OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN

DELIVERED ON 4 FEBRUARY 1982

My Lordi,

In this case the question in dispute before the Second Civil Division of the Italian Corte Suprema di Cassazione is whether Italian Decree Law No 425 of 24 July 1973 (GU No 189 of 24 July 1973, later convened into Law No 494 of 4 August 1973), which forbade price increases after 28 June 1973, applies to a contract dated 2 July 1973 and made between Ditta Fratelli Fancon (“Fancon”) and Società Industriale Agricola Tresse (“SIAT”) for the sale of flour extracted from Brazilian sova beans. Fancon seeks to rely on the terms of the Decree Law to say that the contract price is no longer payable. SLAT alleges that the Decree Law does not apply because soya flour falls within Council Regulation No 135/66 of 22 September 1966 (OJ English Special Edition 1965/6, p. 221) (“the Regulation”), which set up a common organization of the market in oil seeds, oleaginous fruit, vegetable oils and fats, and oils and fats of fish or marine mammals and, it is said, in so doing took away from the Member Spates the power to regulate the prices o; the goods to which it applies. Article 1 (2) of the Regulation lists the products covered by it, the list comprising a series of Common Customs Tariff (“CCT”) heading numbers and the appropriate description drawn from the CCT.

The Corte Suprema di Cassazione has referred the following question to the Court for a preliminary ruling:

“Is flour extracted from soya beans included in the list of products set out in Article 1 (2) of Council Regulation No 136/66 ... in particular under headings 12.02, ex 15.17 or ex 23.04 of the Common Customs Tariff?”

Since no question has been referred concerning the consequences of the goods falling within the scope of the Regulation, I say nothing about them.

The goods concerned in this case are extracted soya flour intended for use as animal feed. It is one of the products derived from the commercial exploitation of soya beans. The process appears to be as follows. The beans are first cleaned, cracked and dehulled. The hulls are used for animal feed. The beans are then crushed mechanically and the oil extracted. This results in a product called oilcake, whose protein content is about 45% and fat content about 4 to 5%. The oil may also be removed, as it was here, by a method of solvent extraction. In this case crushed beans are treated with hexane. The oil obtained is purified, leaving lecithin. What is obtained, once the oil has been removed, is also purified by heat treatment in order to remove every trace of solvent. The result is the extracted soya flour which is either milled and sold in powder form or made into pellets. It is said that by this method the soya beans separate into approximately 80% flour and 20% oil, leaving aside 1% of soya lecithin which is also present. The flour content is said to have twice the market value of the oil. The soya flour has a higher protein content than oil cake and an oil content of about 1% since complete extraction is impossible. Solvent extraction removes as much oil as is possible in a commercial industrial process.

Counsel for Fancon has put forward several general arguments in favour of the view that, even if the goods do fall within one of the tariff headings listed in Article 1 (2) of the Regulation, they nevertheless are not covered by the common organization of the market created by it. First, it is said that the object of the Regulation was to protect production in the Community of olive oil and vegetable and animal fats. At the time it was adopted, however, soya beans were not produced in the Community. Therefore they were not intended to be covered by the common organization of the market. It was in fact only from July 1974, after the adoption of the Italian Decree-Law, that the common organization of the market applied to soya beans bv virtue of Council Regulation No 1900/74 of 15 July 1974 (OJ, L 201 of 23 July 1974, p. 5). Secondly, extracted soya flour does not contain any oil or fat and, therefore, cannot be considered to fall within a common organization of the market for oils and fats.

These arguments must in my view be rejected. The products covered by the common organization of the market are defined in Article 1 (2) of the Regulation. There is nothing there which indicates that it is intended to include only products produced in the Community. Indeed, this is contradicted by the preamble to the Regulation which refers specifically to oils and oil seeds imported from third countries. The intention of the Regulation may well have been to protect production in the Community but the Council recognized, as the preamble shows, that this could be done only if competing products were covered by the common organization of the market. I do not accept that soya beans did not fall within the Regulation until 1974 because Article 1 (2) mentions the “oil seeds” covered by heading 12.01 of the CCT and, according to the CCT Chapter Notes for Chapter 12, soya beans fall under this heading. What Regulation No 1900/74 did was to apply a system of target prices and production subsidies to soya beans. It does not follow from this, however, that soya beans were excluded from the Regulation. Furthermore, the question whether products obtained from soya beans fall within the Regulation cannot be determined by reference to Regulation No 1900/74 which applies only to soya beans themselves.

It seems to be clear that the process by which extracted soya flour is obtained is intended to remove as much of the oil as is possible, the principal value of the extracted flour lying in its high protein rather than its fat content. The inference that such a product would not, as a matter of principle, fall within a common organization of the market for oils and fats seems however to be directly contradicted by the specific reference in Article 1 (2) of the Regulation under heading 23.04 to “... residues (except dregs) resulting from the extraction of vegetable oils ...”. If it had been the intention to exclude extracted soya flour, or substances like it, from the scope of the Regulation, one would expect to see some statement to this effect in the Regulation. Fancon has not been able to point to any and so the question must, in my opinion, depend on whether or not extracted soya flour falls within one of the tariff headings mentioned in Article 1 (2).

It is also said that Article 2 of the Regulation does not provide for any levies in respect of items falling within the products listed in section (b) of Article I (2) but only that the Common Customs Tariff shall be applied to them. This does not seem to me to affect the question in issue since it is plain that the goods referred to in section (b) of Article 1 (2) are covered by the Regulation and that they are included in the common organization of the market described.

Of the tariff headings mentioned in Article 1 (2) only the three set out in the Order for Reference appear to be in point. Heading 12.02 reads “Flours or meals of oil seeds or oleaginous fruit, non-defatted (excluding mustard flour)” and it is divided into two subheadings “A. Of soya beans” and “B. Other”. The Community Explanatory Notes contain no reference at all to this heading. The CCC Notes say only that it covers “... non-defatted flours or meals obtained by grinding the oil seeds ... covered by heading 12.C1. The heading does not include: ... Defatted flours (...) and defatted meal (heading: 23.04)”. All the parties seem to be agreed that the goods do not fall within this heading.

Heading 15.17 at all material times read “Residues resulting from the treatment of fatty substances or animal or vegetable waxes”. It, too, is divided into two subheadings: “A. Containing oil having the characteristics of olive oil” and “B. Other”. The Community Explanatory Notes also contain no reference to this heading but the CCC Notes state explicitly that it does not cover “Oilcakes, residual pulp or other residues (except dregs) resulting from the extraction of vegetable oils (heading 23.04)”. Both Fancon and the Commission, for differing reasons, take the view that extracted soya flour does not fall within heading 15.17. Neither SIAT nor the Italian Governement have addressed any arguments to the Court on this point.

Heading 23.04 states “Oilcake and other residues (except dregs) resulting from the extraction of vegetable oils”. It is divided into two subheadings, “A. Oilcake and other residues resulting from the extraction of olive oil” and “B. Other”. The CCC Notes define the oilcake and other residues envisaged in the heading as “the solid residues remaining after the extraction of oil from oil seeds ... by solvents or in a press or rotary expeller ... The residues classified in this heading may be in the form of slabs (cakes) or meal. They may also be pelletized either directly by compression or by the addition of a binder ...” All the parties, save Fancon, agree that the goods fall within this heading.

In my opinion, extracted soya bean flour does not fall within heading 12.02 for two reasons:

(i) the oil has been extracted from it so that it cannot be regarded as “non-defatted”,

(ii) the CCC Notes state thai the heading covers flours or meals obtained by grinding the oil seeds covered by heading 12.01 whereas here the goods are subject to further processes.

Nor does it fall within heading 15 1o because the Notes explicitly exclude oilcakes and other residues resulting trorr the extraction of vegetable oils This indicates that the second subheading.“Other”, refers to residues containing oil which does not have the characteristics of olive oil, rather than residues containing little or no oil at all; and that total extraction of the oil is not necessary for goods to be excluded from the heading.

According to Fancon, extracted soya flour does not fall within heading 23.04 because (i) it is not an oilcake but a flour extract obtained by the use of solvents (ii) it is not a residue but the principal product of the process. With the first objection I agree. “Oil-cake” does not in my view refer to a substance from which as much of the oil content has been removed as is possible. It is inapt to describe a dried substance in the form in which the flour is found and where the only oil left is that which cannot commercially be removed. As to the second objection it may, as a matter of common parlance seem strange to describe as a “residue” the product which it is most wished to obtain. The question is, however, whether the flour is a residue within the meaning of the Regulation. The CCC Notes define the goods covered by the heading as “the solid residues remaining after the extraction of oil”. No distinction is drawn between the situation where it is the oil which is primarily required, and that where the oil is the byproduct of the operation and where the principal objective is to obtan the more valuable, protein-rich extracted flour. It is the result and not the purpose which matters. The flour is what is left over after extracting the oil and that is what seems to me to be envisaged by the word “residue”. Identification of “residue” with “waste” seems to be denied by the exclusion from the heading of “dregs”. The French text also makes this clear in its reference to “lies” (lees) and “fèces” (sediment) which are excluded from “residue” for present purposes. The Italian text, like the English refers to “dregs” (morchie) while the Dutch is more like the French in that it speaks of lees (“droesen”) and sediment (“rezinksel”). The Danish and German texts are somewhat different. The former excludes “residues from the purification of oil” (“restprodukter fra rensning af olier”) while the latter excludes “oil sediment” (“Öldraß”). The conclusion seems to be that “dregs” and its equivalent in the other texts may be apt to describe lecithin but not extracted soya flour.

As the Italian Government pointed out, classification under this heading does not depend on whether the goods have been entirely defatted or not. The Community Notes allow the inclusion of residues containing a fat content of not more than 8% in some cases (viz. the products resulting from the extraction of olive oil and the residue from the manufacture of maize germ oil. The CCC Notes say that heading 23.04 excludes “Protein concentrates obtained by the elimination of certain constituents of defatted soya-bean flour, used as additives in food preparations (heading 21.07)”. This is a residual heading and the Notes state that it only covers preparations used for human consumption. The goods in this case appear to have been intended for animal consumption. Even if thev could properly be described as protein concentrates they could not therefore be classified under Heading 21.07. They accordingly fall in my opinion under heading 23.04,

For these reasons, it is my opinion that the answer to the question referred by the Cone Suprema di Cassazione is that flour extracted from soya beans is included in the list of products set out in Article 1 (2) of Regulation No 136/66.