Judgment of the Court of 14 January 1981. - Chemial Farmaceutici SpA v DAF SpA. - Reference for a preliminary ruling: Pretura di Castell'Arquato - Italy. - Taxation of denatured alcohol. - Case 140/79.



European Court reports 1981 Page 00001

Spanish special edition Page 00001



Summary

Parties

Subject of the case

Grounds

Decision on costs

Operative part



Keywords

1 . REVENUE PROVISIONS - INTERNAL TAXATION - SYSTEM OF DIFFERENTIAL TAXATION - PERMISSIBILITY - CONDITIONS - PURSUIT OF OBJECTIVES COMPATIBLE WITH COMMUNITY LAW - NOT OF A DISCRIMINATORY OR PROTECTIVE NATURE

( EEC TREATY , ART . 95 )

2 . REVENUE PROVISIONS - INTERNAL TAXATION - SYSTEM OF DIFFERENTIAL TAXATION FOR DENATURED SYNTHETIC ALCOHOL AND DENATURED ALCOHOL OBTAINED BY MEANS OF FERMENTATION - PERMISSIBILITY - CONDITIONS - IDENTICAL APPLICATION OF THE SYSTEM TO IMPORTED PRODUCTS - MORE HEAVILY-TAXED PRODUCT EXCLUSIVELY IMPORTED - EQUIVALENT ECONOMIC EFFECT ON THE STRUCTURE OF NATIONAL PRODUCTION

( EEC TREATY , ART . 95 , FIRST AND SECOND PARAGRAPHS )

Summary

1 . IN ITS PRESENT STAGE OF DEVELOPMENT COMMUNITY LAW DOES NOT RESTRICT THE FREEDOM OF EACH MEMBER STATE TO LAY DOWN TAX ARRANGEMENTS WHICH DIFFERENTIATE BETWEEN CERTAIN PRODUCTS ON THE BASIS OF OBJECTIVE CRITERIA , SUCH AS THE NATURE OF THE RAW MATERIALS USED OR THE PRODUCTION PROCESSES EMPLOYED . SUCH DIFFERENTIATION IS COMPATIBLE WITH COMMUNITY LAW IF IT PURSUES ECONOMIC POLICY OBJECTIVES WHICH ARE THEMSELVES COMPATIBLE WITH THE REQUIREMENTS OF THE TREATY AND ITS SECONDARY LAW AND IF THE DETAILED RULES ARE SUCH AS TO AVOID ANY FORM OF DISCRIMINATION , DIRECT OR INDIRECT , IN REGARD TO IMPORTS FROM OTHER MEMBER STATES OR ANY FORM OF PROTECTION OF COMPETING DOMESTIC PRODUCTS .

2 . TAX ARRANGEMENTS WHICH IMPOSE HEAVIER CHARGES ON DENATURED SYNTHETIC ALCOHOL THAN ON DENATURED ALCOHOL OBTAINED BY FERMENTATION ON THE BASIS OF THE RAW MATERIALS AND THE MANUFACTURING PROCESSES EMPLOYED FOR THE TWO PRODUCTS ARE NOT AT VARIANCE WITH THE FIRST PARAGRAPH OF ARTICLE 95 OF THE EEC TREATY IF THEY ARE APPLIED IDENTICALLY TO THE TWO CATEGORIES OF ALCOHOL ORIGINATING IN OTHER MEMBER STATES .

WHERE , BY REASON OF THE TAXATION OF SYNTHETIC ALCOHOL , IT HAS BEEN IMPOSSIBLE TO DEVELOP PROFITABLE PRODUCTION OF THAT TYPE OF ALCOHOL ON NATIONAL TERRITORY , THE APPLICATION OF SUCH TAX ARRANGEMENTS CANNOT BE CONSIDERED AS CONSTITUTING INDIRECT PROTECTION OF NATIONAL PRODUCTION OF ALCOHOL OBTAINED BY FERMENTATION WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 95 OF THE EEC TREATY ON THE SOLE GROUND THAT THEIR CONSEQUENCE IS THAT THE PRODUCT SUBJECT TO THE HEAVIER TAXATION IS IN FACT A PRODUCT WHICH IS EXCLUSIVELY IMPORTED FROM OTHER MEMBER STATES OF THE COMMUNITY .

Parties

IN CASE 140/79

REFERENCE TO THE COURT UNDER ARTICLE 177 OF THE EEC TREATY BY THE PRETURA , CASTELL ' ARQUATO , ( ITALY ) FOR A PRELIMINARY RULING IN THE PROCEEDINGS PENDING BEFORE THAT COURT BETWEEN

CHEMIAL FARMACEUTICI SPA , WHOSE REGISTERED OFFICE IS IN TURIN ,

AND

DAF SPA , WHOSE REGISTERED OFFICE IS IN SAN GIORGIO PIACENTINO ,

Subject of the case

ON THE INTERPRETATION OF ARTICLE 95 OF THE EEC TREATY IN RELATION TO ITALIAN LEGISLATION CONCERNING A SPECIAL REVENUE CHARGE ON DENATURED ALCOHOL ,

Grounds

1 BY ORDER OF 6 SEPTEMBER 1979 , WHICH WAS RECEIVED AT THE COURT ON 10 SEPTEMBER 1979 , THE PRETURA , CASTELL ' ARQUATO , REFERRED TO THE COURT TWO QUESTIONS ON THE INTERPRETATION OF ARTICLE 95 OF THE EEC TREATY IN ORDER TO MAKE IT POSSIBLE TO ASSESS WHETHER THE SYSTEM OF DIFFERENTIAL TAXATION APPLIED BY VIRTUE OF DECREE-LAW NO 1200 OF 6 OCTOBER 1948 , AS AMENDED BY DECREE-LAW NO 836 OF 16 SEPTEMBER 1955 , AND ARTICLE 3 OF LAW NO 506 OF 18 AUGUST 1978 TO DENATURED SYNTHETIC ETHYL ALCOHOL AND TO DENATURED ETHYL ALCOHOL OBTAINED BY FERMENTATION IS COMPATIBLE WITH THE REQUIREMENTS OF THE TREATY .

2 THESE QUESTIONS HAVE BEEN SUBMITTED IN THE CONTEXT OF CIVIL PROCEEDINGS CONCERNING THE PERFORMANCE OF A CONTRACT CONCLUDED BETWEEN 18 AND 27 JULY 1978 BETWEEN THE PLAINTIFF IN THE MAIN ACTION , CHEMIAL FARMACEUTICI SPA , AND A PRODUCER AND IMPORTER OF ALCOHOL , DAF SPA , RELATING TO THE SUPPLY OF A CONSIGNMENT OF IMPORTED DENATURED SYNTHETIC ALCOHOL .

3 THE PAPERS IN THE CASE REVEAL THAT IN JULY 1978 CHEMIAL PLACED ON ORDER WITH DAF FOR A LIMITED QUANTITY OF DENATURED SYNTHETIC ALCOHOL . DAF DREW CHEMIAL ' S ATTENTION TO THE FACT THAT A SPECIAL REVENUE CHARGE OF LIT 6 000 PER HECTOLITRE WAS CHARGED ON SYNTHETIC ALCOHOL , WHILST ON ITS OWN ALCOHOL PRODUCED BY FERMENTATION , WHICH WAS PERFECTLY INTERCHANGEABLE WITH THE SYNTHETIC ALCOHOL REQUESTED , THE SPECIAL REVENUE CHARGE WAS PAYABLE AT THE RATE OF ONLY LIT 1 000 PER HECTOLITRE . HOWEVER , CHEMIAL INSISTED , FOR TECHNICAL REASONS , ON OBTAINING ALCOHOL OF SYNTHETIC ORIGIN AND BY LETTER DATED 18 JULY 1978 DAF OFFERED IT THE GOODS REQUESTED AT THE ' ' PRICE OF LIT 30 000 PER HECTOLITRE , INCLUDING THE SPECIAL REVENUE CHARGE ( LIT 6 000 PER HECTOLITRE ) ' ' . CHEMIAL ACCEPTED THAT OFFER BY LETTER DATED 27 JULY 1978 IN WHICH A ' ' PRICE OF LIT 30 000 PER HECTOLITRE , INCLUDING THE SPECIAL REVENUE CHARGE ' ' WAS AGREED ON . UNDER THE TERMS OF THE CONTRACT THE GOODS WERE TO HAVE BEEN COLLECTED BY 15 SEPTEMBER 1978 .

4 IT IS NOT DISPUTED THAT AS A RESULT OF THE LAW OF 18 AUGUST 1978 THE SPECIAL REVENUE CHARGE ON DENATURED SYNTHETIC ALCOHOL WAS RAISED TO LIT 12 000 PER HECTOLITRE . BY A LETTER DATED 7 SEPTEMBER 1978 DAF INFORMED CHEMIAL OF THIS FACT , REQUESTING IT TO CONSIDER THE OFFER OF 18 JULY 1978 AS NULL AND VOID , UNLESS IT WAS PREPARED TO BEAR THE BURDEN OF THE ADDITIONAL AMOUNT OF TAX . CHEMIAL INSISTED ON PERFORMANCE OF THE CONTRACT ACCORDING TO THE TERMS AGREED ON , ARGUING THAT SINCE IMPORTED SYNTHETIC ALCOHOL WAS INVOLVED THE INCREASE IN THE TAX WAS ILLEGAL AS BEING CONTRARY TO THE PROVISIONS OF THE LAW OF THE EUROPEAN COMMUNITY , AND IT COMMENCED PROCEEDINGS IN THE APPROPRIATE CIVIL COURT WITH A VIEW TO OBTAINING PERFORMANCE OF THE CONTRACT .

5 IN THE NATIONAL COURT CHEMIAL PUT FORWARD THE ARGUMENTS WHICH LED IT TO REGARD THE DISPUTED TAX AS CONTRARY TO THE EEC TREATY , DRAWING ATTENTION IN PARTICULAR TO THE JUDGMENT OF THE COURT OF JUSTICE OF 10 OCTOBER 1978 IN CASE 148/77 HANSEN & BALLE ( 1978 ) ECR 1787 . IN ITS DEFENCE DAF ARGUED THAT SINCE THE CONTRACT EXPRESSLY STIPULATED THAT THE TAX WAS TO BE BORNE BY THE BUYER , THE LATTER MUST IN ACCORDANCE WITH THE TERMS AGREED ON BEAR ANY INCREASE OCCURRING BETWEEN THE CONCLUSION AND PERFORMANCE OF THE CONTRACT . AS REGARDS THE ALLEGED ILLEGALITY OF CHARGING THE TAX IN QUESTION , DAF OBSERVED THAT IT WAS FOR CHEMIAL TO RELY ON THAT ILLEGALITY AS AGAINST THE APPROPRIATE AUTHORITIES IN ORDER TO OBTAIN REIMBURSEMENT OF THE TAX .

6 HAVING NOTED THE DIFFERENCE IN TAX TREATMENT INTRODUCED BY ITALIAN LEGISLATION BETWEEN SYNTHETIC ALCOHOL , AN IMPORTED PRODUCT WHICH IS NOT PRODUCED IN SIGNIFICANT QUANTITIES IN ITALY , AND ALCOHOL PRODUCED BY MEANS OF FERMENTATION , THE PRETURA CONSIDERED THAT THE PRIOR RESOLUTION OF THE QUESTION OF THAT LEGISLATION ' S COMPATIBILITY WITH THE PROVISIONS OF THE EEC TREATY COULD BE OF DECISIVE IMPORTANCE FOR THE OUTCOME OF THE DISPUTE BEFORE IT . IT THUS DECIDED TO SUBMIT TO THE COURT TWO PRELIMINARY QUESTIONS WORDED AS FOLLOWS :

' ' 1 . A . IS THE FIRST PARAGRAPH OF ARTICLE 95 OF THE EEC TREATY TO BE CONSTRUED IN SUCH A MANNER AS TO RENDER UNLAWFUL AND THEREFORE PROHIBITED A NATIONAL SYSTEM OF TAXATION WHICH PROVIDES FOR THE APPLICATION TO A PRODUCT IMPORTED FROM THE EEC ( SYNTHETIC ETHYL ALCOHOL EXCLUSIVELY INTENDED , AFTER DENATURING , FOR CHEMICAL AND INDUSTRIAL USE AND THEREFORE NOT SUITABLE FOR HUMAN CONSUMPTION ) OF A SPECIAL DUTY FAR GREATER THAN THAT APPLIED TO A DOMESTIC PRODUCT WITH THE SAME CHARACTERISTICS AND THE SAME TARIFF CLASSIFICATION ( 22.08/300 ) ( ETHYL ALCOHOL OBTAINED BY FERMENTATION AND LIKEWISE INTENDED , AFTER DENATURING , FOR CHEMICAL AND INDUSTRIAL USE AND NOT SUITABLE FOR HUMAN CONSUMPTION ) FOR THE SOLE REASON THAT THE RAW MATERIALS FROM WHICH THE TWO TYPES OF ALCOHOL ARE EXTRACTED ARE DIFFERENT AND THE METHODS OF EXTRACTION ARE THEREFORE DIFFERENT?

B.IS THE NATIONAL SYSTEM OF TAXATION UNLAWFUL AS DESCRIBED ABOVE EVEN IF , THEORETICALLY , IT DOES NOT APPLY IN A DISCRIMINATORY MANNER TO THE SAME PRODUCT WITH REFERENCE TO THE RAW MATERIAL FROM WHICH IT IS EXTRACTED , IN SO FAR AS BOTH IMPORTED AND HOME-PRODUCED SYNTHETIC ETHYL ALCOHOL ARE TAXED TO THE SAME EXTENT AND , SIMILARLY , BOTH IMPORTED AND HOME-PRODUCED ETHYL ALCOHOL OBTAINED BY FERMENTATION ARE SUBJECT TO THE SAME CHARGE?

2.ALTERNATIVELY , IF THE ANSWER TO QUESTION 1 IS IN THE NEGATIVE , IS THE SECOND PARAGRAPH OF ARTICLE 95 OF THE EEC TREATY TO BE CONSTRUED IN SUCH A MANNER AS TO RENDER UNLAWFUL AND THEREFORE PROHIBITED - BECAUSE IT PROTECTS DOMESTIC PRODUCTION TO THE DETRIMENT OF COMMUNITY PRODUCTION - A NATIONAL SYSTEM OF TAXATION APPLIED IN ACCORDANCE WITH THE CRITERIA REFERRED TO IN QUESTION 1 AND ON THE PRODUCTS MENTIONED IN THAT QUESTION , TAKING INTO ACCOUNT THE FACT THAT THE PRODUCT SUBJECT TO THE GREATER CHARGE ( SYNTHETIC ETHYL ALCOHOL ) IS EXCLUSIVELY IMPORTED FROM THE OTHER STATES OF THE EEC , WHILST THAT SUBJECT TO THE LESSER CHARGE ( ETHYL ALCOHOL OBTAINED BY FERMENTATION ) IS PRODUCED IN ITALY AND COMPETES WITH THE FORMER?

' '

THE JURISDICTION OF THE COURT

7 IN ITS ORAL OBSERVATIONS THE ITALIAN GOVERNMENT PUT IN ISSUE THE ADMISSIBILITY OF THE REQUEST FOR A PRELIMINARY RULING SUBMITTED BY THE PRETURA , CASTELL ' ARQUATO . IT RAISES THE QUESTION WHETHER THE ACTION BROUGHT BEFORE THE NATIONAL COURT IS NOT REALLY A FICTITIOUS DISPUTE AND WHETHER THE PROCEDURE UNDER ARTICLE 177 HAS NOT BEEN EMPLOYED IN THIS CASE TO IMPEACH THE ITALIAN STATE IN THE ABSENCE OF ANY ACTUAL DISPUTE GIVING RISE TO QUESTIONS OF COMMUNITY LAW AS BETWEEN THE PARTIES . IN THESE CIRCUMSTANCES THE ITALIAN GOVERNMENT ASKS WHETHER THE SITUATION SHOULD NOT BE COMPARED TO THAT WHICH FORMED THE SUBJECT-MATTER OF THE JUDGMENT OF THE COURT OF 11 MARCH 1980 IN CASE 104/79 FOGLIA V NOVELLO ( 1980 ) ECR 745 IN WHICH THE COURT HELD THAT IT HAD NO JURISDICTION TO GIVE A RULING ON THE QUESTIONS PUT BY THE NATIONAL COURT .

8 MAKING USE OF THE POWER CONFERRED UPON IT BY ARTICLE 60 OF THE RULES OF PROCEDURE , THE COURT LET IT BE KNOWN BY A LETTER DATED 28 MAY 1980 THAT IT WISHED FURTHER INFORMATION IN THIS RESPECT . CONSEQUENTLY , BEFORE REACHING A DECISION IT REQUESTED THE PARTIES TO REPLY TO CERTAIN QUESTIONS .

9 HAVING STUDIED THE REPLIES GIVEN TO THOSE QUESTIONS THE COURT CONSIDERS THAT IN THIS CASE IT IS POSSIBLE TO SET ASIDE THE DOUBTS EXPRESSED BY THE ITALIAN GOVERNMENT AND TO BROACH THE SUBSTANCE OF THE CASE .

SUBSTANCE

10 THE PLAINTIFF IN THE MAIN ACTION SUBMITS THAT THE APPLICATION OF DIFFERENTIAL RATES OF TAXATION TO ALCOHOL PRODUCED BY FERMENTATION AND TO SYNTHETIC ALCOHOL , WHICH IN THE ABSENCE OF ANY PRODUCTION IN ITALY IS SOLELY AN IMPORTED PRODUCT , CONSTITUTES PATENT FISCAL DISCRIMINATION WHICH IS PROHIBITED BY ARTICLE 95 OF THE TREATY . IN FACT , IT IS STATED , THE PRODUCTS ARE NOT MERELY SIMILAR WITHIN THE MEANING OF THAT ARTICLE , BUT INDEED IDENTICAL AND THEREFORE INTERCHANGEABLE SO THAT ONE MAY BE USED FOR THE OTHER WITHOUT ANY DIFFICULTY . ACCORDING TO THE PLAINTIFF , THIS DIFFERENCE IN TAX TREATMENT WAS ESTABLISHED BY ITALIAN LAW SOLELY IN FURTHERANCE OF A PROTECTIONIST POLICY INCOMPATIBLE WITH THE COMMON MARKET . IN THIS REGARD IT REFERS TO THE TEST ADOPTED BY THE COURT IN ITS JUDGMENT OF 17 FEBRUARY 1976 IN CASE 45/75 REWE ZENTRALE ( 1976 ) ECR 181 , WHERE IT WAS HELD THAT THE RELATIONSHIP OF SIMILARITY , WITHIN THE MEANING OF ARTICLE 95 , EXISTS BETWEEN ' ' PRODUCTS WHICH , AT THE SAME STAGE OF PRODUCTION OR MARKETING , HAVE SIMILAR CHARACTERISTICS AND MEET THE SAME NEEDS FROM THE POINT OF VIEW OF CONSUMERS ' ' .

11 THE APPLICANT ' S POSITION IS SUPPORTED BY THE COMMISSION WHICH HAS EXPRESSED THE OPINION THAT , DESPITE THE DIFFERENT ORIGINS OF THE TWO PRODUCTS IN QUESTION - NAMELY SYNTHETIC ALCOHOL , WHICH IS DERIVED IN PARTICULAR FROM PETROLEUM , AND ALCOHOL OBTAINED BY FERMENTATION , WHICH IS PRODUCED BY DISTILLING PRODUCTS OF THE SOIL ( CEREALS , WINE , FRUIT , POTATOES , BEET AND MOLASSES ) - THE TWO KINDS OF ALCOHOL IN QUESTION ARE CHEMICALLY IDENTICAL AND FULLY INTERCHANGEABLE IN THEIR USES . THERE IS THUS NOT ONLY SIMILARITY BETWEEN THESE TWO PRODUCTS BUT ACTUAL IDENTITY IN REGARD TO THE NEEDS WHICH THE TWO PRODUCTS ARE CALLED UPON TO FULFIL . FURTHERMORE , THE TWO KINDS OF ALCOHOL FALL WITHIN THE SAME TARIFF SUBHEADING , 22.08 A , UNDER THE DESCRIPTION ' ' DENATURED SPIRITS ( INCLUDING ETHYL ALCOHOL AND NEUTRAL SPIRITS ) OF ANY STRENGTH ' ' . IN THE ABSENCE OF PRODUCTION OF SYNTHETIC ALCOHOL IN ITALY , THE DIFFERENCE IN THE RATE OF TAX PRESCRIBED BY ITALIAN LAW FOR DENATURED SYNTHETIC ALCOHOL ON THE ONE HAND AND DENATURED ALCOHOL OBTAINED BY FERMENTATION ON THE OTHER HAS THE RESULT OF PREVENTING PRACTICALLY ALL IMPORTS OF SYNTHETIC ALCOHOL FROM OTHER MEMBER STATES AND OF DIRECTLY FAVOURING NATIONAL PRODUCTION OF ALCOHOL BY FERMENTATION . THE COMMISSION THUS CONSIDERS THAT , BEING A PRODUCT SIMILAR TO DENATURED ALCOHOL OBTAINED BY FERMENTATION , DENATURED SYNTHETIC ALCOHOL IMPORTED FROM OTHER MEMBER STATES SHOULD QUALIFY FOR THE SAME RATE OF TAX AS THE FORMER .

12 THE ITALIAN GOVERNMENT RECALLS THAT IN A NUMBER OF JUDGMENTS THE COURT HAS RECOGNIZED THAT THE MEMBER STATES MAY LAY DOWN DIFFERING TAX ARRANGEMENTS , EVEN FOR IDENTICAL PRODUCTS , ON THE BASIS OF OBJECTIVE CRITERIA SUCH AS THE CONDITIONS OF PRODUCTION AND THE RAW MATERIALS USED ( JUDGMENT OF 22 JUNE 1976 IN CASE 127/75 BOBIE ( 1976 ) ECR 1079 ; JUDGMENT OF 10 OCTOBER 1978 IN CASE 148/77 HANSEN ( 1978 ) ECR 1787 ; JUDGMENT OF 8 JANUARY 1980 IN CASE 21/79 COMMISSION V ITALY ( 1980 ) ECR 1 ). ACCORDING TO THE COURT , SUCH ARRANGEMENTS ARE COMPATIBLE WITH THE TREATY IF THEY ARE LAID DOWN ON THE BASIS OF OBJECTIVE FACTORS AND ARE NOT DISCRIMINATORY OR PROTECTIVE IN THEIR NATURE .

13 THE ARRANGEMENTS CHALLENGED BEFORE THE NATIONAL COURT MEET THESE REQUIREMENTS . IN FACT THE DIFFERENT TAXATION OF SYNTHETIC ALCOHOL AND OF ALCOHOL PRODUCED BY FERMENTATION IN ITALY IS THE RESULT OF AN ECONOMIC POLICY DECISION TO FAVOUR THE MANUFACTURE OF ALCOHOL FROM AGRICULTURAL PRODUCTS AND , CORRESPONDINGLY , TO RESTRAIN THE PROCESSING INTO ALCOHOL OF ETHYLENE , A DERIVATIVE OF PETROLEUM , IN ORDER TO RESERVE THAT RAW MATERIAL FOR OTHER MORE IMPORTANT ECONOMIC USES . IT ACCORDINGLY CONSTITUTES A LEGITIMATE CHOICE OF ECONOMIC POLICY TO WHICH EFFECT IS GIVEN BY FISCAL MEANS . THE IMPLEMENTATION OF THAT POLICY DOES NOT LEAD TO ANY DISCRIMINATION SINCE ALTHOUGH IT RESULTS IN DISCOURAGING IMPORTS OF SYNTHETIC ALCOHOL INTO ITALY , IT ALSO HAS THE CONSEQUENCE OF HAMPERING THE DEVELOPMENT IN ITALY ITSELF OF PRODUCTION OF ALCOHOL FROM ETHYLENE , THAT PRODUCTION BEING TECHNICALLY PERFECTLY POSSIBLE .

14 AS THE COURT HAS STATED ON MANY OCCASIONS , PARTICULARLY IN THE JUDGMENTS CITED BY THE ITALIAN GOVERNMENT , IN ITS PRESENT STAGE OF DEVELOPMENT COMMUNITY LAW DOES NOT RESTRICT THE FREEDOM OF EACH MEMBER STATE TO LAY DOWN TAX ARRANGEMENTS WHICH DIFFERENTIATE BETWEEN CERTAIN PRODUCTS ON THE BASIS OF OBJECTIVE CRITERIA , SUCH AS THE NATURE OF THE RAW MATERIALS USED OR THE PRODUCTION PROCESSES EMPLOYED . SUCH DIFFERENTIATION IS COMPATIBLE WITH COMMUNITY LAW IF IT PURSUES ECONOMIC POLICY OBJECTIVES WHICH ARE THEMSELVES COMPATIBLE WITH THE REQUIREMENTS OF THE TREATY AND ITS SECONDARY LAW AND IF THE DETAILED RULES ARE SUCH AS TO AVOID ANY FORM OF DISCRIMINATION , DIRECT OR INDIRECT , IN REGARD TO IMPORTS FROM OTHER MEMBER STATES OR ANY FORM OF PROTECTION OF COMPETING DOMESTIC PRODUCTS .

15 DIFFERENTIAL TAXATION SUCH AS THAT WHICH EXISTS IN ITALY FOR DENATURED SYNTHETIC ALCOHOL ON THE ONE HAND AND DENATURED ALCOHOL OBTAINED BY FERMENTATION ON THE OTHER SATISFIES THESE REQUIREMENTS . IT APPEARS IN FACT THAT THAT SYSTEM OF TAXATION PURSUES AN OBJECTIVE OF LEGITIMATE INDUSTRIAL POLICY IN THAT IT IS SUCH AS TO PROMOTE THE DISTILLATION OF AGRICULTURAL PRODUCTS AS AGAINST THE MANUFACTURE OF ALCOHOL FROM PETROLEUM DERIVATIVES . THAT CHOICE DOES NOT CONFLICT WITH THE RULES OF COMMUNITY LAW OR THE REQUIREMENTS OF A POLICY DECIDED WITHIN THE FRAMEWORK OF THE COMMUNITY .

16 THE DETAILED PROVISIONS OF THE LEGISLATION AT ISSUE BEFORE THE NATIONAL COURT CANNOT BE CONSIDERED AS DISCRIMINATORY SINCE , ON THE ONE HAND , IT IS NOT DISPUTED THAT IMPORTS FROM OTHER MEMBER STATES OF ALCOHOL OBTAINED BY FERMENTATION QUALIFY FOR THE SAME TAX TREATMENT AS ITALIAN ALCOHOL PRODUCED BY FERMENTATION AND , ON THE OTHER HAND , ALTHOUGH THE RATE OF TAX PRESCRIBED FOR SYNTHETIC ALCOHOL RESULTS IN RESTRAINING THE IMPORTATION OF SYNTHETIC ALCOHOL ORIGINATING IN OTHER MEMBER STATES , IT HAS AN EQUIVALENT ECONOMIC EFFECT IN THE NATIONAL TERRITORY IN THAT IT ALSO HAMPERS THE ESTABLISHMENT OF PROFITABLE PRODUCTION OF THE SAME PRODUCT BY ITALIAN INDUSTRY .

17 THE REPLY TO THE QUESTIONS SUBMITTED BY THE NATIONAL COURT SHOULD THEREFORE BE THAT TAX ARRANGEMENTS WHICH IMPOSE HEAVIER CHARGES ON DENATURED SYNTHETIC ALCOHOL THAN ON DENATURED ALCOHOL OBTAINED BY FERMENTATION ON THE BASIS OF THE RAW MATERIALS AND THE MANUFACTURING PROCESSES EMPLOYED FOR THE TWO PRODUCTS ARE NOT AT VARIANCE WITH THE FIRST PARAGRAPH OF ARTICLE 95 OF THE EEC TREATY IF THEY ARE APPLIED IDENTICALLY TO THE TWO CATEGORIES OF ALCOHOL ORIGINATING IN OTHER MEMBER STATES .

18 WHERE , BY REASON OF THE TAXATION OF SYNTHETIC ALCOHOL , IT HAS BEEN IMPOSSIBLE TO DEVELOP PROFITABLE PRODUCTION OF THAT TYPE OF ALCOHOL ON NATIONAL TERRITORY , THE APPLICATION OF SUCH TAX ARRANGEMENTS CANNOT BE CONSIDERED AS CONSTITUTING INDIRECT PROTECTION OF NATIONAL PRODUCTION OF ALCOHOL OBTAINED BY FERMENTATION WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 95 ON THE SOLE GROUND THAT THEIR CONSEQUENCE IS THAT THE PRODUCT SUBJECT TO THE HEAVIER TAXATION IS IN FACT A PRODUCT WHICH IS EXCLUSIVELY IMPORTED FROM OTHER MEMBER STATES OF THE COMMUNITY .

Decision on costs

19 THE COSTS INCURRED BY THE GOVERNMENT OF THE ITALIAN REPUBLIC AND BY THE COMMISSION OF THE EUROPEAN COMMUNITIES , WHICH HAVE SUBMITTED OBSERVATIONS TO THE COURT , ARE NOT RECOVERABLE . AS THE PROCEEDINGS ARE , IN SO FAR AS THE PARTIES TO THE MAIN ACTION ARE CONCERNED , IN THE NATURE OF A STEP IN THE ACTION PENDING BEFORE THE NATIONAL COURT THE DECISION ON COSTS IS A MATTER FOR THAT COURT .

Operative part

ON THOSE GROUNDS ,

THE COURT ,

IN ANSWER TO THE QUESTIONS REFERRED TO IT BY THE PRETURA , CASTELL ' ARQUATO , BY ORDER OF 6 SEPTEMBER 1979 , HEREBY RULES :

1 . TAX ARRANGEMENTS WHICH IMPOSE HEAVIER CHARGES ON DENATURED SYNTHETIC ALCOHOL THAN ON DENATURED ALCOHOL OBTAINED BY FERMENTATION ON THE BASIS OF THE RAW MATERIALS AND THE MANUFACTURING PROCESSES EMPLOYED FOR THE TWO PRODUCTS ARE NOT AT VARIANCE WITH THE FIRST PARAGRAPH OF ARTICLE 95 OF THE EEC TREATY IF THEY ARE APPLIED IDENTICALLY TO THE TWO CATEGORIES OF ALCOHOL ORIGINATING IN OTHER MEMBER STATES .

2.WHERE , BY REASON OF THE TAXATION OF SYNTHETIC ALCOHOL , IT HAS BEEN IMPOSSIBLE TO DEVELOP PROFITABLE PRODUCTION OF THAT TYPE OF ALCOHOL ON NATIONAL TERRITORY , THE APPLICATION OF SUCH TAX ARRANGEMENTS CANNOT BE CONSIDERED AS CONSTITUTING INDIRECT PROTECTION OF NATIONAL PRODUCTION OF ALCOHOL OBTAINED BY FERMENTATION WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 95 OF THE EEC TREATY ON THE SOLE GROUND THAT THEIR CONSEQUENCE IS THAT THE PRODUCT SUBJECT TO THE HEAVIER TAXATION IS IN FACT A PRODUCT WHICH IS EXCLUSIVELY IMPORTED FROM OTHER MEMBER STATES OF THE COMMUNITY .