JUDGMENT OF 25. 9. 1975 - CASE 28/75 BAUPLA v OBERFINANZDIREKTION, KÖLN

In Case 28/75 to the Court under Article 177 of the EEC Treaty by the Bundesfinanzhof for a preliminary ruling in the action pending before that Court between

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

gives the following

JUDGMENT

Facts

The facts and procedure and the observations presented under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:

I — Facts and procedure

On 15 May 1972 the Oberfinanzdirektion Köln (hereinafter referred to as ‘the OFD’) sent Baupla an official tariff classification opinion in respect of facing board being compressed wood fibre board impregnated with asphalt with an asphalt layer on the front which in turn is encrusted with mineral grains and bears a stamped pattern. The OFD classified the facing board under heading No 48.09 of the Common Customs Tariff referring to ‘Building board of wood pulp or of vegetable fibre, whether or not bonded with natural or artificial resins or with similar binders’.

Baupla took the view that the goods in question should be classified under heading No 68.08 relating to ‘Articles of asphalt or of similar material (for example, of petroleum bitumen or coal tar pitch)’ and lodged an administrative objection with the OFD to the effect that the official tariff classification opinion should be rescinded.

By decision dated 25 June 1973 the OFD rejected this objection on the ground that the tariff classification should be made in accordance with Rule 3 (b) of the General Rules for the interpretation of the Common Customs Tariff, that is to say as if they consisted of the material or component which gives the goods their essential character. This is wood pulp, from which building board is essentially made. The goods were therefore properly classified under heading No 48.09 of the Common Customs Tariff.

It is against this decision that Baupla has brought an action before the Bundesfinanzhof. The plaintiff maintains that the characteristic component of building boards is asphalt which, by ensuring their imperviousness to damp gives them one of the decisive qualitites for the use to which they are intended: the covering of the external walls of houses.

The material made up of compressed wood fibre is unimportant. Since it is not an essential factor in heat insulation and since the wood pulp does not determine the shape or strength of the goods it does not matter that the wood fibre has the greater bulk, since the main criterion is the use to which the goods are put. The OFD states that the wood fibre gives the goods their essential character. Apart from the bulk, the weight and the value of the materials to be taken into consideration are of great importance. Even if due regard is paid to the importance of asphalt as an insulation material, wood fibre is even more important, because it gives directly to the building board its definitive consistency. The goods should therefore be classified under heading No 48.09.

Since both parties before the Bundesfinanzhof cited Rule 3 (b) of the General Rules for the interpretation of the Common Customs Tariff, the first question which arose for the national court is whether it is reasonable to arrive at the tariff classification in the present case by applying this rule of interpretation the wording of which is as follows:

‘3. When for any reason, goods are, prima fade, classifiable under two or more headings, classification shall be effected as follows: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. (b) Mixtures and composite goods which consist of different materials or are made up of different components and which cannot be classified by reference to 3 (a) shall be classified as if they consisted of the material or component which gives the goods their essential character, in so far as this criterion is applicable. (c) when goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which involves the highest rate of duty and if this rate is the same for several headings, they shall be classified under that one of such headings which occurs latest in the nomenclature of the Tariff.’

By order dated 12 February 1975 the Bundesfinanzhof stayed the proceedings and referred the following question to the Court of Justice of the European Communities for a preliminary ruling under Article 177 of the EEC Treaty:

‘Is Rule 3 (a) of the Rules for the interpretation of the nomenclature of the Common Customs Tariff to be interpreted as meaning that when a mixture is classifiable under two or more headings, each of which relates to one of the materials composing the mixture, the heading which provides the most specific description is not to be preferred and that the goods are to be classified under Rules 3 (b) or 3 (c)?’

The order of the Bundesfinanzhof was registerred at the Court of Justice on 12 March 1975.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were lodged by Baupla, represented by Dieter Scheidemantel, Rechtsanwalt, Munich, and by the Commission of the European Communities, represented by its Legal Advisers, Jean Amphoux and Peter Kalbe, acting as Agents.

After 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.

II — Written observations filed at the Court

Baupla maintains that Rule 3 of the General Rules cannot be applied to classify a mixture in respect of which two or more tariff headings come into consideration, each of which refers to one only of the materials making up the product With regard to the application of Rule 3 (a) of the General Rules of interpretation the following two cases must be distinguished:

1) For the classification or a product there is as against the tariff heading providing a general description, a more specific tariff heading so that the latter constitutes a section of the heading providing the general description. The two headings thus stand in a graded relationship. In classifying a product both headings come into consideration. In this case Rule 3 (a) of the General Rules states that the heading which provides the most specific description shall be preferred to headings providing a more general description.

2) If for the classification of a (mixed) product two positions providing a general description and another more specific heading come into consideration, this latter, describing a section of one of the headings providing a general description in the manner indicated in paragraph 1 above stands in a graded relationship to it The most specific heading is therefore preferred (Rule 3 (a) of the General Rules). It follows that for the classification of this product there exist both a heading providing a general description and a specific heading. But these two headings do not stand in a graded relationship one to another, since the specific heading does not describe a section of the heading providing a general description. In this case since the two headings are on a par Rule 3 (a) of the General Rules does not apply. Classification must therefore be effected according to Rule 3 (b) of the General Rules which is moreover confirmed by the Explanatory Notes to the Brussels Nomenclature relating to this general rule of interpretation.

In the present case since headings Nos. 48.09 and 68.08 do not stand in a graded relationship one to another, the classification of the product in question can be effected only in accordance with Rule 3 (b) of the General Rules.

According to the Commission there is an order of preference between Rules 3 (a) and 3 (b) of the General Rules to the effect that the second can only be invoked when the first does not apply. The wording of this rule however leaves some doubt as to its conditions of application.

In classifying mixtures such as those referred to in the present preliminary question two approaches appear possible according to the terms of Rule 3 (a) of the General Rules:

1) As wide as possible a scope could be given to this rule so that in classifying mixed or composite products it would be sufficient if one of the headings describes a product more specifically than the other. Only when the different headings coming into question are equally specific could Rule 3 (b) or 3 (c) apply.

2) A second approach is shown in the Explanatory Notes to the Brussels Nomenclature relating to Rule 3 (a) of the General Rules which is as follows:

‘(c) if two or more headings each refer to one only of the materials or substances contained in mixed or composite goods, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description than the others. In such cases, the classification of the goods shall be determined by Rule 3 (b) or 3 (c).’

The first approach might appear at first sight to be the most simple, because, in numerous cases, it would dispense with the often difficult search for the component which gives a mixture its essential character. However, only the second approach appears compatible with the system of the Common Customs Tariff and the economic objectives pursued. First of all this approach is the one contained in the Explanatory Notes to the Brussels Nomenclature, but, moreover, if the criterion of the most specific heading were applied systematically in classifying the products referred to in the present case, it would lead to arbitrary solutions. On the one hand this method would make the classification of the goods depend on the more or less precise wording of the headings. On the other hand, applied in an absolute fashion, this method would result in a failure to take into account the relative proportion and importance of the different components composing the product.

The criterion of the heading which provides the most specific description laid down in Rule 3 (a) of the General Rules is inapplicable in classifying the goods in question, since none of the headings coming into consideration is more specific than the other. Faced with two headings conceived in terms of the materials of which the goods referred to are composed, a judgment on the greatest specificity is possible only if both relate to products of the same material. If on the other hand the headings relate, as in the present case, to products of different materials, the criterion of the greatest specificity is inapplicable and the criterion laid down in Rule 3 (b) of the General Rules should be applied.

The Commission considers that the reply to the question raised should be as follows:

‘When a mixture is prima facie classifiable under two or more headings each of which relates to one of the materials composing the mixture, none of those headings can be regarded as more specific than the others even if the description which it gives of the products referred to is more precise or more complete, so that Rule 3 (a) of Section I of the Common Customs Tariff cannot be applied in classifying the mixture. This classification must be determined by applying Rule 3 (b) or 3 (c) of the General Rules.’

III — Oral procedure

The Commission of the European Communities submitted its oral observations at the hearing on 26 June 1975.

The Advocate-General delivered his opinion on 16 September 1975.

Law

1. By order dated 12 February 1975, filed at the Court Registry on 12 March 1975, the Bundesfinanzhof, under Article 177 of the EEC Treaty, raised the question whether Rule 3 (a) of the Rules for the interpretation of the nomenclature of the Common Customs Tariff (Regulation (EEC) No 950/68 of the Council of 28 June 1968, OJ No 172 as amended by later regulations) should be interpreted as meaning that when a mixture is classifiable under two or more headings, each of which relates to one of the materials composing the mixture, the heading which provides the most specific description is not to be preferred and that the goods are to be classified under Rules 3 (b) or 3 (c).

2. This question of interpretation has been raised in the context of an action relating to the tariff classification of facing boards of compressed wood fibre impregnated with asphalt with a layer of asphalt on the front. The Oberfinanzdirektion Köln, the defendant in the main action, classified the product under heading No 48.09 (‘Building board of wood pulp…’) whereas the plaintiff in the main action claimed that it should be classified under heading No 68.08 (‘Articles of asphalt…’).

3. According to Rule 3 of the General Rules when, for any reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

‘(a) The heading which provides the most specific description shall be preferred to headings providing a more general description.

b) Mixture and composite goods which consist of different materials or are made up of different components and which cannot be classified by reference to 3 (a) shall be classified as if they consisted of the material or component which gives the goods their essential character, in so far as this criterion is applicable.

c) When goods cannot be classified by reference to 3 (a) or 3 (b), they shall be classified under the heading which involves the highest rate of duty and if this rate is the same for several headings, they shall be classified under that one of such headings which occurs latest in the nomenclature of the Tariff.’

4. It is common ground that the methods laid down in (a), (b) and (c) must be applied in the order in which they are set out in the rule. The question therefore may arise whether, since heading No 48.09 in the present case describes the product in question by name (‘Building board’), it must not be regarded as being more specific than heading No 68.08 which comprises a category of products (‘Articles …’), so that Rule 3 (a) can and therefore must apply.

5. The national court however asks whether such an interpretation which relates exclusively to the external form of the goods without taking into account the materials which make them up, does not risk leading to arbitrary applications incompatible with the objectives of the Common Customs Tariff. The observations of the Commission tend to confirm the doubts of the national court. In this respect both parties cite the Explanatory Notes to the Brussels Nomenclature adopted by the Common Customs Tariff, according to which ‘If two or more headings each refer to one only of the materials or substances contained in mixed or composite goods, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description than the others.’

6. If indeed in cases such as the present where goods appear to be classifiable under two headings corresponding to the different materials of which they are composed, it were necessary in classifying them to have regard to the heading describing them most precisely with regard to their appearance, the result would depend on chance circumstances alien to the needs of customs protection. From the latter aspect the composition of the goods has in many cases a much greater importance and must therefore be taken into account as an essential factor in the classification.

7. It is right therefore to reply that when a mixture is, prima facie, classifiable under two or more headings of the Common Customs Tariff, each of which relates to one of the materials composing the mixture, none of the headings can be regarded as more specific than the others on the sole ground that it gives a more precise or more complete description of the product referred to. In classifying such a product Rules 3 (b) or 3 (c) of the General Rules must therefore be applied.

Costs

8. 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, in so far as the parties to the main action are concerned, a step in the action pending before the Bundesfinanzhof, costs are a matter for that court

On those grounds, THE COURT in answer to the question referred to it by the Bundesfinanzhof by order of 12 February 1975, hereby rules: