JUDGMENT OF 14. 1. 1981 — CASE 819/79 GERMANY v COMMISSION

In Case 819/79

THE COURT composed of: J. Mertens de Wilmars, President, P. Pescatore and T. Koopmans (Presidents of Chambers), Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco and A. Touffait, Judges, Advocate General: F. Capotorti Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

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

I — Facts and written procedure

A — The relevant regulations

1. Article 10 (1) of Regulation No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176) provides that, subject to certain conditions, aid shall be granted for skimmed milk and skimmed-milk powder which are produced in the Community and are for use as feeding-stuffs. In application of Regulation No 986/68 of the Council of 15 July 1968 laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed (Official Journal, English Special Edition 1968 (I), p. 260) the Commission adopted Regulation No 990/72 of 15 May 1972 on detailed rules for granting aid for skimmed milk processed into compound feedingstuffs and for skimmed-milk powder for use as feed (Official Journal, English Special Edition 1972 (II), p. 428). Article 1 of that regulation provides that skimmed-milk powder may only benefit from aid after having been denatured or used in the manufacture of compound feedingstuffs. The supervision of denaturing which must be carried out is the subject of Articles 3 and 10, which are worded as follows: Article 10 “Member States shall take all measures necessary to ensure that the provisions laid down in this regulation are complied with.” It should be observed that Council Directive 77/435 of 27 June 1977 on scrutiny by Member States of transactions forming part of the system of financing by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (Official Journal 1977 L 172, p. 17) provides, as from 1 July 1979, for a system of scrutiny of the commercial documents of undertakings receiving or making payments which is conceived in a general manner for the entire Community. According to the second recital in the preamble to that directive, “this scrutiny supplements other inspections already carried out by the Member States, particularly the direct inspection of transactions while they are being carried out and the scrutiny of book records of stock provided for in certain cases”; furthermore, “national provisions relating to scrutiny which are more extensive than those provided for in this directive are not affected by this directive”. With effect from 1 March 1980, Regulation No 990/72 was replaced by Commission Regulation No 1725/79 of 26 July 1979 on the rules for granting aid to skimmed milk processed into compound feedingstuffs and skimmed-milk powder intended for feed for calves (Official Journal L 199, p. 1), as amended by Commission Regulation No 3015/79 of 21 December 1979 (Official Journal 1979 L 33, p. 74). According to Article 3 (2) of Regulation No 1725/79, “denaturing shall be supervised on the premises”. In regard to the use of skimmed milk and skimmed-milk powder in the manufacture of compound feedingstuffs, that regulation provides for a “thorough and unannounced scrutiny of commercial documents and of the accounts relating to the records of the basic products”, which supplements physical supervision on the premises (Article 10 (2)).

Article 3

“(1). Denaturing shall be supervised on the premises. Each Member State shall appoint an agency to carry out this supervision.

(2). The concern undertaking denaturing shall, in good time beforehand, communicate in writing to the agency referred to in paragraph (1):

a) its business name and address;

b) the quantity of skimmed-milk powder to be denatured;

c) the place where denaturing will take place;

d) the expected duration of the denaturing process.

The agency concerned may request additional information.”

2. Regulation No 729/70 of the Council of 21 April 1970 on the financing of the common agricultural policy (Official Journal, English Special Edition 1970 (I), p. 218) provides for a system of direct Community financing, by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF), of refunds on exports to non-member countries and intervention intended to stabilize the agricultural markets. Article 4 of that regulation requires the Commission to make the necessary credits available to the competent national authorities and bodies. Article 5 (2) (b) of that regulation requires the Commision to clear the accounts relating to the expenditure incurred by the national authorities and bodies, on the basis of the annual accounts presented by the Member States. Article 8 of Regulation No 1723/72 of the Commission of 26 July 1972 on making up accounts for the European Agricultural Guidance and Guarantee Fund, Guarantee Section, provides that the decision to clear the accounts shall cover inter alia “the determination of the amount of expenditure incurred in each Member State during the year in question, recognized as chargeable to the EAGGF, Guarantee Section”.

B — Facts

1. By the decision under challenge, which is dated 12 October 1979 and was notified to the Federal Republic of Germany's Permanent Representation to the European Communities on 22 October 1979, the Commission determined, as regards the Federal Republic, the amount of expenditure recognized as chargeable to the Guarantee Section of the EAGGF. As appears from the fourth recital of the preamble to the decision, the Commission considered that “under Articles 2 and 3 of Regulation (EEC) No 729/70, only ... intervention intended to stabilize agricultural markets undertaken according to Community rules within the framework of the common organization of agricultural markets may be financed” and that “the inspections carried out show that a part of the expenditure declared amounting to DM 9192762.41 does not satisfy the requirements of these provisions and therefore cannot be financed”. The disputed part of this amount, namely DM 8335232.61, concerns the payment of aid for the denaturing of skimmed-milk powder in respect of which the Government of the Federal Republic of Germany claims clearance of the accounts relating to 1973.

2. At the source of the dispute lies a difference of opinion on the supervision of denaturing to be carried out by the competent national authorities and, in particular, on the interpretation of Article 3 of Regulation No 990/72. That provision requires that certain information be communicated in writing by the undertaking concerned to the competent national authority in good time before the denaturing process. In the Federal Republic of Germany supervision of denaturing of skimmed-milk powder is the responsibility of the Bundesamt für Ernährung und Forstwirtschaft [Federal Bureau for Food and Forestry]. Detailed rules governing the supervision procedure were laid down in directives issued by the Bundesamt on 24 September 1968 and brought up to date on 17 July 1972. It appears from those directives that the supervision procedure applied in the Federal Republic consists of a system of verification at several stages. Before lodging its first application for aid the undertaking concerned must register with the Bundesamt as a denaturing undertaking, as defined in the directives, entitled to benefit from the aids. The aids are paid on the basis of a provisional examination of the application. The burden of proof that the conditions for the grant of the aid have been fulfilled rests with the applicant, even after payment. The principal obligations on denaturing undertakings are as follows: To provide the competent authorities with all information necessary for a consideration of their applications; To keep, and retain for seven years, business accounts in accordance with criteria specified in the directives; To store in an orderly fashion the products eligible for aid and the means of denaturing; To allow authorized inspectors access to their premises in order to check, on the one hand, the books and commercial documents and, on the other hand, the stocks and denaturing processes; and, To allow the taking of samples. The practical aspects of the German system of supervision were dealt with in reports by German experts at a meeting which was held in Brussels at the invitation of the Commission on 14 and 15 May 1974 and which had as its object the “exchange of information on experience acquired regarding supervision procedures in relation to aid for milk production and milk products”. In its report on the accounts for the financial year 1975 the Audit Board of the European Communities states that: “In Germany there is no systematic on-the-spot supervision of the actual operation and more attention is paid to verifying the accounts of the undertakings. The absence of systematic supervision of the physical operation would appear to contravene the regulations” (Volume 1, p. 76). In regard to that observation the Commission replied that in its opinion “the regulations are being complied with when a Member State combines verification of the accounting records with unannounced spot checks on denaturing, supplemented by the taking of samples, when all these checks are performed ‘on the ground’ ” (Volume 1, Commission's Replies, p. 37).

3. The application was lodged at the Court Registry on 19 December 1979. On hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. However, it invited the Commission to submit before 15 August 1980 the pre-litigation correspondence and the minutes of the meeting of experts on supervision procedures in relation to aid for milk reduction on 14 and 15 May 1974 and, ailing such a document, a transcript of the tape recording of that meeting.

II — Conclusions of the parties

The applicant claims that the Court should:

“Declare the Commission's Decision of 12 October 1979 concerning the clearance of the accounts presented by the Federal Republic of Germany in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, Expenditure for 1973, to be void in so far as the Commission did not recognize as chargeable to the Fund the sum of DM 8335232.61; Order the defendant to pay the costs.”

The defendant contends that the Court should:

“Reject the application as unfounded; Order the applicant to pay the costs.”

III — Submissions and arguments of the parties

The applicant first disputes the assumptions of fact made by the defendant regarding the system of supervising denaturing operated by the relevant German authorities. Thereafter, the applicant's arguments are concerned with the interpretation of Article 3 (2) of Regulation No 990/72 of the Commission and the alleged breach of the principle of the protection of legitimate expectation and of Article 190 of the Treaty.

Facts

The applicant refers to a letter from the Commission dated 29 September 1977 and related documents in which it was stated that the Federal Republic of Germany had not duly performed its obligations under Regulation No 990/72 in relation to the supervision of denaturing and, in particular, that Article 3 (2) thereof, dealing with the advance written communication of certain information by denaturing undertakings, had not been observed.

The applicant gives a detailed description of the German system of supervision. It mentions in particular the limited number of undertakings (approximately eight) for which each inspector is responsible and the permanent nature of on-the-spot checks. These take place at least once a month and involve not only a visual check on the available quantities of denatured skimmed-milk powder but also a check on the stocks of raw materials and the taking of samples.

The applicant stresses the effectiveness of the scrutiny of the accounts and the administration of denaturing undertakings. It is possible on the basis of vouchers relating to the quantities of raw materials and production and marketing reports, supplemented where appropriate by checking with the purchasers, and with the assistance given by accounting records, to retrace the whole processing cycle from receipt of the raw materials to the departure of the finished products and objectively to check on the true state of affairs.

The applicant considers that the Commission proceeded on an incorrect assumption in its observations on the supervision which it formulated in the context of the clearance of EAGGF accounts for 1973 and which were summarized in the letter of 29 September 1977 to the Federal Republic of Germany. The Commission erroneously stated that supervision was never carried out on the premises in the course of the denaturing process but only took place — ex post facto — through scrutiny of accounting records. In Addendum No 2 to Working Document VI/369/79 (“Draft summary report on the results of preliminary studies for the clearance of EAGGF, Guarantee Section, accounts for 1973”), which was submitted to the Fund Committee in June 1979, the Commission also assumed wrongly that the supervising authority had never been kept aware of projected denaturing processes with the result that it had hardly been possible to carry out direct supervision or the processes on the spot.

Because of the limited number of registered denaturing firms, each of which is under the responsibility of an inspector, and because, moreover, of the numerous visits by the inspectors to “their” denaturing undertakings, permanent contact exists between the inspectors and the denaturing firms for which they are responsible. Consequently, the inspector is in a perfect position to know when denaturing processes take place in the various undertakings. Where appropriate, he receives intimation, also at his request, of the times and quantities. Thus he always has the opportunity of being personally present at the operation and of supervising it, if he deems it necessary.

The applicant considers that the refusal to charge the disputed aid to the EAGGF is unlawful since the Commission bases its objection exclusively on the absence of information resulting from the fact that the German supervising authorities refrained from requesting information from denaturing undertakings and from carrying out spot checks on the denaturing process. That objection lacks any foundation.

Finally, the applicant observes that at the meeting on 14 and 15 May 1974 the Commission's officials expressed no reservations with regard to the German system but, on the contrary, declared themselves to be particularly satisfied with the intensive nature of the supervision performed in the Federal Republic. Further, the applicant refers to the Commission's reply to the Audit Board's observations.

The defendant observes at the outset that, despite the efforts made in the presentation of the German supervision system, the applicant has been unable to demonstrate that in 1973 the undertakings concerned supplied information on the duration and place of denaturing and the expected quantities of skimmed-milk powder in accordance with Article 3 (2) of Regulation No 990/72 of the Commission.

The Commission explains that the provision of this information in advance is indispensable since — save in certain large undertakings — denaturing is not carried out continuously but only for certain limited periods and the production plant may accordingly be used for other purposes during the rest of the time.

As for the factual information given by the applicant, the defendant points out in particular that the reports of the German experts at the meeting on 14 and 15 May 1974 mentioned considerably less favourable figures respecting the number of undertakings to be supervised by each inspector. Moreover, the inspectors have other duties to perform, particularly in the field of the dehydration of milk.

The defendant does not dispute that on one or another occasion officials of the Commission noted with praise certain aspects of the German system of supervision; nor does it doubt that that system deserves approval on certain points. However, the defendant formally denies having approved of the fact that ther German authorities dispensed with being given information by the undertakings in the manner required by Article 3 (2) of Regulation No 990/72.

In its reply, the applicant maintains its objections to the Commission's assumptions of fact. It refers in particular to a report of 20 December 1979 by one of the German inspectors in order to show that the informal notification system operated in Germany was wholly sufficient to enable the inspectors to be present when denaturing was carried out.

The defendant considers that the facts of the case are perfectly clear. The very fact that the German authorities introduced only in 1977 a procedure for formal written declaration of proposed denaturing shows that previously they did not observe the provisions of Article 3 (2) of Regulation No 990/72.

The interpretation of Article 3 (2) of Regulation No 990/72

In the alternative, the applicant challenges the strict construction given by the Commission to Article 3 (2) of Regulation No 990/72.

The applicant points out firstly the ambiguity of this provision as regards the duration of the denaturing which must be indicated.

Where the text of a Community provision is ambiguous it is necessary, for the purposes of its interpretation, to consider the context in which the provision occurs and the objective which it pursues. Essentially, the duty to provide information under Article 3 (2) has the function of preparing for and simplifying supervision measures properly so called. Article 3 (1) of Regulation No 990/72 constitutes only an outline of rules at Community level. Article 10 of that regulation leaves to the Member States the task of supervising denaturing operations. Thus the regulation recognized the existence of differing systems of supervision.

In that context, the duty to communicate certain information which stems from Article 3 (2) has only an auxiliary function, the importance of which depends on the peculiarities of the system of supervision set up by the Member State in question. Since supervision on the premises of denaturing operations is of less importance in the German system than checks on accounting records, the duty to communicate information must be construed less strictly than in the framework of a system which is based on physical checks on the spot.

This principle of differential interpretation applies where the detailed rules of the system of supervision, its intensity and its method of application are left to the discretion of the Member States. In short, it is the equivalence in the results which counts. In these circumstances a formality imposed without distinction on the undertakings of all the Member States would necessarily have a discriminatory effect, given that certain Member States, according to the national system of supervision, submit undertakings to checks which are very much more intensive.

If the German system of supervision is examined in the light of such an interpretation, it is clear that its centre of gravity lies at the stage of ex post facto scrutiny of the books and administration of the undertaking.

In this regard, the applicant observes that only an ex post facto check on the stocks of raw materials and finished products offers any certain guarantee against falsification. It states that it is precisely because of the possibility of making an exhaustive and certain ex post facto scrutiny of accounts that Council Directive 77/435 of 27 June 1977 and Commission Regulation No 1725/79 of 26 July 1979 were adopted.

The applicant adds, further, that the Commission has not established any material irregularities which led to unjustified payments.

The defendant observes first that, in accordance with the case-law of the Court, the provisions of Articles 2 and 3 of Regulation No 729/70 of the Council allow the Commission to recognize as chargeable to the EAGGF only sums paid in conformity with the rules laid down in the various agricultural sectors. That strict interpretation of the conditions under which expenditure is to be borne by the EAGGF is necessary in view of the objectives of Regulation No 729/70 since the management of the common agricultural policy must be carried out in conditions of equality between traders in the various Member States (Case 11/76 Netherlands v Commission [1979] ECR 245, at p. 279; Joined Cases 15 and 16/76 France v Commission [1979] ECR 321, at p. 340; and Case 18/76 Germany v Commission [1979] ECR 343, at p. 384). If that proposition is valid in the case of a mistaken but innocent interpretation of a provision by the national authorities it should apply all the more where, as in the present case, a national administration has completely refrained from applying a provision of Community law.

So far as the clarity of Article 3 (2) of Regulation No 990/72 is concerned, the defendant states that it was in order to take account of the different practical requirements that it did not lay down any specific period (for example, day, week or month) which must be indicated. The defendant considers that there can be no doubt as to the information expected from undertakings. However, even if the view advanced by the applicant were to be accepted that the term “duration” occurring in Article 3(2) is a little vague, it is the duty of the national authorities to ensure that that provision is applied as fully as possible within the meaning of Regulation No 990/72 as a whole.

The defendant recalls that, according to the preamble to Regulation No 990/72 and its operative part, the main weight of supervision by the Member States must bear on supervision of operations on the premises. In its opinion, frequent on-the-spot checks are indispensable if fraud is to be avoided. The duty to give information under Article 3 (2) is in no way inappropriate or superfluous, having regard to the scheme of the regulation.

The defendant submits that the applicant's view that Regulation No 990/72 did not create a system of Community scrutiny but is merely intended to supplement national systems proceeds upon a fundamental error. On the contrary, the regulation itself lays down the conditions under which skimmed-milk powder is eligible for aid. Under Article 10 the Member States have only to take the supervisory measures necessary to ensure observance of the provisions contained in “this regulation”.

Thereafter the defendant points out that the general provisions in Council Directive 77/435 of 27 June 1977 relating to supervision of accounting records are merely intended to supplement the supervision already carried out by the Member States, “particularly the direct inspection of transactions while they are being carried out...” (second recital in the preamble). Furthermore, it observes that, in regard to supervision of denaturing on the premises, Article 3 of Commission Regulation No 1725/79 of 26 July 1979 contains no alteration compared with Article 3 of Regulation No 990/72, whereas, so far as the use of skimmed milk and skimmed-milk powder in the manufacture of compound feedingstuffs is concerned, that regulation does not abolish on-the-spot checks but provides in addition for the scrutiny of commercial documents.

Finally, the defendant observes that it is impossible in practice for the Commission to prove that the failure to comply with the Community provisions led to unjustified payments in this case, precisely because of the incorrect application of those provisions. It appears moreover from the judgment delivered in Joined Cases 15 and 16/76 (France v Commission [1979] ECR 321, at paragraph 10 of the decision) that the test for not charging certain expenditure to the EAGGF does not lie in the question whether unjustified payments have been made but rather in the failure to comply with certain formalities relating to proof.

Infringement of the principle of the protection of legitimate expectation.

The applicant submits that the Commission is bound to charge the aid in dispute to the EAGGF for the simple reason that the Commission itself expressly, and on several occasions, approved the German system of supervision. On this matter the applicant refers in particular to the meeting to exchange information which was held at the Commission on 14 and 15 May 1974 and to the Commission's reply to the observations of the Audit Board on the 1975 financial year. The Commission did not confine itself to alluding favourably to certain aspects of the German system but considered and approved that system as a whole. It was only in 1977 that the Commission conceived the idea of an infringement by the Federal Republic of Germany of Regulation No 990/72 as regards the duty to give information which is imposed on undertakings. As from that time the Federal Republic introduced, as a precautionary measure, a formal procedure for declaring proposed denaturing.

The defendant maintains principally that it never approved of dispensing with the obligation of communicating to the competent authorities the information specified in Article 3 (2) of Regulation No 990/72.

Infringement of Article 190 of the Treaty

Finally, the applicant claims that the contested decision does not adequately state the reasons upon which it is based.

The decision does not disclose the factual and legal considerations upon which the Commission founds its refusal to charge the rejected amount to the EAGGF. It does not give any details of the division of that amount between the various heads of expenditure or of the relevant provisions of law. In particular, no reference is made to Regulation No 990/72. The mere reference to a sitting of the Fund Committee is wholly insufficient. It is in a draft report and in an addendum to a working document for the Committee that the specific grounds underlying the contested decision must be sought.

The decision does not satisfy the requirements of the Courts settled case-law, according to which a decision must define clearly, in addition to its legal basis, the scope of the complaint and thus the specific act constituting the infringement (Joined Cases 40 to 48/73 Suiker Unie and Others v Commission [1975] ECR 1663, at p. 1931 and Case 123/75 Küster v Parliament [1976] ECR 1701, at p. 1712). In addition, a decision must disclose the reasoning by virtue of which the alleged infringement is capable of entailing the legal consequences which the decision attributes to it (Case 73/74 Papier Peints v Commission [1975] ECR 1491, at p. 1514).

The defendant refers to the decisions of the Court whence it appears that the duty to state the reasons upon which an instrument is based may not be too extensive. Where a Member State has been informed of the Commission's objections in the course of long and thorough discussion, it is no longer necessary to set forth in the final decision very detailed reasons, which in some cases would require several pages (Case 13/72 Netherlands v Comission [1973] ECR 27).

IV — Oral procedure

The parties submitted oral argument at the sitting on 9 October 1980. On that occasion the Agent for the defendant was assisted by an expert, Wolfgang Kummer, an administrator in the Directorate-General for Agriculture.

The Advocate General delivered his opinion at the sitting on 25 November 1980.

Decision

1. By application lodged at the Court Registry on 19 December 1979 the Federal Republic of Germany sought a declaration, pursuant to Article 173 of the EEC Treaty, that Commission Decision 79/895 of 12 October 1979 concerning the clearance of the accounts presented by the Federal Republic of Germany in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, Expenditure for 1973 (Official Journal 1979 L 278, p. 13) is void in so far as the Commission did not recognize as chargeable to the EAGGF the sum of DM 8335232.61 relating to the payment of aid for the denaturing of skimmed-milk powder.

2. Under Article 3 (2) of Regulation No 986/68 of the Council of 15 July 1968 laying down general rules for granting aid for skimmed milk and skimmed-milk powder for use as feed (Official Journal, English Special Edition 1968 (I), p. 260), aid for skimmed-milk powder is to be paid only when proof has been given that the skimmed-milk powder has been denatured or used in the manufacture of compound feedingstuffs. For the purpose of applying that provision, Article 3 of Regulation No 990/72 of the Commission of 15 May 1972 on detailed rules for granting aid for skimmed milk processed into compound feedingstuffs and for skimmed-milk powder for use as feed (Official Journal, English Special Edition 1972 (II), p. 428) provides, in regard to denatured skimmed-milk powder, that denaturing shall be supervised on the premises; that each Member State shall appoint an agency to carry out that supervision and, moreover, that the concern undertaking denaturing shall, in good time beforehand communicate in writing to that agency its business name and address, the quantity of skimmed-milk powder to be denatured, the place where denaturing will take place and the expected duration of the denaturing process. Article 10 of that regulation requires Member States to take all measures necessary to ensure that the provisions laid down in the regulation are complied with.

3. According to the first submission, the decision under challenge infringed Articles 3 and 10 of the aforementioned Regulation No 990/72 by refusing to recognize the supervision of denaturing carried out by the German authorities as being in accordance with those provisions.

4. It appears from the papers in the case that, during the period under consideration, the system of supervision of denaturing set up by the German authorities was not based principally on physical, on-the-spot checks but, rather, on scrutiny of the business records of the undertakings carrying out denaturing. Those undertakings, which were registered with the competent German agency as denaturing undertakings, were bound to maintain accounting records in accordance with criteria laid down by the competent agency, to store in an orderly fashion the products capable of benefiting from the aid and the agents used in the denaturing and to allow the competent inspectors access to their premises in order to check the accounting records, the stocks and the denaturing operations. The undertakings were also bound to allow the taking of samples.

5. According to the Commission, whatever may be the merits of such a system of supervision, it does not oblige the undertakings concerned to provide the information required by Article 3 (2) of Regulation No 990/72 relating to the duration and place of denaturing and the quantities of skimmed-milk powder subjected to the denaturing process. According to the Commission, that information is necessary in order to facilitate the on-the-spot supervision of that process which is provided for by Article 3 (1) of the regulation.

6. The German Government argues that the combination of scrutiny of the accounting records and of the administration of the undertakings in question, on-the-spot checks of raw materials and the taking of samples constitutes a particularly effective system of supervision. That is especially so where, as in the present instance, each inspector supervises a limited number of undertakings, is in permanent contact with them and is familiar with their practices. Since the inspector has available, on the basis of vouchers, all necessary information relating to the quantities and nature of the available raw materials and the quantities and the nature of the products leaving the premises, it is maintained that he has every opportunity to retrace the entire processing cycle from the arrival of the raw materials to the departure of the finished products.

7. The German Government concedes that, under this system and at the time in question, the undertakings concerned did not give written notice in advance of denaturing operations to the competent agency. However, in reliance on Article 10 of Regulation No 990/72 it submits that the Community rules left to the Member States the task of arranging supervision measures. In relation to that provision, Article 3 (2) of the regulation has, it is submitted, only an auxiliary function and requires undertakings to give certain information only in so far as that information is indispensable to the carrying out of effective supervision.

8. It should be recalled at the outset that the function of a Commission decision relating to the clearance of accounts in respect of expenditure financed by the EAGGF is to establish whether the expenditure was incurred by the national authorities in accordance with Community provisions. In cases where Community rules authorize payment of aid only on condition that certain formalities relating to proof or supervision are observed, aid paid in disregard of that condition is not in accordance with Community law and the expenditure incurred therein may not, in principle, be charged to the EAGGF.

9. In order to ensure effective supervision of the proper conduct of denaturing operations and to prevent the same product from benefiting more than once from the aid, Regulation No 990/72 provides for on-the-spot checks on denaturing undertakings. In order to enable denaturing to be supervised on the premises, Article 3 (2) of the regulation requires undertakings carrying out denaturing to give certain information to the competent national agency before proceedings with the denaturing. When Article 10 of the regulation provides that Member States shall take all measures “necessary to ensure that the provisions laid down in this regulation are complied with”, it refers to compliance with all the provisions of the regulation, including Article 3.

10. In these circumstances it is not necessary to consider the soundness of the German Government's argument that the supervision system set up in the Federal Republic is more effective than that provided for in Article 3 of Regulation No 990/72. In fact, the provisions of Community regulations must be uniformly applied in all the Member States and have, so far as possible, the same effect throughout the territory of the Community. The position is no different where a regulation lays down specific measures of supervision but leaves to Member States the task of ensuring their observance by appropriate administrative measures.

11. It follows from the foregoing that the first submission must be rejected.

12. According to the second submission, the Commission approved the system of supervision practised in the Federal Republic of Germany and the Commission is accordingly bound to recognize the aid paid by the German Government as chargeable to the EAGGF.

13. In support of this submission the German Government refers to a meeting to exchange information held in May 1974 in the course of which the Commission's representatives are said to have acknowledged that the German system of supervision offered great advantages and was compatible with Community law. The applicant also refers to the Commission's reply to the report of the Audit Board relating to the accounts for the 1975 financial year, in which reply the Commission, it is maintained, indicated that in its opinion the applicable provisions of the regulations had been observed by the German authorities.

14. This submission must be rejected. Whatever may have been the scope of those statements, the failure to comply with provisions of Community law in 1973 cannot be attributed to the Commission's conduct subsequent to that year.

15. Finally, according to the third submission, the decision under challenge does not satisfy the obligation imposed by Article 190 of the Treaty to state the reasons upon which it is based.

16. The impugned decision confines itself essentially to stating, in the preamble thereto, that only intervention undertaken according to Community rules within the framework of the common organization of agricultural markets may be financed; that inspections carried out show that a part of the expenditure declared does not satisfy that requirement and that the Member State concerned “has been fully informed of this deduction and has been able to give its views thereon”.

17. The Commission submits that a detailed statement of reasons is not necessary since the German Government was perfectly aware of the reasons which led the Commission to refuse the proportion of expenditure corresponding to aid for denaturing within the meaning of Regulation No 990/72. It refers in this regard to an exchange of letters between the Federal Government and the Commission in 1977 and to the consideration given to the issue on several occasions by the Fund Committee, on which the Federal Republic is represented.

18. The German Government has not disputed these factual points but it considers that a prior exchange of views may not stand in place of the requirement to state the reasons upon which a decision is based.

19. As the Court has already recognized in its judgment of 11 January 1973 in Case 13/72 Netherlands v Commission [1973] ECR 27, the extent of the duty to state reasons, laid down by Article 190 of the Treaty, depends on the nature of the act in question and on the context in which it is adopted.

20. In the present case, it is not disputed that the German Government was closely involved in the process by which the contested decision was made and was therefore aware of the reason for which the Commission considered that the disputed amount might not be charged to the EAGGF.

21. In these circumstances, and in the particular context of the making of decisions relating to the clearance of accounts, the contested decision must be held to contain a sufficient statement of the reasons upon which it was based.

22. It follows that the application must be dismissed.

Costs

23. Under Article 69 (2) of the Rules of Procedure the unsuccessful party must be ordered to pay the costs. The applicant has failed in its action and must therefore be ordered to pay the costs.

On those grounds, THE COURT hereby:

1 Dismisses the application;

2 Orders the applicant to pay the costs.