JUDGMENT OF 22. 11. 1973 — CASE 128/73 PAST v HAUPTZOLLAMT FREIBURG

In Case 128/73 Reference to the Court under Article 177 of the EEC Treaty, by the Baden-Württemberg Finanzgericht for a preliminary ruling in the action pending before that court between

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

gives the following

JUDGMENT

Issues of fact and of law

The facts, claims and issues have given rise to the following report for the hearing:

I — Facts and procedure

1. The issue in the main action is the classification to be given to sheep and lamb skin leather imported from Spain into the Federal Republic of Germany on 20 August 1971. The matter concerns chrome-tanned skins to which a certain quantity of fat had been added.

2. Sheep and lamb skin leather comes under tariff heading 41.03 of the Common Customs Tariff which is sub-divided as follows: 41.03 A. Of Indian cross-bred sheep and goats, not further prepared than vegetable tanned, whether or not having undergone further preservative treatment with oil, but obviously unsuitable for immediate use in the manufacture of leather articles. B. Other: I. Not further prepared than tanned II. Other The Explanatory Notes of the Brussels Nomenclature on heading 41.02(the notes on heading 41.03 refer to the previous heading) give the following details:

‘These processes render the hides and skins resistant to decay, and increase their physical strength and impermeability to water. Before undergoing tanning proper, hides and skins are first subjected to a series of preparatory processes, which consist in soaking them in alkaline solutions (to soften them and remove the salt), dehairing and fleshing, then removing the lime and other substances used in dehairing, and finally rinsing.

They are then either “vegetable tanned” (in baths containing certain woods, barks, leaves, etc., or their extracts), “mineral tanned” (with mineral salts, e.g., chrome salts, iron salts, or alums) or “chemically tanned” (with formaldehyde or certain synthetic chemicals). Sometimes combinations of these processes are used. Tanning of heavy leather by a mixture of alum and salt is known as Hungarian dressing, while in tawing a mixture of salt, alum, egg yolk and flour is used. Tawed hides and skins are used mainly for glove-making and in the manufacture of high quality footwear.

It is to be noted that the heading excludes all skins which have been oil-tanned (chamois-dressed), or which have been parchment-dressed (headings 41.06 and 41.07 respectively).

After tanning, the “crust” leather requires further treatment (“currying”) to remove irregularities of the surface and render it ready for use by making it more supple, waterproof, etc. These processes consist of further working by softening, stretching, thinning, beating, rolling to harden the surface, and feeding (“stuffing”) with oils.’

3. For subheading 41.03 B I the Explanatory Notes of the Common Customs Tariff provide: Subheading 41.03 B II provides:

‘Skins and leather not further prepared than tanned are mainly recognizable by the fairly large number of fibres of subcutaneous origin on their inner surface, particularly at the edges. Because of this the inner surface is fibrous and rough. Partly tanned skins and leathers (pretanned) are treated as not further prepared than tanned.

Processes (e.g. washing, mangling, pressing, drying and stretching) intended to finish tanning properly so called, during which products used in tanning are removed, as is also any water which may still be there, do not alter the classification of the skins and leathers. This applies also to mere splitting of skins and leathers not further prepared than tanned’.

‘Tanned skins and leathers which have been subjected to other preparations are included under this subheading. As to the nature of these preparations, it suffices to refer to the Explanatory Notes of the Brussels Nomenclature 41.02 paragraphs 5 and 6’.

4. The plaintiff declared the goods as ‘not further prepared than tanned’ (41.03 B I), whereas the Customs Office Freiburg, classified them under subheading 41.03 B II. According to the plaintiff in the main action the classification of the skins under subheading B I is in accordance with the Common Customs Tariff and the Explanatory Notes of the Brussels Nomenclature. Chrome-tanned skin cannot be, in principle, other than skin tanned by using fat. The use of fat would only result in an ‘other’ skin when employed in preparation after tanning. According to the plaintiff this follows from the Explanatory Notes of the Brussels Nomenclature and in particular the words ‘after tanning’. According to the customs office feeding is a preparatory operation which goes beyond simple tanning. The words ‘after tanning’ do not indicate anything to the contrary. It is moreover impossible to determine whether foreign matter has been incorporated into the skins during or after tanning.

5. The Committee on Nomenclature of the Common Customs Tariff has given the following opinion during the session of 18/22 September 1972:

‘The Committee considers that leathers to which fat has been added, no matter at what stage, can no longer be considered as “not further prepared than tanned” within the meaning of subheadings 41.03 B I, 41.04 B I, and 41.05 B I.

The Committee instructs the “Explanatory Notes of the CCT” working party to prepare a draft explanatory note defining this position.

The “Explanatory Notes of the CCT” working party must however take into account the technological evolution with regard to tanning liquids. The German delegation agrees to draw up a preliminary draft which it will forward to the Commission as soon as possible.’

6. The Finanzgericht Baden-Württemberg, which was called upon to adjudicate on the plaintiff's appeal against the defendant's decision, decided by Order dated 28 March 1973 to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Must subheading I and II of tariff heading 41.03 B of the Common Customs Tariff (CCT) be interpreted as meaning that a chrome-tanned skin is no longer a skin not further prepared than tanned when fat has been added in tanning,

or

that chrome-tanned skin is still a skin not further prepared than tanned when fat is added in tanning or before the first drying solely with the object of improving tanning and when, moreover, it neither eliminates nor replaces other operations in its preparation?’

7. The Order of reference was registered at the Court on 20 April 1973.

8. On the report of the Judge-Rapporteur, after hearing the Advocate-General, the Court decided to proceed without any preparatory inquiry.

9. The plaintiff and the Commission of the European Communities have submitted written observations'.

II — Observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

The plaintiff in the main action observes that with regard to chrome-tanned skin the specialist would include in the description of a skin as ‘not further prepared than tanned’ only a skin which has been fed during tanning.

In its opinion the Explanatory Notes of the Nomenclature confirm this technical principle. They are very explicit as regards the feeding of leathers. If there had been the intention in the notes of stating that feeding in the course of tanning constituted a preparation it could have easily have been done by the addition of the word ‘during’, so that the fifth paragraph of said notes would begin as follows: ‘During and after tanning …’

The Committee on Nomenclature at the Commission (in the opinion already cited) has at least admitted that the Explanatory Notes are ambiguous in their current form.

Nevertheless, since it considers the said notes are explicit, the plaintiff considers that the opinion of the Committee constitutes a modification of the Explanatory Notes.

In reply to the fear of the customs office of no longer being able to distinguish a leather fed during tanning from a leather fed after tanning, it considers that chrome-tanned leathers should be classified under the heading ‘not further prepared than tanned’, insofar as these leathers are not manifestly greasy to the touch, which would be easy to establish.

The Commission observes that it appears clearly from the expression ‘nur gegerbt’ that a leather ‘nur gegerbt’ denotes a product which has been subjected to all the operations inherent in tanning whatever the degree of completion of this process, provided that in this latter case, operations are not included which go beyond tanning. The leather may be only, and not more than, tanned. This interpretation is confirmed by the Dutch, English, and Danish texts, whereas the French and Italian texts (‘simplement tannés’ and ‘semplicemente conciati’) are ambiguous. They could be interpreted to mean tanned without complication, by a more or less rudimentary process. But they ought clearly to be understood in the sense of ‘only’, which ‘simplement’ also means in French.

The distinction between ‘lamb skin leather which has not been further prepared than tanned’ and ‘other’ conforms, in conjunction with the different tariff treatment governing the products according to as they come under subheading 41.03 B I or under subheading 41.03 B II, to the objective pursued by the Community legislature: if importers tan and work leather for obvious economic reasons in third countries, the latter must pay higher customs duties provided for under subheading 41.03 B II.

The Explanatory Notes of the tariff heading 41.03 of the Common Customs Tariff made by the Commission of the European Communities and partly referring to the explanatory Notes of the Brussels Nomenclature provide only general indications with regard to tanning and its limits. They allow various ties to continue; for example whether the addition of fat at the time of tanning goes beyond simply tanning.

The Commission considers that the distinction between sheep and lamb skin leather ‘not further prepared than tanned’ and leather which has received treatment going beyond tanning must be made having regard in particular to the objective characteristics and properties of the products.

The fundamental criterion distinguishing between the two subheadings in question depends, in the absence of other express provision in the tariff itself, on an examination of the objective characteristics and properties of tanning.

The Explanatory Notes of the Brussels Nomenclature expressly state that after tanning the processes of currying have the effect of rendering the tanned skins and leathers ready for use. Sheep and lamb skin leather, insofar as it is not further prepared than tanned, cannot therefore be used for making leather articles.

The Commission arrives at the conclusion that leathers are included in subheading 41.03 B I, which had been subjected to the processes inherent in tanning, that is to say those whose purpose is to preserve the leather and which do not render the tanned leather ready for use for the manufacture of a leather article. On the other hand leathers which have been subjected to processes which go beyond the purpose and effect of tanning come under subheading 41.03 B II.

Nevertheless, there is a danger of twilight areas existing between the processes of tanning and currying. An examination of the file in the present case may allow the general problem of delimitation between the two subheadings in question to be seen more clearly.

In the present case it is a question of the import of greased and dried chrome-tanned sheep and lamb skin.

Grease is added in the normal way as part of the process of feeding leather, which takes place after tanning, to the extent that this goes beyond the preservation of the leather and gives tanned leather the properties of softness, mechanical resistance, greater or lesser elasticity according to the intended use. The question comes back to ascertaining whether this addition is or is not part of the process of tanning itself. The question is raised in an acute form in the case where the greased chrome-tanned leather has been imported ‘dry’, as has happened more and more for some ten years for economic reasons and in particular transport.

It appears from the Explanatory Notes of the Common Customs Tariff that drying is part of the process of finishing the tanning of leather and this does not change the classification of the leathers: this means that dried leathers normally remain classified under subheading 41.03 B I.

In view of the hydrophobic properties of chrome salt, chrome tanned leather risks having its fibres destroyed or seriously damaged if it is dried without certain substances termed fat liquids having been previously added to the tanning material.

In the light of these general criteria, sheep and lamb skin leather, to which fat has been added in tanning, remains classified under subheading 41.03 B I provided that it is established that this addition is necessary and indispensable in the process of tanning, that is to say for the preservation of leather without the addition rendering the leather suitable for immediate use.

The Commission considers that the time when fat is added to the leather is not the decisive criterion in the classification: the decisive criterion is whether this addition is or is not part of the process of tanning.

The exclusion without exception of tanned sheep and lamb skin leather from subheading 41.03 B I by reason of the addition of fat would mean prejudicing the answer to a technical problem which can only be determined individually.

It appears from the opinion expressed by the Committee on Customs Nomenclature in September 1972 that it is, of course, by reason of the role of fat matter in the process of tanning that sheep and lamb skin leather so treated are not a priori excluded from subheading 41.03 B I.

The Commission is of the opinion that the reply to the question posed could be determined by the following considerations: the expression ‘not further prepared than tanned’ in subheading 41.03 B I must be interpreted to mean that it designates products which have only been subjected to the treatment inherent in the process of tanning, the purpose of which is to preserve the leather without making it suitable for immediate use. Consequently, treatment such as the addition of fat does not involve changing the tariff classification of sheep and lamb skin leather ‘not further prepared than tanned’, to the extent that it is shown to be indispensable to tanning.

Following the report for the hearing set out above, the parties made oral observations on 23 October 1973.

The oral observations of the Commission of the European Communities were made at the hearing on 23 October 1973. The Commission's legal adviser Mr. Oldekop appeared for the Commission.

The Advocate-General delivered his opinion at the hearing on 8 November 1973.

Grounds of judgment

1. By order dated 28 March 1973, filed at the Registry on 20 April 1973, the Finanzgericht of Baden-Württemberg referred to the Court for a preliminary ruling the interpretation of subheadings 41.03 B I, ‘sheep and lamb skin leather not further prepared than tanned’, and 41.03 B II, ‘other’, of the Common Customs Tariff.

2. More precisely the question is whether ‘chrome-tanned skin is no longer a skin “not further prepared than tanned” when fat has been added in tanning’.

3. The decisive criterion for the customs classification of goods must generally be looked for in the objective characteristics and properties of products. According to the Explanatory Notes of the Brussels Nomenclature relating to tariff heading 41.02, and applicable likewise to tariff heading 41.03, tanning renders hides and skins resistant to decay and increases their physical strength and impermeability to water.

4. The Notes specify that hides and skins which have had further treatment going beyond tanning, aimed at rendering them ready for use by, in particular, making them more supple, come under subheading 41.03 B II. According to the Explanatory Notes of the Common Customs Tariff, processes intended to complete the tanning, e.g. drying the skins, do not alter their classification as hides and skins ‘not further prepared than tanned’.

5. Whilst, according to the Notes, the addition of fat normally comes within the framework of processes which follow tanning, it is conceivable that, for technical reasons, in particular to avoid deterioration of the fibres resulting from a dried skin, the addition of fat to the tanning liquids is indispensable in order to proceed to the second phase of the treatment in the importing country. This interpretation is not invalidated by the opinion given by the Committee on Customs Nomenclature at its 67th meeting in September 1972, which, while accepting that the addition of fat generally went beyond tanning, considers that the working party charged with defining this position in an explanatory note, should take into account the technological evolution in tanning liquids.

6. Consequently while the fact that a hide or skin has received an addition of fat will normally involve its classification under subheading 41.03 B II, the competent national authorities must judge whether the addition in question constitutes an essential process in tanning by reason of its function of preserving the leather without rendering it ready for use.

Costs

7. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable, and as these proceedings are, insofar as the parties to the main action are concerned, a step in the action pending before a national court, 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 observations of the plaintiff in the main action and the Commission of the European Communities; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Article 177; Having regard to Regulation No 950/68 relating to the Common Customs Tariff; 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 question referred to it by the Finanzgericht Baden-Württemberg by order of that court dated 28 March 1973, hereby rules: