JUDGMENT OF 15. 4. 1970 — CASE 28/69 COMMISSION v ITALY

In Case 28/69

THE COURT composed of: R. Lecourt, President, R. Monaco and P. Pescatore, Presidents of Chambers, A. M. Donner, A. Trabucchi, W. Strauß (Rapporteur) and J. Mertens de Wilmars, Judges, Advocate-General: J. Gand Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Summary of the facts

1. In a letter of 28 April 1965 addressed to the Permanent Representative of the Italian Republic, the Commission stated that Article 2 of the Italian Law No 291 of 25 May 1954, relating to ‘the endorsing of temporary customs import certificates for batches of 100 kg of cocoa’, constituted an infringement of Article 95 of the EEC Treaty. Viewed in conjunction with the rate of the Italian excise duty the said article involves imposing on imported cocoa powder a charge in excess of that which the same product would bear if it were obtained in Italy by processing unroasted cocoa beans. The Italian Government was requested to submit its observations and to make known the measures which it intended to adopt ‘in order to eliminate possible discrimination’. There was no reply to this request, or to the reminders (date 4 October 1965, 16 December 1965 and 14 March 1966) which the Commission addressed to the Italian Permanent Representative.

2. In a letter of 19 July 1966 addressed to the Ministry of Foreign Affairs of the Italian Republic, Mr Mansholt, Vice-President of the Commission : repeated the considerations set out in the letter of 28 April 1965; noted a further infringement of Article 95 relating solely to imports for domestic consumption of specified products; he stated that this infringement also arose from the operation of Law No 291, in pursuance of which finished products processed in Italy from 100 kg of imported cocoa beans were subject to a duty 3250 lire less than that levied on similar imported products ; observed that it followed from the said law that ‘where cocoa beans have been imported into Italy for domestic consumption, products obtained from such cocoa beans may, when re-exported, benefit from a refund (28250 lire) in excess of the charge borne by the said products within the country (25000 lire at the time of importation)’, which constituted an infringement of Article 96 of the Treaty; indicated that for these reasons the Commission had decided to initiate the procedure under Article 169 against Italy; invited the Italian Government to submit its observations on the alleged infringements within two months; stated that the Commission reserved the right to deliver a reasoned opinion pursuant to Article 169 if it did not receive a reply within the period prescribed. When in fact no reply was received the Commission delivered an opinion, on 17 January 1967, and conveyed it to the Italian Government by a letter of the same date. In the opinion Italy was required ‘to adopt within a period of 30 days the measures necessary to comply with this reasoned opinion. Upon request to the Commission before the expiry of such period the latter may be extended so far as necessary to make possible observance of parliamentary procedures required by the national law in force’.

3. In a letter of 17 March 1967 addressed to the President of the Commission the Italian Permanent Representative : set out the reasons which, according to the Italian Government, justified the system impugned; added that the Italian Government ‘would nevertheless continue to consider the problems raised by the Commission’, that ‘proposals have been made for a parliamentary measure to repeal Law No 291’, and that the said government ‘cannot therefore make known the decision which it will adopt with regard to the above-mentioned measure’. In a telex message of 10 June 1967, the Italian Permanent Representative referred to the ‘alleged infringement… in connexion with the temporary importation of cocoa beans intended entirely for milling’ and intimated that ‘the competent Italian authority has given a favourable opinion on the draft law for the repeal of Law No 291 which was placed before the Senate, on condition that it is repealed gradually over a period of time. Subject to such amendment being made to the draft law, the Italian Government is willing to comply with the reasoned opinion’.

4. In a letter of 5 July addressed to the Italian Minister of Foreign Affairs the Commission stated that the Italian Government had failed to comply with the reasoned opinion within the period fixed and declared in particular that : the gradual elimination of the infringement in question was not acceptable since it could only be eliminated by the repeal of Law No 291 in its entirety ; consequently, the Commission was obliged to continue the procedure by making an application to the Court of Justice; ‘on the other hand, if the Italian Government intends unreservedly to support the proposed legislation for repeal placed before Parliament, the Commission, as in all similar cases, will take account of the time necessary for parliamentary procedures to run their course. Having regard to the long period which has elapsed since the date of the Commission's first action in the matter the Commission must request an assurance to this effect within a very short time’. The Permanent Representative of the Italian Republic replied by telex message on 22 September 1967 that ‘the Italian Government supports the proposed legislation on the parliamentary measure… as originally drafted’.

5. Since the above-mentioned draft law lapsed on the dissolution of the legislature the legislative procedure had to be recommenced from the beginning. In a letter of 13 February 1969 addressed to the Italian Minister of Foreign Affairs the President of the Commission intimated that the Commission intended to bring the matter before the Court ‘if the infringements in question are not eliminated within a period of three months’.

6. On 24 June 1969 the Commission made the present application.

II — Conclusions of the parties

In its application the Commission claimed that the Court should:

Declare:

1) that by imposing on cocoa powder imported from other Member States of the EEC an excise duty in excess of that levied on the corresponding product processed in Italy by milling cocoa beans imported under the system of temporary duty-free imports, the Italian Republic has failed in its obligation under Article 95 of the Treaty establishing the European Economic Community;

2) that by imposing on cocoa powder, cocoa butter, shells and husks imported from other Member States an excise duty in excess of that levied on corresponding products obtained in Italy by milling cocoa beans imported for domestic consumption, the Italian Republic has in this respect also failed to fulfil its obligation under the abovementioned provision;

3) that by granting on products obtained in Italy by milling cocoa beans a refund of the excise duty in excess of the amount actually charged on entry, the Italian Republic has failed to fulfil the obligation imposed on Member States by Article 96 of the EEC Tretay ;

4) order the defendant to bear the costs.

In its defence the Italian Government merely stated that in its view ‘it appears… that the conditions for the withdrawal of the Commission's application have been fulfilled and, pending notification from the Commission as to whether it shares this view, the defendant for the moment refrains from submitting further observations’.

In its reply the Commission declared that it maintained its application.

In its rejoinder the Italian Government contended that the Court should :

1) principally, declare that the present case is devoid of object;

2) if the conclusion set out at (1) is rejected: dismiss the Commission's application;

3) order the Commission to bear the costs.

At the hearing the Commission declared that it was withdrawing the third head of its application.

III — Procedure

On hearing the report of the Judge-Rapporteur and the views of the Advocate-General, the Court decided to open the oral procedure without any preparatory inquiry.

The parties submitted oral observations at the hearing on 3 February 1970. At the request of the Court they expressed their views, sent by telex messages and received at the Court Registry on 5 and 9 February 1970, on certain points put to them by the Judge-Rapporteur.

The Advocate-General delivered his opinion on 4 March 1970.

IV — Submissions and arguments of the parties

The first submission: Infringement of Article 35 of the EEC Treaty by the imposition on cocoa powder directly imported from other Member States of an excise duty in excess of that levied on the corresponding domestic product

In its application the Commission states the following:

a) In accordance with Article 13 of Decree Law No 50 of 11 March 1950, which subsequently became Law No 202 of 9 May 1950, the excise duty on imports of cocoa beans and products obtained therefrom was imposed in accordance with the following scales:

on unroasted cocoa beans, shells and husks: 25000 lire per 100 kg;

on cocoa beans, roasted, unshelled: 27500 lire per 100 kg;

on cocoa, roasted, shelled, ground, in paste or powder, cocoa butter: 31250 lire per 100 kg.

b) In accordance with Article 2 of Law No 291 of 25 May 1954 temporary imports of unroasted cocoa beans are to be given customs clearance in the following proportions per 100 kg.

40 kg of cocoa butter;

40 kg of cocoa powder containing less than 1 % of such butter on which, if not re-exported, the excise duty for 32 kg of cocoa beans shall be payable;

13 kg of shells and husks;

7 kg for losses, earth, spoiled beans and loss of weight in roasting.

c) In view of the rates of the duty and of the ratios established, those two provisions result in the following findings when read together :

every kilogramme of cocoa powder imported into Italy is liable to an excise duty of 312.50 lire (31250 lire per 100 kg) ;

every kilogramme of cocoa powder obtained in Italy from cocoa beans imported duty-free under the temporary import system is liable on subsequent sale on the Italian market to an excise duty of 200 lire; in fact, as is clear from the figures given above at (b), 40 kg of cocoa powder not re-exported are liable to the excise duty on 32 kg of cocoa beans, that is: 8000 lire (250 X 32); dividing this figure by 40 the figure of 200 lire per kilogramme is obtained.

d) It follows from these figures that every kilogramme of imported cocoa powder is subject to a discriminatory tax differential amounting to 112.50 lire (312.50—200) in comparison with the similar domestic product.

In its defence the Italian Government confines itself to claiming that the Italian Parliament had, within the period prescribed for submitting the said defence, approved a draft law meeting the complaints made by the Commission.

In its reply the Commission admits the adoption of this draft law removes the infringement referred to in this submission.

In its rejoinder the Italian Government does not devote specific arguments to the Commission's first submission; it appears however that certain of its arguments appearing below in connexion with the second submission are also intended to refer to this complaint. It indicates, as a matter of general interest, that the draft law mentioned in its defence has in the meantime become Law No 684 of 1 October 1969, published in the ‘Gazzetta Ufficiale’ No 267 of 21 October 1969.

At the hearing the Commission declared that it maintained its first submission for two reasons: first, because the said infringement had continued for almost three years after the expiry of the period laid down in the reasoned opinion and for almost four months after the application had been lodged; secondly, because the infringement persists under the new law in a new guise, as the Commission explains in detail.

Also at the hearing, the Italian Government replied that since the Commission had withdrawn its first submission in its reply that submission is henceforth irrelevant. With regard to the substance it may be considered that certain of the arguments set out below in connexion with the second submission are intended to refer also to this complaint.

The second submission: Infringement of Article 95 resulting from the higher rate of excise duty on products processed from milled cocoa beans imported directly from other Member States in comparison with corresponding products produced in Italy from cocoa beans imported for domestic consumption

In its application, the Commission states that on the basis of the previously cited provisions (Article 13 of Decree Law No 50; Article 2 of Law No 291) there is a second case of tax discrimination.

The exercise duty on 100 kg of unroasted cocoa beans imported for domestic consumption (‘assuming that products processed from the said beans are sold in the proportion of 40 kg of butter, 40 kg of powder and 13 kg of shells and husks with 7 kg deducted for losses’) amounts to 25000 lire.

On the other hand, the excise duty levied on imports of products processed abroad from 100 kg of cocoa beans is calculated as follows :

The 93 kg of products imported from other Member States, in the proportions shown above, are thus subject to a duty 3250 lire in excess of that imposed on the same quantity of similar products processed in Italy from cocoa beans imported for domestic consumption.

The Italian Government's defence is set out above under the first submission.

In its reply, the Commission states that Law No 684 allows the said infringement to continue. In fact, the 93 kg of products imported from other Member States are still liable to a tax burden 2340 lire in excess of that imposed on the same quantity of corresponding products processed in Italy from cocoa beans imported for domestic consumption.

This amount is calculated as follows :

The excise duty levied on 100 kg of unroasted cocoa beans imported for domestic consumption (assuming that the products processed from the said beans are sold in the proportion of 40 kg of butter, 40 kg of powder and 13 kg of shells and husks with 7 kg deducted for losses) now amounts to 18000 lire; on the other hand, the excise duty levied on imports of products processed from 100 kg of cocoa beans is henceforth as follows:

40 kg of cocoa butter(40x280) 11200 lire 40 kg of cocoa powder(40xl70) 6800 lire 13 kg of shells and husks (13 X 180) 2340 lire 20340 lire

In its rejoinder and at the hearing the Italian Government replied in particular that:

The legislation impugned was and is intended to put an end to discriminatory treatment to the detriment of Italian producers. In fact, the same duty was previously imposed on cocoa powder with a low butter content (and consequently of little value) as on cocoa powder with a high butter content and on cocoa butter;

The difference indicated by the Commission is explained by the fact that the respective rates are imposed on two different products, that is, cocoa powder containing less than 1 % of oils and fats, and cocoa powder containing more than 20 % of oils and fats;

Account must also be taken of losses in manufacture and of the higher costs involved in milling;

The Commission has failed to give the proportions in which, allegedly, the duty exempted on imported beans is re-imposed on the various derived products

The variation in the tax of which the Commission complains is the same as the duty imposed on shells and husks. The latter are exempted from excise duty if they are used in the extraction of theobromine or in the manufacture of coffee substitutes. Furthermore, it is practically impossible to use the said products in other ways. In fact, Law No 916 of 9 April 1931 prohibits the use of shells and husks in the manufacture of cocoa and chocolate; in order to reinforce this prohibition, the Italian legislature has imposed a very high excise duty on shells and husks, whose commercial value is 4 lire per kilogramme: no sensible dealer would buy goods worth only 4 lire at a price of 254 or 184 lire ;

For the same reasons it would be just as ‘uneconomical’ to use them for any other purpose (such as fertilizers, animal fodder, etc.). Furthermore this is not possible because of the chemical composition of the shells and husks.

According to the Commission such considerations are irrelevant. Furthermore, it is by no means inconceivable that shells and husks should have uses other than those for which the exemption is available or which are prohibited by the legislature.

The third submission: Infringement of Article 96 by the refund of excise duty, on exports of products obtained in Italy by processing cocoa beans, in excess of the duty actually paid

In its application the Commission points out in detail that when the products in question are exported a refund is payable which is 3250 lire in excess of the amount of duty in fact imposed on them. This is the consequence of Article 4 of the Decree of the Provisional Head of State No 206 of 14 October 1946.

In its rejoinder the Italian Government replies in particular that the above-mentioned Article 4 was repealed by Article 3 of Decree No 691 of 3 May 1948.

At the hearing the Commission accepted this argument as correct and declared that it withdrew its third submission.

Grounds of judgment

1. Having delivered a reasoned opinion on 17 January 1967 the Commission, by an application lodged on 24 June 1969, applied to the Court under Article 169 of the EEC Treaty for a declaration that the Italian Republic had failed in its obligations under Articles 95 and 96 of the Treaty.

The first submission

2. The Commission claims that the Italian legislation in force when the application was made contravened Article 95, by imposing on cocoa powder imported from other Member States an excise duty (312.50 lire per kilogramme) which was higher than that imposed on the same product obtained in Italy by milling cocoa beans imported duty-free under the temporary import system (200 lire per kilogramme).

3. The defendant considers that as a result of amendments made to the Italian legislation in the course of the proceedings the Commission should be deemed to have withdrawn this complaint. It is however clear from the procedural documents that the Commission has maintained its conclusions in connexion with this submission.

4. Although the above-mentioned figures are not disputed the defendant claims that the Commission is making a comparison between products which are not ‘similar’ as required by Article 95, that is, cocoa powder containing less than 1 % of butter and powder richer in oils and fats.

5. The comparison made by the Commission is based on Article 13 of Decree Law No 50 of 11 March 1950 and Article 2 of Law No 291 of 25 May 1950. The said Article 13 concerning imported powder does not make a distinction according to the oil and fat content of products. Although Article 2 of Law No 291 concerning powder produced in Italy makes express reference only to a product with a content of less than 1 % of oils and fats it nevertheless follows that the alleged discrimination existed at least with regard to that product.

6. Furthermore, products such as those in question which fall under the same classification for tax purposes must be considered as ‘similar’ within the meaning of the first paragraph of Article 95.

7. Consequently the Italian Government's objection is unfounded.

8. The Italian Government further claims that account should have been taken, in respect of cocoa powder produced in Italy, of the higher manufacturing losses and costs involved in milling.

9. However, no evidence of the relevance of this argument to the present case has been adduced. Moreover, the principle of non-discrimination contained in Article 95 is valid independently of the effect of factors other than taxation on the respective production costs of the products to be compared.

10. Consequently the Italian Republic has failed to fulfil its obligation under Article 95 of the Treaty by imposing on cocoa powder imported from other Member States an excise duty in excess of that imposed on the similar product produced in Italy by milling cocoa beans imported duty-free under the temporary import system.

The second submission

11. The Commission further complains that the Italian Republic has failed to fulfil its obligation under Article 95 in that its legislation imposes on cocoa powder, cocoa butter and shells and husks imported from other Member States an excise duty which is in excess of that imposed on similar products produced in Italy by the milling of cocoa beans imported for domestic consumption.

12. It is not disputed that this difference exists and that its amount is identical with the duty imposed on shells and husks imported from other Member States.

13. It is moreover agreed that such products, whether imported or produced by the Italian processing industry, are exempt from Italian excise duty if they are used for the extraction of theobromine or in the manufacture of coffee substitutes.

14. Consequently the alleged infringement could occur only if the Italian Republic in fact imported shells and husks intended for purposes other than those for which the exemption is available. The Italian Government has stated that since the legislature has prohibited the use of the products in question for the production of cocoa and chocolate it endeavoured to discourage such use by imposing a high excise duty on those products, thus entirely preventing the use of shells and husks for purposes other than those for which the exemption is available.

15. By imposing a duty of 250 or 180 lire on products with a very low commercial value the defendant has in fact precluded the sale of those products for purposes other than those for which it has provided for exemption.

16. It is therefore unnecessary to ascertain whether the shells and husks might still in exceptional cases be used for purposes other than those mentioned above.

17. It must consequently be found that since the Commission has failed to prove the infringement alleged in its second submission its application should be dismissed with regard to this point.

The third submission

18. Since the Commission has formally withdrawn this submission it is unnecessary to give a ruling on it.

Costs

19/20. Under the terms of Article 69 (3) of the Rules of Procedure, where each party succeeds on some and fails on other heads the Court may order the parties to bear their own costs in whole or in part. This provision is applicable in the present case.

On those grounds, Upon reading the pleadings ; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties ; Upon hearing the opinion of the Advocate-General ; Having regard to the Treaty establishing the European Economic Community, especially Articles 95 and 169; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community; Having regard to the Rules of Procedure of the Court of Justice of the European Communities, especially Article 69, THE COURT hereby:

1 Rules that by imposing on cocoa powder imported from other Member States an excise duty in excess of that imposed on the similar product produced in Italy by milling cocoa beans imported duty-free under the temporary import system, the Italian Republic has failed to fulfil its obligations under Article 95 of the EEC Treaty;

2 Dismisses the second submission;

3 Orders the parties to bear their own costs.