JUDGMENT OF 27. 2. 1980 — CASE 55/79 COMMISSION v IRELAND
In Case 55/79
THE COURT composed of: H. Kutscher, President, A. O'Keeffe and A. Touffait, (Presidents of Chambers), J. Mertens de Wilmars, P. Pescatore, Lord Mackenzie Stuart, G. Bosco, T. Koopmans and O. Due, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte
gives the following
JUDGMENT
Facts and Issues
The facts of the case, the course of the procedure and the conclusions, submissions and arguments of the parties may be summarized as follows:
I — The facts
Under Article 32 of the Act concerning the Conditions of Accession and the Adjustments to the Treaties, of 22 January í972, customs duties on imports between the Community as originally constituted and the new Member States themselves were to be progressively abolished, according to a given timetable, between 1 April 1973 and 1 July 1977. That provision was, by virtue of Article 38 (1) of the Act of Accession, applicable to customs duties of a fiscal nature.
Under Article 38 (2) the new Member States retained the right to replace a customs duty of a fiscal nature or the fiscal element of any such duty by an internal tax in conformity with Article 95 of the EEC Treaty.
Applying that provision, the Government of Ireland adopted, on 16 December 1975, the Imposition of Duties (No 221) (Excise Duties) Order, 1975 (Statutory Instrument No 307, 1975), designed to convert into excise duties, as from 1 January 1976, the customs duties of a fiscal nature or the fiscal element of those duties on spirits, beer, wine, tobacco, cider, perry, matches, table waters, mineral oils, motor vehicles (including their parts and accessories), tyres and tubes.
Paragraph 4 (3) of the Order, which applies to spirits distilled or manufactured in Ireland and chargeable with the duties of excise imposed by subparagraph (2) of that paragraph, makes a small amendment to Section 28 (2) of the Finance Act 1970. It provides:
“(b) Where spirits to which this subparagraph applies are delivered from a bonded warehouse, the Revenue Commissioners may, subject to compliance with such conditions for securing payment of the duty as they may think fit to impose, permit payment of the said duties to be deferred to a day not later than — (i) in case the spirits are so delivered in trie month of February in any year, the 25th day of March in the same year, or (ii) in any other case, the last day of the month succeeding the month in which the spirits are so delivered. (c) Where spirits to which this subparagraph applies are delivered from a bonded warehouse in the month of March in any year, no deferment of payment of duty as provided for in this subparagraph shall be allowed in respect of the spirits.”
Paragraph 4 (4) of the Order provides for the imposition, in the case of deferred payment, of an additional excise duty at the rate of £0.0334 per proof gallon of spirits.
Imported spirits do not qualify for the deferment concession and they are not subject to the additional excise duty.
Paragraph 7 (5) of the Order declares the provisions of Section 8 of the Finance Act 1914 (Session 2) applicable to beer brewed in Ireland.
Under that provision the duty is calculated per standard barrel by reference to the specific gravity of the worts before fermentation and deferment of payment is allowed as follows :
for beer not dealt with below, to a date no later than the 8th day of the second month following that in which charged (however, duty must be paid not later than 28 December in respect of beer charged with duty in November);
for beer requiring two months' storage in the brewery premises to a date not later than the 25th day of the second month following that in which charged;
in respect of lager beer requiring three months' storage in the brewery premises to a date not later than the 25th day of the fourth month after the month in which the duty was charged.
No additional excise duty is imposed in the event of deferment.
As regards imported beer the duty is also calculated per standard barrel, but it becomes due at the time of importation or on delivery from warehouse. There is no deferment concession.
Under Paragraph 6 of the Order excise duty on made wine (wine produced from material other than fresh grape juice) is charged on delivery for home consumption, but payment may be deferred until the 15th day of the month following delivery from the factory. No additional excise duty is imposed in the event of deferment.
As regards imported made wine, excise duty is likewise charged on delivery for home consumption, but no deferment of payment is allowed.
Having learned of those provisions through a complaint from an undertaking and the written question of a Member of the European Parliament, the Commission informed the Government of Ireland on 1 December 1975 that, by granting a period of credit for the payment of excise duties on spirits produced in Ireland and refusing that concession in respect of the payment of excise duty on spirits imported from other Member States, the Irish revenue system entailed discriminatory treatment of imported products in favour of domestic beverages, contrary to the EEC Treaty.
After the Irish Government had, on 15 January 1976, clarified the contested aspects of the national fiscal legislation, the Commission wrote to it on 9 February 1976, confirming that the advantages accorded to national products, by means of the facilities for deferred payment, clearly discriminated against imported products.
On 12 March 1976 the Government of Ireland informed the Commission that in its opinion the facilities for deferred payment of excise duties were not incompatible with the EEC Treaty.
By a letter of 11 June 1976 the Commission informed the Government of Ireland that in its opinion the Irish revenue system, in placing a greater financial burden in respect of the payment of excise duty upon the importer than upon the Irish producer of spirits, beer and made wine, imposed a higher taxation on imported products than upon similar domestic products, contrary to the first paragraph of Article 95 of the EEC Treaty. As a subsidiary argument, the Commission contended that the legislation infringed Article 30 of the Treaty and Article 2 of Commission Directive No 70/50/EEC of 22 December 1969, based on the provisions of Article 33 (7), on the abolition of measures which have an effect equivalent to quantitative restrictions on imports and are not covered by other provisions adopted in pursuance of the EEC Treaty (Official Journal, English Special Edition 1970 (I), p. 17). In accordance with the first paragraph of Article 169 of the Treaty, the Government of Ireland was invited by the Commission to submit its observations on its alleged failure to fulfil its obligations.
In its reply of 12 July 1976 the Government of Ireland informed the Commission that the Irish authorities would examine the legislation in question with a view to introducing any necessary amendments by way of the Finance Bill 1977.
On 28 April 1978 the Commission addressed to Ireland the reasoned opinion provided for by the first paragraph of Article 169 of the EEC Treaty. It confirmed its view that the Irish legislation was contrary to the first paragraph of Article 95 or, at all events, to Article 30 of the EEC Treaty. Ireland was requested to take the measures necessary to comply with the reasoned opinion within one month.
In a letter of 31 July 1975 the Government of Ireland maintained its view that the measures complained of did not infringe its obligations under the Treaty.
II — Written procedure
By an application, lodged on 9 April 1979, under the second paragraph of Article 169 of the EEC Treaty, the Commission brought before the Court of Justice Ireland's alleged failure, regarding internal taxation on spirits, beer and made wine, to fulfil its obligations under the first paragraph of Article 95 or Article 30 of the EEC Treaty.
The written procedure followed its normal course. As the Commission decides not to submit a reply, the written procedure was closed after the submission of the Irish Government's defence.
The Court, after hearing the report of the Judge-Rapporteur and the views of the Advocate General, decided to open the oral procedure without any preparatory inquiry.
III — Conclusions of the parties
The Commission claims that the Court should:
1) Declare that by failing to repeal or amend the disputed provisions and/or refrain from continuing the disputed practices with regard to the collection of excise duty on spirits, beer and made wine, the Government of Ireland is in breach of Article 95 or, alternatively, Article 30 of the EEC Treaty;
2) Order the Government of Ireland to pay the costs of the proceedings.
The Irish Government contends that the Court should:
1) Dismiss the application;
2) Order the Commission to pay the costs of the proceedings.
IV — Submissions and arguments of the parties in the course of the written procedure
The Commission considers that bv authorizing the deferred payment of excise duty on nationally produced spirits, beer and made wine and denying the benefit of such deferred payment to importers of the same products, the Irish legislation, contrary to Article 95 of the EEC Treaty, indirectly imposes on the products of the other Member States indirect internal taxation in excess of that imposed on similar domestic products, or, contrary to Article 30 of the Treaty, imposes measures having an effect equivalent to quantitative restrictions on imports.
The discriminatory effects of the Irish legislation
a) Producers of domestic spirits are able to take advantage of a credit period of, on average, slightly over six weeks in respect of each payment of excise duty, subject to the payment of an additional excise duty, the amount of which is minimal compared with the commercial rates of interest which importers of spirits must bear in order to finance the payment of excise duty.
b) Excise duty on Irish beer and imported beer is charged at a different stage of the manufacturing process: it is charged before fermentation on domestic beer, but at the time of clearance for home consumption on imported beer. The delay between the pre-fermentation stage at which duty is charged and delivery for home consumption does not normally exceed ten days; as the payment of excise duty on domestic beer may be deferred for several weeks, the domestic producer enjoys a considerable advantage. over the importer in the payment of excise duty.
c) The importer of made wine is clearly at a disadvantage as against the domestic producer: he must pay excise duties four or five weeks before the latter.
d) Irish legislation, by subjecting spirits, beer and made wine, imported from other Member States, to more difficult conditions of payment of excise duty than those laid down for the domestic products, imposes on importers what is in effect an advance payment of duty constituting a financial burden in excess of that supported by domestic producers even if the facility of deferred duty which they are accorded is combined with a nominal penalty in the guise of an additional excise duty.
The logical effect of this discriminatory legislation must be a restriction on imports in favour of similar domestic products.
The infringement of Article 95
a) Article 95 aims to abolish fiscal obstacles to the importation of similar or competitive products. The prohibition of fiscal discrimination provided by it suffers no exception and has primacy over contingent policies at the national or Community level. Article 95 has the rank of a fundamental principle of the Customs Union and permits no argument either for conditional application or for subordinating it to interpretative criteria outside Community rules. It is designed to guarantee the principle of neutrality of taxation at the Community level. National legislation must conform to Community law where conflict arises as, it is submitted, it does in this case.
b) There is no need to have recourse to harmonization of national laws as a means of removing obstacles to trade of a fiscal nature. It would be erroneous to subordinate the prohibition of fiscal discrimination under Article 95 (a directly applicable provision) to the adoption of “implementing” measures laid down in harmonization directives pursuant to Article 99 of the Treaty.
c) The case-law of the Court has established that Article 95 also covers indirect discrimination, as would arise in particular if different conditions were to be applied in relation to the methods of payment of the tax with the result that the importation of goods would be made more difficult or more expensive.
d) Ireland does not directly impose higher internal taxation on products imported from other Member States since the same rates of excise duty are imposed on similar imported and domestic products. However, according to the case-law of the Court, the Irish legislation indisputably entails indirect discrimination, since periods of credit for the payment of excise duty are accorded only to domestic producers and not to importers. The effect of this “deferment option” is to place a heavier financial burden on importers who have to finance payments of excise duty in advance of their domestic competitiors. Domestic producers have virtually interest-free working capital during the deferment period, whereas importers have to raise working capital on the open market at the current rate and indemnify themselves at the expense of the purchaser. That leads to an increase in the prices of imported products, which makes them less competitive with similar domestic products.
e) The practice of the Irish Government in allowing the payment of excise duty on domestically produced spirits, beer and wine to be deferred, whilst refusing such deferment to importers, is, the Commission submits, contrary to Article 95 of the Treaty in that it indirectly imposes on the products of other Member States internal indirect taxation in excess of that imposed on similar domestic products.
The infringement of Article 30
a) According to the case-law of the Court Article 30 of the EEC Treaty may be relied on only as a subsidiary argument. The purpose of Article 30 is to remove all quantitative restrictions on trade between Member States and all measures having equivalent effect. It ranks as a fundamental principle and is directly applicable in each Member State. The exceptions to this general prohibition, contained in Article 36, do not apply in the present case.
b) Commission Directive No 70/50 defines certain measures which have an effect equivalent to quantitative restrictions. According to the case-law of the Court all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions. Thus Article 30 of the Treaty is to be widely interpreted.
c) The effect of the Irish deferment provisions is to make the payment of excise duty on imported spirits, beer and wine more expensive than the payment of duty on similar domestic products. As a result, the importers of these products must either accept lower profit margins or increase the prices of their products. In either event, there is a danger that imports would be affected. According to the case-law of the Court, in order to establish an infringement of'Article 30, it is sufficient to show that imports are capable of being hindered, directly or indirectly, actually or potentially.
The Government of Ireland is of the opinion that the Commission has not shown that either Article 95 or Article 30 could, in any way, be applicable in this case; Ireland is not in breach of either the letter or the spirit of the EEC Treaty.
The facts
a) The stage of charging of duty in the case of home produced beer is early in the process of production, by reference to the specific gravity of the worts before fermentation; the periods of deferment provided for are no more than recognition of the fact that different beers require different periods of storage in the brewery premises. In the case of imported beer, duty is charged on clearance for home consumption. A domestic brewer required to pay excise duty at an earlier stage would be placed at a disadvantage vis-à-vis the importer. Furthermore, in order to avail himself of the deferment, a manufacturer has not only to pay an additional duty of £ 0.0334 per proof gallon of spirits, but has to provide the Revenue Commissioners with security in the form of a bond to cover payment of the duty. The cost of posting a bond is in the region of £3 per £1000 of duty per annum.
b) Made wine is a product of no real significance either in respect of imports or domestic production of wine as ordinarily understood. There is no provision for deferred payment of duty on wine.
c) The 1975 Order was introduced by Ireland in accordance with the provisions of Article 38 of the Treaty of Accession; it introduced no discrimination in favour of domestic production for any of the products in question.
The application of Article 95
a) The level of taxation is indisputably the same for imported products as for domestic products; Ireland does not directly subject imported products to higher taxes than those which apply to domestic products. Imported and domestic products are taxed at the same rates and on the same conditions. The only difference is that, in the case of domestic products, the payment of the duty may be deferred for a limited time, and even then subject to the payment of a fiscal “penalty”.
b) According to the case-law of the Court, the essential question when applying Article 95 is whether imports are subject to higher taxation than domestic products. That is clearly not so in this case.
c) In any case, there are a number of factors which must be taken into account, in particular the penalty payable by producers who defer payment and the fact that they must furnish a bond as security for payment of the duty. Furthermore, with particular reference to the case of whisky, the divergent rates of exchange between the Irish and United Kingdom Pounds confer a significant cost advantage on the United Kingdom distillers. There are no monetary compensatory amounts applicable to spirits to offset those differences in raw material costs. Thus, without any objective justification, a cost advantage is conferred on the distillers of Scotch whisky.
The application of Article 30
a) The argument based on Article 30 cannot merely be subsidiary: the application of Articles 95 and 30 is mutually exclusive; they cannot be applied simultaneously.
b) Article 30, concerning quantitative restrictions on imports and measures having equivalent effect, does not, according to the case-law of the Court, include a case such as the present one because the concept of quantitative restrictions, or measures having equivalent effect, does not include measures of a purely fiscal nature.
c) The Commission's argument based on an alleged infringement of Directive No 50/70 is inadmissible as it was not included in the reasoned opinion. It is in any event submitted that as a matter of substantive Community law, the provisions of the Directive, considered separately from Article 30, are not capable of providing a basis for proceedings under Article 169 of the Treaty. Article 33 (7) of the Treaty empowered the Commission to issue directives establishing the procedure and timetable in accordance with which the Member States shall abolish, as between themselves, measures which have an effect equivalent to quotas. The Commission was not empowered by Article 33 (7) to interpret or extend the concept of quantitative restrictions and measures having equivalent effect. Such a question of interpretation of Article 30 is a matter for the Court of Justice alone to determine. In the recitals of the preamble to the directive itself the Commission acknowledges that Article 33 (7) of the Treaty, on which the directive is based, is not applicable, in particular, to Article 95.
The alleged failure to fulfil obligations
a) Neither of the two provisions of the Treaty upon which the Commission relies has any application to the present case.
b) In any case, it is submitted that, if all the relevant factors and circumstances are taken into account in assessing the effect of those articles on the provisions the legality of which is challenged, it is evident that there is in substance no discriminatory effect vis-à-vis imported products. It is submitted that the only way in which the problem to which, in the view of the Commission, the Irish provisions give rise can be solved is the harmonization of the relevant national legal provisions and administrative practices in the Member States pursuant to Article 100 of the EEC Treaty.
V — Oral procedure
The Commission, represented by Anthony McClellan, and the Government of Ireland, represented by Nial Fennelly S. C, presented oral argument at the hearing on 9 October 1979.
The Advocate General delivered his opinion on 28 November 1979.
Decision
1. By application of 9 April 1979, the Commission brought proceedings under Article 169 of the EEC Treaty for a declaration that, by the discriminatory application of provisions relating to the deferment of payment of excise duty on spirits, beer and made wine, Ireland is in breach of the first paragraph ot Article 95 or, alternatively, Article 30 of the EEC Treaty.
2. The facts which gave rise to the action are not contested by Ireland It is in fact common ground that the legal provisions applicable in Ireland, m particular pursuant to the Imposition of Duties (No 221) (Excise Duties) Order 1975, provide in favour of producers of spirits, beer and made wine for deferment of payment of between four and six weeks according to the product whereas, in the case of the same products from other Member States, the duty is payable either at the date of importation or ot delivery from the customs warehouse.
3. The Commission acknowledges that there is no discrimination as regards the rates of duty applicable. On the other hand, it considers that the tact that Irish products are granted deferment of payment beyond the date on which the products are put on the market amounts to conferring on national producers a financial benefit in comparison with importers who are obliged to pay the duty on the actual date on which the products are released to the market. This results, according to the Commission, in a disadvantage to imported products in competition with the corresponding Irish national production.
4. The Commission states that it brought proceedings under Article 169 as a result of the complaints received from importers who had unsuccessfully requested the Irish authorities to grant them the same deferred payment facilities as Irish producers. As a result of the representations made by the Commission in this connexion, the Irish authorities expressed their willingness to abolish this discrimination within the context ot the harmonization of tax legislation but refused to amend the provisions in question in the immediate future. As a result of that refusal the Commission brought the matter before the matter before the Court of Justice.
5. The Government of Ireland claims in its defence that the detailed arrangements for levying the duty have to be adaptable to the different circumstances of home-produced products and imported products. It states that the decisive criterion is the rate of duty applied, whilst the wording of Article 95 merely prohibits the Member States from imposing on the products of other Member States taxation “in excess” of that imposed on domestic products; to introduce factors which do not appear in its wording is to do violence to that provision.
6. The Government of Ireland relies in addition upon the fact that Irish producers, as consideration for the advantage given them as regards deferment of payment, must accept corresponding disadvantages. Thus, in order to obtain deferred payment, they must pay an additional duty and furnish the authorities with security for payment. It states that it is necessary moreover to take into account the disadvantage suffered by Irish whisky producers in competition with Scotch whisky owing to the divergent exchange rates between the Irish and United Kingdom “green pounds”.
7. Finally, the Government of Ireland claims once more that the discrimination complained of by the Commission must be abolished with the the context of the harmonization of tax legislation and that it does not come within the scope of Article 95.
8. These defences put forward by the Government of Ireland cannot be accepted. In fact, as the Court of Justice has stated in an established line of cases (see judgments of 5 May 1970, Commission of the European Communities v Kingdom of Belgium, Case 77/69 [1970] ECR 237, 20 February 1973 Fonderie Officine Riunite FOR v Vereinigte Kammgarn-Spinnereien VKS, Case 54/72 [1973] ECR 193, 17 January 1976, REWE — Zentrale des Lebensmittel-Großhandels GmbH v Hauptzollamt Landau-Pfalz, Case 45/75 [1976]ECR 181, 22 June 1976 Bobie Getränkevertrieb GmbH v Hauptzollamt Aachen-Nord, Case 127/75 [1976] ECR 1079, 16 February 1977 Schöttle & Söhne GmbH v Finanzamt Freudenstadt, Case 20/76 [1977] ECR 247, 22 March 1977, Ianelli & Volpi S.pA. v Ditta Paolo Meroni, Case 74/76 [1977] ECR 557 and 22 March 1977, Firma Steinike & Weinling v Federal Republic of Germany, Case 78/76 [1977] ECR 595), it is necessary, for the purposes of the application of the prohibition on discrimination laid down in Article 95, to take into consideration the provisions relating ot the basis of assessment and the detailed rules for levying the various duties in addition to the rate of tax. In fact the decisive criterion of comparison for the purposes of the application of Article 95 is the actual effect of each tax on national production on the one hand and on imported products on the other, since even where the rate of tax is equal the effect of that tax may vary according to the detailed rules for the basis of assessment and levying thereof applied to national production and imported products respectively.
9. Such is the case with the difference in treatment applied to the alcoholic beverages referred to in the application according to whether those beverages are produced in Ireland or imported from other Member States. Although the benefit reserved to national production in the form of facilities for deferred payment is small, the discrimination against products imported from other Member States is none the less obvious.
10. As the Commission has correctly stated, the fact that Irish producers may only benefit from the facilities for deferred payment by paying additional duty and furnishing financial security does not remove that discrimination. Those two obligations are so trifling that their effect is not to compensate for the benefit reserved to Irish producers. Moreover, there is nothing to prevent the Irish authorities from imposing the same additional duty on importers and from requiring the latter to supply similar security.
11. Similarly, the argument based on the difference in the rate of the Irish and United Kingdom “green pounds” must be rejected. If the Irish authorities consider that the exchange rates in question were not fixed appropriately, they should seek the remedy for that situation by the appropriate means. A monetary situation cannot be corrected by means of discriminatory tax provisions.
12. Finally, it is necessary to reject the argument that discrimination such as that which forms the subject-matter of the application must be eliminated by the procedure for the harmonization of tax legislation under Articles 99 and 100 of the Treaty, rather than by means of Article 95. There is no doubt that obstacles to the free movement of goods may be eliminated by applying the procedure for the harmonization of tax legislation, but the implementation of the provisions of the Treaty relating thereto and in particular of Article 99 cannot be posed as a condition for the application of Article 95, which imposes on Member States with immediate effect the duty to apply their tax legislation without discrimination even before there is any harmonization.
13. It is appropriate however to point out that in particular as regards beer manufactured in Ireland, where the excise duty is imposed on the worts before manufacture, the grant of deferment of payment cannot be considered as discriminatory in so far as that deferment corresponds to the period during which the beer must be kept in the brewery in order to mature. The finished product is therefore only in a situation similar to that of the imported product from the date on which it is marketed.
14. It follows from these considerations that, subject to the preceding observations, Ireland has failed to fulfil its obligations under the first paragraph of Article 95 of the Treaty by bringing into force and applying tax provisions the effect of which is to grant as regards excise duty on spirits, beer and made wine, benefits to Irish producers in respect of deferment of payment which are refused to importers of the same products from other Member States.
15. In view of this conclusion, it is unnecessary to examine the Commission's alternative conclusions based on the application of Article 30, which concerns the elimination of quantitative restrictions and all measures having equivalent effect.
Costs
16. Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs.
17. Since the defendant has failed in its submissions, it must be ordered to pay the costs.
On those grounds, THE COURT hereby:
1 Declares that by the discriminatory application to products imported from other Member States of provisions relating to deferment of payment of excise duty on spirits, beer and made-wine, pursuant in particular to the Imposition of Duties (No 221) (Excise Duties) Order, 1975, Ireland has failed to fulfil its obligations under the first paragraph of Article 95 of the EEC Treaty.
2 Orders Ireland to pay the costs.