2.

The Commission also considers that there has been an infringement of the same article of the Treaty—and this is its second complaint—in that the duty is higher on cocoa powder, butter, shells and husks imported directly from other Member States than on such products obtained in Italy by milling cocoa beans originally imported for domestic consumption. On the basis of the aforementioned Article 13 of the Decree Law of 11 March 1950 and applying the proportions fixed by the Law of 25 May 1954, the Commission makes the following findings : — 100 kilogrammes of unroasted cocoa beans, imported for domestic consumption (and from which 40 kilogrammes of butter, 40 kilogrammes of powder and 13 kilogrammes of shells and husks must be produced and sold, after deducting 7 kilogrammes as waste) are subject to an excise duty of 25000 lire. — This duty on the other hand amounts to 28250 lire on imports of products obtained abroad from 100 kilogrammes of cocoa beans in the same proportions, that is: a charge of 12500 lire for 40 kilogrammes of cocoa butter, of 12500 lire for 40 kilogrammes of powder and of 3250 lire for 13 kilogrammes of shells and husks. The difference of 3250 lire which is apparent from this comparison and which constitutes a discrimination contrary to Article 95 of the Treaty is caused by the duty of 3250 lire imposed per 13 kilogrammes of shells and husks. This is where the difficulty lies, and the Italian Government's Agent was justified in saying during the oral procedure that the whole issue turns on the taxation system applicable to shells and husks. He recalled on this point that these waste products are exempt from excise duty if they are used for the extraction of theobromine or for the manufacture of coffee substitutes and that this exemption applies to shells and husks imported as such from other Member States as well as to those obtained in Italy by milling imported cocoa beans (Note 3 to Chapter XIII of the Italian Customs Code). But such waste products must be exclusively used for these two purposes, the production of theobromine and coffee substitutes, and the Law of 9 April 1931 prohibits their use in the making of cocoa or chocolate. It was indeed to strengthen this prohibition and prevent any fraud in respect of food that it was sought later to render their use uneconomic by imposing on them a duty of 250 lire per kilogramme, which is not payable if, as stated earlier, they are used for the manufacture of pharmaceutical products or coffee substitutes. The taxation of waste products is therefore purely theoretical and the duty on their importation is only a type of ‘deterrent’. In that case it is unnecessary to take it into account in comparing the duty imposed generally on products produced abroad from 100 kilogrammes of cocoa beans and that applicable to cocoa beans imported for domestic consumption. There is consequently no discrimination. The Italian Government's argument, developed at length before the Court, presupposes that shells and husks have only the two uses which it has indicated, or at least that in practice they are used only for those purposes. The debate thus moved to this plane as a result of the questions put to the parties by the Court and has taken on a theoretical and technical aspect making it difficult to give a ruling on the substance. In order to refute the defendant's argument the Commission, in telex No 3816 of 5 February, referred to scientific literature (in particular Fincke's ‘Handbuch für Kakaoerzeugnisse’). On the basis of the chemical analysis of shells and husks, the Commission maintains that these products have varied uses, such as the production of butter by extraction, chocolate substitutes, animal fodder and colouring and flavouring substances. This view is confirmed in the Explanatory Notes to the Brussels Nomenclature which have been given legal force in Italy. According to Notes 1 and 3 to Heading 18.02 cocoa butter may be extracted from the shells and husks detached from the beans during roasting or crushing because they often contain fragments of the kernel adhering to the husk which are difficult to separate from it. Similarly, the powders obtained in cleaning the shells in the sorting machines have a fat content which is often sufficient to make extraction profitable. The final argument of the Commission is as follows: the Italian Law of 9 April 1931 prohibits the use of parts of the shell of the bean for the manufacture of products sold under the designation of cocoa or chocolate but not for the manufacture of chocolate substitutes. From a scientific point of view those facts are no doubt correct but it must be wondered whether they are not purely theoretical. We are dealing with an economic situation and it is therefore not sufficient that a product may be obtained from another by reason of its chemical composition; it is also necessary that a minimum profit margin may be obtained, unless production takes place in war-time or in periods of extreme necessity. In reply to the Commission's analysis the Italian Government states that the oils and fats which may be extracted from the shells and husks cannot be classiefid either as cocoa butter or cocoa fat because they generally contain too high a percentage of non-saponifiable material; moreover, the amount of such oils and fats does not exceed 325 grammes per 100 kilogrammes of cocoa beans, thereby constituting a negligible factor. Likewise, the use of waste material as animal fodder would not only be uneconomic, it would also be inadequate, because of its low protein content and high level of humidity; more suitable products are therefore preferred. With regard to its use in the manufacture of colouring and flavouring materials the organoleptic qualities of such waste material are so low that there is no demand for it on the market. Finally, the Italian Republic disputes the statement that the Law of 9 April 1931 allows the use of chocolate substitutes—and on this latter point the meaning of Article 4 of this Law, on which the parties are in dispute, seems to be doubtful. But subject to this reservation I incline to the view that the Italian Government's opinion accords better with the facts of the economic situation. At various points in his book Professor Fincke recognizes the possibility of the extraction from wastes of various products, generally of mediocre quality, but he also states that this process is extremely problematic since ‘despite all efforts, no use offering a reasonable prospect of profit has yet been found for them’ (Handbuch für Kakaoerzeugnisse, p. 367). It therefore appears in the final analysis that—apart from their possible use in the manufacture of butter or of powder in circumstances which are forbidden by the legislation of most countries—shells and husks can only be used in the manufacture of theobromine or coffee substitutes, which involve exemption from duty. It follows from this that the second failure alleged by the Commission, unlike the first, does not seem to have been proved and the application must be rejected on this point.