1.

First observation. In each of the tables submitted to you, alongside the amount of taxes on consumption and manufacture, appears that of customs duties imposed either on products purchased abroad by the undertaking or on products delivered to it by suppliers. These customs duties, which are generally greater than taxes on consumption, are taken into account so that an accurate assessment can be made of the legality of the refund. The matter at issue before you is the compatibility of Italian legislation and practice with Article 96 of the Treaty which refers only to the repayment of internal taxation. If there is one thing which is certain, it is that customs duties do not constitute internal taxation within the meaning of the Treaty and cannot therefore be repaid in pursuance of that article. That does not mean however that they cannot give rise to a refund — even a partial one — on the basis of Article 10. You will remember that in its written and oral observations the Commission discussed the quantum taken into account by the Italian Republic but that it did not formally contest the principle of this refund either in its reasoned opinion or in its application, whereas it was mentioned in the title of the two laws at issue. In fact, it seems that during the lengthy discussions which have taken place between the parties since 1960, they have recognized that the customs element does not fall within the ambit of Article 96, without however drawing all necessary consequences from this conclusion. Two documents in the file seem to indicate this. In a letter of 14 April 1962 sent to the Minister for Industry of the Italian Republic, the Commission, taking note of a decree which reduced, in conformity with the reduction following the implementation of Article 10 of the Treaty, the repayment rates then in force by a flat-rate amount of 35 %, believed that it could deduce from this that the part of the refund retained represented the amount of indirect taxes, the legality of which had to be reviewed ‘in the light of the fiscal provisions of the Treaty and especially Article 96’. For its part, the Italian Government considered, in a note of 4 March 1963, that fiscal repayments and drawbacks of customs duties imposed on materials contained in the exported products had to be assessed in accordance with the specific provisions of the Treaty, in other words Articles 10 and 96. However that may be, the question was not raised before this Court and the grounds of your judgment make no reference of any sort to customs duties. But the injunction which you addressed to the Italian Republic related quite definitely to the repayment of internal taxation. The problem confronting us is therefore as follows. In order to establish whether such repayment does not exceed the amount of taxation actually borne, the necessary condition determining the legality under Article 96 of the use of a flat rate, is it permissible to include customs duties as an item of taxation which may be taken into account? Although, as I have said, the point has never been raised, I think the reply must be in the negative, given the tenor of your judgment of 1965. In fact, to include customs duties as one of the basic elements of calculation in the process of equating taxation and repayment and to state that this practice is not contrary to Article 96, whereas that article provides only for the repayment of internal taxation, is to go against the very wording of the article. I repeat that this does not necessarily exclude all repayment of customs duty but such repayment cannot be affected on the basis of Article 96, contrary to the belief of the Italian Republic whose error is to grant through a single legal instrument and in accordance with an overall flat-rate system the repayment of heterogeneous taxation. Although comprehensible in the national context, this practice can no longer apply by reason of the requirements of the Treaty. If you accept my argument, you will be led, by examining the seven tables corresponding to the products examined individually, to take into account, for the purposes of the flat-rate repayment, only internal taxation within the meaning of Article 96. I think it is permissible for me to pass over the details of the calculations made and to come directly to the result, and also, so as to satisfy the wishes of the Italian Government, not to mention the names of the undertakings manufacturing the products considered. The conclusions are fairly straightforward. As we know, the Commission contested more or less resolutely certain elements of the internal taxation appearing in the analytical tables; even ignoring these criticisms, if we accept the whole amount of the internal taxation, the result is as follows: the rate of the flat-rate repayment (which is X lire per kg) is lower than the total sum of the internal taxation borne by the two types of automobile (in other words Lit. 9 per kg, compared with 12.03 and 10.22 respectively); on the other hand, it exceeds this total in the case of refrigerators (again a repayment of Lit. 9 per kg, compared with 5.40 and 5.75 respectively); it is also greater in the case of saucepans (repayment of Lit. 4 per kg, compared with 24.57 and 26.36 of reimbursable internal taxation). Accordingly, your judgment of 1 December 1965 seems to me to dictate the conclusion that since the Italian Republic has not furnished the evidence required of it and has failed to show that the flat-rate system chosen by it always remains within the mandatory limits of Article 96, recourse to such a system constitutes failure to fulfil the obligation incumbent upon it under the said article. In truth, the error is excusable and your finding will certainly not bring an end to the discussion. It is not without reason that the defendant's Agent observed at the hearing that Article 96 does not define any method for calculating repayments and that the Commission, which denies the Italian Republic the right to use a flat-rate system, has done nothing positive, either through regulation or directive (such as for example that which it proposed to the Council in pursuance of Article 112 for repayments granted by the same Law on exportation to third countries), to establish the system to be adopted. It is for the parties to come together and draw the conclusions which your judgment calls for and to find agreement on a method which meets both the requirements of Article 96 and practical needs.