Judgment of the Court of 8 January 1992. - Italian Republic v Commission of the European Communities. - Clearance of EAGGF accounts - 1987. - Case C-197/90.



European Court reports 1992 Page I-00001



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

++++

1. Agriculture - Common organization of the markets - Milk and milk products - Aid to skimmed milk processed into compound feedingstuffs and skimmed-milk powder intended for feed for calves - Supervision of use - Procedure - Commercial documents - Concept - Manufacturing records - Inclusion

(Commission Regulation No 1725/79, Art. 10(2)(d) )

2. Agriculture - Common agricultural policy - Financing by the EAGGF - Principles - Aid paid in contravention of Community rules - Failure to comply with the requirements relating to proof or supervision - Charging to the Fund - Not permissible

(Council Regulation No 729/70, Arts 2 and 3)

Summary

1. The concept of "commercial documents" in Article 10(2)(d) of Regulation No 1725/79, under which Member States are required to carry out thorough documentary checks concerning aid to skimmed milk processed into compound feedingstuffs and skimmed-milk powder intended for feed for calves, also defined in Article 1(2) of Directive 77/435 on scrutiny by Member States of EAGGF transactions, applies to all the documents to be scrutinized examination of which makes it possible to demonstrate whether transactions in respect of which aid has been granted were carried out in accordance with Community requirements. In particular, it includes manufacturing records containing a list of the ingredients necessary to produce a given quantity of feedingstuffs.

2. Articles 2 and 3 of Regulation No 729/70 on the financing of the common agricultural policy enable the Commission to charge to the EAGGF only sums paid in accordance with the rules laid down in the different agricultural sectors. In cases where Community rules authorize payment of aid only on condition that certain formalities relating to proof or supervision are observed, aid paid in disregard of that condition is not in accordance with Community law and the expenditure incurred therein may not therefore be charged to the EAGGF.

When the Commission is entitled, because the abovementioned supervision has not been carried out, to refuse to charge to the EAGGF the whole of the sums improperly paid, the Member State concerned cannot complain that it has merely imposed a flat-rate reduction of 10%.

Parties

In Case C-197/90,

Italian Republic, represented by Professor Luigi Ferrari Bravo, head of the Department for Legal Affairs of the Ministry of Foreign Affairs, acting as Agent, assisted by Oscar Fiumara, Avvocato dello Stato, with an address for service in Luxembourg at the Italian Embassy, 5 Rue Marie-Adélaïde,

applicant,

v

Commission of the European Communities, represented by Dierk Booss and Guiliano Marenco, Members of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of Roberto Hayder, a representive of its Legal Service, Wagner Centre, Kirchberg,

defendant,

APPLICATION for the annulment in part of Commission Decision 90/213/EEC of 19 April 1990 amending Decision 89/627/EEC on the clearance of the accounts presented by the Member States in respect of the expenditure for 1987 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), in so far as it disallows charging to the EAGGF of expenditure on aid for the processing of skimmed-milk powder and for the consumption of olive oil,

THE COURT,

composed of: F. Grévisse, President of Chamber, acting as President, P.J.G. Kapteyn, President of Chamber, G.F. Mancini, C.N. Kakouris, J.C. Moitinho de Almeida, M. Díez de Velasco and M. Zuleeg, judges,

Advocate General: M. Darmon,

Registrar: H.A. Ruehl, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 27 June 1991,

after hearing the Opinion of the Advocate General at the sitting on 3 October 1991,

gives the following

Judgment

Grounds

1 By application lodged at the Court Registry on 28 June 1990, the Italian Republic brought an action under the first paragraph of Article 173 of the EEC Treaty for the annulment in part of Decision 90/213/EEC of 19 April 1990 by which the Commission amended, as regards three Member States including Italy, Decision 89/627/EEC on the clearance of the accounts presented by the Member States in respect of the expenditure for 1987 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (Official Journal 1989 L 359, p. 23), in so far as the contested decision disallows charging to the European Agricultural Guidance and Guarantee Fund (hereafter "the EAGGF") of the sum of LIT 10 214 635 858 in the clearance of accounts submitted in respect of aid for the processing of skimmed-milk powder and the consumption of olive oil.

2 Initially, the action also related to the reservations expressed by the Commission in a letter of 10 May 1990 concerning the charging to the EAGGF of the sum of LIT 28 688 711 294 in the clearance of accounts submitted in respect of aid for the consumption of olive oil. However, in its reply the Italian Government abandoned that part of the action.

3 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the procedure and the pleas and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

Expenditure on aid for the processing of skimmed-milk powder

4 Commission Regulation (EEC) No 1725/79 of 26 July 1979 on the rules for granting aid to skimmed milk processed into compound feedingstuffs and skimmed-milk powder intended for feed for calves (Official Journal 1979 L 199, p. 1) lays down the inspection procedure for aid granted for the use of skimmed-milk powder in feedingstuffs. Under Article 10(1) and (2)(a)(b) and (c), Member States are required to carry out direct inspections of undertakings. As regards scrutiny of documents, Article 10(2)(d) provides that it must be thorough and unannounced.

5 The contested decision disallows charging to the EAGGF of the sum of LIT 5 862 632 980, which corresponds to 10% of processing aid for skimmed-milk powder during 1987. It is apparent from the documents before the Court that that decision was taken after a visit by EAGGF inspectors to three processing undertakings in the Province of Brescia, namely Wessanen, Frabes and Plodari, revealed that the checks carried out by the Italian authorities were inadequate. Although further scrutiny was carried out at the request of the Commission, the latter noted in a Further Summary Report of 12 March 1990 concerning the results of inspections for the clearance of EAGGF Guarantee Section accounts for 1987 (hereafter "Further Summary Report") that the reports submitted by the Italian authorities made no mention of a comparison, for all the transactions concerned, of the particular book records provided for in the Community legislation with those undertakings' accounts. In addition, the Further Summary Report noted a number of specific circumstances amounting to deficiencies in the checks carried out.

6 In its first plea, the Italian Government alleges that the Commission adopted the contested decision without taking into account observations which it had made on those various circumstances in a note of 10 March 1990.

7 It is clear from the documents before the Court that further scrutiny was carried out in October 1989. During part of that inspection, three Community officials were present. On 19 October 1989, the EAGGF sent the Italian authorities further instructions on the procedure for that inspection and requested them to submit the report and the various inspection documents by 30 November 1989 at the latest. The Italian authorities' letter concerning the further inspection carried out was sent on 20 November 1989.

8 Article 1(3) of Commission Regulation (EEC) No 1723/72 of 26 July 1972 on making up accounts for the European Agricultural Guidance and Guarantee Fund, Guarantee Section (Official Journal, English Special Edition, Second Series III. European Agricultural Guidance and Guarantee Fund, p. 109), inserted by Commission Regulation (EEC) No 422/86 of 25 February 1986 (Official Journal 1986 L 48, p. 31), provides that the Commission may fix a deadline for the forwarding of additional information by Member States. In the case of failure to submit that information within the period fixed, the Commission is to take its decision on the basis of those elements of information in its possession at the deadline, except in cases where the late submission of information is justified by exceptional circumstances. As regards the power of the Commission to set a deadline, the first recital in the preamble to Regulation No 422/86 refers to the need for rapid scrutiny of accounts, and states that the Commission must take account of progress made on clearance of the accounts.

9 It is common ground that in this case the Commission set the deadline at 30 November 1989. It follows that, given the necessity of finalizing the procedure for clearing the accounts, the Commission was not required to initiate a discussion with the Italian authorities on the objections set out in their note of 10 March 1990.

10 It follows from the foregoing that the first plea is not well founded.

11 In its second plea, the Italian Government disputes the findings made by the Commission in the Further Summary Report that further scrutiny was not thorough within the meaning of Article 10(2)(d) of Regulation No 1725/79.

12 The first part of that plea concerns the Commission' s finding that there was no overall comparison of the particular book records with the undertakings' accounts. The Italian Government maintains that all the records and, in particular, the entries on the registers of AIMA, the Italian intervention agency, were compared with those kept by the undertakings in accordance with Italian law. However, as the Italian Government has admitted in its application, only the most important transactions were recorded.

13 According to the Commission, the file submitted by the Italian authorities contains no evidence of an overall comparison between the particular book records and the undertakings' accounts.

14 It should be noted that there is no information in the documents sent by the Italian authorities to the Commission on the number of transactions selected nor on the results of scrutiny thereof. Furthermore, the Commission stated during the oral procedure, without being contradicted by the Italian Government, that it had received only photocopies of certain transactions.

15 It should also be noted that the Italian Government has not produced any evidence over and above that sent to the Commission before the contested decision was adopted. If the Italian Government, without contradicting the Commission' s findings by producing evidence, merely claims that administrative checks were in fact carried out as well as on-the-spot inspections, that does not show that those findings are inaccurate (see, in particular, the judgment in Case C-8/88 Germany v Commission [1990] ECR I-2321, at paragraphs 27 and 28).

16 Accordingly, the first part of the second plea must be rejected.

17 The second part of the Italian Government' s second plea concerns the circumstances amounting to deficiencies in the checks carried out by the Italian authorities, noted in the Further Summary Report. It is clear from the documents before the Court that those circumstances concern first, the failure to examine the results of the analyses carried out by the laboratories of the three undertakings concerned; secondly, the failure to examine the manufacturing records; thirdly, the failure to examine the records of raw materials and finished products for one of the undertakings; fourthly, the lack of evidence that an inventory of raw materials or finished products was made; and fifthly, sales made by one of the undertakings in respect of which the security should have been forfeited.

18 The first point concerns the laboratory analyses carried out by the three undertakings inspected. According to the Commission, the requirement to carry out thorough and unannounced scrutiny within the meaning of Article 10(2)(d) of Regulation No 1725/79 requires the Italian authorities to compare the analyses made by public laboratories with those carried out by private laboratories at the undertakings' request.

19 The Italian Government admits that the analyses made by private laboratories at the request of the undertakings themselves are not mandatory and have no official status. However, it claims that the results of those analyses were recorded and examined, and were therefore taken into account. As for the analyses carried out by the public laboratories, their results were examined and forwarded to the Commission.

20 It should first be noted that thorough and unannounced scrutiny required, in this case, a comparison of the analyses made by public laboratories with those carried out by the private laboratories.

21 It should also be noted that, while the report sent by the Italian authorities to the Commission following further scrutiny contains in an annex the results of the analyses carried out by the public laboratories, so far as concerns the private analyses on the other hand only the results of those made by Wessanen' s laboratory were sent to the Commission without its being established, moreover, that the authorities carried out any comparison between the results of those two types of analysis. The reports for Plodari and Frabes do not mention the existence of analyses carried out by private laboratories.

22 It follows that the Italian Government has not adduced evidence that a comparison was carried out between the results of the analyses made by the private laboratories and those made by the public laboratories.

23 So far as concerns the second point, concerning the failure to examine the manufacturing records, the Italian Government claims that neither Community legislation nor national legislation requires such records to be retained.

24 According to the Commission, manufacturing records constitute commercial documents which must be checked in accordance with Article 10(2)(d) of Regulation No 1725/79.

25 It should be noted, first of all, that the concept of "commercial documents" in Article 10(2)(d) means all the documents to be scrutinized examination of which makes it possible to demonstrate whether transactions in respect of which aid has been granted were carried out in accordance with Community requirements.

26 That concept is also to be found in Article 1(2) of Council Directive 77/435/EEC of 27 June 1977 on scrutiny by Member States of transactions forming part of the system of financing by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (Official Journal 1977 L 172, p. 17). It covers, according to that provision, "all the books, registers, vouchers and supporting documents, accounts and correspondence relating to the undertaking' s business activity, in so far as these documents may be useful to the scrutiny ...".

27 Since the manufacturing records in question contain a list of the ingredients necessary to produce a given quantity of feedingstuffs, the effectiveness of Article 10(2)(b) would be seriously undermined if such documents were incapable of being used for the purposes of thorough scrutiny within the meaning of that provision. Accordingly, the manufacturing records must be considered to be commercial documents within the meaning of that provision.

28 Article 4 of Directive 77/435 provides that Member States shall "require undertakings to keep the commercial documents ... for at least three calendar years, starting from the end of the calendar year in which they were drawn up". Accordingly, the manufacturing records for 1987 should have been retained until 31 December 1990.

29 It is common ground that the manufacturing records of the three undertakings in question for 1987 were no longer extant, so that the Italian authorities were unable to carry out thorough scrutiny of those commercial documents, as provided for by Article 10(2)(b) of Regulation No 1725/79.

30 As to the third point, concerning the failure to scrutinize Plodari' s records of raw materials and finished products, the Italian Government claims that, because of its low output, that undertaking was not required by Italian law to maintain such records.

31 That argument cannot be accepted. Article 8(1) of Regulation No 1725/79 provides that receipt of aid is conditional on approval of the undertaking and the keeping by the latter of the accounts referred to in Article 8(5). That paragraph provides that "the undertaking ... shall keep accounts, as determined by the competent agency in each Member State, which shall show: (a) the origin of the raw materials used; (b) ... (c) the quantities and composition of the products manufactured ...".

32 It follows that Plodari was required to keep accounts in respect of "raw materials" and "finished products".

33 The fourth point concerns the lack of evidence that an inventory of raw materials and finished products was carried out. The Italian Government maintains that a comparison was made between the accounting data provided by AIMA' s registers and the undertakings' "traditional" accounts. However, it has provided no evidence in that regard and furthermore it admits in its application that direct inspection of the records of "raw materials", in the light of the data relating to stocks provided by AIMA' s registers, could not be carried out for 1987.

34 As regards the fifth point, the Italian Government disputes the Commission' s criticisms concerning two sales made by Wessanen. During the oral procedure, the Commission acknowledged that the Italian Government' s arguments were well founded. It considered, however, that the evidence adduced by that Government had been produced out of time.

35 It is sufficient to note that the validity of the Italian Government' s position on the fifth point is not in itself capable of leading to the annulment of the contested decision when it has just been established that the checks carried out by that Government were inadequate and justified a refusal of EAGGF assistance.

36 It follows from the foregoing that the second plea put forward by the Italian Republic must be rejected.

37 In its third submission, the Italian Government disputes the Commission' s power to impose a flat-rate reduction of 10% on the amount of aid paid.

38 It should be noted that, as the Court has consistently held (see, in particular, Case 327/85 Netherlands v Commission [1988] ECR 1065, at paragraphs 24 and 25), Articles 2 and 3 of Council Regulation (EEC) No 729/70 of 21 April 1970 on the financing of the common agricultural policy (Official Journal, English Special Edition 1970 (I), p. 218) enable the Commission to charge to the EAGGF only sums paid in accordance with the rules laid down in the different agricultural sectors. In cases where Community rules authorize payment of aid only on condition that certain formalities relating to proof or supervision are observed, aid paid in disregard of that condition is not in accordance with Community law and the expenditure incurred therein may not therefore be charged to the EAGGF.

39 Since it follows from the foregoing that the inspections carried out by the Italian authorities do not constitute thorough scrutiny within the meaning of Article 10(2)(b) of Regulation No 1725/79, the Commission could have disallowed charging to the EAGGF of the whole of the sums in question. Accordingly, the Italian Government cannot complain that the Commission has merely imposed a flat-rate reduction of 10%.

40 The third plea must therefore be rejected.

Aid for the consumption of olive oil

41 Council Regulation (EEC) No 3089/78 of 19 December 1978 laying down general rules in respect of aid for the consumption of olive oil (Official Journal 1978 L 369, p. 12) provides, in the second paragraph of Article 8, that consumption aid may be advanced as soon as the application for aid is submitted, on condition that sufficient security has been provided.

42 As regards that security, Article 11(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 (Official Journal L 254, p. 5) provides that the security is to be released as soon as the competent authority of the Member State has recognized entitlement to the aid in respect of the quantities shown in the application. In the absence of such recognition, the security is to be forfeit in proportion to the quantities in respect of which the conditions conferring entitlement to the aid were not complied with.

43 The contested decision disallows charging to the EAGGF of the sum of LIT 4 352 012 388 relating to aid for the consumption of olive oil. It is common ground that that sum corresponds to the advances paid to undertakings whose entitlement to the aid was not subsequently recognized by the Italian authorities because of irregularities and that the securities relating to that amount were none the less released.

44 The Italian Government claims, first, that the Commission, before it disallowed charging of the sums in question to the EAGGF, should have awaited the final outcome of the legal proceedings which are in progress before the Italian courts and, secondly, that it was no longer possible to forfeit the securities at the time the irregularities were established since the period of validity of those securities had expired.

45 It is sufficient to note that, according to Article 11(3) of Regulation No 2677/85, the security is to be released only after entitlement to the aid has been recognized by the competent authority. It follows that release of the securities before such recognition was not in accordance with Community law.

46 Accordingly, this plea must be rejected.

47 It follows from the foregoing that the application must be dismissed in its entirety.

Decision on costs

Costs

48 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. Since the Italian Republic has been unsuccessful, it must be ordered to pay the costs.

Operative part

On those grounds,

THE COURT

hereby:

1. Dismisses the application;

2. Orders the Italian Republic to pay the costs.