61999CC0147_EN
Opinion of the Advocate-General
Opinion of the Advocate-General
Preliminary considerations
1. The present proceedings relate to the lawfulness of certain corrections of various types made to EAGGF financing to the detriment of Italy. In particular, these are individual corrections and a flat-rate correction of 25%, in a total of three cases.
2. In Decision 99/187/EEC (hereinafter the contested decision) the Commission found, among other points, that the following amounts could not be charged to the EAGGF:
- Approximately ITL 500 000 000 for costs of public stocks of durum wheat, on the grounds that the quality of this product was not acceptable for intervention;
- ITL 2 751 722 888 for consumption aid for olive oil, on the grounds of irregularities in the administrative procedure for withdrawal of approval from olive-oil packaging plants;
- ITL 62 685 916 000 and ITL 13 998 973 000 for premiums for ewes and goats, on the grounds of irregularities in management and controls.
3. The grounds of the contested decisions are found in particular in the Summary Report on the outcome of the controls for clearance of the EAGGF accounts, Guarantee section, for 1995 (hereinafter the 1995 Summary Report).
4. The Italian Government claims that the contested decision should be annulled, in so far as it has disallowed the above amounts in clearing the expenditure financed by the EAGGF in 1995.
5. The Commission contends, firstly, that the application should be dismissed and, secondly, that the applicant should be ordered to pay the costs of the proceedings.
6. Each of the three pleas submitted in the application will be discussed here as regards the corresponding contested correction. For further details regarding the facts, the course of the proceedings and the arguments of the parties, reference should be made to the Report for the Hearing. The content of the pleadings in the case will be reproduced below only as required to support the present Opinion.
I - Public storage of cereals - Inspections carried out by the UCLAF at take-over agencies - Ineligible quantities of durum wheat
A - Facts and legal context
7. Council Regulation (EEC) No 1766/92 of 30 June 1992 on the common organisation of the market in cereals is the basic legislation for the system of intervention as from the 1993/94 marketing year. Commission Regulation (EEC) No 689/92 of 19 March 1992 prescribes the procedures and the conditions for the taking over of cereals by the intervention agencies.
8. During inspections conducted in Italy in December 1993 the UCLAF (Unit on Coordination of Fraud Prevention) found that a number of warehouses had quantities of durum wheat not eligible for intervention, and also quantities missing. These findings led to a corresponding financial correction of ITL 3 857 589 582 in 1995.
9. That financial correction relates to a total of slightly over 18 000 tonnes of durum wheat, of which only 1 485.104 tonnes (hereinafter the quantity in dispute) are the subject of the present action. The quantity in dispute accounts for one part of the amount of the correction and, according to the Italian Government's estimates, comes to about ITL 500 000 000 of the total sum of ITL 3 857 589 582.
10. The quantity in dispute consists of batches of durum wheat that had been or should have been stored at three separate warehouses. Since the pleas in the application are based on matters of fact, no detailed description is required of the facts and pre-litigation procedure: for these, reference should be made to the 1995 Summary Report.
11. Essentially, the Italian Republic claims that the Commission has made material errors in counting the quantities in dispute at three separate warehouses. In particular, it complains that, for the purposes of calculating the correction, the Commission sometimes used quantities greater than those actually found to be present. It is therefore necessary to set out and evaluate the Italian Republic's claims separately for each of the warehouses concerned.
12. In this context, reference should be made to the settled case-law of the Court of Justice regarding the clearance of the accounts of the EAGGF and the burden of proof in direct actions against Commission decisions in this Community sector.
13. According to that case-law, the EAGGF finances only interventions carried out in accordance with the Community rules and, where the Commission has doubts concerning an intervention which it considers to be justified by the relevant facts or circumstances, it must withhold the sums corresponding to that transaction unless the Member State produces sufficient evidence to dispel those doubts.
14. In accordance with those principles, when the Commission refuses to charge certain expenditure to the EAGGF on the ground that it was incurred as a result of breaches of Community rules imputable to a Member State, it is for that state to show that the conditions for obtaining the financing refused by the Commission are fulfilled.
15. The Court of Justice has also held that [t]he Commission is required not to demonstrate exhaustively that there are irregularities in the data submitted by the Member States but to adduce evidence of serious and reasonable doubt on its part regarding the figures submitted by the national authorities. The reason for this mitigation of the burden of proof on the Commission is that ... it is the State which is best placed to collect and verify the data required for the clearance of EAGGF accounts; consequently, it is for the State to adduce the most detailed and comprehensive evidence that its figures are accurate and, if appropriate, that the Commission's calculations are incorrect.
16. In its first plea, the Italian Government challenges only three particular corrections, alleging presumed errors of calculation. It is not therefore the principle of those corrections which is challenged, but only their amount. In accordance with the apportionment of the burden of proof mentioned above, it will therefore be necessary to see whether the Italian Republic has shown in each case that the corrections concerned are wrong.
B - The San Lorenzo warehouse
17. For the San Lorenzo warehouse, the Italian Government challenges the quantity of 954.220 tonnes deducted by the Commission by way of correction (hereinafter the quantity corrected) for the 1991/92 marketing year. For that purpose the Italian Government invokes the counts made by the Italian intervention agency AIMA and the outcome of the analyses made following an on-the-spot inspection. In accordance with those analyses, the Italian Government claims, the Commission should have deducted only 64.51 tonnes for the 1987/88 marketing year.
18. Essentially the parties disagree in respect of the items to which the quantity corrected refers and, consequently, on whether the Italian Republic's rights of defence were observed during the pre-litigation procedure, and also on whether the contested decision of the Commission was sufficiently reasoned on this point. In particular, the Italian Government complains that - following the inspection of 27 December 1993 - the Commission had not complained earlier of the absence of the 1 076.22 tonnes on which it based its calculations in the letter of 31 August 1998 (proposing the corrections to the Italian authorities) and in the 1995 Summary Report. On this, the Italian Government stresses that some missing quantities were corrected separately, as such, at paragraph 4.5.1.1.1.3(a) of the 1995 Summary Report.
19. It must first be clarified which marketing year the quantity corrected relates to. Whilst the Italian Republic starts from the assumption that these quantities of durum wheat relate to the 1987/88 marketing year, the Commission (from what it has stated) is referring to a quantity which relates to the 1991/92 marketing year. According to the Commission, this can be seen from its letter of 31 August 1998 to the Italian authorities. On the other hand, the Italian Government refers, in this regard, to a letter from the Commission dated 6 August 1997 relating to the initiation of the correction procedure in 1994. The Italian Government infers from this that its rights of defence have been infringed in so far as the Commission altered the subject-matter of the correction in the course of the procedure.
20. With respect to that assertion by the Italian Government regarding the letter of 6 August 1997, the Commission observes that, as regards the San Lorenzo warehouse, no correction was made for durum wheat for the 1987/88 marketing year. That decision, contained in a letter of 1 October 1998 to the Italian authorities, was adopted following the report of the Conciliation Body. The letter of 6 August 1997 has therefore lost all significance on this point. According to the Commission, the contested 954.220 tonnes in the San Lorenzo warehouse relate to the marketing year 1991/92 and are included within the 1 076.220 tonnes noted at paragraph 4.5.1.1.1.3(b) of the 1995 Summary Report.
21. In the light of the documents in the case, the Italian Republic's arguments on this point cannot be accepted. UCLAF inspection minute No 4a, for the inspection of 10 December 1993, submitted by the Italian Republic itself, refers unequivocally to the marketing year 1991/92. The Commission also rightly stresses that, in a letter of 24 June 1998 to the competent national bodies, the Italian authorities started from the assumption that the disputed quantity was charged to the marketing year 1991/92. The Italian Government's contention that the Commission is misrepresenting the nature of that letter in treating it as amounting to an admission cannot be upheld: this letter shows rather that the Italian authorities clearly started out from accurate data.
22. For the rest, it must be stressed that even if the quantity corrected had originally been charged to another marketing year, that alone would not be enough to vitiate the contested decision: in such circumstances, the Italian Republic would have had to show that, during the process of preparing the decision, it was unable to participate in the ongoing discussion on the matter with the Commission. However, the Italian Republic's own statements show that these circumstances did not obtain in this case.
23. It must therefore be found that the Italian Republic has not shown that the Commission has made an error in charging the correction concerned to a particular marketing year.
24. Alternatively, the Italian Republic contends that, according to inspection minute No 4a, there were two different estimates of quantities and the Commission accepted the higher quantity as true, that is the one less favourable to Italy, without giving sufficient reasons for this. The Commission raised an objection of inadmissibility to that argument under Article 42(2) of the Rules of Procedure of the Court of Justice on the ground that the Italian Republic had used the argument only in its reply and, therefore, out of time. There are, according to the Commission, many reasons for upholding that objection, but a detailed examination would be needed only if Italy's arguments regarding the substance of the case were successful.
25. However, on the basis of the documents in the case, it must be noted that the Commission accepted as valid only those inspection results which emerged from a checking procedure conducted in the presence of all the parties concerned. The reasons for that decision can also be gathered from the Check Report of 3 January 1994 on the checks made after hearing both sides. The Commission therefore has given plausible reasons on this point; the Italian Republic's argument must be rejected in this respect too.
26. Lastly, the Italian Republic explains the quantities found missing in the San Lorenzo warehouse as dispatches which, it says, had not yet been entered in the proper register. The Commission rejects this claim as completely unfounded. The inspection minute of 10 December 1993 shows that the management of the registers at that warehouse was defective. The Italian Republic's argument is therefore not sufficient to invalidate the points made by the Commission and, consequently, this argument also must be rejected.
C - The Castellaci warehouse
27. As regards the Castellaci warehouse, the Italian Government challenges the correction relating to 95.4 tonnes of durum wheat. At the time of the inspection made by the UCLAF in December 1993, the Castellaci warehouse should - on the basis of the Italian authorities' accounting information - have held 956.77 tonnes. However, the estimates of the quantities present, made at the time of that check, showed that only 861.37 tonnes were actually present, that is a shortfall of 95.4 tonnes compared with the corresponding costs charged to the EAGGF. In addition, the analyses showed that the quantity present was not of intervention quality.
28. The Commission made a financial correction for 956.77 tonnes of durum wheat, stating as the reason for this that the EAGGF Guarantee section had been charged for the storage costs on that quantity and not on the 861.37 tonnes actually present. The Italian Republic contends that the contested decision is invalid because, in its view, the Commission should have shown that the missing quantity also was not of intervention quality.
29. In that regard, the Italian Republic's argument does not appear to be convincing. For the purposes of the financial correction to the costs of quantities charged to the EAGGF, it is not the quantities actually present which count but the quantities shown as present from the warehouse accounts and charged to the EAGGF. Therefore, where the results from the analyses effected show that a quantity of durum wheat is not of intervention quality, it is necessary, for the purposes of the correction by the Commission, that reference should be made to the quantity as shown in the accounts. It must further be stressed that, under the rules on the burden of proof described earlier, it was for the Italian Republic to show that the quantities missing at the time of the check were eligible for intervention.
D - The Jungetto warehouse
30. As regards the Jungetto warehouse, the Italian Republic challenges the correction relating to 543.214 tonnes of durum wheat. At the time of the check carried out by the UCLAF in December 1993, the Jungetto warehouse should - on the basis of the Italian authorities' accounting figures - have held 1 994.014 tonnes because the EAGGF had been charged for warehousing costs in an amount corresponding to that quantity. However, the estimates of the quantities present, made following an inspection, showed that only 1 450.800 tonnes were actually present, that is a shortfall of 543.214 tonnes. In addition, the analyses showed that the quantity present was not of intervention quality.
31. The starting point here is therefore the same as in the case of the Castellaci warehouse. However, the Italian Republic now claims that, as at 30 October 1993, the Jungetto warehouse held only 969.250 tonnes of durum wheat. The additional quantity of 1 024.764 tonnes was stored later, between 30 December 1993 and 5 January 1994, that is - the Italian Government states - after the Granmichele and Raddusa warehouses had made this quantity available. Therefore, at the time of the inspection concerned - that is on 16 December 1993 - the store held only the first quantity stated above. According to the Italian Government, only that quantity could therefore have been the subject of any correction.
32. The Italian Republic's explanation for the quantity present being estimated after the inspection at only 1 450.800 tonnes is that the estimate of the quantities in store, and the taking of samples, did not take place until 9 February 1994, whereas 500 tonnes had already been removed from storage for sale on 29 December 1993. The remainder of the quantity missing was due, it claims, to natural losses during storage.
33. The Commission has stated that it is prepared to accept that argument and to abandon that correction as soon as the Italian Republic has produced proof of this. However, the documents in the case show that the Commission regards this claim by the Italian Government as contradictory and incomplete.
34. In any case, in accordance with the line of reasoning set out above, the Commission was entitled - if not, indeed, required - to take as the basis for the correction the quantity actually charged to the EAGGF, once it was convinced that the quantities actually present were not eligible for intervention.
35. However, the quantity which - unquestionably - was missing at the time of the inspection might also have been eligible for intervention, provided that this was actually delivered to the Jungetto warehouse at a later date. It has therefore to be established whether the Italian Republic has produced proof of this, contrary to what the Commission maintains.
36. Whilst the Italian Republic cites arrivals from other warehouses, it has adduced evidence of this in its pleadings. In particular, it cites a transfer of 997.244 tonnes to the Jungetto warehouse from the Raddusa warehouse alone even though, at the time of the inspection at the Raddusa - on 16 December 1996 - the information provided by the Italian Republic itself shows that only 888.44 tonnes were stored there. It is admittedly not impossible that the missing quantity came into the Raddusa warehouse between 16 December and 30 December - the date on which it is claimed the transfer began; however, this has not been alleged in the proceedings. In addition, the handwritten notes regarding the alleged transfers, made on the extracts from the accounts for the Jungetto warehouse and produced in the case, have been specifically disputed by the Commission. On this point, therefore, the Italian Republic has not discharged the burden of proof which lies on it.
37. In the light of the above considerations, the Italian Government's arguments on the three corrections regarding the public stocks of durum wheat appear convincing. The first plea therefore must be rejected.
II - Aid for the consumption of olive oil - Withdrawal of approval for packaging plants in Italy
38. Here the Italian Republic is contesting individual corrections totalling ITL 2 751 722 888 in respect of payments of aid for the consumption of olive oil in the marketing years 1993/94 (charged to 1994) and 1994/95 (charged to 1995). The reason for those corrections, stated at paragraph 4.7.3.1 of the 1995 Summary Report, is that aid was paid to undertakings whose status as undertakings eligible to receive the aid should have been withdrawn. The reason for this, it is said, is that, in the marketing years concerned, those undertakings had submitted applications for aid although they had already exceeded the 20% threshold for quantities accepted as qualifying for aid, under Article 12(6) of Regulation No 2677/85.
39. After receiving the report of the Conciliation Body in Joined Cases 98/IT/108 and 98/IT/095, the Commission reduced the total amount proposed (corrected previously) from ITL 3 764 182 386 to ITL 2 342 756 462 for 1994 and from ITL 422 221 471 to ITL 408 996 426 for 1995.
A - Legal context
40. Under Article 11(1) of Council Regulation No 136/66/EEC, consumption aid is to be paid for olive oil produced and placed on the market in the Community where the production target price (less the production aid) is higher than the representative market price for olive oil. The aid is then equal to the difference between these two amounts.
41. Council Regulation (EEC) No 3089/78 of 19 December 1978, as last amended by Council Regulation (EEC) No 3461/87 of 17 November 1987 (hereinafter Regulation No 3089/78), lays down general implementing rules on aid for the consumption of olive oil.
42. Under Article 1 of Regulation No 3089/78, consumption aid is granted only to approved olive-oil packaging plants. Articles 2 and 3 lay down the conditions for granting and withdrawing such approval. Under Articles 5 and 6, entitlement to consumption aid is acquired the moment the olive oil leaves the packaging plant; packaging plants must submit applications within specified time-limits.
43. Article 7 of Regulation No 3089/78 provides that the Member States are to institute a system of supervision to ensure that the product for which aid has been applied qualifies for such aid. Under Article 8, the aid is to be paid when the supervisory body designated by the Member State in which packaging takes place has checked that the conditions for granting the aid have been satisfied. The aid may, however, be advanced as soon as the aid application is submitted, provided that sufficient security has been provided.
44. Article 9(3) of Commission Regulation (EEC) No 2677/85 of 24 September 1985 laying down implementing rules in respect of the system of consumption aid for olive oil, as amended by Commission Regulation (EEC) No 643/93 of 19 March 1993 (hereinafter Regulation No 2677/85), provides:
The Member State shall pay the aid within 150 days of submission of the application for the quantities for which entitlement to aid has been recognised following on-the-spot checks. ... The body responsible for checking entitlement to aid shall notify the paying agency of its findings as regards recognition of entitlement to aid in respect of each approved undertaking within 45 days of the on-the-spot check and at least 20 days before the end of the time limit referred to in the previous subparagraph.
45. Article 11 of Regulation No 2677/85 provides that the amount of the aid is to be advanced once the party concerned has submitted to the competent authority an application for aid together with a certificate showing that a security of an amount equal to the aid has been lodged.
46. Article 12 of that regulation lays down the procedures for the inspections which the competent authorities must carry out and, in particular, provides that such inspections are to be carried out every 12 months. Article 12(6) was reworded in Regulation No 571/91 and further amended in Regulation No 643/93, from which the formulation which follows applies for the present purposes:
Where the competent authority finds that an application for consumption aid relates to a quantity greater than that for which entitlement to aid has been recognised, the Member State shall impose a penalty on the packaging undertaking equal to between three and eight times the aid improperly applied for, depending on the seriousness of the infringement. ...
However, where the quantity for which aid has been improperly applied for exceeds the checked quantity for which entitlement to aid has been recognised by at least 20%, the Member State, in addition to imposing a financial penalty, shall withdraw approval for a period of from one to three years depending on the seriousness of the infringement.
In the case of any further infringement, and irrespective of the extent by which the quantity for which aid has been improperly applied for exceeds the checked quantity, in addition to the financial penalty, approval shall be withdrawn for a period of from one to five years depending on the seriousness of the infringement.
The penalties referred to in the first, second and third subparagraphs shall apply without prejudice to any other penalties.
B - Arguments of the parties
47. The Italian Republic disputes the individual corrections relating to consumption aid for olive oil not in their principle but in their amount. It maintains that in the present case the only question is to establish the point in time from which approval should have been withdrawn under Article 12(6) of Regulation No 2677/85. According to the Italian Government, the Commission started from the mistaken assumption that approval should be withdrawn with effect from the day of submission of the aid application at issue and not from the day on which the report establishing the irregularities was written.
48. The Italian Government infers from Article 12(6) of Regulation No 2677/85 that withdrawal of approval can be ordered only after the relevant checks have been carried out. It contends that the Commission's differing view leads to the Member State's decision on withdrawal being retroactive, which is unacceptable.
49. As grounds for the individual corrections, the Commission essentially claims that the necessary checks were not carried out early enough and that this was prejudicial to the EAGGF.
50. The Commission is here relying on the wording of Article 9(3) of Regulation No 2677/85, according to which the Member State is to pay consumption aid only for the quantities for which entitlement to aid has been recognised following on-the-spot checks. This means, it submits, that no aid can be charged to the EAGGF if on-the-spot checks show that approval as a packaging plant must be withdrawn under Article 12(6) of Regulation No 2677/85. Therefore, according to the Commission, the later such checks are made, the later withdrawal can be ordered.
51. The Commission also refers to the divergent interpretations within the Italian administration regarding the power to order withdrawal of such approval. As a result of those divergences, those checks were not made speedily enough and there was a considerable delay in evaluating the results of the checks. The Commission therefore found itself obliged to ensure that the delays did not prejudice the EAGGF.
52. The Commission maintains, lastly, that the individual corrections made are, as regards the Member State concerned, less onerous than a 2% flat-rate correction. However, according to the Commission, such a flat-rate correction would have been entirely justified, having regard to the uncertainty prevailing at the time regarding the division of powers within the national authorities and their performance of the checks.
53. In reply, the Italian Republic submits that the Commission did not complain of the delays in conducting the checks concerned. Furthermore, the divergent interpretations regarding withdrawal of the approvals concerned had no adverse effect on the checks that were necessary; in any case, approval could not be withdrawn without the appropriate checks. Lastly, the Italian Government disputes the acceptability of a flat-rate correction in this instance.
C - Assessment
54. This plea raised by the applicant raises the question of the point in time from which withdrawal of approved packaging-plant status produces its effects for the purposes of assessing the lawfulness of the grant of consumption aid for olive oil to any undertaking on which that penalty may be imposed. Whilst the Italian Government maintains that that point in time should be the day on which the report recording the infringement is written, the Commission says that it is the date of submission of the application for consumption aid by means of which the 20% threshold specified in Article 12(6) of Regulation No 2677/85 is exceeded.
55. This difference of interpretation is important in that any applications for the consumption aid in point can still be submitted at a time when - although the circumstances giving rise to a penalty under the second subparagraph of Article 12(6) of Regulation No 2677/85 already obtain - approval as a packaging plant has not been withdrawn. However, where the quantity threshold under the second subparagraph of Article 12(6) of Regulation No 2677/85 is found to have been exceeded in a given marketing year but the aid applications concerned are to be imputed to the following marketing year, there is a danger that the consumption aid may still be paid, at least until the withdrawal decision based on that inspection minute.
56. The Commission considers that this danger can be avoided by making the grant of consumption aid unlawful once the reference quantity threshold has been reached or, in technical and legal terms, by regarding the withdrawal decision as effective from the earliest relevant point in time; the Italian Republic however considers that it is essential to have a formal finding that the reference quantities have been exceeded, by means of inspection.
57. As regards the lawfulness of the aid granted in the meantime, therefore, the question arises whether such a finding by the competent national authorities on the quantities qualifying for aid (and thus also on any quantities in excess of the reference threshold), and to be documented in the inspection minute mentioned, is dispositive or declaratory in character. On this, the Italian Government maintains that consumption aid must be regarded as lawful until it is formally found that the reference quantity threshold has been exceeded and, in particular, stresses that the penalty of withdrawal of approval assumes such a formal finding has been made.
58. On a literal reading of Article 12(6) of Regulation No 2677/85, that penalty in fact requires the competent authority to find that the application for consumption aid is for a quantity greater than that for which entitlement to aid has been recognised. Hence, the finding that the quantity threshold has been exceeded is closely linked with the imposition of the penalty, with the result that the payment of consumption aid must be regarded as lawful up to the time when the competent authority finds that the excess exists. But that conclusion is not necessarily binding, because Article 12(6) of Regulation No 2677/85 cannot be considered in isolation.
59. From the systematic standpoint, Article 9(3) of Regulation No 2677/85 appears to be of particular importance here. Under that provision, aid is to be paid only on those quantities for which entitlement to aid has been recognised following on-the-spot checks. The provision speaks of recognition of entitlement to aid whilst, conceptually, Article 12(6) of Regulation No 2677/85 uses the term find in connection with establishing that any quantity is greater than that for which entitlement to aid has been recognised. Although it is not possible to infer from Article 12(6) whether the nature of the finding in question is declaratory or dispositive in character, the choice of wording in Article 9(3) might suggest that recognition is dispositive with respect to entitlement to the aid. Since, however, that recognition in itself presupposes an on-the-spot check during which it might even be found that the circumstances giving rise to a penalty under Article 12(6) of Regulation No 2677/85 obtain, that appears to argue in favour of the view that the withdrawal decision becomes effective on the date of the writing of the report finding the infringements, as is maintained by the Italian Government.
60. In that connection, it must also be observed that this is not the only case where the Court has had occasion to rule on the relationship between Article 9 and Article 12 of Regulation No 2677/85. In Case C-374/99 the issue is clearly whether recognition of entitlement to aid presupposes in every case the conduct of an on-the-spot check, as suggested in Article 9(3) or whether a 12-monthly check is sufficient, in accordance with Article 12(1). In those proceedings, the Advocate General, referring to these (apparently) conflicting rules on time-limits, expressed the view that Article 12 provides only a minimum rule and that Article 9 remains unaffected in that respect.
61. However, the Italian Government's contention might be undermined by a teleological interpretation of Article 12(6) of Regulation No 2677/85. In that context, it is necessary to take as a starting point the purpose of the penalty of withdrawal of approval. The sharpening of the penalties relating to unlawful applications for consumption aid for olive oil has to be seen in the context of the combat against fraud. Thus, the preamble to Regulation No 643/93, from which the version of Article 12(6) of Regulation No 2677/85 now in point derives, establishes a link between sound management of the aid scheme and extension of the system of penalties against packaging undertakings which apply for consumption aid in respect of quantities greater than those for which entitlement to aid is recognised. Lastly, the ninth recital in the preamble to Regulation No 1638/98, which inter alia abolished consumption aid for olive oil, makes a direct reference to the risk of fraud.
62. In the light of those considerations, it does not seem appropriate to accept as lawful that the EAGGF should finance consumption aid where it relates to a period of time subsequent to the coming into being of the circumstances giving rise to the penalty under the second subparagraph of Article 12(6) of Regulation No 2677/85, without regard to whether performance of the necessary checks was properly ordered and, consequently, whether the steps necessary for imposition of the penalty were properly taken.
63. Thus if, in one marketing year, a packaging plant has submitted applications not qualifying for aid under that provision but, in subsequent years, it were able to submit further applications without the fear of adverse consequences until such time as the inspection minute might be written, the effectiveness of the penalty of withdrawal of approval would be considerably reduced.
64. In that context, it must also be remembered that imposition of the penalty is intended to afford adequate protection for the financial interests of the European Communities. Thus, Article 2(1) of Regulation No 2988/95 provides that penalties are to be effective, proportionate and dissuasive. The effective and dissuasive nature of such penalties cannot be disregarded, therefore, when considering the legally relevant question of the time at which the penalty of withdrawal of approval takes effect.
65. Hence, in order to guarantee the effectiveness of the rules, it seems necessary for the penalty of withdrawal of approval under the second subparagraph of Article 12(6) of Regulation No 2677/85 to be imposed with effect from the time at which the circumstances giving rise to the penalty came into being. Contrary to the Italian Republic's assertion, that does not render the withdrawal decision unlawfully retroactive because - under that interpretation - the penalty only takes effect when the relevant circumstances obtain, and not just at the time of the check which records the circumstances.
66. In principle, no legitimate expectation can arise for the packaging plant during that period, since - under Article 9(3) of Regulation No 2677/85 - its entitlement to consumption aid in respect of a particular application can be recognised only after an on-the-spot check has been conducted.
67. As a result, therefore, the Commission must be regarded as right in maintaining that if, for the purpose of calculating the corrections, the method proposed by the Italian Republic were used, the final outcome would be that the expenditure charged to the EAGGF would depend on the speed of the performance of the checks and of any withdrawal of approval.
68. Thus, where it is found that a packaging plant has submitted aid applications for amounts exceeding the amounts for which entitlement to aid has been recognised by 20% or more on the basis of the checks performed, approval must be withdrawn with effect from the time at which such excess has been recorded which, in the present case, means from the submission of the relevant applications.
69. Lastly, for the sake of completeness, consideration should be given to the merits of the Commission's alternative submission on the possibility of making a flat-rate correction in the present instance. In response to the Italian Republic's argument that a flat-rate correction could not be made in this case, the Commission refers to the judgment in Case C-253/97. However, in that judgment it was held that there is therefore no reason in principle why an analytical correction should not be applied concurrently with a flat-rate correction. It is therefore open to question whether the Commission is right to refer to that judgment. However, the question whether in the present case a flat-rate correction is possible does not call for further examination, since that possibility is not relevant to the assessment of the individual corrections concerned.
70. In the light of all the above considerations, the second plea also must be rejected.
III - Sicily and Calabria - Premium for ewes and goats: correction rate of 25%
71. Under its third plea the Italian Republic disputes the flat-rate correction applied by the Commission, at a rate of 25%, on the premiums for ewes and goats charged to the EAGGF for the 1993 and 1994 marketing years in Sicily and for the 1994 marketing year in Calabria. The Italian Republic contends that the application of that rate of correction was unlawful and also claims that the reasons stated for it are defective.
A - Legal context
72. Article 5 of Council Regulation (EEC) No 3013/89 of 25 September 1989 on the common organisation of the market in sheepmeat and goatmeat, provides that a premium is to be granted to the extent necessary to offset an income loss by sheepmeat and goatmeat producers in the Community during a marketing year.
B - Pre-litigation procedure
73. The Commission imposed the disputed flat-rate correction following inspections which it conducted in 1995 and 1996. The finding emerging from the on-the-spot checks are summarised as follows at paragraph 4.9.4.6 of the 1995 Summary Report:
- large differences revealed by the comparison of the premium and veterinary statistics in Sicily;
- a high percentage of irregularities revealed during inspections in farms carried out in Calabria and Sicily at the instigation of Unit A.I.3, a large proportion having led to the total or partial rejection of the applications;
- useless registers of flocks precluding worthwhile inspection outside the period of keeping;
- insufficient notification of the place of keeping of the animals;
- non-existent system of marking of flocks when several are kept together, which makes checking impossible;
- doubts raised as to eligibility from the fact that male animals and young female animals, which were ineligible, were included incorrectly by the inspectors;
- checks carried out by the Italian authorities themselves in Sicily in 1996.
In 1996, the Italian authorities decided to carry out a full inspection in the Sicilian farms which had made an application for the premium for sheepmeat. For the whole of Sicily the results of that inspection, based on a check of 79% of the applicants, necessitated partial rejection of 33.66% and total rejection of 19.8% of applications.
74. In the 1995 Summary Report the Commission proposed the following corrections:
Budget Heading 1994 1995
2220 - ITL 38 718 586 000 - ITL 23 967 330 000
3805 - ITL 7 927 656 000 - ITL 6 071 317 000
The corrections proposed by the Commission were therefore:
- ITL 62 685 916 000, for budget heading 2220.
- ITL 13 998 973 000, for budget heading 3805.
75. In its report dated 10 September 1998, in case 98/IT/92 on checks on premiums for ewes and goats in the marketing years 1993 and 1994, the Conciliation Body came to the conclusion, in particular, that an additional detailed statistical examination was required and that the flat-rate corrections of 25% for Sicily and Calabria were inadequately reasoned.
76. While reducing or even completely cancelling the corrections for some regions, the Commission has increased the corrections for some others. The most significant changes relate to Calabria, where the correction for 1993 has been reduced from 25% to 10%, and to Sardinia, where the correction has been increased from 2% to 5%. The correction for Sicily remained unchanged for the marketing year 1993. The 25% corrections proposed for the marketing year 1994 for Calabria and Sicily remained unchanged.
C - Arguments of the parties
77. The Italian Republic contests the flat-rate reduction of 25% applied to the premiums for ewes and goats charged to the EAGGF for the marketing years 1993 and 1994 in Sicily and for the marketing year 1994 in Calabria. For that purpose, it puts forward three arguments.
78. Firstly, it claims that that rate, having been applied retroactively, is unlawful in the light of the entry into force of the guidelines established by the Commission in 1997 for the application of flat-rate corrections. The correction rate of 25% is for the marketing years before 1997 when, if need be, a flat-rate correction could be considered, to be applied in accordance with the guidelines stated in the Belle Report. However, those guidelines, issued in 1993, did not provide any correction rate of 25%, so that the application of that rate in the present instance was retroactive and, therefore, unlawful.
79. Alternatively, the Italian Republic states that, on the basis of the 1997 guidelines, a correction rate of 25% is lawful only where a Member State completely fails to apply a control system, or there are serious shortcomings in applying it, and if there are widespread proven irregularities and negligence in combating fraudulent and irregular practices. The Italian Republic contends that, on that basis, the correction of 25% appears clearly disproportionate in the light of the circumstances in this case.
80. Lastly, the Italian Republic claims that - notwithstanding the report of the Conciliation Body, according to which the Commission did not give adequate reasons for application of the rate concerned - the Commission only reduced the rate of the correction for Calabria from 25% to 10%, and only in respect of the marketing year 1993, without stating the reasons for not making a corresponding reduction in respect of 1993 for Sicily or in respect of 1994 for Calabria and Sicily.
81. In its defence the Commission contends firstly that that correction, which is contested as to its amount, is certainly appropriate in view of the irregularities found. In support of its contention, it refers to the 1994 Summary Report which, on this point, was repeated by the 1995 Summary Report, according to which more than half of the checks effected showed that the corresponding applications for premium had to be entirely rejected. In other cases, the applications had to be rejected at least in part. The Commission also stresses the shortcomings of the checks effected by the Italian authorities, although those authorities themselves had admitted that the risk of fraudulent applications was substantial in those regions. Furthermore, according to the Commission, it should be noted that in 1996, when the checks by the Italian authorities were made on a widespread basis for the first time, the level of irregularities in Sicily (apart from the Province of Palermo) was still above 40%; 83% of applications for premium in the Province of Catania could not be accepted in the same period.
82. In addition, citing the judgment of the Court in Case C-242/96, the Commission maintains that the burden of proving that the Commission's calculations were not correct rests on the Member State where the Commission, instead of rejecting all the expenditure affected by the infringement, has endeavoured to establish the financial impact of the unlawful action by means of calculations based on an assessment of what the situation on the relevant market would have been if the infringement had not occurred.
83. As regards the Italian Government's argument in respect of the allegedly retroactive application of the correction rate of 25%, the Commission maintains that the Belle Report already provided that a higher correction than the rates of 2, 5 and 10% normally provided might be appropriate in exceptional cases.
84. In its reply the Italian Republic repeats its contention that the Commission did not state adequate reasons for its decision to apply a correction rate of 25%: it did not explain why, following the conciliation procedure, it reduced the correction percentage only in respect of the marketing year 1993 in Calabria, nor did it state why the situation in the regions concerned should be described as exceptional and, lastly, it had failed to take due account of the observations by the Conciliation Body.
85. In its rejoinder the Commission refers to the irregularities that were found during the checks carried out and were reported in its communication No 10071 of 4 March 1998 to the Italian authorities. In the Commission's opinion, it emerges essentially that in Italy generally, and in Calabria specifically, checks were not conducted frequently enough, that furthermore their results were not guaranteed to be reliable because of problems in identifying the animals in question and, finally, that in 1994, about 40% of the applications checked in Sicily had to be characterised as irregular. On the basis of those facts, to apply a correction rate of 25% was justified and lawful. Lastly, the Commission maintains that it communicated the results from its own inquiries to the Conciliation Body, in a written note to its president.
D - Assessment
86. This third plea repeats corresponding arguments put forward by the Italian Republic in Cases C-242/96 and C-253/97 regarding similar corrections made in earlier years.
87. It must first be observed that the Italian Republic disputes the flat-rate correction only as to its amount. It must therefore be assumed that the irregularities recorded in the 1995 Summary Report are to be taken as proved.
88. In accordance with the application made by the Italian Republic, it must first be verified whether the Commission was entitled to apply a flat-rate correction of 25% in general. For this purpose, it must be established whether the Commission based its decision retroactively on the 1997 guidelines. However, contrary to the Italian Government's contention, that view is questionable.
89. It must be borne in mind here that, as the Court has consistently held, the Commission, instead of seeking to establish the financial impact of the failure of the Italian monitoring authorities to fulfil their obligations, could have rejected the entire expenditure tainted by the infringement.
90. Furthermore, it is not seriously disputed in this case that the possibility of applying a rate higher than the 2, 5 or 10% previously provided had already been introduced before the guidelines of 1997. However, in that context, account must be taken of the fact that the Commission might itself be bound by the guidelines laid down in the Belle Report of 1993.
91. However, even under the 1993 guidelines provision was made for application of the disputed correction rate of 25%, at least in exceptional cases. Therefore, the examination of this point in the dispute could be limited to establishing whether the Commission did in fact give adequate reasons for there being such an exceptional case.
92. Here reference must first be made to the case-law of the Court regarding the extent of the Commission's obligation to state reasons. According to that case-law, decisions concerning the clearance of accounts do not require detailed reasons if the government concerned was closely involved in the process by which the decision came about and is therefore aware of the reason for which the Commission considers that it must not charge the sums in dispute to the EAGGF.
93. In the present case, therefore, the Commission is right in referring to its communication of 4 March 1998, and it must be noted that its obligation to state reasons in this respect is of limited scope. As a result, all that needs to be verified is whether the reasons stated by the Commission can sustain the contested decision.
94. However, reference must first be made to the settled case-law of the Court as regards the burden of proof in cases of this type. According to that case-law, [a]lthough it is ... for the Commission to prove an infringement of the Community rules, the Member State concerned must demonstrate that the Commission committed an error as to the financial consequences to be attributed to it.
95. In this instance, the Commission considered a flat-rate reduction of 25% appropriate for each case, relying on the Belle Report in this. In this case, having regard to the settled case-law in the matter, it is for the Italian Republic to show that the conditions were satisfied for the expenditure concerned to be charged to the EAGGF or that only a smaller correction was lawful.
96. As for the criticism levelled by the Italian Republic against the Commission for its failure to give adequate reasons for its refusal, after the conciliation procedure, to modify the amount of the correction for Sicily in respect of the marketing year 1993 and for Sicily and Calabria in respect of the marketing year 1994, it is sufficient to note that that criticism disregards the rules on the burden of proof.
97. However, in view of the reservations stated by the Conciliation Body regarding the reasons given for the Commission's decision, it none the less appears appropriate in any event to verify whether the obligation to state reasons has been fulfilled here.
98. As regards the Italian Republic's argument based on the fact that the Conciliation Body, too, criticised the statement of reasons for the decision, it must firstly be observed that the Conciliation Body's report is not binding. The Commission is therefore not obliged to follow all the opinions stated by the Conciliation Body in the individual points of its report.
99. That notwithstanding, the modifications made in the corrections after the conciliation procedure show that the Commission took ample account of the Conciliation Body's report. Thus, the Commission reduced the correction rate in respect of the marketing year 1993 for Calabria, from 25% to 10%, after the Conciliation Body had noted that one of the principal grounds for criticism raised by the Commission applied to only one of the two regions.
100. As regards the application of a correction rate of 25% for Sicily in respect of the marketing year 1993, it must be noted that the Italian Republic has not explained how a lesser correction might have been more appropriate. Where the Italian Republic maintains that the decision is clearly inappropriate on this point because, it considers, the Commission has not taken account of its efforts to improve the intensity and efficiency of the controls, its arguments seem insufficiently substantiated. It must also be observed here that, as the Italian Republic has itself stated, those efforts did indeed begin in 1993, but they produced intensified controls only in 1995.
101. In the light of the foregoing considerations, it must be concluded that the statement of reasons for the contested Commission decision appears questionable only in that it applied the same correction rate of 25% in respect of the marketing year 1994 to Calabria and Sicily.
102. It must be remembered here that a refusal to charge expenditure to the EAGGF is not a penalty but is the outcome of a check on whether the expenditure concerned was properly incurred. The efficiency of any system of controls is only one of the various criteria provided in the Belle Report for the purpose of determining the rate of correction. Account must be taken also of the seriousness of the irregularities and the assessment of the anticipated damage to the EAGGF.
103. In that connection, it must first be pointed out that the Italian system of controls unquestionably revealed significant shortcomings in the marketing year 1994. In that regard, I refer to the statements by the Commission (not disputed on this matter) and to the considerations I have set out above. Furthermore, if it is borne in mind that, according to the statements of the Commission (not disputed on this matter either), only a fraction of the controls necessary was effected throughout the country - in particular, however, in the regions concerned - and that the shortcomings found in those regions were sometimes so serious that it made the controls pointless, then the arguments put forward by the Italian Government do not seem capable of removing the risk, to which the Commission refers, of a loss to the EAGGF accounts.
104. In the light of all the foregoing considerations, it must be concluded that the Italian Republic has not shown that the contested correction is disproportionate. In those circumstances, the financial correction of 25% made by the Commission for Sicily in respect of the marketing years 1993 and 1994, and for Calabria in respect of the marketing year 1994, is justified.
105. The third plea also must therefore be rejected.
106. In the result, none of the pleas put forward by the Italian Government is well founded and the application must therefore be dismissed in its entirety.
IV - Costs
107. Under the first subparagraph of Article 69(2) of the Rules of Procedure of the Court of Justice, the unsuccessful party is to be ordered to pay costs if asked for by the successful party. Since the Italian Republic has been unsuccessful, it must be ordered to pay the costs, as applied for by the Commission.
V - Conclusion
108. It is therefore proposed that the Court should give judgment as follows:
(1) The application is dismissed.
(2) The Italian Republic is ordered to pay the costs.