OPINION OF MR ADVOCATE-GENERAL WARNER

DELIVERED ON 27 JANUARY 1976

My Lords,

Your Lordships are perhaps only too familiar with the common organization of the market in sugar established by Council Regulation No 1009/67/EEC and, in particular, with the quota system instituted by Articles 23 to 34 of that Regulation. So it may be supererogatory for me to remind Your Lordships that, under that system, and in particular under Article 27 of Regulation No 1009/67, each manufacturer of sugar in the Community is liable to pay a ‘production levy’ on so much of his production as is in excess of his ‘basic quota’ but within his ‘maximum quota’ for any marketing year.

The present case comes to the Court by way of a reference for a preliminary ruling by the Finanzgericht of Baden-Württemberg. The plaintiff before that Court is the well-known sugar manufacturer Süddeutsche Zucker AG and the defendant is the Hauptzollamt of Mannheim. The dispute between them is as to the computation, for the purposes of the levy, of the plaintiff's production of sugar for the marketing years 1968/69 to 1972/73.

On 25 January 1969 the Commission adopted Regulation (EEC) No 142/69 laying down certain detailed rules for the application of the quota system and, in particular, defining ‘the sugar production of a factory or undertaking’. Article 3 of that Regulation provided that, for the purposes of the relevant Articles of Regulation No 1009/67 —

‘“the sugar production of a factory or undertaking” means the quantity of sugar actually manufactured by that factory or by the factory or factories of that undertaking as the case may be.’

Article 1 (1) defined sugar production as meaning —

‘the total quantity, expressed as white sugar, of:

(a) white sugar;

(b) raw sugar;

(c) invert sugar;

(d) sucrose or invert sugar syrups which are at least 70 % pure …’ (OJ L 20 of 27. 1. 1969).

Article 1 (2), operating by way of proviso to Article 1 (1), listed a number of items, lettered from (a) to (k), which were to be excluded from the quantity referred to in Article 1 (1). It is clear, from a consideration of that list, that one — though not the only — purpose of Article 1 (2) was to exclude any possibility of duplication in the computation of a manufacturer's ‘sugar production’.

I say that that was not the only purpose of Article 1 (2), because one finds in the list item (f) ‘quantities of invert sugar and syrups processed into alcohol or rum’, item (h) ‘quantities of syrups in treacle form and those to be processed into “Rinse Appelstroop”’ and item (i) ‘quantities of sugar, invert sugar and syrups produced under inward processing arrangements’. So another purpose of Article 1 (2) was to exclude from the computation of a manufacturer's ‘sugar production’ his output of products of which the destination was other than the sugar market itself.

I refrain from taking up Your Lordships time with a recital of all the other items in the list. These were, I think, designed to exclude the possibility of duplication that I have mentioned. To illustrate the point, it will be enough if I quote items (a) and (b), which read as follows:

‘(a) quantities of white sugar produced from: — raw sugar or — syrups which were not produced in the factory or undertaking which manufactured such white sugar;

(b) quantities of white sugar produced from: — raw sugar or — syrups which were not produced during the marketing year in which such white sugar was manufactured; (OJ L 20 of 27. 1. 1969)’

It is not difficult to discern that both those items were concerned with quantities of white sugar produced from raw materials whose contents ‘expressed as white sugar’ must already have been included, under Article 1 (1), in the ‘sugar production’ either of another factory or undertaking or in the ‘sugar production’ for a previous year of the factory or undertaking responsible for their further refining.

The genesis of the present case lies in the fact that there was no mention in Article 1 of Regulation No 142/69 of ‘sugar sweepings’.

From the papers before the Court I glean that ‘sugar sweepings’ are a sort of by-product of the manufacture of white sugar. They consist of white sugar that has been spilt in the course of handling in the factory after the refining process is over and which is then swept up mixed inevitably with dirt, not to be thrown away but to be refined again so as to eliminate the dirt. It seems that sugar sweepings are unsaleable.

My own view is that it was unnecessary for Article 1 of Regulation No 142/69 to mention sugar sweepings. It seems to me unreasonable to regard such sweepings as forming part of anyone's production of sugar, be it white sugar or raw sugar. Nor does it seem to me that the definitions of ‘white sugar’ and ‘raw sugar’ contained in Article 1 (2) of Regulation No 1009/67 suggest otherwise. Sugar sweepings being moreover clearly not ‘invert sugar’ or ‘sugar syrup’, I would hold that they fell outside the definition of ‘sugar production’ contained in Article 1 (1) of Regulation No 142/69 and that there was therefore no call for them to be mentioned in Article 1 (2).

Such however has not been the view taken by the Commission or by the competent authorities in the Member States. It appears that, in practice, where a manufacturer has been left at the end of a marketing year with a stock of sugar sweepings, those sweepings have been treated as part of this sugar production for that year, and that when, in a subsequent year, they have been refined into white sugar, this white sugar has been treated as excluded from his production for the latter year. Since 1973 this practice has been given statutory sanction by Commission Regulation (EEC) No 700/73, which replaced Regulation No 142/69. In Regulation No 700/73, Article 1 (1) is in the same terms as in Regulation No 142/69, but item (b) in the list in Article 1 (2) now expressly includes ‘quantities of white sugar produced from … sugar sweepings … which were not produced during the marketing year in which such white sugar was manufactured’.

As I understand it the plaintiff does not challenge the validity of the practice that I have described. The point at issue between the plaintiff and the defendant arises only on the assumption that that practice accorded with the law even before 1973. It is a very narrow point indeed, though, in the present case, a sum of DM 38538-55 depends upon how it is resolved.

The point is this.

As was helpfully explained to the Court by an expert called by the Commission at the hearing, it is not normally possible, in a factory, physically to identify white sugar produced from sugar sweepings. This is because sugar sweepings are not refined separately but are fed into the refining plant together with other raw materials. It follows that, in order to ascertain the quantity of white sugar produced from sugar sweepings, one has to make a calculation of which the starting point is the quantity of sugar sweepings fed into the plant.

It is, I think, common ground, or at all events undisputed, that, from every 100 kg of sugar sweepings, 99 kg of white sugar will, in general, be obtained, and that, of this 1 % difference, 0.4 % represents the dirt extracted from the sweepings whilst 0.6 % represents what is called the ‘refining loss’.

The defendant's case is that, in calculating the quantity of white sugar produced from a given quantity of sugar sweepings one must deduct from the latter the whole 1 %. The plaintiff on the other hand, whilst conceding that the 0.4 % must be deducted, contends that the 0.6 % should not be. The Commission agrees on this point with the plaintiff.

The first question referred to the Court by the Finanzgericht of Baden-Württemberg is:

‘Does “sugar production” within the meaning of Regulation (EEC) No 142/69, especially Article 1 (1) thereof, also include the production of white sugar from sugar sweepings on which the production levy has already been imposed in accordance with Article 27 of Regulation No 1009/67/EEC in a previous sugar marketing year?’

Underlying that question there are, in my opinion, two misconceptions.

The first, which must, in this Court, be the less controversial, but which is also the less important, is that, under Regulations Nos 1009/67 and 142/69, a manufacturer's ‘sugar production’ for a particular marketing year had to be computed only for the purpose of determining his liability to production levy. In fact his ‘sugar production’ had to be computed in order to determine whether it was (a) within his basic quota or (b) in excess of his basic quota but within his maximum quota or (c) in excess of his maximum quota. In each case different provisions applied, which it is not necessary for me to take up Your Lordships'time in rehearsing.

The second misconception, which is at once more important and more controversial, is that production levy could be imposed under Article 27 of Regulation No 1009/67 on a manufacturer's sugar sweepings, or to be more precise, that a manufacturer's sugar sweepings could be included in his ‘sugar production’ under Article 1 (1) of Regulation No 142/69. I have already stated my reasons for thinking that this was not so, and I need not repeat them.

It follows that, in my opinion, Your Lordships should answer the first question asked by the Finanzgericht by declaring that ‘sugar production’ as defined by Article 1 (1) of Regulation No 142/69 did not include the production of sugar sweepings but did include the production of white sugar from such sweepings.

On that footing the second and third questions asked by the Finanzgericht do not arise.

Your Lordships may however disagree with me and hold that sugar sweepings were to be included in ‘sugar production’ as defined by Article 1 (1) of Regulation No 142/69. In that case Your Lordships will of course have to deal with the second and third questions.

The second question is:

‘If the answer to the first question is in the affirmative, does Article 1 (2) of Regulation (EEC) No 142/69, whereby certain products are excluded from the calculation of the quantity referred to in paragraph (1) of that Article, also cover sugar sweepings?’

The plaintiff and the defendant are at one in inviting the Court to give an affirmative answer to that question. They do not however say by what process of legal reasoning a reference to sugar sweepings can be implied in Article 1 (2), beyond pointing out that, unless such a reference is implied, the sugar contained in a manufacturer's end-year stock of sugar sweepings will be counted twice in his sugar production.

The Commission suggests that the Court should give a combined answer to the first and second questions, that answer being to the effect, putting it shortly, that there should be excluded from the calculation of ‘sugar production’ under paragraphs (1) and (2) of Article 1 of Regulation No 142/69 white sugar manufactured from sugar sweepings already included in the production of a previous year. The Commission submits that the principle of proportionality calls for such exclusion.

On the assumption that (contrary to my view) a manufacturer's ‘sugar sweepings’ were to be included in his ‘sugar production’, the Commission's approach seems to me right. On that assumption, equity certainly dictates that it should be held to be implicit in Article 1 (whether in paragraph (1) or paragraph (2) matters not) that, where sugar sweepings have already been included in a manufacturer's sugar production, the white sugar derived from them should not also be so included. In Case 64/74 Reich v Hauptzollamt Landau [1975] ECR. 274-275, I expressed the opinion that the principle of proportionality could, in an appropriate case, operate not to invalidate legislative provisions but to supplement them by requiring them to be interpreted as being, implicitly, inapplicable in circumstances where their application would infringe the principle. The Court, however, in that case, preferred to rest its judgment simply on ‘reasons of equity’ (ibid. 268-269). My Lords, to one whose training has been in English law, resort to equity to temper what would be the rigours of a literal interpretation of statutory provisions is of course a familiar and wholly acceptable process. Nor is Reich v Hauptzollamt Landau the only case where the Court has invoked equity for that purpose: see also Case 168/73 Marcato v Commission [1973] 1 ECR p. 368 (Rec. 1973 (1) at p. 369).

The third question asked by the Finanzgericht is:

‘If the answers to the first and second questions are in the affirmative, should the quantity that is to be excluded under Article 1 (2) of Regulation (EEC) No 142/69 be determined by reference to the quantity of sugar sweepings or to the quantity of white sugar that has been produced from the sugar sweepings?’

The Order for Reference makes it clear that this question is intended to elucidate the actual point at issue between the plaintiff and the defendant, i.e. whether in calculating the quantity of white sugar produced from a given quantity of sugar sweepings one should or should not deduct the 0.6 % ‘refining loss’.

If the Commission's approach to the answers to the first and second questions is correct, the formulation of the third question is of course inapt in so far as it assumes that the exclusion from a manufacturer's ‘sugar production’ of white sugar produced from his sugar sweepings rested upon the implicit inclusion of that white sugar in the list of excepted items contained in Article 1 (2). More pertinently, if that approach is correct, it leads, I think, inevitably to the conclusion that the plaintiff's contention is right.

The basis of that approach is the inequity of including twice in a manufacturer's ‘sugar production’ the sugar content of his sugar sweepings. Such duplication is avoided if, in calculating the quantity of white sugar produced from the sweepings, one deducts only the 0.4 % dirt. But, if one deducts also the 0.6 % refining loss, the effect must be that a quantity equal to that 0.6 % is included in the manufacturer's ‘sugar production’ twice — first as part of his sugar sweepings and a second time by reason of its non — exclusion from his total production of white sugar.

The Finanzgericht, proceeding on the footing that Article 1 (2) may have to be applied ‘by analogy’, points out that that provision, so far as item (b) is concerned, does not exclude from a manufacturer's ‘sugar production’ more than the actual quantities of white sugar produced by him from raw sugar or syrups themselves produced in an earlier year. It does not, in other words, allow for the refining losses that occur in such cases too. My Lords, this may be so, but, as the Finanzgericht itself points out, item (e) in Article 1 (2), by providing for the exclusion of ‘quantities of raw sugar processed into white sugar during the marketing year in question by the factory or undertaking which produced such raw sugar’ (OJ L 20 of 27. 1. 1969) shows that Article 1 (2), so far as allowing for refining losses is concerned, does not adhere to any consistent scheme. No useful guidance can, therefore, I think, be derived from it on this point.

I would accordingly answer the third question (if it arises) in the sense contended for by the Plaintiff and the Commission.