CELEX: 61980CC0046
Language: en
Date: 1980-11-11
Title: Opinion of Mr Advocate General Reischl delivered on 11 November 1980. # SpA Vinal v SpA Orbat. # Reference for a preliminary ruling: Pretura di Casteggio - Italy. # Taxation of denatured alcohol. # Case 46/80.

OPINION OF MR ADVOCATE GENERAL REISCHL
      DELIVERED ON11 NOVEMBER 1980 (
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         Mr President,
      
      
         Members of the Court,
      
      The reference for a preliminary ruling on which I am today to give my opinion again concerns the interpretation of Article 95 of the EEC Treaty in relation to differing internal taxation on alcoholic products.
      As SpA Vinal's note confirming sale shows, SpA Orbat, which has its registered office in Milan, placed a verbal order with the former, which has its registered office in Casteggio, for 10 hectolitres of pure denatured synthetic ethyl alcohol imported from another Member State of the EEC at a price of LIT 62000 per hectolitre of alcohol together with value-added tax. That price included a special revenue charge (diritto erariale speciale) which, in accordance with Article 3 of Law No 506 of 18 August 1978 amending the tax arrangements for alcohol (Gazzetta Ufficiale [Italian Official Journal] No 247 of 4 September 1978), was fixed at LIT 12000 per hectolitre of pure alcohol and was paid by Vinal on the importation of the goods in question.
      When Orbat refused to pay the special revenue charge, which in its view had been unlawfully imposed, Vinal instituted proceedings before the Pretura, Casteggio, calling upon the former to take delivery of the goods and make payment of the purchase price including the special revenue charge and the value-added tax.
      During the oral procedure Orbat did not dispute the fact that it was liable to pay the basic price of LIT 50000 per hectolitre of alcohol together with the value-added tax but it challenged the additional burden of the special revenue charge amounting to LIT 12000 per hectolitre of pure alcohol and maintained that its imposition was contrary to Article 95 of the EEC Treaty.
      Italian tax legislation makes provision in principle for the imposition on all kinds of denatured alcohol of a special revenue charge amounting to LIT 12000 per hectolitre of pure alcohol. Only those kinds of alcohol forming the so-called second category, which are produced from wine, marc or fruit, are completely exempted from that charge whilst a rate of tax amounting to LIT 1000 per hectolitre of pure alcohol is laid down for alcohol from molasses, sorghum and sugar-cane and to LIT 2000 per hectolitre of pure alcohol from methyl alcohol, propyl alcohol and isopropylalcohol.
      Although the arrangements which have been described apply without distinction to domestic and imported products the plaintiff SpA Orbat is of the view that they nevertheless entail a contravention of the prohibition on discrimination contained in Article 95 of the EEC Treaty since, in the first place, denatured synthetic alcohol must be considered similar or indeed identical to denatured alcohol obtained by fermentation and, further, in Italy synthetic alcohol is exclusively an imported product whilst alcohol obtained by fermentation is exclusively produced in that country. The “similar” product imported from the Community is thus more heavily burdened than the domestic product. On the said grounds it is required to pay only a special revenue charge amounting to LIT 1000 per hectolitre of pure alcohol.
      The Pretura, Casteggio, stayed the proceedings by an order of 30 January 1980 and, in accordance with Article 177 of the EEC Treaty, submitted the following questions for a preliminary ruling:
      
               “1.
            
            
               Must the first paragraph of Article 95 of the Treaty of Rome be interpreted as meaning that two products derived from different raw materials but capable of being put to the same uses and having the same practical application must be considered to be ‘similar’?
            
         
               2.
            
            
               If the reply to Question 1 is in the affirmative :
               Must the first paragraph of Article 95 of the Treaty of Rome be interpreted as meaning that it must be considered to be prohibited to impose charges which, whilst appearing to place an identical burden on the Community product and the similar domestic product, in fact amount to discrimination in tax matters to the detriment of similar products from other Member States in that the products subject to heavier taxation are exclusively imported and the products subject to lighter taxation are principally domestic?
            
         
               3.
            
            
               If the reply to either of the foregoing questions is in the negative:
               Must the second paragraph of Article 95 be interpreted, in relation to the facts of this case, as meaning that that provision prohibits the imposition of heavier taxation on a product which principally comes from other Member States, thereby affording protection to competing national production?”
            
         My views on the foregoing are as follows:
      I — Admissibility
      In its observations the Italian Government considers, on the basis of the findings of the Court of Justice in its judgment in the Foglia case (judgment of 11 March 1980 in Case 104/79, Pasquale Foglia v Mariella Novello, [1980] ECR 745), that this request for a preliminary ruling is inadmissible. As in the said case in these proceedings too the procedure under Article 177 of the EEC Treaty is said to have been misused by the device of a fictitious and artificial action before the national court in order to charge a Member State with failure to fulfil its obligations under the Treaty. However, in the context of the arrangements for the protection of legal rights laid down in the Treaty, in accordance with Article 169 of the EEC Treaty such a power is conferred only upon the Commission.
      In common with the plaintiff in the main action and the Commission I am, however, unable to concur in that opinion. First of all, it must be borne in mind as a general point that Article 177 of the EEC Treaty confers upon the Court of Justice jurisdiction to give preliminary rulings on questions of Community law where “such a question is raised before a court or tribunal of a Member State” and where that court or tribunal considers that “a decision on the question is necessary to enable it to give judgment”. In the interests of a uniform interpretation of Community law the duty of the Court of Justice is in principle to supply all courts of the Community with the information on the interpretation of Community law which is necessary to enable them to settle disputes which are brought before them regardless of whether the action in question relates to public or purely private law (cf. in particular the judgments given on the interpretation of Article 95 of the EEC Treaty of 20 February 1973 in Case 54/72, FOR v VKS [1973] ECR 193 and of 22 March 1977 in Case 74/76, Iannelli & Volpi v Meroni [1977] ECR 557).
      In the Foglia case the Court of Justice declined jurisdiction to decide the questions submitted by a national court purely “having regard to the circumstances of this case”, that is as an exception, because of the absence of a genuine dispute. The special feature of those circumstances resided, as the Court of Justice pointed out, in the fact that the parties to the main action manifestly wished to obtain a judgment on a provision of French tax law through proceedings before an Italian court which were instituted by two private persons who were agreed as to. the result they wished to obtain and who had inserted a stipulation in their contract which was intended to lead the Italian court to give a decision on that question. An indication of the artificial nature of that expedient is in particular the conduct of all the parties to the case.
      In contrast to that case it appears to me that no such special circumstances exist which could indicate with complete certainty that the questions submitted by the national court cannot come within the framework of Article 177 of the EEC Treaty. Accordingly in my view, which is at variance with the arguments of the Italian Government, there is nothing in the conduct of the parties in concluding the contract which points inescapably to the conclusion that the contract was only intended to provide a pretext to call in question the Italian tax arrangements before the Court of Justice on the basis of a main action in the form of a friendly suit. As we have in fact heard, the business of the plaintiff in the main action principally centres on the manufacture of alcohol from agricultural products but in addition the plaintiff also buys certain additional supplies in case its own production cannot keep pace with demand, and there is a corresponding expectation of profit. The plaintiff evidently adopted this course again in 1979, importing from France a blend of synthetic alcohol and alcohol derived from molasses which it subsequently denatured under the supervision of the Italian authorities and then re-sold in part to the defendant in the main action. In view of the extreme technical difficulties in distinguishing the components of that blend it was taxed in accordance with the rate for denatured synthetic alcohol.
      These facts are sufficient to show us that the parties may have had a perfectly reasonable interest in concluding an express agreement for the supply of synthetic alcohol. Despite what has been stated by the Italian Government, it was accordingly not necessarily to be expected that SpA Orbat would have challenged the delivery of a “blend”, since both alcohol produced by artificial means and pure alcohol obtained through distillation can undoubtedly be used for the same purposes. Equally, there are many possible reasons why SpA Vinal should not have discharged its obligations under the contract by supplying alcohol derived from molasses which enjoys more favourable tax treatment.
      From the point of view of the interests of the parties there is just as little evidence which points clearly to the conclusion that the proceedings constitute a friendly suit. It was in the interests of SpA Vinal, as the seller, that the duties which it had to pay in order to qualify for the more advantageous arrangements should be passed on to the purchaser whilst the latter, on the other hand, was clearly interested in obtaining the lowest possible price. A further point distinguishing these proceedings from the Foglia case is the fact that the parties do not concur in the interpretation of Article 95.
      Finally, it cannot in fact be the duty of the Court of Justice to verify how far the interpretation of Community law is relevant to the proceedings in which the preliminary ruling has been requested. It must be recalled in this connexion that in accordance with the settled case-law of the Court of Justice on Article 177 of the EEC Treaty it is in principle for the courts in the individual States to assess the relevance of the questions submitted, so that it must be sufficient that the court submitting the questions considers the interpretation of Community law to be necessary.
      Accordingly, since there is no unequivocal and clear evidence that, as in the Foglia case, the main action constitutes a friendly suit begun in order to charge a Member State with failure to fulfil its obligations under the Treaty — and only in such cases should jurisdiction be exceptionally declined — I propose that the Court should hold that it has jurisdiction and consider the request for a preliminary ruling admissible.
      II — Substance
      The first question is intended to establish whether two products manufactured from different raw materials but capable of being put to the same uses must be considered as “similar” within the meaning of the first paragraph of Article 95 of the EEC Treaty. In the second and third questions the Pretura seeks assistance in the interpretation of the first and second paragraphs of Article 95 of the EEC Treaty in order that it may decide whether the relevant Italian tax provisions are in accordance with that article.
      A glance at the previous case-law of the Court of Justice on Article 95 of the EEC Treaty however shows that a different order of treatment of these questions is appropriate. Thus in the first Hansen case (judgment of 10 October 1978 in Case 148/77, H Hansen jun. and O. C. Baile GmbH & Co v Hauptzollamt Flensburg [1978] ECR 1787) the Court of Justice in fact abstained from considering those two paragraphs of Article 95 of the EEC Treaty separately in view of the practical difficulties regarding similar treatment which can arise with regard to the nature of the raw materials, the technical characteristics of the equipment and the distilling processes. To this effect it was also emphasized in the judgment of 8 January 1980 in Case 21/79 (Commission v Italian Republic [1980] ECR 1) that the disparities prohibited by that article must be eliminated in spite of the difficult problems of comparison which may arise when assimilating an imported product to the various domestic products (which are subject to different taxes) to which it may have some similarity. Finally, the Court of Justice in its judgments in the spirits cases of 27 February 1980 (Cases 168/78 Commission v France, 169/78 Commission v Italy, 170/78 Commission v United Kingdom, 171/78 Commission v Denmark and 55/79 Commission v Ireland) has established that Article 95 of the EEC Treaty as a whole applies without distinction to all products wnich have the same application. The Court of Justice, proceeding on the basis of the spirit and objective of Article 95, namely that the free movement of goods between the Member States under normal conditions of competition is to be preserved by the abolition of all forms of protection which may flow from the discriminatory domestic taxation of goods from other Member States, accordingly comes to the conclusion in the said judgments that it is therefore sufficient to examine “whether the application of a given national tax system is discriminatory or, as the case may be, protective, in other words whether there is a difference in the rate or the detailed rules for levying the tax and whether that difference is likely to favour a given domestic production”. It is accordingly unnecessary to reply to the first question since synthetically-produced alcohol and alcohol which is manufactured through a distillation process are at all events competing products for the purposes of the second paragraph of Article 95.
      The said case-law and the judgment in the Bobie case (judgment of 22 June 1976 in Case 127/75, Bobie Getränkevertrieb GmbH v Hauptzollamt Aachen-Nord [1976] ECR 1079) also make clear, as the plaintiff in the main action and the Italian Government have properly pointed out, that at the present stage of its development and in the absence of any unification or harmonization of the relevant provisions, Community law does not prohibit Member States from granting tax advantages, in the form of exemption from or reduction of duties, to certain types of spirits or to certain classes of producers for legitimate economic or social purposes. I have already set out this case-law exhaustively in my opinion of 2 October 1980 in Case 26/80 (Firma Schneider-Import GmbH & Co KG, Bingen v Hauptzollamt Mainz). It is only necessary in this connexion to point out again that, contrary to the view of the Commission, the judgment of the Court in Case 21/79 merely confirms this case-law, emphasizing that the Treaty does not prohibit the imposition within the framework of national tax law of different taxation on products which may serve the same economic purposes.
      The said case-law further indicates that tax benefits which are permitted on economic or social grounds may not entail discrimination or be of a protective nature as against imported products.
      In the present case it is thus merely necessary to ascertain under what circumstances national tax provisions which lay down different rates of tax depending on the raw materials for products which are capable of being put to the same uses are discriminatory or of a protective nature in relation to corresponding products imported from other Member States.
      The Commission wishes to infer from the judgment of the Court of Justice of 27 February 1980 that the tax legislation, of which the special revenue charge forms part, cannot be considered compatible with Article 95 of the EEC Treaty unless the same rate of tax is applied to domestic products and to similar products imported from other Member States. The different tax treatment is said to be explained by the fact that in Italy the total consumption of denatured ethyl alcohol is covered by domestic alcohol obtained very largely from sugar-beet molasses, which is cheap to produce, whilst synthetic alcohol is not manufactured in Italy. The higher taxation on synthetic alcohol is liable to hinder its importation to Italy and thereby secure for domestic alcohol a privileged competitive position. Differentiated taxation is, however, unjustified either on economic or on social grounds. In particular, contrary to the view of the Italian Government, the principles laid down by the Court of Justice in its judgment of 8 January 1980 in Case 21/79 are not applicable since the necessary conditions have not been fulfilled in this case.
      The plaintiff in the main action and the Italian Government, however, concur in pointing out that the reduction in the special revenue charge is effected not on the basis of the “domestic” origin of the product but on the basis of objective conditions. which apply without distinction to both Italian products and products produced within the Community. Further, the determination and subdivision of the groups within the tax system applicable to denatured alcohol does not lead to discrimination against synthetic alcohol produced in other Member States. It is in fact possible to produce synthetic alcohol without difficulty in all industrialized countries, including Italy. The absence of a significant production of synthetic alcohol is merely the consequence of a tax system purposely adopted in order to provide an appropriate level of employment and income for the agricultural producers of certain raw materials and the continuation of agricultural distilleries. The different tax treatment of synthetic alcohol and alcohol of agricultural origin is also justified on grounds of energy policy since it is conducive to a reduction in the consumption of petroleum products in favour of agricultural products which exist in sufficient quantities in the Community.
      In assessing this argument it must be agreed that the plaintiff in the main action and the Italian Government are correct in that no discrimination between domestic and imported products occurs within any of the three groups into which denatured alcohol is divided. It must, however, be ascertained whether the relevant formal determination of the subdivisions is compatible with the requirement in Article 95 of the EEC Treaty that the internal taxation of domestic and imported products shall be completely neutral in relation to competition. That neutral position is undoubtedly preserved where, in a differentiated tax system which falls within the area of independence in tax matters of the Member States, a significant proportion of domestic products are also subject to higher taxes. On the other hand, it is evident that a differentiated tax system is discriminatory or of a protective nature where only such similar or competing products for which there is not even a possibility of production in the country in question are subject to higher taxation, since in such a case it is evident that imported products are placed at a disadvantage in relation to domestic products.
      Much greater difficulties are, however, encountered in establishing a discriminatory or protective effect in cases where, as in these proceedings, a product with the same economic uses is subject to higher taxation and is not manufactured in the country in question although the industrial organization exists there and where the Member State in question maintains that the absence of any significant production is a consequence of a tax policy which is based on lawful economic decisions.
      In such a case it may not be inferred from the absence of a specified production which has been brought about through tax measures that such taxation has a protective effect against imported products. That would in fact mean that the lawfulness of a differentiated tax burden depends upon the attainment or otherwise of the objective in view, namely the exclusion of a certain product from the market. If an appropriate measure were unsuccessful, that is if a product was produced within the country despite the higher burden of taxation, that measure would be in accordance with Article 95, whilst there would be a breach of the prohibition on discrimination contained in that article if the measure at the same time constituted an effective barrier to domestic production.
      On the other hand, in disputing the risk of abuse, it is insufficient merely to assert that the absence of a domestic production is to be traced back to the different burden of taxation alone.
      In order to exclude the possibility that domestic products are favoured at the expense of imported products by that differentiation when, as in this case, there is no noteworthy domestic production, evidence is accordingly required that, since the appropriate industrial organization exists in the Member State in question, such production would be entirely possible and that the different tax treatment is actually justified, being based on objective criteria.
      With regard to the first condition in my view there can be no doubt that Italy, which has a highly-developed petrochemical industry, has at its disposal the necessary means to produce synthetic alcohol from ethyl without unusual expenditure.
      The following considerations in my view establish that the different tax treatment of the three groups of denatured alcohol is in fact objectively justified and accordingly that it does not entail any discrimination or protective effect for the benefit of domestic production in relation to imported goods: first of all, it should be recalled that the special revenue charge amounting to LIT 12000 per hectolitre of pure alcohol is in principle applied to all kinds of denatured alcohol, regardless of whether the alcohol in question is synthetically produced or of agricultural origin. Only denatured alcohol which is produced from wine, marc and fruit is completely exempt from these arrangements, whilst alcohol from molasses, sorghum and sugar-cane is liable to a reduced special revenue charge amounting to LIT 1000 per hectolitre of pure alcohol. That distinction shows clearly that denatured alcohol produced from the said agricultural raw materials, which in fact constitute the most commonly used raw materials, is favoured at the expense of denatured alcohol of mineral origin, albeit that latter group also extends to certain kinds of alcohol of agricultural origin.
      Unlike the judgments of 27 February 1980 in the spirits cases these proceedings do not concern a difference in taxation occurring in the case of two agricultural products but a distinction which is ultimately based on the difference between mineral raw materials and agricultural raw materials. A further departure from the facts which formed the basis of the earlier judgments is that the Member States concerned were then charged with protecting typical domestic products through a system of differentiated taxation whilst in this case it is difficult to allege that denatured alcohol of agricultural origin, as opposed to synthetic alcohol, is a typical Italian product, since in other Member States too alcohol is commonly produced from molasses.
      Unlike the said judgments in the spirits cases it appears to me that in this case the difference in taxation is in fact objectively justified. As we have heard from the Italian Government, provision was made for such a difference in order to ensure a reasonable level of employment and income for agricultural producers and also the survival of agricultural distilleries. Although the absence of data on the prices of the basic products, production costs and the remaining market conditions makes it impossible to establish whether, as the Commission maintains, such protection is unnecessary, it is possible to hold in quite general terms that the Member States must be free to guarantee competitive prices for agricultural products in comparison with other substitute products in view of particular market conditions. It appears to me that this is even less objectionable since such a procedure exists in the Community sphere, as is shown in particular by Regulation (EEC) No 120/67 of the Council of 13 June 1967 on the common organization of the market in cereals (Official Journal, English Special Edition 1967, p. 33), which inter alia formed the subject-matter of the quellmehl judgment of the Court of Justice of 19 October 1977 ([1977] ECR 1753), and Regulation (EEC) No 1132/74 of the Council of 29 April 1974 on production refunds in the cereals and rice sectors (Official Journal L 128 of 10 May 1974, p. 24), which formed the subject-matter of the judgment of the Court of 20 March 1980 in Case 118/79 (Gebrüder Knauf Westdeutsche Gipswerke v Hauptzollamt Hamburg-Jonas).
      
      Similarly unconvincing, finally, is the further argument of the Commission that the differences in taxation are not justified on economic and social grounds because the enactment of measures of aid for the production of sugar-beet or beet molasses now comes within the sole competence of the Community institutions after the establishment of a common organization of the market in sugar by Regulation (EEC) No 3330/77 of the Council of 19 December 1974 (Official Journal L 359 of 31 December 1974, p. 1). In this connexion I need only point out that the Italian measures in question were at least also concerned to ensure the survival of agricultural distilleries and that there is as yet no common organization of the market in spirits.
      On the other hand, the difference in taxation between mineral products and agricultural products is also objectively justified when considered from the point of view of a sensible energy policy, from the standpoint both of the Member States and of the Community. It is superfluous to emphasize that in view of the oil shortage the Italian decision to employ tax legislation to reduce the use of ethyl for the manufacture of alcohol is reasonable. In this connexion it is impossible to concur with the Commission when it argues that although the Italian State may prevent the production of synthetic alcohol on its territory, it may not “penalize” such alcohol by tax measures in so far as it is produced in France, the Federal Republic of Germany and Great Britain and imported into Italy. If this line of argument were upheld imported synthetic alcohol would have to be taxed at more advantageous rates than the corresponding alcohol produced on the national territory. The practical result of this would be, as the Italian Government properly points out, a complete denial of the independence in tax matters of the Member States, which would have their powers restricted to the creation of discrimination at the sole expense of certain domestic products.
      Since it appears to me clear, because of the special features which have been mentioned, that the differing tax burden in question is equally capable of hindering both domestic production and the importation of synthetic alcohol from other Member States, I suggest that the Court of Justice should give the following replies to the questions submitted by the Pretura:
      Article 95 of the EEC Treaty does not prohibit the application to kinds of alcohol which have the same potential uses of taxation differentiated according to the raw materials used, whether mineral or agricultural, which is liable to exclude undesirable products from the market of a Member State on lawful grounds relating to economic, social or energy policy, regardless of whether the products in question are of domestic origin or are imported from other Member States.
      (
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         )	Translated from the German.