JUDGMENT OF 20. 2. 1973 — CASE 54/72 FOR v VKS

In Case 54/72 Reference to the Court of Justice, under Article 177 of the EEC Treaty, by the Tribunale at Biella for a preliminary ruling in the action pending before that Court between

THE COURT composed of: R. Lecourt, President, R. Monaco and P. Pescatore, Presidents of Chambers, A. M. Donner, J. Mertens de Wilmars (Rapporteur), 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. Fonderie Officine Riunite (hereinafter called ‘FOR’) manufactures machinery for use in the textile industry. When selling this machinery in the Federal Republic of Germany, delivery was made free-at-factory in Biella and the duties and taxes relating to importation into Germany were, according to the invoices, to be settled by the purchases. On importation into Germany, the purchasers paid turnover equalization tax at the rate of 6 % and thereafter the machinery was installed and put into service with the assistance of the technicians of FOR. When it learnt of this, the German taxation authorities, and in particular the taxation office at Bentheim, notified FOR, by letter of 21 December 1970, of their intention to recover turnover tax (Umsatzsteuer) for the years 1963 to 1968 amounting to DM 537319.10. This tax was claimed under the heading of supply of goods and provision of services (Werklieferung) at the rate of 4 %, calculated, as laid down in respect of Werklieferung, on the aggregate value of the services provided and the material supplied, in this case on the value of the erected installation. When FOR disputed its liability for the amount claimed, the Bentheim taxation office attached a certain number of debts owed to the company by its German customers. Vereinigte Kammgarn-Spinnereien (hereinafter called ‘VKS’) of Delmenhorst was thereby induced to pay to the German taxation authorities the sum of DM 5723 which it owed to FOR and which it refused to pay a second time when FOR called for payment of it.

2. Following this refusal, FOR applied to the Tribunale at Biella for an order for payments by VKS. At the same time, it asked the court to refer to the Court of Justice for a preliminary ruling on the interpretation of various provisions of Community law which it invokes in its dispute with the German taxation authorities.

3. By order dated 27 July 1972, the President of the Tribunale at Biella referred the following questions to the Court: 1. Does Article 95 of the Treaty prohibit the imposition of turnover tax on the value of imported industrial machinery, considered after installation to be a new and separate entity, when an equalization tax, also encompassing the turnover tax which the taxation authorities intend to impose on the value of that same machinery when installed (obviously excluding the pure costs of installation), has already been paid at the time of importation on the various items forming the said installation? 2. In the case of importation of an industrial installation made up of different machines on which the importing undertaking has already paid value added tax at the time of importation, is it possible, on the basis of Articles 2, 5, 7, 8 and 10 of Council Directive 67/228/EEC of 11 April 1967, to consider as the chargeable event not the introduction of the various machines into the State, but rather their installation on the territory of the importing country, thus rendering the Community undertaking liable to value added tax, assessed on the value of the erected installation? 3. If the reply to question 2 is in the affirmative, does the subjection of an exporting undertaking (which by contract is limited to exporting free-at-frontier) to the taxation measures of the importing State constitute an infringement of the prohibition contained in Articles 30 and 31 of the Treaty of Rome, as being a restraint on the movement of goods within the Common Market?

4. The order referring the matter was received at the Court Registry on 31 July 1972. Written observations were lodged by the plaintiff, the Commission and the German and Italian Governments. After hearing the report of the Judge Rapporteur and the opinion of the Advocate-General, the Court decided to open the oral procedure without any preparatory inquiry. The oral observations of the plaintiff in the main action, the German Government and the Commission were made at the hearing on 12 December 1972. Maître Giovanni Ubertazzi and Maître Fausto Capelli appeared for the plaintiff, Martin Seidel for the German Government and M. Maestripieri, the Commission's legal Adviser, for the Commission. The Advocate-General presented his opinion at the hearing on 24 January 1973.

II — Observations submitted under Article 20 of the Statute

The observations submitted to the Court may be summarized as follows:

A — Observations of the Commission of the European Communities

After observing that, in its opinion, it is superfluous to reply to the second and third questions, as all the operations in question were carried out under the system established by the German law of 1951 on turnover tax (Umsatzsteuergesetz), and therefore prior to the introduction of value added tax in the Federal Republic, the Commission sets out its point of view on certain characteristics of the Umsatzsteuergesetz of 1951.

Under paragraph 1 of that law, all deliveries inside the country were subject to a tax (usually 4 % of the price) at each stage of the economic process. Under paragraph 3, ‘supplies of goods and provisions of services’ (Werklieferungen) constituted chargeable deliveries. In the case of supply of goods and provision of services (Werklieferung) — which is distinguished from hire of services in that, in the first case, the contractor supplies the material which he fashions and transforms while, in the second case, he does not supply the materials, except incidentally — the chargeable basis is as much the value of the objects supplied as the provision of labour. Under paragraph 1 (3) of the law, goods imported into the Federal Republic were subject, at the time of crossing the frontier, to a turnover equalization tax on deliveries in the territory of the country. The rate of this tax was 6 % for the products which are the subject of the main action and, according to the Commission, is made up of two elements, the one corresponding to the rate of the general turnover tax in force at the time (4 %) while the other constitutes the standard equalization of taxes levied previously on goods manufactured inside the country (2 %).

Turning to an examination of the questions raised, the Commission makes the following observations:

On the first question

On recalling the previous decisions of the Court of Justice in connection with Article 95 of the Treaty, and in particular the recognized direct effect of that provision, the Commission infers that it falls to the national court to examine in each case whether the taxation of imported goods is in excess of that of similar domestic products.

According to the Commission, the equalization tax charged on the imported machines was intended to compensate for the internal fiscal charge imposed at the manufacturing stage on similar domestic products. The calculation of the equalization tax on the basis of the fiscal charge made at a stage other than the manufacturing stage would lead to erroneous results since both the imported products and the domestic products can still pass through other stages in the marketing process.

Consequently there would be discriminatory taxation of the imported installation if, after erection, it was again subjected to a turnover tax in respect of ‘supply of goods and provision of services’. The installation imported by FOR was taxed twice, as the normal rate of 4 % was already comprised in the equalization tax without the necessity for taking into consideration the application of the tax on the supply of goods and the provision of services.

The Commission then examines four possible objections to its position and states in the first place that one cannot give too literal an interpretation to the German word ‘Waren’ appearing in Article 95 of the Treaty. It is not necessary, further, to compare the total fiscal charges imposed on imported products and domestic products. Both the equalization tax and the turnover tax must be considered as ‘internal taxation’ within the meaning of Article 95. The theory of multiple taxation being imposed on the domestic product is entirely unwonted and cannot be supported by the fact that, in applying Article 95, account must be taken of the usual marketing process.

Therefore, the Commission suggests the following answer to the first question:

Article 95 of the EEC Treaty, which is concerned with guaranteeing that the imposition of internal taxation in a Member State does not result in the products of other Member States being taxed more heavily than similar domestic products, must be interpreted as meaning that, in determining the fiscal charge which it is permitted to impose on an imported product, one must take into account, in addition to the tax on importation (turnover equalization tax), the internal taxation (turnover tax) which is charged on the imported goods at the same marketing stage. This means that with regard to the levy, on the national plane, of turnover tax after importation, account must be taken of the extent to which that tax is already comprised in the equalization tax charged on importation.

On the second and third questions

The second question, concerning the interpretation of certain provisions of the Second Directive concerning value added tax (Directive 67/228/EEC of 11 April 1967, OJ No 71, 14. 4. 1967, p. 1303/67), was, according to the Commission, referred in error by the Tribunale at Biella, since the taxation in question was concerned solely with operations subject to turnover tax prior to the entry into force of the Law establishing value added tax. Following the case-law of the Court, it is superfluous to examine this question (Judgments 13/68, Salgoil, Rec. 1968, p. 672, and 51-54/71, International Fruit Company, Rec. 1971, p. 1107 and 1108). The same applies in respect of the third question which is only asked in the event of an affirmative answer to the second question.

B — Observations of the Government of the Federal Republic of Germany

The German Government is of the opinion that, despite their wording, the questions referred to the Court are concerned with the interpretation of Articles 30, 31 and 95 of the Treaty and of certain Articles of Directive 67/228/EEC of 11 April 1967 and not the compatibility of certain provisions of German legislation with Community law.

Furthermore, a reply should be given to the second question only insofar as the provisions of domestic law may be affected by the rules of Community law. As, under the terms of Article 1 of Third Council Directive 69/463/EEC of 9 December 1969 (OJ I 320, 20. 12. 1969, P. 34) relating to turnover taxes, the Member States, with the exception of Italy, must only put the common system into force as from 1 January 1972, the reply to this question is not a determining factor to the outcome of the case.

On the first question

The German Government points out that the deliveries of industrial machinery followed by installation which the plaintiff carried out in the Federal Republic of Germany constituted a doubly chargeable operation within the meaning of the Umsatzsteuergesetz then applicable. There was, on the one hand, the importation of parts which were to be installed and therefore liable as such to an equalization tax of 6 % (Umsatzausgleichsteuer, Clause 1 (3) of the German law of 1951) and, on the other hand, the supply of goods and provision of services (Werklieferung) subject, under Clause 1 (1) of the the same law, to the actual turnover tax, the rate of which amounted to 4 % of the total value of the installation. To allow the equalization tax against the turnover tax levied on installation would be contrary to the cumulativemulti-stage tax system and to the objectives of the equalization tax. It is an incorrect interpretation of the system in force in the Federal Republic of Germany to consider that the 6 % charged under the heading of equalization tax at the time of importation of the machinery to be installed already includes the 4 % of the turnover tax, which is calculated after deduction of the costs of installation.

In order to judge whether the services supplied by the plaintiff in the main action, that is the importation of the machines, on the one hand, and installation, on the other hand, were subjected to taxation compatible with the principle laid down by Article 95, one must establish whether the supply and erection of similar industrial installations carried out by a national manufacturer would be subject to equivalent global taxation.

On this point, the German Government notes first that the equalization tax on the imported installation can, neither on account of the principle on which it is charged nor its rate, be questioned in regard to Articles 95 and 97 of the Treaty. One is concerned here with an equalization tax the rate of which has been established according to the average rates method referred to in Article 97, which tax has not been contested by the Commission, a fact which, following the decisions of the Court, is already sufficient to establish its validity. Furthermore, if it is correct that erection of an industrial installation of national manufacture is, in fact, subject to turnover tax of 4 % calculated on the value of the machines delivered, increased by the installation costs, one must take into account that the objective of the equalization tax levied at the frontier on an imported installation is precisely to compensate for the charges previously imposed on the domestic machinery before installation. The exact amount of these prior charges could be estimated, according to the Government of the Federal Republic, at 5.7 % in a case comparable to the one in dispute.

The machinery in question is in fact carding and card assembly machinery which is liable to a charge of 40.71 % on standard models and 5.71 % on special models, as in this case. The same result is arrived at on a comparison between the fiscal charges levied under the heading of turnover tax on the imported machines and the average charge previously imposed on durable goods of national manufacture.

That the average rate of fiscal charges previously imposed amounts to at least 6 % is confirmed by the fact that the new rate of taxation fixed at the beginning of 1968 on the introduction of value added tax was set at 10 %, and that by reference to the charges actually imposed on domestic consumer goods under the heading of turnover tax.

The Federal Government observes secondly that the provisions of the Treaty, and in particular Article 97, do not prohibit the levy of both an equalization tax and a tax with which in this case domestic delivery was charged, that is the supply of goods and provision of services by FOR. If it was true that in certain cases such deliveries to the Federal Republic of Germany which are bound up with installation operations are charged with the equalization tax alone, particularly in respect of deliveries of durable goods which have only been dismantled in the exporting country for transportation and which have therefore to be reinstalled in the Federal Republic of Germany, the assumption would then be different. One would then in fact be concerned with extensive erection works carries out in situ and necessary for putting the installations in working order. In order to know whether the services supplied by the plaintiff constituted actual supply of goods, benefiting from the more favourable system set out above, one must have recourse to German law, to the exclusion of the rules of Community law. The plaintiff should therefore have had recourse to the competent German court, in this case the Finanzgericht.

The German Government submits that the question referred should be answered as follows:

‘Articles 95 and 97 of the Treaty of Rome allow an imported industrial installation, deemed after erection to be a new and separate entity, also to be charged with turnover tax when turnover equalization tax has already been paid on importation on the value of the different machines comprising the said installation. However, such equalization tax shall not exceed the. amount of the fiscal charge which, by reference to the cumulative multi-stage tax system in force within its territory, the State concerned has fixed under the heading of the said average rates in accordance with the terms of Article 97, first paragraph, of the EEC Treaty, in order to compensate for the fiscal charges previously imposed on domestic products under the heading of turnover tax.’

On the second question

The German Government states that the tax assessment for the year 1968, which was sent to the plaintiff, was issued under the new law on turnover tax dated 29 May 1967, enacted in implementation of the Second Council Directive of 11 April 1967 laying down the structure and procedures for application of the common system of value added tax.

This Directive provides that the importation of an industrial installation is liable to taxation by reason of both the transportation of the various machines and other items and of the supply of the installation after erection on the territory of the importing country (Articles 2 (b) and 7 relating to importation, Articles 2 (a) and 5 (1) relating to the supply of goods). Consequently, the system of value added tax in force in the Federal Republic of Germany since 1 January 1968, by virute of the Umsatzsteuergesetz of 1967, imposes the said tax twice on machines to be installed which are imported from abroad. They are charged the first time at the time of importation (Cause 1 (1) (3) of the UStG of 29 May 1967) and a second time on installation which is deemed to be a supply of goods and provisions of services (Werklieferung, Clause 3 (4) of the UStG of 29 May 1967).

The exporter has the right, however, to deduct from this second assessment the value added tax paid at importation (Einfuhrumsatzsteuer) since the supply of goods and provision of services which he effects on erecting the installation enjoys, as a supply on the German market, the benefit of this deduction, which is inherent in the VAT system, under Clause 15 (1) (2) of the Law of 29 May 1967. The foreign contractor could also issue a diversified invoice under a separate tax heading (Clause 14 (1)) to allow the German client the benefit of the tax deduction (Clause 15 (1) (1)). The supply by a foreign contractor of parts to be installed for a German contractor could therefore, under the system set up by the Law, be subject to a tax deduction which in the end would be balanced by the absence of any charge under the heading of turnover tax. The German Government submits that the reply to the second question should be that both importation and supply after installation constitute chargeable events.

On the third question

The rule prohibiting quantitative restrictions and measures having equivalent effect, laid down by Article 30 of the Treaty, seeks to avoid imported products from being put at a disadvantage as to their potential outlets compared with domestic products and does not therefore extend to taxation systems which concern both domestic producers and importers. The fact that the parties to the import operations agreed on ‘free-at-frontier’ delivery in no way affects the taxation treatment, as agreements of private law cannot derogate from tax liabilities nor limit their application.

The German Government submits that a negative reply should be given to the questions.

C — Observations of the Italian Government

The Italian Government considers that in the case submitted by the Tribunal at Biella there is a clear infringement of Article 95 of the Treaty.

On the first question

The fiscal charge is doubled by the mechanics of double taxation, which first charges the imported machines and then the industrial installation deemed to be a separate entity after installation, thus leading to discrimination against imported products. The second assessment at the time of installation of the imported machines can only be held to be lawful on the condition that it relates only to the service representing the act of installation iteself. If, on the other hand, it also relates to the value of the machines, it follows indisputably that there is double taxation while domestic products are taxed but once, that is at the time the machines are installed.

Another infringement of Article 95 can be found in the fact that the double taxation constitutes an indirect measure of protection in favour of domestic products capable of competing with the Community products subject to the double taxation.

The first question should therefore be answered in the affirmative.

On the second and third questions

The second question deals with the supposition that, in the case of importation of an industrial installation comprising various machines on which the importing undertaking has already paid value added tax at importation, a Member State considers as the chargeable event not the introduction of the various machines into the State but rather their installation on the territory of the importing country.

The Italian Government considers it contrary to the Community rules for a Member State to determine chargeable an event from which there results not only an unjustified increase in the fiscal charge on imports, but also an arbitrary assessment of the Community exporter to tax. He is, in fact, considered to be the person liable to the tax which contradicts legal and economic reality in that the transfer of ownership in imported goods to the buyer takes place before the goods cross the frontier, as proved by the fact that the taxes at the frontier are paid by the importer.

There is also infringement of the principles laid down by Articles 30 and 31 of the Treaty insofar as, in the case of free-at-frontier supply, an exporting Community undertaking is subject to unjustified charges and administrative formalities, because it is considered as being liable to the charge imposed on the installation of the dispatched machines in the territory of the importing country. Such a process creates a real restriction on the freedom of trade, forms an obstacle to commerce and provokes distortions in the free transfer of goods within the Community.

The replies to the second and third questions, therefore, should also be in the affirmative.

D — Observations of FOR

I — Examination of the case in relation to the situation obtaining before 1 January 1968 (First question)

In the opinion of the plaintiff in the main action, the claims of the German taxation authorities constitute an infringement of both Article 95 and Article 30 of the Treaty.

1. On the infringement of Article 95

As the objective of Article 95 — a provision having direct effect — is to avoid discrimination against imported products leading to an unjustified advantage being accorded to similar domestic products, it is sufficient, according to the plaintiff in the main action, to compare the present case with the fiscal charge imposed on an installation supplied under the same conditions by a German undertaking to see immediately where the discrimination lies.

1) As equalization tax is paid at the frontier, the Italian machines bear a fiscal tax equal to that imposed on corresponding German machines, bought by the same purchaser.

b) Therefore the imposition of turnover tax on the erected installation in working order results in discrimination, as the German supplier of competing machinery, when selling the installation, could be subject at most to that turnover tax, but could certainly not have imposed on him the same tax on the value of the different machines comprising the installation.

c) While the German supplier is therefore only charged once with turnover tax under the heading of ‘Werklieferung’, from the sole fact that it is open to him to provide in his contract that he will supply the installation in an erected state, such an option is refused to the Italian contractor who is charged once at importation on the value of the machines and a second time on installation on the value of the machines and the supply of installation services. This discrimination is all the more inevitable in that the German Law of 1951 allows no tax deduction. Further, if the various machines had not been separate parts of the same installation but separate and independent products, they would only have borne equalization tax and would not have been charged further with turnover tax.

d) It must be concluded therefore that the legal artifice whereby the installation resulting from the erection of the machines is deemed to be a new chargeable product leads to discrimination contrary to Article 95 of the Treaty. Finally, the fact that the new German Law on value added tax allows the deduction of the taxes paid at imporation of the various machines from the tax paid on the installation when completed and in service highlights the discrimination resulting from the law of 1951, as this does not allow such a deduction.

2. On the infringement of Articles 30 et seq. of the Treaty

The plaintiff contends that, in the view taken by the German revenue authorities whereby the installation forms a new and different entity from the goods which are comprised in it, the contract of sale is divided first into a contract concluded in Italy by the Italian exporter with itself to allow for importation of the various machines, which are thus introduced into Germany in its name and on its behalf, and secondly at the time of erection, into a contract for the supply of the finished and functioning installation, concluded in Germany by the ‘Italian manufacturer — exporter — importer’ with its German customer. In this way the Italian exporter, which had stipulated in the contract that all taxes were to be borne by the German buyer, itself became liable to tax in Germany. Such a claim constitutes an infringement of Articles 30 et seq. of the Treaty. Certainly the Court stated in its judgment of 4 April 1968 (Case 27/67, Finck-Frucht, Rec. 1968, p. 340) that it is difficult to admit of the same tax constituting at the same time a measure having equivalent effect to a quantitative restriction and an internal tax, but it must nevertheless be admitted that such an hypothesis can, and in this case does, obtain.

To consider an operator of another Member State as being subject to taxation in Germany constitutes a measure having equivalent to a quantitiave restriction, as that operator is induced by the technical and administrative difficulties to reduce his exports to West Germany or to restrict himself to effecting exports assuring a greater profit, thereby compensating for the said difficulties. With a view to proving that the difficulties raised by the German revenue authorities in fact constitute measures having equivalent effect to quantitative restrictions, the plaintiff relies on the recitals and Article 3 of Directive 70/32/EEC of 17 December 1969 (OJ L 13, 19. 1. 1970, p. 1)

In this case, the restrictive effect on the free movement of goods does not arise so much from the double imposition of the same tax as from the fact that, by an interpretation of a domestic German rule and by the administative practice followed by the German revenue authorities, the competitive capacity of an eceonomic operator living in Italy who restricts himself to concluding an international sale with his German customer is particularly endangered.

While admitting that the provisions of Directive 70/32/EEC are not directly applicable in this case, the plaintiff considers, however, that the Directive provides all the necessary elements to allow for an exact interpretation of the concept of a measure having equivalent effect to a quantitative restriction on imports.

II — Examination of the case in relation to the situation obtaining in Germany after 1 January 1968

After detailing the formalities to be completed by the Italian exporter and the German buyer within the framework of the system of value added tax, the plaintiff examines their compatibility with the Community rules.

It detects first an infringement of both the objectives and the rules of the Second Council Directive 67/228/EEC of 11 April 1967. The objective of that Directive is the most neutral application as is possible of value added tax in the various Member States so that business operators are only charged in the country in which their activity of producer or importer takes place. The general application of value added tax aims at limiting to the highest degree the incidence of different taxes provided for by previous laws relating to turnover tax. One cannot infer from the fact that the Directive omitted to make express reference to the supply of installations that they must have applied to them a different taxation treatment from that laid down for all other goods.

Secondly, the claims of the German revenue authorities are also incompatible with Article 7 of that Directive under which the chargeable event in respect of value added tax at importation of the goods is the entry of those goods into the territory of the country. To wish to establish this event as coming after erection, which is necessary solely for the installation to function, is illegal.

At the very most the Federal Republic of Germany could, in accordance with Article 8 of the Directive, have added to the basis of assessment the incidental expenses arising up to the place of destination. This option, however, absolutely excludes the possibility of yet again charging the erected installation with the same value added tax, as being a new and separate entity. It would be legal at most to charge the tax on the possible difference between the total price of the machines and the final value of the installation. This difference is, however, identical to the value of the service rendered, i.e. installation. Even in this case, one could not consider the assessment of the Italian exporter to the tax to be legal, given the incidental nature of erection in relation to the supply of the machine for which the German importer must be charged. It is not right that exporters, as suppliers of services, should be charged in the country of destination with a tax from which they are exempted in the country of origin under Article 10 (1) of the Directive.

The German taxation practice is needlessly complicated; it attempts, in effect, to tax an Italian contractor who, having sold free-at-factory, should be exempt and, on the other hand, attempts to recognize his right to a tax deduction which the German Law does not provide for in his case. Further, this taxation practice distorts the legal relationship arising from the contract for the supply of the installation which, by virtue of the convention of 1955 relating to international sales, should remain subject solely to Italian law.

Moreover, to consider the place of installation in Germany as the place of supply of the goods and not the place of delivery of the goods in Italy, is contrary to Article 5 (4) of the Second Directive.

Finally, there is a contradiction between the assertion by the German revenue authorities that the place where the installation is erected should be deemed to be the place where the goods are placed at the disposal of the German buyer and Article 7 (2) and 5 (4) of the same Directive.

The plaintiff concludes by pointing out the effect of the distortion arising from the claim of the German revenue authorities which makes the export of products to Germany more onerous. Exporters of installations to do not benefit from the practical advantages resulting from the provisions of the Community Directive which include the exemption from administrative practices in a country of different language and traditions employing other tax systems and methods of application.

There is an infringement, therefore, of Articles 30 et seq. of the Treaty prohibiting Member States from maintaining measures having equivalent effect to quantitative restrictions in their relations with each other.

Grounds of judgment

1. By order dated 27 July 1972, received at the Court Registry on 31 July 1972, the President of the Tribunale at Biella, referred, under Article 177 of the Treaty establishing the European Economic Community, three questions relating to the interpretation of Articles 30, 31, and 95 of the Treaty and of Articles 2, 5, 7, 8 and 10 of Council Directive 228/67 of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes.

As to the first question

2. By the first question, it is asked whether Article 95 of the Treaty must be interpreted as prohibiting the imposition of turnover tax on the value of an imported industrial installation, considered after erection to be a separate entity, even though on importation the separate items of machinery have already been charged with an equalization tax, also encompassing the turnover tax which the taxation authorities intend to impose on the value of that same installation when erected.

3. It transpires from the file forwarded by the national court that the plaintiff in the main action sold free-at-factory to a German buyer unerected machinery for use in the textile industry, on which the buyer at the time of importation paid turnover equalization tax at the rate of 6 %. The plaintiff in the main action then proceeded to install the machinery and put it into service, which operation was charged, under the heading of supply of goods and provisions of services (Werklieferung), with turnover tax at the rate of 4 %, calculated on the added value of the supply of services and the installed machinery.

4. As the benefits taxed had arisen during the period from 1962 to 1967, it follows that the questions of interpretation raised were done so in relation to the turnover tax, as provided for by the German Law of 1 September 1951.

5. The first two paragraphs of Article 95 prohibit any Member State from imposing on the products of other Member States any internal taxation in excess of that imposed on similar domestic products or of such a nature as to afford indirect protection to other domestic products. Such a system is intended to ensure equality of treatment in internal taxation. The prohibition of discrimination laid down by Article 95, therefore, concerns not only the rate but also the basis of taxation.

6. Although it is in the nature of the cumulative multi-stage tax to charge successively and without any deduction the different transactions to which a product is subject, Article 95 prohibits the breaking down into two distinct and, therefore separately taxable, operations concerning imported goods an operation which, in regard to a domestic product, would constitute a single transaction. This would be the case if, having at the frontier borne turnover tax by reason of delivery, the foreign product, when installed, was charged not only on the value of the supply of the services involving installation, but again on the value of the goods supplied, while the domestic product delivered and installed under the same conditions would only be charged with one tax, supply and installation being deemed to be a single operation.

7. The prohibition of discrimination is concerned, therefore, with a fiscal system under which, as is presumed by the order referring the matter, an imported product is charged twice with turnover tax, on the footing that it has been the subject of two distinct transactions, on the basis of an operation which, in respect of a similar domestic product at the same marketing stage, would constitute only one chargeable operation.

8. However the question of whether the turnover equalization tax established by the German Law of 1 September 1951 includes the turnover tax, in addition to equalization for prior charges, is a matter of controversy. The court does not have jurisdiction under Article 177 to settle a dispute relating to the interpretation of a national law. Without prejudice to the supervisory powers given to the Commission under Article 97 of the Treaty, it is in the first instance for the court competent to apply this taxation law to rule in this connection.

As to the second and third questions

9. It appears from the documents in the file of the main action that the proceedings before the national court are concerned solely with transactions prior to 1 January 1968 and, consequently, only subject to turnover tax, as laid down by the German Law of 1951, before the entry into force of the German value added tax. Thus the reply given to the first question makes it superfluous to reply to the other questions.

Costs

10. The costs incurred by the Commission of the European Communities and by the German and Italian Governments, all of which have submitted observations to the Court, are not recoverable. As these proceedings are, insofar as the parties to the main action are concerned, a step in the action pending before the Tribunale at Biella, the decision as to 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 plaintiff in the main action, the Commission of the European Communities and the German Government; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Articles 30, 31, 95, 97 and 177; Having regard to Council Directive 67/228/EEC of 11 April 1967, especially Articles 2, 5, 7, 8 and 10; Having regard to Council Directive 69/463/EEC of 9 December 1969, especially Article 1; Having regard to Commission Directive No 70/32/EEC of 17 December 1969 (sic), especially Article 3; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community, especially Article 20; Having regard to the Rules of Procedure of the Court of Justice of the European Communities; THE COURT in answer to the questions referred to it by the Tribunale at Biella, by order of that court dated 27 July 1972, hereby rules: