JUDGMENT OF 9. 3. 1978 — CASE 111/77 BLEIINDUSTRIE v HAUPTZOLLAMT HAMBURG-WALTERSHOF

In Case 111/77 REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht (Finance Court) Hamburg for a preliminary ruling in the action pending before that court between

THE COURT (Second Chamber) composed of: M. Sørensen, President of Chamber, P. Pescatore and Lord Mackenzie Stuart, Judges, Advocate General: F. Capotorti Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the procedure and the observations submitted 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 written procedure

Bleiindustrie KG, formerly Jung & Lindig, having its registered office in Hamburg, applied on 8 May 1974 to the Zollamt (Customs Office) Hamburg-Veddel for customs clearance into free circulation in respect of 10000 kilograms of bars made from a lead-based alloy and imported from Denmark and on 19 June 1974 in respect of 23289 kilograms of the same product imported from the United States.

The customs office classified these goods under tariff subheading 78.01 A II (unwrought lead) in respect of which the Common Customs Tariff provided for a rate of duty of 4.5 % with a minimum of 1.1 units of account per 100 kilograms net weight and a maximum of 1.32 units of account. By a provisional notice of assessment of 9 May 1974, replaced by a definitive notice of assessment of 29 May, and by a notice of assessment of 21 June 1974, the customs office claimed from Bleiindustrie payment of the duty thereon.

On 27 June and 22 July 1974 Metaalhandel J. A. Magnus B. V., having its registered office in Amsterdam (the Netherlands), the supplier of the goods, lodged an objection to these notices of assessment. The objection was based on the fact that, because of their composition, the goods came under tariff heading 78.01 B (lead waste and scrap) and were free of duty.

As a result of a letter from the Hauptzoliamt (Principal Customs Office) Hamburg-Waltershof, the objection lodged by Metaalhandel J. A. Magnus B. V. was taken up by Bleiindustrie.

The latter claimed in particular, so far as the goods imported in June 1974 were concerned, that they were bars composed of scrap type containing approximately 4 o/o tin, 12 % antimony and 84 % lead from printing works which, as a waste product, were no longer usable there. Bars for typecasting machines are used several times by repeated melting of the used type into new bars from which fresh type is cast; after being used several times, the alloy of which they are composed contains harmful impurities which can only be removed by refining. This case involves an alloy whose lead, tin and antimony content is altered. The goods imported in May 1974 were broken bars for type-casting machines composed of an alloy containing no impurities and unusable as such for printing. The material would have to have been remelted without refining by the manufacturing undertaking or sold as waste.

The waste type, though often taking the same form as the new product, does not lose its character as lead waste because it is melted or re-melted into a new form.

The Hauptzollamt Hamburg-Waltershof dismissed the objection by decision of 7 May 1976.

It considered that the re-melting of scrap type causes it to lose its character as waste; the lead alloy obtained from such products must be classified for the purposes of the application of the duty under the common Customs Tariff according to its new characteristics. Even the lead alloy containing impurities and intended for recovery by melting down, refining or enrichment is, in the form in which it appears, unwrought lead within the meaning of subheading 78.01 A II of the Common Customs Tariff. The lead alloy obtained from scrap of that material is, as compared with that scrap, a new product which must be classified as such according to its characteristics. This clearly appears from the Explanatory Notes to the Common Customs Tariff on tariff heading 73.03.

Bleiindustrie appealed to the Finanzgericht (Finance Court) Hamburg, and the latter, by order of its IVth Senate of 25 August 1977, decided to stay the proceedings under Article 177 of the EEC Treaty until the Court of Justice had given a preliminary ruling on the following questions:

1) Does tariff subheading 78.01 A also include melted down lead scrap in the form of bars for type-casting machines which are no longer usable?

2) Does tariff subheading 78.01 A also include broken bars for type-casting machines or must they be classified under tariff subheading 78.01 B or heading 78.02?

In the grounds of its order, the Finanzgericht observes, with regard to the first question, that it is necessary to know whether type which has become unusable has lost its character as lead scrap within the meaning of tariff heading 78.01 B by being melted down in large printing concerns in connexion with the printing process into bars for type-casting machines which have been discarded as being no longer usable and imported in that form and with those characteristics. The casting or re-casting of that type could form unwrought lead within the meaning of tariff subheading 78.01 A.

It might also, on the basis of Note 6 to Section XV of the Common Customs Tariff, be waste and scrap metal fit only for the recovery of metal or for use in the manufacture of chemicals.

With regard to the second question it is doubtful whether breakage of a cast lead bar in itself creates an article which must be classified as scrap under subheading 78.01 B. According to the Explanatory Notes to the Brussels Nomenclature on heading 73.03 they might be unusable, worn-out and broken articles of lead.

The product might also be classified under subheading 78.01 A or heading 78.02 since its material composition and characteristics have not changed as a result of the breakage and it is still usable at least for melting down.

The order of the Finanzgericht Hamburg was entered in the Court Register on 14 September 1977.

In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted on 30 November 1977 by the Commission of the European Communities.

The Court, having heard the repon of the Judge-Rapporteur and the views of the Advocate General, decided to open the oral procedure without a preparatory inquiry.

By order of 14 December 1977, the Court in application of Article 95 (1) of the Rules of Procedure, decided to refer the case to the Second Chamber.

II — Written observations submitted to the Court

The Commission points out that the interpretation of the Common Customs Tariff sought by the Finanzgericht Hamburg relates to various types of goods: on the one hand, bars for typecasting machines manufactured by remelting used type which is unsuitable for transformation into new type because of the impurities which it contains, and on the other, broken bars for type-casting machines which do not contain impurities but which can no longer be used for the manufacture of type because they are in pieces.

a) So far as the method to be followed for the purpose of interpreting tariff headings 78.01 A II, 78.01 B and 78.02 is concerned, it is necessary to refer to the structure of Chapter 78 of the Common Customs Tariff. Tariff heading 78.01 refers to a certain material considered as such, lead, which, apart from the simple manufacturing process, has undergone no treatment; the lead ‘waste and scrap’ also appear under this heading because, having lost their original functions, those goods constitute no more than ‘material’ and have henceforth only ‘material value’. Tariff heading 78.02 to tariff subheading 78.06 A cover goods which have the physical properties of lead but which have in addition acquired certain well defined characteristics as a result of certain treatments; these are lead products which are defined for customs purposes by means of specific criteria. Finally, tariff subheading 78.06 B, a ‘residual’ subheading, covers all lead goods which have no specific characteristics. If a product fulfils the requirements for classification under tariff heading 78.02, it automatically becomes impossible to classify it under tariff subheading 78.01 A The only question which might then arise would be whether a product which comes under tariff heading 78.02 and which has become unusable through breakage or wear must be classified as scrap under tariff subheading 78.01 B. It is therefore necessary first to examine whether bars for type-casting machines produced from used type may be classified under tariff heading 78.02; if not, it is necessary to ascertain whether bars containing impurities or broken bars must be considered as unwrought lead or as lead scrap.

b) ‘Wrought bars, roads, angles, shapes and sections, of lead’ appear in particular under tariff heading 78.02; according to Note 1 (b) to Chapter 78, only cast products of a certain volume ‘which have been subsequently machined (otherwise than by simple trimming or de-scaling)’ come under that tariff heading. However, the present case involves metal cast in the form of bars and which has not been machined; for that reason alone, such articles cannot come within tariff heading 78.02.

c) The common feature of the articles coming under tariff subheading 78.01 A and tariff subheading 78.01 B is that they are lead products. To come within tariff subheading 78.01 B, the articles must, moreover, have an additional feature from the point of view of customs classification: they must be scrap within the meaning of the Common Customs Tariff. Such articles cannot be classified as unwrought lead.

d) According to Note 6 to Section XV of the Common Customs Tariff, the expression ‘waste and scrap’ means waste and scrap metal fit only for the recovery of metal or for use in the manufacture of chemicals. Quite clearly, broken or used type employed to cast bars for type-casting machines must be considered, both because of its outward appearance and of its possible uses, as scrap. In the same way, the physical characteristics which have been laid down (‘lead’) do not pose any particular problem: according to Note 3 (b) to Section XV, an alloy of base metals — in the present case a leadbased alloy — not falling within a specific tariff subheading ‘is to be classified as an alloy of the metal which predominates by weight over each of the other metals’ and, according to Note 4, ‘Unless the context otherwise requires, any reference in the Tariff to a base metal is to be taken to include a reference to alloys which, by virtue of Note 3 above, are to be classified as alloys of that metal’. There is therefore nothing to prevent used type from being considered as ‘lead scrap’.

e) This finding is not however sufficient for the purpose of deciding whether bars for type-casting machines obtained by re-melting used type themselves constitute ‘scrap’ within the meaning of the Common Customs Tariff. In fact, to be classified as ‘scrap’, a product must have certain determining characteristics for the purpose of customs classification: it must, by its outward appearance, be old metal which has become unusable and the product must be fit only for the recovery of metal or for use in the manufacture of chemicals. However, cast bars for type-casting machines cannot be considered as ‘old metal’ merely because of their outward appearance: in fan they constitute a new product manufactured for well defined purposes. Scrap, on the other hand, cannot be manufactured but ‘recovered’. Note 6 to Section XV does not enable metal which has already been recovered to be considered as scrap. In the present case, lead scrap, the used type, has been re-melted with a view to recovery of the metal. The product thus obtained is a lead alloy cast in the form of bars; it is therefore metal which has been recovered and not ‘for recovery’. In these circumstances, it is of little importance whether, having regard to its degree of purity, the recovered metal may be re-used directly for the manufacture of new type.

f) If, quite apart from their degree of purity, whole bars for type-casting machines may not be considered as scrap nor therefore be classified under tariff subheading 78.01 B, it only remains to examine whether they may be classified under tariff subheading 78.01 A II (‘other unwrought lead’). In view of its physical characteristics, a lead-based alloy must certainly, pursuant to Notes 3 (b) and 4 to Section XV of the Common Customs Tariff, be considered as lead. The plaintiff in the main action claims that the bars for type-casting machines were neither manufactured nor used as unwrought lead; it apparently admits that, according to a current technical definition, only lead which is obtained by melting semi-finished lead products during the first stage of production and which still has to be refined may be called ‘unwrought lead’. The question is therefore whether it is not necessary to consider as unwrought lead within the meaning of tariff heading 78.01 only products manufactured in a specific manner, in other words, by smelting lead ore. The answer to that question is in the negative. The definition of ‘bullion lead’ given in tariff subheading 78.01 A I shows that the Common Customs Tariff does not intend to reproduce the technical categories strictly; moreover, the structure of Chapter 78 and a comparison with the other chapters contained in Section XV whose structure is analogous confirm that tariff heading 78.01 means by unwrought lead the metal as such, that is, the metal defined according to its physical composition. ‘Unwrought’ lead means the simple (‘unwrought’) material, the basic element from which lead products are manufactured by means of various treatments. This interpretation takes due account of the need to implement a system of classification for customs purposes which is practical and legally logical. If, at the date on which it is classified for customs purposes, a product displays per se certain characteristics which may be objectively ascertained and which are considered to be significant with regard to the provisions of the Common Customs Tariff, those characteristics are determining for the purposes of the customs classification. The bars for type-casting machines produced by re-melting unusable type therefore come within tariff subheading 78.01 A II of the Common Customs Tariff as ‘unwrought lead’ in so far as they fulfil the physical conditions enabling them to be classified under that tariff subheading, quite apart from the possibility of their direct re-use.

g) With regard to the classification for customs purposes of the broken bars for type-casting machines, the question is essentially whether the characteristics acquired by the goods because of the breakage prevent them from being classified as unwrought lead. In this respect, it is necessary to accept that scrap only exists where the intact goods had already acquired by treatment an intended purpose which may be objectively ascertained and if they may no longer be used for that intended purpose because of the breakage. However, in the present case, the intact goods may only be classified in the Common Customs Tariff as metal of a specific physical composition because their outward appearance is of no importance. Such a product does not, as the result of breakage, lose its character as lead, which is the only determining factor from the point of view of customs classification. The pieces of bars for type-casting machines therefore come within heading 78.01 A II.

h) The question referred to the Court of Justice may therefore be answered as follows: Bars for type-casting machines obtained by re-melting used type and pieces of such bars must be classified under tariff subheading 78.01 A II of the Common Customs Tariff without regard to their possible uses.

III — Oral procedure

Bleiindustrie, the plaintiff in the main action, represented by its duly authorized agent, Jörg Leistikow, and the Commission, represented by its Legal Adviser, Manfred Beschel, delivered oral argument and answered questions put by the Court (Second Chamber) at the hearing on 19 January 1978.

Bleiindustrie considers that the decision to classify the used type under tariff heading 78.01 A without regard to its possible uses is completely mistaken.

a) That decision ignores the objectives of the charging of customs duties. The latter aims to ensure protection against cheap imports from third countries and not to prevent Community producers from importing and transforming waste or scrap under tariff heading 78.01 B into a new product and thus to affect their competitive position in relation to producers from third countries. The market value of the tin contained in the alloy of which the used type is composed is a multiple of that of lead; the customs duties borne by used type are therefore much higher than those on unwrought lead while, as it is little produced in the Community, tin is exempt from customs duties on importation.

b) The Explanatory Notes to the Brussels Nomenclature indicate, in Chapter 78, under lead alloys to be treated as unwrought lead, lead-antimony-tin alloys used for printing type; however, the present case concerns an alloy which is already composed of used type.

c) The classification for customs purposes on the basis of the outward appearance alone is unjustified. The goods in question are recovered in printing works as scrap. They are cast in a certain form for the sole reason that they cannot be transported in a liquid form.

The Advocate General delivered his opinion at the hearing on 16 February 1978.

Decision

1. By order of 25 August 1977, received at the Court on 14 September 1977, the Finanzgericht Hamburg referred to the Court of Justice two questions on the interpretation of certain headings of the Common Customs Tariff, that is, tariff headings 78.01 A (unwrought lead), 78.01 B (lead waste and scrap) and, as a subsidiary, heading 78.02 (wrought bars, rods, angles, shapes and sections, of lead; lead wire).

2. It follows from the file that the main action concerns the classification for customs purposes of two consignments of printing lead imported by the plaintiff in the main action, one in the form of bars for type-casting machines obtained by the melting of used type and the other consisting in bars for type-casting machines composed of material ready for use but which had become unusable as the result of breakage. The two consignments were classified by the Customs Office under tariff heading 78.01 A II of the Common Customs Tariff as ‘unwrought lead’. The plaintiff in the main action lodged a complaint against that classification and requested that the goods should be classified under tariff subheading 78.01 B, which was free of duty, as ‘lead waste and scrap’. That objection was dismissed by the Principal Customs Office and the applicant then lodged an application before the Finanzgericht Hamburg. In order to settle that dispute the court referred to the Court of Justice two questions aimed at obtaining a precise definition of the concepts of ‘unwrought lead’ and ‘lead waste and scrap’ so as to draw the dividing line between subheadings A and B of tariff heading 78.01 and to delimit the latter in relation to heading 78.02.

3. The headings in question are worded as follows: 78.01 Unwrought lead (including argentiferous lead); lead waste and scrap: A. unwrought: … II. Other B. Waste and scrap 78.02 Wrought bars, rods, angles, shapes and section, of lead; lead wire.

4. The first question asks whether tariff heading 78.01 A also includes melted down lead scrap in the form of unusable bars for type-casting machines.

5. According to the wording of the notes entitled ‘General’ on Section XV of the Common Customs Tariff in the Explanatory Notes to the Brussels Nomenclature (hereinafter referred to as ‘the Explanatory Notes’), each of the Chapters 73 to 81 covers particular unwrought base metals and semimanufactures of those metals and, in general, articles thereof. This is in fact the structure of Chapter 78 on lead and within that framework tariff heading 78.01 A covers the unwrought metal while tariff headings 78.02 to 78.06 concern semi-manufactures of lead in different forms and various degrees of treatment. According to the notes entitled ‘General’ preceding Chapter 78 in the Explanatory Notes and to the first note devoted specifically to tariff heading 78.01, it appears that tariff subheading 78.01 A covers unwrought lead at its different degrees of purity so that the presence of impurities or extraneous substances in the metal cannot affect its classification for customs purposes. It follows from a comparison of tariff heading 78.01 A and the other tariff headings in the same chapter and from the Explanatory Notes that unwrought lead coming within tariff subheading 78.01 A generally takes the form of blocks, ingots or pigs whilst tariff headings 78.02 to 78.06 concern lead which has, in addition to casting, been worked to a greater or lesser degree.

6. The expression ‘waste and scrap’, according to Note 6 preceding Section XV in the Common Customs Tariff itself, relates in particular to ‘waste and scrap metal fit only for the recovery of metal’. According to the commentary contained in the Explanatory Notes on tariff heading 73.03, the provisions of which are declared to be applicable mutatis mutandis to lead scrap and waste by Note 2 to tariff heading 78.01, ‘the process generally used for the recovery of metal is re-melting’. The same idea becomes apparent from the notes entitled ‘General’ in the Explanatory Notes to Chapter 78 which indicate that lead is obtained either by extraction from ore or ‘by re-melting lead waste and scrap’. It thus appears that it is in fact the re-melting of the lead waste or scrap which marks the beginning of the recovery cycle of the metal. It is appropriate to observe in this connexion that the re-melted metal must be classified under tariff heading 78.01 A even if it still contains impurities characteristic of previous use, because the presence of impurities does not have the effect of preventing a product from being classified as unwrought lead, as has been stated above.

7. It follows that the exemption from the customs tariff provided for in respect of products coming within subheading 78.01 B may only be claimed provided that the importer submits his goods for customs inspection in a form which enables it to be recognized on visual inspection that they are in fact waste or scrap. This solution is not only in accordance with the requirement of simplicity of inspection, because it avoids metallographic analyses, but also serves to prevent the risk of frauds consisting in importing duty-free, by means of the exemption laid down for waste and scrap, metal which has been refined to a greater or lesser degree when it was re-melted.

8. It is therefore necessary to reply to the first question that tariff heading 78.01 A also includes melted down lead scrap in the form of bars for typecasting machines even if they are unusable as such.

9. The second question asks whether tariff heading 78.01 A also includes broken bars for type-casting machines or whether they must perhaps be classified under tariff subheading 78.01 B or heading 78.02.

10. As explained above, tariff heading 78.02 — wrought bars, rods, angles, shapes and sections, of lead; lead wire — covers semi-manufactures characterized by the fact that they have been worked to a greater or lesser degree. It follows from Note 1 (b) preceding Chapter 78 of the Common Customs Tariff that what is involved in the present case are rolled, extruded, drawn or forged products since only cast or sintered products which have been subsequently machined (otherwise than by simple trimming or de-scaling) may be classified under that heading. In view of the data given in the order for reference and subject to the appraisal of the facts by the authorities competent to carry out the classification for customs purposes it appears that tariff heading 78.02 may not be interpreted as including bars for type-casting machines inasmuch as they are products which have simply been cast. In these circumstances it is impossible to consider broken bars for type-casting machines as ‘waste and scrap’ in accordance with the wording of the Explanatory Notes to heading 73.03, which is still applicable mutatis mutandis to lead, which define waste and scrap as residues from the mechanical working of metal (in particular in the typical form of crop ends, filings and turnings) or material recognizable as unusable, worn-out or broken articles of metal. A product resulting from the breakage of bars for type-casting machines, which may themselves be classified as unwrought lead when they have not been worked after casting, cannot therefore be classified as waste or scrap within the meaning of tariff subheading 78.01 B.

11. It is therefore necessary to reply to the second question that, subject to the appraisal of the questions of fact determining the original classification of the goods in question, tariff heading 78.01 A also includes broken bars for type-casting machines.

Costs

12. The costs incurred by the Commission of the European Communities, which submitted observations to the Court, are not recoverable. Since the proceedings are, so far as the parties to the main action are concerned, a step in the action pending before the Finanzgericht Hamburg, the decision on costs is a matter for that court

On those grounds, THE COURT (Second Chamber) in answer to the questions referred to it by the Finanzgericht Hamburg by order of 25 August 1977, hereby rules:

1 Tariff heading 78.01 A of the Common Customs Tariff also includes melted-down lead scrap in the form of bars for type-casting machines even if they are unusable as such.

2 Subject to the appraisal of the questions of fact determining the original classification of the goods in question, tariff heading 78.01 A of the Common Customs Tariff also includes broken bars for typecasting machines.