JUDGMENT OF 10. 12. 1970 — CASE 27/70 EDDING v HAUPTZOLLAMT HAMBURG
In Case 27/70 Reference to the Court under Article 177 of the EEC Treaty by the Finanzgericht Hamburg for a preliminary ruling in the action pending before that court between
THE COURT composed of: R. Lecourt, President, A. M. Donner and A. Trabucchi (Presidents of Chambers), J. Mertens de Wilmars (Rapporteur) and P. Pescatore, Judges, Advocate-General: K. Roemer Registrar: A. Van Houtte
gives the following
JUDGMENT
Issues of fact and of law
I — Facts and procedure
The facts and procedure may be summarized as follows :
1) The Convention on the Valuation of Goods for Customs Purposes which was signed at Brussels on 15 December 1950 and to which all the Member States are Contracting Parties states that: ‘For the purposes of levying ad valorem customs duties, the value of any goods imported for home consumption shall be taken to be the normal price, that is to say, the price which they would fetch at the time when the duty becomes payable on a sale in the open market between a buyer and a seller independent of each other’ (Annex I, Article 1). The Convention also provides that the Contracting Parties shall introduce this definition, which they may adapt within certain limits, into their domestic law (Article II) and that the Parties shall, in applying the definition, conform to the provisions of the Interpretative Notes set out in Annex II to the Convention. In order to ensure a uniform interpretation and implementation of a specific definition, a Customs Valuation Committee was established and was entrusted, under the authority of the Customs Cooperation Council, with drawing up explanatory notes and advising the parties, generally in the form of an opinion.
2) Regulation (EEC) No 803/68 on the valuation of goods for customs purposes defines this valuation in accordance with the provisions of the Brussels Convention: Article 1 states: Article 1(2)(b) states that the normal price of such an article shall be determined, inter alia, on the assumption ‘that the seller bears all costs, charges and expenses incidental to the sale and to the delivery of the goods at the place of introduction which are hence included in the normal price’. Article 2 of this regulation defines the meaning of ‘open market’ and Article 7 provides that amongst the costs, charges and expenses in the normal price there shall be included carriage and freight.
‘For the purpose of applying the Common Customs Tariff, the value for customs purposes of the goods imported shall be taken to be the normal price, that is to say, the price which they would fetch, at the time referred to in Article 5, on a sale in the open market between a buyer and a seller independent of each other.’
3) The plaintiff in the main action imports felt-tipped markers from Japan. On 16 July 1968 it requested from the customs office at Hamburg Airport customs clearance at the ‘spot price’ of 4 boxes containing two thousand markers which it had had delivered as an exception by air. The customs office calculated the value for customs purposes on the basis of the amount on the invoice, namely DM 422, to which it added 94 % of the air freight between Kobe and Hamburg, namely DM 650.07 and levied customs duties (16 %) and turnover tax in respect of imports (11 %) on a total value of DM 1102.67.
4) The Edding undertaking considered that the customs office was not entitled to determine the normal price by including the high cost of the air freight, when, according to it, the current price for such a consignment amounted to DM 444 cif Hamburg by sea freight, and lodged a complaint; when this was dismissed it applied on 22 January 1969 to the Finanzgericht Hamburg.
5) The Finanzgericht found that the solution to the dispute depended on an interpretation of Regulation No 803/68 and suspended proceedings; by an order of 12 May 1970 recorded in the Court Register on 2 June 1970 it put the following questions to the Court of Justice under Article 177 of the EEC Treaty:
‘(1) Must it be considered that in principle in order to determine the “normal price”, the carriage and freight, referred to in Article 7 of Regulation No 803/68 of the Council of the European Communities of 27 June 1968 (OJ Special Edition 1968 [I], p. 170) are constituted by the carriage and freight actually paid for the import in question?
2) If an affirmative answer is given, does it follow from Article 1(1) of Regulation No 803/68 that such carriage and freight must not be included in the “normal price” as components of the cost if such inclusion would result in fixing a higher price than the normal cif price prevailing on the market taking into account the lower costs of ordinary transport, and which constitutes the price which would have been paid by any buyer at the place of importation?’
6) In the statement of reasons for its order the Finanzgericht observes that from the wording of Article 1(2)(b) of Regulation No 803/68, clarified inter alia by Article 6 of the same regulation, it may be deduced that the actual costs of carriage and freight are to be included in the normal price and that there is some support in legal writing for this view in connexion with the interpretation of the corresponding provisions of national law governing the subject until Regulation No 803/68 entered into force, which provisions also reproduced the wording of the Brussels Convention. Nevertheless, even within the context of the said national provisions, it cannot be claimed that this principle has absolute validity. Article 13 of the Wertzollordnung (Customs Valuation Regulations) gives examples the precise aim of which is to establish what constitutes the normal rule with regard to valuation for customs purposes, namely to take into consideration the price which could be obtained at the place of importation, that is to say, the price which could be fetched on the market. In Opinion XXX of the Valuation Committee, in accordance with this principle it was declared that with regard to air transport it must be determined whether it was possible to obtain ‘a price including the additional costs arising from the use of air transport’. According to the national court Article 1 of Regulation No 803/68 also provides that the normal price is an actual price, that is to say, a price which could be obtained on the market. The Finanzgericht, however, observes that such an interpretation would result in a contradiction between Article 7 of the regulation and Article 6 for which it may be deduced that the actual transport costs should be taken into consideration.
7) The Commission of the European Communities, the Hauptzollamt Hamburg-St. Annen and the Edding undertaking submitted written observations under Article 20 of the Statute of the Court of Justice. Upon 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 Commission of the European Communities, the Federal Republic of Germany, the Hauptzollamt Hamburg-Jonas which on the abolition of the Hauptzollamt Hamburg-St. Annen took over the latter's rights, and the Edding undertaking submitted their oral observations at the hearing on 10 November 1970. The Advocate-General delivered his opinion on 19 November 1970.
II — Observations submitted under Article 20 of the Statute
The observations submitted under Article 20 of the Statute of the Court may be summarized as follows:
A — Observations submitted by the Commission of the European Communities
1. The Commission observes that the value for customs purposes is the normal price as defined by Regulation No 803/68. This normal price, which, according to the circumstances, is the invoice price or the normal market price at the material time, must make it possible to obtain an equitable customs assessment which does not affect competitive positions, no matter how the contracts were drawn up, on the basis of the actual value of the goods. The definition of a ‘normal price’ in Article 1 of the regulation is consequently intended to exclude certain factors arising from the actual relations between buyer and seller capable of influencing the price of the goods so that it no longer represents their actual value. For this purpose the provision: (1) fixes by reference to Article 5 the material time for valuation of the goods; (2) relates the transaction to a sale between two persons; (3) does not take into account the actual transaction by providing as criteria: the price which would be fetched on a sale in the open market between a buyer and a seller independent of each other. The criteria contained in Article 1 are further supplemented in Article 2 and their aim is thus to represent as clearly as possible service provided by the seller and the consideration paid by the buyer. Although the normal price is partially abstract to the extent to which it requires that no account be taken of certain factors affecting the ‘theoretical representation’ of the seller-buyer relationship, it must nevertheless in principle be determined on a factual basis. It is clear that, especially if the buyer creates particularly unusual obligations for the seller, for example transport by air, that factor must be taken into consideration. In such a case the normal price is not the usual market price for the goods carried by the usual means of transport, but that which is considered normal for goods transported by another means putting them more swiftly at the disposal of the buyer. Any buyer who wishes to have the goods at his disposal quickly must and will be prepared to pay this price.
2. The other provisions of the regulation confirm the interpretation that the actual carriage and freight must be included in the normal price, save in the case of exceptions expressly laid down: (a) Article 1(2)(b) states that the normal price shall be determined on the assumption that the seller bears all the costs, charges and expenses incidental to the sale and to the delivery of the goods at the place of introduction, which are hence included in the normal price; (b) Articles 6 and 7 of the regulation confirm that the actual carriage and freight must be included in the normal price; the latter specifies the costs, charges and expenses mentioned in Article 1(2) whilst the former clarifies with regard to the various means of transport the place of introduction into the customs territory of the Community; (c) Article 8 does likewise since in the first subparagraph of paragraph (1) thereof it sets forth the principle of the assessment of transport costs in proportion to the distance covered outside and inside the customs territory of the Community and only the former are taken into consideration in determining the value for customs purposes. Various exceptions are expressly provided in Article 8(4) and in the second subparagraph of paragraph (1) thereof. The conclusion is consequently reached that Regulation No 803/68 is exhaustive and that the sole exceptions admissible are those which have been expressly laid down. (d) Article 8(3) also provides for the inclusion of the actual transport costs since it states that the transport costs shall be included in the value for customs purposes even where transport is free or provided by the buyer and that in such cases the said costs shall be calculated in accordance with the schedule of freight rates normally applied for the same mode of transport to the place of introduction. (e) Finally, the same principle is confirmed by Article 9(l)(c) which provides that the price paid or payable may be accepted as the value for customs purposes if it is adjusted to take account inter alia of the transport costs.
3. Certainly the concept of the normal price does not automatically include the possibility of limiting the rule that the normal price must include the actual transport costs but it does require that such exceptions shall be provided in the regulation, and in this case there are no such exceptions. The objection may not be made against this finding that the notion of the normal price itself implies exceptions since this would fail to observe the general scheme of Regulation No 803/68 and would give rise to legal uncertainty which would directly contradict the object of the regulation, namely a uniform valuation for customs purposes by the Member States. In any event, even if an exception based on the concept of the normal price were admissible, it could not hold good in the case of goods whose value, like those in the present case, was increased for the actual buyer and for any buyer in a like situation owing to the increased speed of delivery.
4. According to the Commission, the interpretation which it suggests accords completely with that implied by the Brussels Convention. According to that Convention, the actual transport costs constitute a factor in the normal price which is used to determine the value of the goods. The Convention indeed lays down that exceptions may be made to this rule in certain cases, as appears from Opinion VIII of the Customs Valuation Committee. According to the said Opinion such exceptions may be admitted in particular with regard to air transport but subject to the threefold condition that the use of air transport is fortuitous, that it does not increase the value of the goods and that the exception is allowed under national law. The Commission observes that such an exception was laid down, inter alia, by Article 13 of the Wertzollordnung. This is no longer the case under Regulation No 803/68 since the Community authorities considered that they were not obliged to employ the power which the Convention made available to them in this matter — a power which on the contrary had been used in the system before that of the Community.
5. The Commission considers that the questions put to the Court of Justice should be answered as follows : (1) In determining the normal price the carriage and freight referred to in Article 7 of Regulation No 803/68 of the Council of the European Communities of 27 June 1968 (OJ Special Edition 1968 [I], p. 170) are constituted by the carriage and freight actually paid for the import in question. (2) It does not follow from Article 1(1) of Regulation No 803/68 that the normal price must be the same as the ‘normal cif price’ prevailing on the market taking into account the usual (and lower) transport costs; the normal price comprises the actual carriage and freight to the place of introduction into the Community even if their inclusion results in a price higher than the price which any buyer at the place of introduction would be prepared to pay for goods carried by other means of transport.
B — Observations of the Hauptzollamt Hamburg-St. Annen, of the Hauptzöllamt Hamburg-Jonas and of the Federal Republic of Germany
The Hauptzollamt Hamburg-Jonas, which was substituted for the Hauptzollamt Hamburg-St. Annen, and the Federal Republic of Germany declared in the course of the oral procedure that they adopted the contents of the observations submitted in the course of the written procedure by the Hauptzollamt Hamburg-St. Annen.
These observations, both oral and written, may be summarized as follows :
1. The first question
The Hauptzollamt and the Government of the Federal Republic of Germany expressed their opinion that the scope of the questions submitted to the Court extends far beyond the present case since air transport is employed with increasing frequency in international trade and they observe that the first question relates to the interpretation of Article 7 of Regulation No 803/68 which also requires the interpretation of Article 1 of the same regulation, since Article 7 merely clarifies it.
According to Article 1, the normal price is to be determined on the assumption that the seller bears all the costs, charges and expenses incidental to the sale and to the delivery of the goods at the place of introduction into the customs territory. Article 7 states that amongst such costs, charges and expenses are borne by the buyer and not by the seller (for example in the case of sale ex-factory) they must none the less be included in the normal price for calculating the ad valorem duty (Article 1(2)).
Since the price to be determined is the normal price of the goods actually presented to the customs for importation it follows that the costs of delivery to be taken into consideration are always the actual costs of delivering the goods to the place of introduction, that is to say, the costs of the means of transport actually employed and the actual amount of the price paid in the particular case.
This interpretation, which follows from the wording of Articles 1 and 7 of Regulation No 803/68, is in accordance with paragraph 1 of Opinion VIII of the Customs Valuation Committee according to which: ‘The costs of transporting goods by air or by any other means ensuring rapid delivery constitute a part of the normal price referred to in the definition’. Such an interpretation also accords with the established case-law of the German courts.
The normal price is undoubtedly a theoretical price, in the sense that it is worked out on the basis of specific factors through legal rules, but it may not be entirely detached from the facts peculiar to each individual case.
It is, moreover, for this reason that the model declaration drafted by the Customs Valuation Committee contains information relating to :
a) the conditions of delivery, and
b) the costs, charges and expenses incidental to the sale, to the despatch and to the delivery of the goods to be paid over arid above the sums declared, in particular the transport costs to the port or place of despatch, the freight or transport costs outside the port or place of despatch.
Consequently the Hauptzollamt and the Federal Republic of Germany suggest that the reply to the first question should be as follows:
‘In order to find the normal price the carriage and freight referred to in Article 7 of Regulation No 803/68 consist in principle of the carriage and freight actually paid for the import in question’.
2. The second question
The affirmative reply to the first question necessitates a reply to the second question. The Finanzgericht asks whether the rule following from the affirmative reply to the first question also applies even if taking the usual carriage and freight into account would, on the market for the product in question, result in a normal cif price lower than that arrived at in this case owing to the employment of a more expensive means of transport.
According to the Hauptzollamt and the Federal Republic of Germany, the normal price does not relate to a normal cif price (which furthermore did not exist at all in the present case in which there was a sale on cost and insurance terms only. In fact the normal price is not a price fixed for all similar goods as all prices which may usually be fetched on a sale within the meaning of the regulation are to be considered as normal prices. The normal price is thus not an abstract price but a price based on contractual provisions.
A different interpretation of the concept of a normal price would result in imposing on the customs authorities the unbearable burden of requiring them to investigate the normal transport costs in each case.
The Hauptzollamt and the Federal Republic of Germany furthermore consider in addition that none of the exceptional situations which allow for the exclusion of the actual transport costs from the normal price are present in this case.
It would be possible not to include the actual costs when air transport adds nothing to the value to be determined. This is so when the buyer does not bear the costs of air transport or when the products are delivered free. In such a case, it may be conceded that a buyer pays no more in the case of air freight than in the case of sea freight and that the normal price does not include the higher costs of air freight.
Nevertheless such an exception cannot apply when, as in the present case, the buyer has paid the transport costs, thereby proving that a buyer pays more for goods delivered by air than for goods delivered by ordinary means and that the actual value of the imported goods is increased for the importer as a result of the use of air transport.
The Hauptzollamt and the Federal Republic of Germany suggest that the following reply should be given to the second question :
‘The transport costs relating to a specific import must be included as items of the cost in the normal price within the meaning of Article 1 of Regulation No 803/63 even if such inclusion would result in fixing a higher price than the normal cif price prevailing on the market, taking into account the usual (and lower) transport costs involved in the use of another means of transport’.
C — Observations of the Edding undertaking
1. According to the Edding undertaking the obvious solution is that, in establishing the normal price, account may be taken only of the normal conditions of transport for the category of goods to which the consignment to be assessed pertains. The normal price must comprise like factors and it would be contradictory to make it up, on the one hand from normal (and therefore abstract) elements, and on the other from factual elements (which may not be typical by reason of their being quite exceptional). Although the Finanzgericht has brought the problem before the Court it has done so for historical reasons. In Germany prior to the entry into force of Regulation No 803/68 the prevailing tendency was to take into account the actual transport costs: this tendency continued despite successive changes in legislation because it was in the interests of the tax authorities.
2. The various provisions of Regulation No 803/68 indicate that in contrast to this tradition, the transport costs must be taken into account as abstract factors : (a) According to Article 1(1) of the regulation the invoice price may be accepted as the value for customs purposes only to the extent to which it is the same as the normal price (Article 9). This amounts to saying that the Community legislature intended that the abstract normal case should prevail over the actual specific case. If the invoice price includes transport costs actually paid the concept of ‘normal price’ is consistent only with that of ‘normal freight’. (b) Since Article 1(2) states that transport costs shall be included in the normal price it indicates in repeating the concept of the normal price that the transport costs are also to be conceived of in the abstract. This article is particularly striking if it is compared with the corresponding provisions of German law which have been repealed (Article 29(2) of the Zollgesetz and Article 8 of the Wertzollordnung) and which relate to ‘the costs, charges and expenses of delivery relating to the item of goods’ and ‘the costs, charges and expenses incurred in delivering the item of goods whose value is to be determined’. The use of the singular, differing from Regulation No 803/68 which speaks of goods, indicates that the German legislation relates to the assessment of a specific consignment whereas the Community legislation is concerned to assess the goods in general. (c) Article 7 is also abstract as it simply deals with ‘the costs, … of carriage and freight’. As opposed to this the corresponding provision of German law relates to ‘the costs of carriage and freight of the item of goods whose value is to be determined’.
3. In order to determine the normal price of consignments arriving in Hamburg it is consequently necessary to take into consideration the price on the world market cif Hamburg, taking into account the normal means of transport for the item of goods. When, in order not to disappoint a customer, an importer voluntarily undertakes, as in the present case, to effect an exceptional import by air at a loss, if the normal means of transport is by sea, a value for customs purposes in excess of the value cif by sea may not be determined by using the cost of air transport in calculating the normal price.
4. No other legislative provision weakens this argument. Article 6 of Regulation No 803/68 gives details of the place of introduction into the customs territory of the Community in terms of the means of transport but gives no decision with regard to the different cost of the means of transport when, as in the present case, the place of introduction is the same whatever the means of transport (air or sea). Regulation No 1769/68, adopted in implementation of Article 8(1), is intended to standardize air freight, that is to say, to view it in the abstract in relation to the actual cost by determining a sole value for customs purposes whatever the place of introduction into the Community, but it is silent as to whether account must be taken of the higher costs of air transport in determining the value for customs purposes.
5. The Edding undertaking further observes that its interpretation is that given in the Brussels Definition of the Value for Customs Purposes by the Opinions of the Customs Valuation Committee and by the Explanatory Notes. Article 1(2)(a) and (b) of the Brussels Definition is quite as abstract as Regulation No 803/68 and clearly indicates that it does not relate to a specific import. The first paragraph of Interpretative Note 5 to Article 1 of the definition emphasizes the importance of the normal situation. Paragraphs 2(b) and 3 emphasize that transport costs and other costs are not decisive factors if they contradict the notion of value and are thus not normal. The fourth paragraph of Opinion VILT states that the additional costs arising from air transport shall not form part of the value for customs purposes if ‘the use of air transport is fortuitous or does not increase the value of the item of goods transported’. The Opinion adds that ‘regard shall be had only to the corresponding costs of transport by land or sea since the means of transport to be taken into consideration is that usually employed’. Opinion XXX relating to a specific case also expresses the view that the additional sum occasioned by air transport does not form part of the value for customs purposes.
6. The Edding undertaking observes finally that an interpretation based on the concept of the actual costs would have an unfavourable effect on the expansion of air traffic by penalizing those who availed themselves of it.
Grounds of judgment
1. By an order of 12 May 1970, which was received at the Court Registry on 12 June 1970, the Finanzgericht Hamburg put to the Court of Justice two questions, under Article 177 of the Treaty establishing the European Community, on the interpretation of Articles 1 and 7 of Regulation No 803/68 of the Council of 27 June 1968 (OJ Special Edition 1968 [I] p. 170).
2. In the first question the Court is asked to rule whether, in determining the normal price forming the basis of the value for customs purposes for the application of the Common Customs Tariff, the carriage and freight referred to in Article 7 of Regulation No 803/68 consist in principle of the carriage and freight actually paid for the import in question.
3. If an affirmative answer is given to the first question the Court is asked secondly to rule whether it follows from Article 1 (1) of Regulation No 803/68 that such carriage and freight must not be included in the normal price if such inclusion would result in fixing a normal price higher than the cif price for the goods, taking into account the lower costs of ordinary transport, which corresponds to the price which any buyer in the place of importation would be prepared to pay.
4. Under Article 1 of Regulation No 803/68 the value for customs purposes of the goods imported shall be taken to be the normal price, that is to say, the price which they would fetch on a sale in the open market between a buyer and a seller independent of each other.
5. It is assumed in pursuance of Article 1 (2) that there are included in the normal price as so defined all the costs, charges and expenses incidental to the sale and to the delivery of the goods at the place of introduction and in particular, as Article 7 of the same regulation expressly provides, the carriage and freight.
6. The questions which have been put enquire whether the carriage and freight referred to in Article 7 are those actually paid even if, as a result of the buyer's choice of an unusual and particularly expensive means of transport, inclusion of the actual transport costs results in a normal price higher than the cif price having regard to the usual means of transport.
7. The principal objective of the concept of the normal price is to allow the customs authorities in the interests of the equitable levying of customs duties to verify the price of goods if the conditions of the transactions to which they have given rise were influenced by factors affecting the conditions prevailing amongst business partners in a state of free competition.
8. In principle the price actually fetched by a specific item of goods sold under those conditions is the best guide to the normal price forming the basis of the value for customs purposes. This remains the position, without its being necessary to distinguish between the various means of transport, even if the choice of one of them may appear unusual with regard to the item of goods in question. In fact, the buyer may have good commercial reasons for preferring an unusual and more expensive method of transport because it is swifter or safer. By choosing such a method of transport the buyer suggests that owing to the exceptional circumstances of the transaction he had an interest in paying this price and that any other buyer in the same circumstances would do the same.
9. Consequently the carriage and freight referred to in Article 7, apart from exceptions expressly laid down but inapplicable to cases such as the present one, are the costs actually incurred by the buyer, even when they result in fixing a ‘normal price’ higher than the cif price for the same item of goods transported by a more usual means of transport.
10. This interpretation is confirmed by Article 6 of Regulation No 803/68 which, by defining the place of introduction of the item of goods into the Community in a different manner according to the different means of transport, implies that the actual means of transport is to be taken into consideration. It is also confirmed by Article 8 of the same regulation, in particular by paragraph (3) thereof which provides that even where transport is free the transport costs to be included in the value for customs purposes are those of the normal mode of transport.
11. Finally the interpretation put forward corresponds to the data in the Convention signed in Brussels on 15 December 1950 on Customs Valuation and the accompanying Explanatory Notes and Opinions. In particular Opinion VIII of the Customs Valuation Committee decides that, except in certain cases where freight is provided by the seller, the costs of transport by any means guaranteeing rapid delivery are a factor in the normal price if the value of the goods transported for the buyer is especially increased in this way.
Costs
12. The costs incurred by the Commission of the European Communities and the Federal Republic of Germany, which have submitted their observations to the Court, are not recoverable. As these 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 Finanzgericht Hamburg, the decision on costs is a matter for that court.
On those grounds, Upon reading the pleadings ; Upon hearing the report of the Judge-Rapporteur; Upon hearing the oral observations of the parties ; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Articles 9 and 177; Having regard to Regulation No 803/68 of the Council; 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, THE COURT in answer to the question referred to it by the Finanzgericht Hamburg, by the judgment of that court of 12 May 1970, hereby rules: