils) of 21 December 1992 6 ('the MinöStG'), last amended by the Agrardieselgesetz (Law on Agricultural Diesel) of 21 December 2000. 7

2. for purposes other than MinöStG. Under point II of the circular, such use arises where the following criteria are satisfied:

(a) use as motor fuel or the production of motor fuel, — the use of mineral oil as heating fuel ('zum Verheizen') is the production of thermal energy;

(b) use as heating fuel ("Verheizen"),

— 'use as heating fuel' is the intentional (c) driving gas turbines; use of the calorific value of a sub- stance, that is to say, the (total or partial) combustion of mineral oil for the production of heat which is (totally or partially) transferred to another substance, in which process the pro- 5 duction of heat and the transfer of that heat must not be of merely secondary importance as compared with other purposes for which the mineral oil is used; 13. The detailed rules for the application of Paragraph 4(1)(2) of the MinöStG are set out more fully in a circular (Erlass) of 2 February 1998 8('the circular').

— the substance to which the heat is transferred must acquire the character of a new energy or heat source ('Heizmittel'); 14. That circular explains in more detail, on the basis of principles developed in the case-law of the Bundesfinanzhof (Federal Finance Court), the meaning of the term 'Verheizen' ('use as heating fuel') for the purposes of Paragraph 4(1)(2) of the — the actual use of the new heat source as a heating medium ('Heizmittel') justi- fies the conclusion that the mineral oil 8 — IIIA 1 — 10/97, published in the Vorschriftensammlung used to produce that heat source has Bundesfinanzverwaltung of 6 February 1998, N 08 98, No 70. been used as fuel.

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III— Procedure general terms, taking into account practice in the other Member States, in order to reach a clear and common solution.

16. By letter of 26 May 1999, the Commis- sion informed the Federal Republic of 18. On 13 March 2000 the Commission Germany, under Article 226 EC, that the sent a reasoned opinion to the Federal interpretation of the term 'use as heating Republic of Germany, reiterating its argu- fuel' ('Verheizen') given in the circular was ments from the letter of formal notice and not, in its view, consistent with the first adding that the fact that other Member sentence of Article 2(2) of Directive 92/81. States gave their own interpretations to the As a consequence of that interpretation, not phrase 'use ... as heating fuel' did not entitle all mineral oils used as heating fuel were the Federal Republic of Germany to define made subject to excise duty. that phrase in a manner which conflicted with Community law.

22. The main arguments submitted by the Commission and by the German Govern- ment can be summarised as follows. 25. According to that interpretation, the term 'use as heating fuel' ('Verheizen') refers exclusively to the indirect use of mineral oil as an energy source, namely as a means of generating a heat source which will serve to provide heat, as, for example, A — The Commission 's point of view in an oil-fired domestic heating system. This means that the use of the thermal energy of mineral oil to initiate and maintain indus- trial processes is not covered by that term. 23. The main issue to which the Commis- In the Commission's view, by applying sion draws attention is that under Para- Paragraph 4(1)(2)(b) of the MinöStG in graph 4(2)(2)(b) of the MinöStG, as inter- accordance with that interpretation, the preted by the circular, mineral oils may in Federal Republic of Germany is in breach certain cases be used as heating fuel without of Directive 92/81. being subject to excise duty.

24. Under the circular, the term 'use as heating fuel' ('Verheizen') is construed as 26. Even though Article 2(2) of Directive referring to the intentional utilisation of the 92/81 does not contain a formal definition calorific value of a substance, that is to say, of 'use ... as heating fuel', it follows from the (total or partial) combustion of mineral the objective of harmonisation that the oil to produce heat which is (totally or excise duty directives are aimed at ensuring partially) transferred to another substance that the term is interpreted independently. which must in turn acquire the character of The third recital in the preamble to a new source of energy or heat. The actual Directive 92/81 and the third recital in the

preamble to Directive 92/12 also point to Directive 92/81. According to the usual the need for such an independent and interpretation of the term 'Verheizen' used uniform interpretation. in Paragraph 4(1)(2)(b) of the MinöStG, mineral oils are always 'used' when they are burnt and the heat thus produced is used for heating, whatever the ultimate purpose of that heating may be. Consequently, the heat produced by the combustion may equally serve either to heat a building by 27. To substantiate that view, the Commis- means of a heating installation, or to sion refers to the judgment in Stichting initiate chemical processes where the 'Goed Wonen', 9from which it is clear, in mineral oil is not only a heat source but particular, that the VAT exemptions pro- where its constituents are also partly vided for in the Sixth Directive 10 must be incorporated into the final product. That based on independent concepts of Commu- view is supported by the English and French nity law. The principle on which that language versions of Directive 92/81, in finding by the Court is based can also be which the expressions 'used as heating fuel' applied to Directive 92/81. That finding and 'utilisées comme combustible' are used applies a fortiori to any concept which is respectively. determinative of the scope of a provision which serves as the basis for levying a tax. The lack of a definition of the phrase 'use ... as heating fuel' does not in any event mean that the Community legislature intended to leave the more exact specification of the content of that concept to the Member States. If the definition of the concept were 29. The Commission also points out that to take place in the fifteen national legal the German Government acknowledged in orders, that could undermine the objective its reply of 13 October 1999 to the of harmonisation pursued by Directive Commission's letter of formal notice that 92/81. the interpretation of the term 'use as heating fuel' ('Verheizen') applied in Ger- many, which is based on the case-law of the Bundesfinanzhof as reflected in the circular, has since departed from the true meaning of the term and from long-standing adminis- trative practice. 28. The Commission is of the opinion that the strict interpretation of the aforemen- tioned concept which is applied in Germany does not follow from the wording of

points out that under Article 8(1)(d) of mentioned in point HI of that circular are Directive 92/81 mineral oils injected into not covered by the particular case referred blast furnaces for the purposes of chemical to in Article 8(1)(d) of Directive 92/81. reduction as an addition to the coke used as the principal fuel are to be exempted from the harmonised excise duty. In that specific case, the mineral oils used are burnt, while the heat thus generated is used for the proposed chemical reduction. The fact that the Community legislature exempted the case referred to in Article 8(1)(d) from 32. The Commission does not share the excise duty clearly shows that it assumes German Government's view that Article 8 that the first sentence of Article 2(2) of (1)(d) of Directive 92/81 is intended purely Directive 92/81 covers all forms of use of as clarification. Referring to the 18th recital mineral oils for the production of thermal in the preamble to Directive 94/74, it points energy. In other words, the addition of out that it was the intention of the point (d) to Article 8(1) of Directive 92/81 Community legislature to create an entirely would have made little sense if the phrase new exemption. That shows that the Com- 'use ... as heating fuel' were restricted, along munity legislature assumed that the first the lines of the circular, to cases where the sentence of Article 2(2) refers to any use of thermal energy produced is transferred to mineral oil for the production of thermal another substance which in turn serves as a energy. heat source.

opinion that that interpretation must be 36. In the German Government's view, the applied in the same way to the exemptions Commission wrongly assumes that 'com- provided for in Article 8(1)(d) of Directive bustion' ('Verbrennen') and 'use as heating 92/81. fuel' ('Verheizen') ultimately lead to the same result. In normal German usage, 'use as heating fuel' ('Verheizen') means only the indirect utilisation of an energy source. Although in the case of combustion heat is always produced, the use of mineral oil as heating fuel and therefore the obligation to 34. On the other hand, the basic rule pay excise duty apply only when, viewed contained in Article 2(2) of that directive objectively, the heat produced is transferred must be interpreted broadly so that it to another substance which is heated up, covers, in general terms, the use of mineral and, viewed subjectively, it is specifically oils for the production of heat, that is to intended that the heat be transferred to that say, the use of the calorific value of mineral other substance. The terms 'intended for' oils. It is not relevant in that regard whether and 'offered for sale' in the first sentence of the heat produced is used to heat an object Article 2(2) of Directive 92/81 also point to or to initiate a chemical or industrial that subjective intention. If that subjective process. However, the interpretation of element is lacking, it cannot be assumed 'use ... as heating fuel' under the circular that the mineral oil has been used as heating has the effect that many taxable mineral oils fuel, even if other substances are heated up avoid excise duty. as a consequence of the release of heat during a combustion process. That is the interpretation which is applied in the case- law of the Bundesfinanzhof and which is embodied in the second indent of point I Iof the circular.

38. The German Government disputes that the concepts in Directive 92/81 must be 40. The German Government further sub- interpreted independently. In its opinion, mits that the third recital in the preamble to the third recital in the preamble to Directive Directive 92/81 requires a strict definition 92/81 does not require a uniform inter- only of the products which fall within the pretation of all the concepts used in the category of mineral oils for the purpose of directive, as argued by the Commission. levying excise duty, but not a comprehen- That recital is, rather, a reference to the first sive, uniform definition at European level indent of Article 3(1) of Directive 92/12, with regard to the intended use of those under which mineral oils would be defined products in order to equalise the tax in the relevant directive, namely Directive burden. 92/81. That took place in Article 2(1) of Directive 92/81, which lists the products regarded as mineral oils for the purposes of the directive. All those mineral oils are subject to the general regime of the excise duty directives, even where they are exempt, under certain conditions, from the 41. The interpretation supported by the duty on mineral oils. Commission presupposes that there is full harmonisation both in the field of mineral oil taxation and in the legislation governing turnover taxes. Directive 92/81 does not provide for such a degree of harmonisation with regard to mineral oils. That is clear from the wording of Directive 92/12. 39. If the Community legislature had intended the third recital in the preamble to Directive 92/81 to have the meaning attributed to it by the Commission, it would have defined 'use ... as heating fuel' in that directive itself. The fact that it did not do so, even though it was aware of the interpretation given to that concept in the 42. In the German Government's view, the Federal Republic of Germany, shows that it genesis of Directive 92/81 constitutes a accepted that interpretation and that it did further argument against a uniform defini- not opt for a uniform definition on this tion of the terms 'Heizzweck' ('fin de point. It was not, according to the law in chauffage') and 'Bestimmung als Heizstoff' force, the intention of the Community ('destination comme combustible') in all the legislature to harmonise the concept of Member States. The explanatory memo-

43. The German Government considers ill- founded the Commission's argument that the addition of point (d) to Article 8(1) of Directive 92/81 demonstrates that the first sentence of Article 2(2) must be interpreted broadly. The German interpretation also acknowledges that, where mineral oils are 45. According to the German Government, injected into blast furnaces for the purpose the need for complete and independent of accelerating chemical reduction, part of definitions in the turnover tax field is based the mineral oil is used as heating fuel. primarily on the Community's financing Rather, that provision is clarification of the needs and on the equitable distribution of fact that the industrial use in question is not financial burdens among the Member covered by Article 2(2). In those circum- States. The directives on mineral oil taxa- stances, it cannot be concluded a contrario tion have no such dual function, since the that any use of mineral oils to produce Community receives nothing from the yield thermal energy means that the mineral oils of these special excise duties and their basis does not serve as a basis for any transfer of financial resources whatsoever. The deci- sive argument in favour of the need for 13 — COM(90) 434 final (OJ 1990 C 322, p. 18). uniform definitions in relation to turnover

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tax does not apply in the case of mineral oil tions in question depends on the definition taxation. of 'use ... as heating fuel'. In view of the effect on the cost price of levying that tax, it is clear that considerable economic implica- tions will arise from the answer to a seemingly rather technical question regard- ing the meaning of the phrase 'use ... as heating fuel'.

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retained the freedom to define the concepts the minimum amounts prescribed in Direc- used in those directives. The fact that the tive 92/82, it is clear that those differences harmonisation achieved is of limited char- are attributable solely to that fact. acter cannot deprive the provisions of a directive of their effectiveness. 19 In its case- law on Directive 92/12, the Court has pointed out that the rules introduced by that directive with regard to the holding, movement and monitoring of products subject to excise duty are intended in particular to ensure that chargeability of excise duties is identical in all the Member States. 20 That objective of the excise duty 54. The Community legislature has also directives necessarily implies that the provi- given expression to that principle of uni- sions which form the basis of the duty form interpretation and application in the concerned must be interpreted uniformly. scheme of Directive 92/81. I refer here in The Member States are therefore not free to particular to the relationship between the define more precisely the concepts used in tax base (Article 2) and the exemptions those directives. from excise duty (Article 8), which are governed entirely by the directive. Those exemptions are divided into three cate- gories: mandatory exemptions (Article 8 (1)), optional exemptions (Article 8(2) and (3)) and other exemptions which may be introduced in accordance with a Commu- nity procedure (Article 8(4)). That system of exemptions, and therefore the effectiveness of the excise duty directives, could be 53. The purpose of the directives, which is undermined if Member States were free, to prevent distortions of competition, and by means of their own restrictive definitions thus also to bring about a level playing field of the concepts used in the directive, to in sectors of economic activity where excise permit excisable products or their use to duties are levied, suggests that the basis of avoid excise duty, thus achieving the same taxation should be as uniform as possible. result as an exemption. A uniform tax base creates the necessary transparency for fair and open competi- tion. 21Even though the rates charged in the various Member States may differ above

56. That brings me to the actual meaning ment, and subsequently emphasised by the of the phrase. In this connection, the Commission, that the meaning which is Commission and the German Government assigned to those words in the circular has put forward arguments based on the word- shifted away from normal German usage. ing, scheme and purpose of the provision. In any event, it is extremely questionable whether, under that textual approach based on the meaning of the words concerned in the German language, a legally useful definition of 'use ... as heating fuel' can be given.22 The meaning must instead be determined on the basis of the function of the phrase within the legislation as a whole and in the light of the objective pursued by that legislation. 57. So far as the grammatical approach is concerned, the Commission and the Ger- man Government examine at length the meaning of the terms 'Verheizen' and 'Verbrennen' in normal German linguistic usage. The Commission argues in essence that any use of a mineral oil for heating purposes, including industrial applications, falls within the scope of the first sentence of Article 2(2) of Directive 92/81. In contrast, according to the German understanding as 59. With regard to the purpose of Directive embodied in the circular, certain types of 92/81, the Commission draws attention to use of mineral oil in the industrial sphere the connection between the basic rule for are not covered by 'use as heating fuel' levying excise duty under Article 2 and the ('Verheizen'). In particular, those are appli- mandatory exemptions under Article 8 of cations in which substances are directly that directive. The main difference between exposed to the flame and in which there is the Commission's interpretation and that no transfer of heat. The German approach followed by the German Government — referring to the fact that the first sentence revolves around the issue of whether the of Article 2(2) of Directive 92/81 contains use of mineral oil in certain industrial the words 'intended for' — also emphasises processes should be subject to excise duty. the subjective intention to use the mineral In that connection, the parties have exam- oil for a heating purpose. ined the significance of the exemption in Article 8(1)(d) within the scheme of the directive. As stated above, that exemption concerns the use of mineral oil in blast furnaces for chemical reduction purposes.

60. According to the Commission, the sary and why the exemptions concerned inclusion of that exemption by the amend- must also be interpreted strictly. ment made by Directive 94/74 to Directive 92/81 shows that, in the view of the Community legislature, the use in question fell at the outset within the scope of the basic rule contained in the first sentence of Article 2(2) of Directive 92/81. That basic rule must therefore be interpreted broadly. The German Government, on the other hand, maintains that the inclusion of the exemption was merely a clarification which 62. As I have already pointed out above, 24 was necessary because of the interpretation the system established by the excise duty applied in Germany. In its opinion, there- directives requires the concepts used in fore, the inclusion of that exemption does those directives to be interpreted uniformly. not imply that the first sentence of Article In my view, the aim and purpose of those 2(2) of Directive 92/81 must be interpreted directives also demonstrate that the tax broadly. base should be interpreted broadly and the derogations from it should be interpreted strictly.

2(2). It refers in this connection to the duty, a restriction of the scope of Article Court's case-law on the exemptions 2(2) (a solution which would have been included in the Sixth Directive. 23 The Ger- closer to the German interpretation) did not man Government contends that the afore- suffice, but provision was instead made for mentioned case-law is not applicable to the an express derogation from the basic rule of excise duty directives. It points out in that taxability. From the point of view of regard inter alia that, unlike the Sixth legislative methodology, such a solution is Directive, the excise duty directives do not appropriate only where the situation being also serve as a basis for calculating the treated as an exception is, in principle, Community's own resources. That dual covered by the basic rule. If the intention function of the Sixth Directive explains was to provide clarification in the sense why uniformity of interpretation is neces- referred to by the German Government, the question arises as to why other industrial applications, which are exempted from excise duty under point III of the circular, 23 — 'Goed Wonen', cited in footnote 9. Paragraph 46 of that judgment states that 'it is settled in case-law that, since the are not also mentioned in Article 8(1). exemptions provided for in the Sixth Directive, in particular in Article 13, are derogations from the general principle stated in Article 2 of the directive, according to which VAT is to be levied on all supplies of goods or services made for consideration by a taxable person, those exemptions must be interpreted strictly .

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63. In my opinion, there is no need to 65. I therefore conclude that an interpreta- consider whether, as argued by the Com- tion of the concept 'use ... as heating fuel' in mission, the Court's case-law according to Article 2(2) of Directive 92/81 to the effect which exemptions under the Sixth Directive that certain industrial activities are not are to be interpreted strictly is applicable in subject to the harmonised excise duty the context of interpreting the excise duty would entail leaving the Member States directives. Greater importance attaches to free to decide whether to make those the fact that, although the Sixth Directive activities taxable and to organise any such serves as the basis for the generation of part tax at their discretion. It is obvious that in of the Community's own resources, it is that case the objectives pursued by the also — in the same way as the excise duty excise duty directives with regard to the directives — intended to ensure the proper products and activities concerned would functioning of the internal market and that not be achieved. that objective determines the interpretation to be given to the provisions of both directives.

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VI — Conclusion

68. I therefore propose that the Court should:

— declare that, by applying Paragraph 4(1)(2)(b) of the Mineralölsteuergesetz, the Federal Republic of Germany has failed to fulfil its obligations under Article 2(2) of Council Directive 92/81/EEC of 19 October 1992 on the harmonisation of the structures of excise duties on mineral oils since it has not made all mineral oils intended for use as fuel subject to excise duty;

— order the Federal Republic of Germany to pay the costs.