JUDGMENT OF 21. 5. 1980 — CASE 73/79 COMMISSION v ITALY

In Case 73/79

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: H. Mayras Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of the procedure and the conclusion, submissions and arguments of the parties may be summarized as follows:

I — Facts and procedure

By Decision No 1195 of 22 June 1968 of the Comitato Interministeriale dei Prezzi (the Inter-departmental Price Committee, hereinafter referred to as “the Price Committee”) (Gazzetta Ufficiale No 162 of 27 June 1968) the Italian Republic set up a sugar equalization fund (“Cassa Conguaglio Zucchero”, hereinafter referred to as “the Fund”) with the task of effecting equalization measures related to the integration of the Italian sugar industry into the Community framework and the establishment of the common market in sugar.

The same decision fixes the contributions necessary for the operation of the Fund and prescribes for every net kilogram of white sugar of all kinds and qualities retailed a special charge, known as the “sovrapprezzo” [surcharge], amounting to Lit 23, an amount which was subsequently increased. The surcharge is applied both to domestically-produced sugar and sugar from other countries.

The revenue from the surcharge is intended to finance the aids authorized by Article 34 of Regulation No 1009/67, which was replaced by Article 38 of Regulation No 3330/74, which in its turn was supplemented by Article 5 of Regulation No 1110/77 (Official Journal, English Special Edition 1967, p. 304; Official Journal 1974, L 359 and Official Journal 1977, L 134).

When the Commission examined that system it considered it incompatible with the provisions of the EEC Treaty. The fact that Article 34 of Regulation No 1009/67 and Article 38 of Regulation No 3330/74 permit the Italian State to create an exception from the general prohibition set out in Article 92 (1) of the Treaty on the granting by Member States of aids which distort or threaten to distort competition does not, in the Commission's view, justify the establishment of arrangements which, by exceeding the framework of the said Articles 34 and 38, produce an effect which is protectionist, in the proper meaning of the term.

The Commission accordingly sent a letter dated 4 December 1974 pointing out to the Italian Government that if the surcharge is entirely offset, with regard to the national product, by the aids which it finances it constitutes a charge having an effect equivalent to a customs duty which is prohibited by Article 9 (1) of the Treaty; on the other hand if it is only partially offset by the aids it constitutes taxation prohibited by Article 95 of the Treaty.

The Commission consequently requested the Italian Government to submit its observations in accordance with the first paragraph of Article 169 of the Treaty.

The Italian Government, by a letter of 21 March 1975, recalled the reasons and legal considerations which had led to the setting up of the Fund and to the imposition of a surcharge on sugar and then conceded that “the surcharge in question, which was introduced in order to permit the price equalization measures authorized in Article 34 of Regulation No 1009/67 must be considered in all respects as internal taxation”; however, the Government contested the argument of the Commission that the surcharge on imported sugar has a protectionist effect which goes beyond aid properly so-called. The special measures referred to in Article 34 of Regulation No 1009/67 do not come under the category of “aids” within the meaning of Articles 92 et seq. of the Treaty but must on the contrary be considered as arrangements making it possible to offset the difference between the production cost recorded for sugar in Italy and the cost borne by the producers in the other countries of the Community.

Even if the question is considered from the point of view of “aids” the protective effect alleged by the Commission must be excluded in the absence of any correlation between the revenue from the charge and the amount of the aids — an amount which was expressly established by the Council; furthermore, it is not for the Commission to appraise the system of financing set up by means of the “adaptation aid” since Regulation No 1009/67 makes express provision for a derogation from Article 92 of the Treaty.

The Italian Government finally argued that the surcharge was not contrary to Article 92 of the Treaty since it was not only intended to finance the adaptation aids but also to effect a series of operations within the framework of the regulation of prices. Likewise it argued that it was not incompatible with Article 95 of the Treaty since the rate and the method of collecting the surcharge are identical for the domestic product and the imported product.

After considering these observations, the Commission confirmed its point of view in a letter of 23 March 1977. It requested the Italian Government to notify it of its observations concerning the fact that — for the 1975/76 and 1976/77 marketing years — sugar imported from other Member States bore the entire burden of the surcharge (Lit 5600 and 7000 respectively per 100 kg of sugar) whilst sugar of Italian origin received a reimbursement on those sums (amounting to Lit 2156.30 and 2706.06 respectively per 100 kg up to 1330000 tonnes) in addition to the production levy (up to 100000 tonnes).

By a letter of 10 June 1977 the Italian Government contested the Commission's statement that the charge on the domestic product was lower than that on the imported product. Furthermore it remarked that the person liable to the charge was the consumer, not the producer or the importer, and that there was no connexion between the payment — by the producer — of the surcharge

and the collection by him of the adaption aids payable to him. Furthermore the aids in question are largely intended for a product other than sugar (sugar beet).

On 27 July 1978 the Commission delivered a reasoned opinion in pursuance of the first paragraph of Article 169 of the Treaty, in which it concluded that “by imposing on the sugar of other Member States a special charge systematically affecting domestic products and imported products according to the same criteria but allotted to the financing of aids benefiting domestic products and not imported sugar, so that the taxes on domestic products are partially offset, the Republic of Italy has failed to fulfil its obligations under the first paragraph of Article 95 of the Treaty”. At the same time the Commission requested the Italian Republic to abolish within three months the discrimination between domestic products and products imported from other Member States.

By a letter of 12 February 1979 the Italian Government expressed the view that the interpretation placed by the Commission upon the first paragraph of Article 95 of the Treaty was too wide and was no longer in accordance even with the spirit of the provisions. It emphasized that the amendment of the system adopted would have the effect of eliminating the positive aspects related to the punctuality of payment of the adaption aids without producing any benefit whatever.

By an application lodged on 2 May 1979 the Commission instituted proceedings before the Court of Justice in accordance with the second paragraph of Article 169 of the EEC Treaty.

On hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without a preparatory inquiry.

II — Conclusions of the parties

The applicant claims -that the Court should:

Declare that the Italian Republic, by imposing a special charge, which is not uniform, on domestically-produced sugar and sugar imported from other Member States, has failed to fulfil its obligations under Article 95 of the EEC Treaty;

Order the defendant to pay the costs.

The defendant contends that the Court should:

Declare that the application is inadmissible or in the alternative unfounded;

Order the applicant to pay the costs.

III — Submissions and arguments of the parties

Admissibility

The defendant claims that the infringement with which it is charged by the Commission relates to the system of financing aids. That infringement must accordingly be considered in accordance with the procedure laid down in Article 93 (2) of the Treaty (judgment of 25 June 1970 in Case 47/69, Government of the French Republic ν Commission of the European Communities [1970] ECR 487).

That principle applies also to the alleged infringement of the first paragraph of Article 95 of the Treaty since internal taxation is not considered discriminatory in itself, but only in so far as it is used to finance the domestic product and not the imported product. The application is thus premature and inadmissible.

Furthermore, the Commission has in the meantime initiated the procedure provided for in Article 93 (2) in order to examine the whole system of aids in the sugar sector. Since it has opted for that procedure it cannot at the same time institute proceedings on the basis of Article 169 without offending against the principle nemo debet bis puniri pro uno delicto.

The applicant, in its reply, denies that the lawfulness of the system of financing an aid may be appraised only within the framework of the procedure provided for in Article 93 (2) of the Treaty. In fact if the method of financing an aid infringes provisions of the Treaty other than those of Article 92 the procedure based on Article 169 is applicable and the circumstance that the infringement of a provision of Community law other than Article 92 concerns an aspect of a system of aid has no effect on the power of the Commission to institute proceedings for that infringement on the basis of Article 169.

The applicant makes two observations on the basis of the case-law of the Court (judgment of 22 March 1977 in Case 74/76, Ianelli & Volpi, [1977] ECR 557; judgment of 13 March 1979 in Case 91/78, Hansen, [1979] ECR 935; judgment of 26 June 1979 in Case 177/78, Pigs and Bacon Commission ν McCarren, [1979] ECR 2161). The first is that if the Commission were to consider the national measure within the framework of a procedure based on Article 93 it could not declare compatible with the common market a system of aids infringing another provision of the Treaty or another provision of secondary law. The second is that a measure of that nature may be considered both in the context of a procedure provided for by Article 93 and of a procedure based on Article 169. In fact since the national measure is not excepted from the scope of the provisions other than Article 92 an infringement of them automatically means that the Member State in question is in breach of the law; the fact of compliance by that State with any decision adopted by the Commission under the first subparagraph of Article 93 (2) does not cure the infringement constituted by the previous conduct. The procedure based on Article 169 may thus constitute the appropriate means for considering the infringement in such a situation.

Accordingly, in a situation where a system of aids infringes other provisions of the Treaty or of Community law there is no reason to maintain that the two procedures are mutually exclusive. In this case the two procedures instituted by the Commission pursue distinct objectives. With the procedure based on Article 169 the Commission intends solely to do away with that part of the surcharge which results in an infringement of Article 95 of the Treaty, whilst with the procedure provided for in Article 93 it reserves its position regarding the compatibility of the means of financing (for the remaining part which does not constitute an infringement of Article 95) with the provisions of Article 92 in order to judge whether the indirect aid which may result from the means of financing is compatible with the common market (judgment of 25 June 1970 in Case 47/69, Government of the French Republic ν Commission [1970] ECR at p. 494, paragraphs 11 to 13, 16 and 17 of the decision).

The defendant, in its rejoinder, maintains that in this case the inseparable link between certain characteristics of the aid (in particular its means of financing) and its objective means that the aids “aş a whole” must be regarded in accordance with the procedure provided for in Article 93 of the Treaty (judgment of 22 March 1977 in Case 74/76, Ianelli & Volpi [1977] ECR 557).

In fact the surcharge is conceived as an integral part of the maximum price authorized by the Price Committee: it is added to the intervention price for Italy, to the supplementary charges and to the costs of the various stages of marketing.

According to the defendant the rate of the surcharge affecting imported sugar must be equal to that applied to domestic sugar. Any reduction in the surcharge on imported sugar would result in practice in granting an improper aid in favour of such sugar.

It denies that the procedure provided for in Article 169 and that provided for in Article 93 (2) pursue distinct objectives in this case. In fact the procedure initiated in accordance with Article 93 (2) concerns “all the aids granted to sellers of beet processed into sugar and to the processing industry”, that is all the aids considered incompatible with the Treaty “by reason of their financing” (cf. letter of the Commission of 23 March 1977, No 3552, p. 5). That procedure thus concerns all aids considered from the point of view of their means of financing and not “the remaining part which does not constitute an infringement of Article 95”, as the applicant now maintains.

Substance

The applicant maintains that the Italian Republic, by applying to sugar from other Member States special internal taxation systematically affecting

imported products on the basis of identical criteria but intended to finance aids granted in favour of domestic products to the exclusion of imported sugar — thus contributing to a partial neutralization of the tax burden on the national products — has failed to fulfil its obligations under Article 95 of the Treaty.

According to the applicant Decision No 1195 of the Price Committee of 1968 Originates in the Community provisions, in this case basic Regulation No 1009/67 and Regulations Nos 430/68 and 432/68 (Journal Officiel 1968, L 89, pp. 2 and 4 respectively) which fixed prices for the 1968/69 marketing year. In having regard to those provisions the Price Committee proceeded on the basis of the derived intervention price fixed for Italy and added the surcharge of Lit 23 per kilogram. Decision No 1195 of the Price Committee of 1968, fixing the surcharge of Lit 23 per kilogram was the means adopted in order to confer upon the sugar industries and producers of beet the aid provided for by Article 34 of Regulation No 1009/67. This was confirmed by the Italian Consiglio di Stato [Council of State] by Decision No 433 of 26 May 1970.

With regard to the procedure for the allocation of the aid the amount of the surcharge is paid by each sugar producer less the aid to which he is entitled, whilst that producer, and not the Fund, awards and pays the amount of the aid to the beet-producers.

It is not disputed that the surcharge constitutes special internal taxation. Furthermore it cannot be contested that that internal taxation imposes on sugar from other Member States a heavier burden than on domestically-produced sugar.

In the course of the 1974/75 marketing year the surcharge amounted to Lit 24 per net kilogram on imported sugar and to only Lit 12.3054 per net kilogram on domestically-produced sugar since the rules provided for an “aid to the processing industry on the basis of Article 34 of Regulation No 1009/67 of Lit 1169.46 per net quintal of white sugar produced in Italy up to a quantity not exceeding the basic production quota or the quota considered as such” (Article 5 (b) of Decision No 27/1974 of the Price Committee).

The same difference in tax treatment between the domestic product and the imported product has been established in the course of the period following the above-mentioned marketing year in relation to the arrangements adopted in order to finance the aids authorized by Article 38 of Regulation No 3330/74.

Furthermore the discrimination already in existence is aggravated since the revenue from the surcharge is used during each marketing year for financing aids benefiting domestically-produced sugar which is not authorized by the Community provisions.

The applicant then disputes the arguments advanced by the Italian Government before proceedings were instituted.

According to the Italian Government the special measures provided for by Article 34 of Regulation No 1009/67 do not fall within the category of “aids” referred to in Articles 92 et seq. of the EEC Treaty but “are rather in the nature of arrangements, intended to equalize the higher production costs recorded in Italy, which would be such as to allow the establishment of a common organization of the market based on common criteria and uniform methods of calculation within the meaning of Article 40 of the Treaty”.

In reality Article 34 of Regulation No 1009/67 and Article 38 of Regulation No 3330/74 are covered by the technical concept of “aids granted by States” referred to in Articles 92 and 93 of the Treaty. This is clear from the wording of Article 41 of Regulation No 3330/74 in which express reference is made to the existence in that regulation of provisions contrary to Articles 92 and 94 of the Treaty. Furthermore, the Court of Justice itself has already classified such arrangements under the category of “aids” (judgments of 25 May 1977 in Case 77/76, Cucchi ν Avez [1977] ECR 987 and in Case 105/76, Interzuccheri S.p.A. ν Società Rezzano e Cavana [1977] ECR 1029).

The Commission also disputes the argument that it is the Italian consumer of sugar rather than the producer or importer who is liable to the surcharge.

The Commission in fact maintains that the “person passively subject to” the charge is the person who corresponds to the criteria laid down by tax legislation and who thus becomes directly the debtor of the tax authorities. In this case the sugar producers and importers are the only persons who are passively subject to the charge in question.

The Commission also challenges the argument of the Italian Government to the effect that there is not a close connexion between “the payment in advance by the producer of the surcharge (for the benefit of the consumer) and the collection of adaption aids payable to the same producer since a large part of those adaption aids is earmarked for a product other than sugar (sugar beet)”.

The applicant bases its argument on the fact that the part of the adaptation aid earmarked for beet-producers was not taken into consideration for the purposes of the present dispute and observes that the payment in advance by the producer is effected in the name and for the account of the latter (there is no relevant legal relationship between him and the consumer) and that it constitutes a “payment in advance” because the amount of the surcharge is calculated on the quantity of sugar produced (or imported) which gives rise to the need to effect a set-off against the quantity released for consumption. The Italian Government's objection concerning the absence of a connexion between the payment of the surcharge and the collection of the adaptation aids thus appears unfounded.

Both the decisions of the Price Committee concerning the various sugar marketing years and the circulars issued by the Fund indicate that the producer pays the Fund a surcharge already diminished by the prescribed aid. Since the surcharge'constitutes a debt of the producer to the Fund and the aid represents a claim by the producer against the Fund the debt and the claim are offset (without prejudice however to the processor's obligation to pay directly to beet-producers their share of the aid).

Finally, the Italian Government considers that the surcharge is not incompatible with Article 95 of the Treaty since the amount collected and the method of collection are identical for the domestic product and the imported product.

However, the parity of the rates is purely notional since the charge on the domestic product is not paid in full and the reduction available in respect of it corresponds to the amount of the aid granted for that product.

The defendant maintains that the arguments advanced by the applicant indicates that the discrimination consists in the amount of the aid granted in favour of domestic sugar. However, the aid is authorized under Article 38 of Regulation No 3330/74. In those circumstances the aid in favour of the Italian production sector should represent a clear and constant difference in its favour. That is why the amount of the aid granted within the authorized limits cannot logically be deducted from the amount of the surcharge imposed on national sugar in order to establish the existence of tax treatment favouring the domestic product.

According to the defendant the system of financing the aid for domestic sugar does not have a protectionist effect which goes beyond that aid.

The position of the imported product as against the national product would not show any change as compared with the present situation if the aids were financed by the budgetary credits of the State whilst the surcharge was retained subject to the same conditions for the two products. That finding confirms that the arrangements for financing the aid for domestic sugar do not produce any protectionist effect or adversely affect the imported product.

The defendant acknowledges that the surcharge constitutes internal taxation for the purposes of Article 95 of the Treaty. However, within the national legal system the surcharge constitutes a measure equalizing the high costs which form an integral part of the price of the product and ultimately constitute a charge on the consumer.

The applicant claims that the proceeds from the surcharge have been used for aids which are not authorized by the Community rules. The defendant remarks that that question is being considered in other legal contexts, namely in Case 72/79 and the procedure initiated under Article 93 (2) of the Treaty.

In order to establish the existence of a close connexion between the surcharge and the aid the applicant has described a system of payment of the former and recovery of the latter which is not even still in force. According to the defendant the present system of payment is as follows :

Point 5 (c) of Decision No 24 of the Price Committee of 1 October 1976 (Gazzetta Ufficiale No 264 of 4 October 1976) shows that producers are obliged to pay the surcharge on the quantities of sugar “withdrawn from storage before 1 December 1976” in the course of the fifteenth day of the month following the month in which they were withdrawn.

On the basis of the provisional production, and leaving out of account any equalization, the Fund paid to sugar producers by 20 December 1976 at the latest the entire amount of the aid payable to beet-producers and the processing industry; it was then for the latter to credit the beet-producers with the share payable to them by 31 December at the latest.

The Fund partially offsets the amount of the surcharge paid on the quantity released for consumption before 30 November 1976 against the amount of the aids. The amount of the aids calculated on the whole estimated production, disregarding equalization, in fact is necessarily greater than the amount of the surcharge collected on the quantities released for consumption at the latest in the course of November. There is only a partial set-off since in this connexion regard is had only to the part of the aids payable to the processing industry and not to that payable to beet-producers.

The part of the aids not covered by the set-off is paid by the Fund before 20 December with finance usually obtained through bank loans.

Sugar producers then pay on the quantities of sugar released for consumption after December the total amount of the surcharge before the 15th of the month following that in which the sugar is released from storage.

These observations show that the Fund makes over the whole aid payable to the sugar producers at the latest on 20 December (and likewise that it pays the whole aid to beet-producers) whilst it is only subsequently that it collects part of the surcharge (that on the quantities released for consumption after December).

The applicant, in its reply, states that it does not put forward any claim for the abolition of an aid authorized by the Council but that it merely requires that that aid should not be financed by charges imposed wholly or partially on imported products.

The essence of the argument advanced by the defendant amounts ultimately to stating that the end of an aid justifies the means employed to finance it.

The applicant bases its argument on the settled case-law of the Court. It recalls in this connexion that precisely with regard to the system of aid issue in this case the Court of Justice stated in its judgments delivered on 25 May 1977 in the above-mentioned Cases 77/76 (Cucchi) and 105/76 (Interzuccheri) that:

“Authorization under Article 38 of Regulation (EEC) No 3330/74 to grant the aids provided for therein cannot be taken to mean that any method of financing these aids, whatever its character or conditions, is compatible with Community law. In the financing of the aid granted, the national authorities are in particular subject not only to the obligations arising under the Treaty but also to those arising under other provisions of Regulation (EEC) No 3330/74”.

The Community authorization granted to the Italian State relates to the grant of aids to domestic producers of sugar and not to the institution of a discriminatory tax on imported products which could not have been authorized since Article 95 of the Treaty does not permit exceptions to the rules therein contained. In the present case the defendant has thus disregarded the objective of Article 95 which is intended to prevent all tax discrimination between domestic products and products imported from Member States in order to permit the attainment of two fundamental objectives of the Treaty: the neutrality of taxation and the abolition of barriers to the free movement of goods.

The applicant considers that the defendant's statement that there is only a partial offsetting of the surcharge paid on quantities released for consumption at a certain date and the amount of the aids does not affect the fact that that charge has in fact a lesser incidence on the Italian product. It is also irrelevant whether the offsetting is effected simultaneously or subsequently (cf. the judgment of 22 March 1977 in Case 74/76, Ianelli & Volpi, already cited).

The defendant, in its rejoinder, claims that the argument of altering the system of financing — that is to say, maintaining the surcharge at an identical amount and financing the aid through the State budget — shows clearly that the complaint of infringement of Article 95 is inconsistent. In fact even such a change in the system of financing would not modify the position of imported sugar and would not benefit. it. The absence of any advantage for imported sugar shows that the present system does not place it at a disadvantage and that there is thus no breach of Article 95.

It considers that the judgments delivered in Cases 77/76, Cucchi, and 105/76, Interzuccheri (cited above) which merely set out statements of principle cannot establish tax discrimination in this case.

The defendant maintains that the aid is granted within the quantitative and financial limits authorized and regardless of whether the surcharge on sugar is paid or not and of the actual yield of the surcharge.

IV — Oral procedure

The parties presented oral argument at the hearing on 23 January 1980.

The Advocate General delivered his opinion at the sitting on 24 January 1980.

Decision

1. By an application which was lodged at the Court Registry on 2 May 1979 the Commission instituted proceedings before the Court of Justice pursuant to Article'169 of the EEC Treaty for a declaration that the Italian Republic, by imposing a special tax, which is not uniform, on domestically-produced sugar and sugar imported from other Member States, has failed to fulfil its obligations under Article 95 of the Treaty.

2. The file shows that the national tax, termed “sovrapprezzo” [surcharge], which forms the subject-matter of these proceedings, is a charge on white sugar released for consumption in Italy. It imposes an equal charge per net kilogram of white sugar of any type and quality on both domestically-produced sugar and sugar from other Member States. The charge is paid to the Cassa Conguaglio Zucchero [Sugar Equalization Fund, hereinafter referred to as “the Fund”] which is a public agency set up in order to effect the equalization operations related to the introduction of the Italian sugar industry into the common organization of the market in sugar in the form which it has had since 1968. The revenue from the surcharge is intended principally for the financing of adaptation aids for which the sugar industry and beet-producers in Italy qualify in accordance with the relevant Community rules. The grant of such adaptation aids is at present based on Article 38 of Regulation (EEC) No 3330/74 of the Council of 19 December 1974 on the common organization of the market in sugar (Official Journal 1974, L 359, p. 1).

3. The Commission considers that the imposition of the surcharge is contrary to the first paragraph of Article 95 of the Treaty in so far as it is intended to finance aids granted in favour of domestic products to the exclusion of products from other Member States. Although the charge is applied to domestic sugar and imported sugar on the basis of identical criteria the taxation on domestic sugar is partially neutralized by the granting of the aids thereby financed. That neutralization is alleged to be all the clearer inasmuch as producers of sugar established in Italy may pay the amount of the surcharge due after deduction of the aids to which they are entitled.

4. The Italian Government concedes that the revenue from the surcharge is principally but not exclusively intended to finance adaptation aids authorized under the Community rules, but it explains that since 1976 the set-off effected by the Fund between the amount of the charge and the amount of the aid in favour of Italian producers is only partial.

5. The Italian Government claims that the application is inadmissible and furthermore denies that the system thus set up is incompatible with Article 95 of the Treaty.

Admissibility

6. The Italian Government first recalls that the surcharge is applied uniformly to domestic products and to imported products and states that the Commission does not consider the internal taxation in question discriminatory from the fiscal point of view, but only in so far as it is used for financing domestic products. According to the Italian Government it is however possible to consider the lawfulness of the system of financing an aid only within the framework of the special procedure laid down for that purpose in Article 93 of the Treaty. The case-law of the Court of Justice, as it is illustrated in particular by the judgment of 25 June 1970 (Case 47/69, France ν Commission, [1970] ECR 487), has in fact emphasized that the method of financing an aid cannot be isolated from consideration of the aid properly so-called. Consequently the national measures referred to by the Commission cannot be judged within the framework of an application under Article 169 of the Treaty, but only in accordance with the procedure under Article 93 of the Treaty.

7. The Italian Government further claims that the Commission has already initiated the procedure laid down in Article 93 in order to consider the system of financing all the aids granted to beet-producers and sugar-processers and that that procedure covers the financing of adaptation aids by means of the imposition of the surcharge. The procedure thus initiated may bring about the modification or abolition of the present system of financing and thus render the application based on Article 169 devoid of purpose; this application is accordingly inadmissible.

8. The first objection of inadmissibility must be dismissed. Comparison between on the one hand Articles 92 and 93 of the Treaty and the first paragraph of Article 95 on the other shows that those provisions pursue the same objective which is to ensure that the two categories of intervention on the part of a Member State, namely the grant of aids on the one hand and the imposition of discriminatory taxation on the other, do not distort the conditions of competition within the common market. However, as the Court has already stated in a comparable case, in its judgment of 13 March 1979 (Case 91/78, Hansen, [1979] ECR 935), the application of those provisions presupposes distinct conditions peculiar to the two kinds of State measure which they are intended to govern and they differ furthermore as to their legal consequences, above all inasmuch as in the implementation of Articles 92 and 93, unlike the first paragraph of Article 95, the intervention of the Commission plays a large part.

9. These findings do not rule out the possibility that a measure carried out by means of discriminatory taxation, which may be considered at the same time as forming part of an aid within the meaning of Article 92, may be governed both by the provisions of the first paragraph of Article 95 and by those applicable to aids granted by States. It follows that discriminatory tax practices are not exempted from the application of Article 95 by reason of the fact that they may at the same time be described as a means of financing a State aid and that they may consequently form the subject-matter of a distinct procedure under Article 169.

10. In those circumstances the second objection of inadmissibility must also be overruled. If the Commission charges a Member State with practices which constitute an infringement of Article 95 and if on that basis it has initiated the procedure under Article 169 that procedure does not lose its purpose because the Commission takes the view that the same practices form part of a system of aids incompatible with the common market and initiates the procedure provided for in Articles 92 and 93.

11. It must further be observed that whilst the procedure provided for in Articles 92 and 93 leaves a wide discretion to the Commission, and in certain conditions to the Council, to come to a decision regarding the compatibility of a system of aids granted by States with the requirements of the common market it is clear from the general plan of the Treaty that that procedure must never produce a result which is contrary to the specific provisions of the Treaty concerning, for example, internal taxation. If the Court is led to declare the imposition of the surcharge to the provisions of Article 95 the procedure which the Commission has initiated under Articles 92 und 93 cannot in consequence lead to maintaining that charge in its present form. Consequently the proceedings instituted under Article 169 against a Member State cannot be such as to jeopardize the interest which the Member State may have in maintaining a system of aids held compatible with the requirements of the common market as a result of a procedure initiated under Articles 92 and 93.

Infringement of Article 95 of the Treaty

12. The first paragraph of Article 95 of the Treaty prohibits Member States from imposing, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

13. The Italian Government claims first of all that the surcharge constitutes an identical burden on sugar produced in Italy and imported sugar and that the discrimination of which the Commission complains resides in the amount of the aid granted for domestic sugar. That aid is authorized under Article 38 of Regulation No 3330/74; its objective is to compensate for the economic difference in the sugar sector between Italy and the other Member States in order to ensure the integration of the Italian sugar industry into the Community system. Accordingly the aid in question must constitute a clear and constant difference in favour of Italian sugar.

14. In connexion with this last point it should be recalled that the Court has already declared, in its judgment of 25 May 1977 (Case 105/76, Interzuccheri, [1977] ECR 1029) that authorization under Article 38 of Regulation (EEC) No 3330/74 to grant the aids provided for therein cannot be taken to mean that any method of financing such aids, whatever its character or conditions, is compatible with Community law and that in the financing of the aid granted, the national authorities remain in particular subject to the obligations arising under the Treaty.

15. The surcharge is indeed a charge imposed on domestic products and imported products on the basis of identical criteria. However, in an interpretation of the concept “internal taxation” for the purposes of Article 95 it may be necessary to take into account the purpose to which the revenue from the charge is put. In fact, if the revenue from such a charge is intended to finance activities for the special advantage of the taxed domestic products it may follow that the charge imposed on the basis of the same criteria nevertheless constitutes discriminatory taxation in so far as the fiscal burden on domestic products is neutralized by the advantages which the charge is used to finance whilst the charge on the imported products constitutes a net burden.

16. It follows that internal taxation is of such a nature as indirectly to impose a heavier burden on products from other Member States than on domestic products if it is used exclusively or principally to finance aids for the sole benefit of domestic products.

17. The Italian Government objects that such an attitude would lead in this case to adopting a formalistic view of Article 95. It claims that in fact it would be permissible for the Italian Republic to maintain the surcharge as it is at present applied if the revenue from that charge were paid to the Italian treasury and thence into the general budget of the State; the Government could then provide from that budget the funds intended for financing the aids authorized by Article 38 of Regulation No 3330/74. In that case, too, the imported product would be no better off than at present since the surcharge would continue to be imposed on it without benefiting aids granted for the domestic product.

18. It must be observed that the situation envisaged by the Italian Government is not comparable to that which forms the subject-matter of this action. These proceedings concern the surcharge, in its capacity as taxation which, although imposing an equal charge on domestic sugar and imported sugar, is allotted to the financing of aids for the benefit of domestic sugar. If the surcharge were not in the nature of taxation allotted to the financing of aids for the domestic product the conditions for the application of Article 95 would not be present. In that case however the grant of the adaptation aids would no longer be the automatic result of equalization arrangements burdening only the sugar-production and importation sectors but would have its origin in legislative or governmental decisions in which the different trade interests in question were brought into equilibrium.

19. Finally the Italian Government emphasizes that the surcharge is imposed on sugar released for consumption and that the charge which it represents forms an integral part of the selling price of the sugar. It follows, in its view, that the charge in question is ultimately borne by the consumer of the product and that the producers and importers of the sugar are acting on behalf of the consumer when they pay the amount of the charge.

20. However, as the Commission pertinently remarks, the fact that the financial burdens arising from the imposition of a charge are passed on to the consumers does not alter the legal nature of the charge in question. Furthermore the Italian Government has not contested the fact that the surcharge is imposed on producers and importers of sugar. The fact, alleged by the Italian Government, that the selling prices of sugar in Italy at the various stages of marketing include the amount of the surcharge is irrelevant in classifying it in relation to Article 95 of the Treaty.

21. It follows from the foregoing that the arguments advanced by the Italian Government cannot be upheld.

22. Consequently the surcharge must be considered as a charge which, although levied at the same rate on sugar produced in Italy and sugar from other Member States, does not constitute a uniform imposition on those products since it constitutes an unequal burden on the domestic products which benefit from its imposition and on the imported products which are liable to the charge but do not derive the benefit.

23. It must thus be declared that the Italian Republic, by imposing internal taxation the burden of which falls unequally on sugar produced in Italy and on that imported from other Member States, has failed to fulfil an obligation under Article 95 of the Treaty.

Costs

24. Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs if they have been asked for in the successful party's pleading. In this case the defendant has been unsuccessful in its submissions; it must therefore be ordered to pay the costs.

On those grounds, THE COURT hereby:

1 Declares that the Italian Republic, by imposing internal taxation the burden of which falls unequally on sugar produced in Italy and on that imported from other Member States, has failed to fulfil an obligation under Article 95 of the Treaty;

2 Orders the defendant to pay the costs.