JUDGMENT OF 18. 2. 1982 - CASE 77/81 ZUCKERFABRIK FRANKEN v GERMANY

In Case 77/81 REFERENCE to the Court under Article 177 of the EEC Treaty by the First Chamber of the Verwaltungsgericht [Administrative Court], Frankfurt am Main, for a preliminary ruling in the action pending before that court between

THE COURT (Third Chamber) composed of: A.Touffait, President of Chamber, Lord Mackenzie Stuart and U. Everling, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

I — Facts and written procedure

The plaintiff in the main action, a German company, runs a sugar factory. In 1972 the Einfuhr- und Vorratsstelle für Zucker [Sugar Import and Storage Authority], the predecessor in law of the defendant in the main action, issued on the plaintiffs application denaturing premium certificates of 114550 tonnes of sugar. Pursuant to Regulation (EEC) No 100/72 of the Commission of 14 January 1972 laying down detailed rules on the denaturing of sugar for animal feed (Official Journal, English Special Edition 1972 (I), p. 21) the plaintiff in the main action turned the sugar into denatured sugar for the feeding of bees. The intervention agency then paid it the denaturing premium amounting to DM 35618.70.

The plaintiff sold the bee sugar to an agricultural dealer, pointing out that the sugar might only be used for feeding bees.

The dealer re-sold the denatured sugar to Friedrich Wilhelm Dücker GmbH & Co. Eisenwerk. A check carried out by the Hauptzollamt [Principal Customs Office] Würzburg at the premises of Dücker in 1974 led to the discovery that the bee sugar had been used not for feeding bees but as core-binder for foundries.

The defendant thereupon demanded that the plaintiff return the denaturing premium as required by German law. The plaintiff brought an action against the demand for repayment in the court which has made this reference.

The national court states that under German law denaturing premiums which have been unduly paid must be returned but it is in doubt whether the plaintiff was wrongly in receipt of the premium. Although the Hessischer Verwaltungsgerichtshof [Administrative Court, Hesse] held on appeal on 18 February 1980 that the Federal Office was correct in its view that one of the conditions for entitlement to the denaturing premium was that the denatured sugar must be used for animal feed, the national court has “strong doubts as to whether that view is correct”.

It points out that that interpretation is inconsistent first with the fact that Articles 14 and 21 of Regulation No 100/72 do not state that the product must be used for the purpose intended and, secondly, with the fact that the denaturing premium is paid after denaturing has been carried out, for if at that time all the conditions for entitlement to the premium were not fulfilled the payment would represent an advance, whereas advances are not permissible according to Article 24 (2) of Regulation No 100/72.

The court therefore takes the view that Article 1 (2) of Regulation (EEC) No 2049/69 of the Council of 17 October 1969 laying down general rules on the denaturing of sugar for animal feed (Official Journal, English Special Edition 1969 (II), p. 441), which provides that:

“Sugar in respect of which a denaturing premium has been granted shall be used only for animal feed. The denaturing method used shall be determined with this end in view”,

does not impose a further condition for obtaining the denaturing premium.

At most, the provision entails a prohibition, not a positive duty. Moreover, in the view of the court of reference the provision does not constitute a “rule of conduct valid against all persons”, but a “rule containing instructions addressed to the Commission, which is comprehensible only in the context of both sentences of Article 1 (2)”. However, “instead of guaranteeing the intended use by means of penalites” the Commission “evidently proceeded on the basis that the possibility of denatured sugar's being used for purposes other than for feeding animals could be ruled out merely by the adoption of the proper denaturing methods ...”.

Legal methodology, moreover, does not bear out the construction placed upon the provision by the Hessischer Verwaltungsgerichtshof and the Federal Office: it appears that in general “provisions on the use of goods subject to a common market organization are basically regarded as fulfilled if the required processing has been carried out” and that no provision has been made for a further check on the use to which the goods have been put. There is one exception to this, according to the national court: the disposal at reduced prices of butter for direct consumption in the form of concentrated butter. In that case Commission Regulation (EEC) No 649/78 of 31 March 1978 (Official Journal L 86, p. 33) lays down penalties for each subsequent purchaser who puts the butter to other purposes; therefore if it had been the intention of the draftsmen of Regulation No 100/72 to ensure that the denatured sugar was put to the use intended, they could have done so by means of provisions similar to those contained in Regulation No 649/78.

It is also said that there are “politico-legal objections” which militate against that interpretation, namely the need for clarity in the drafting of legal texts on the law of economic administration. Even if the interpretation favoured by the defendant is considered to be warrantable, “it does not at any rate emerge so plainly from the text of the regulation that it should prevail at the expense of the Common Market citizen”.

On all the above grounds the national court decided to stay the proceedings and referred the following question to the Court of Justice :

“Is the recipient of a denaturing premium certificate under Regulation (EEC) No 100/72 of the Commission of 14 January 1972 laying down detailed rules on the denaturing of sugar for animal feed (Official Journal, English Special Edition 1972 (I), p. 21) obliged by the wording of Article 14 (1) (b) thereof to use the denatured sugar only for animal feed and is he liable for any use otherwise than for that purpose by third parties?”

The order making the reference was lodged at the Court Registry on 7 April 1981.

Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the European Economic Community written observations were submitted by Zuckerfabrik Franken, the plaintiff in the main action, represented by Volker Schiller, Rechtsanwalt, of Cologne; by the Bundesanstalt für landwirtschaftliche Marktordnung, the defendant in the main action, represented by Dr Schultz; and by the Commission of the European Communities, represented by Hans Peter Hartvig and Meinhard Hilf, members of the Legal Department, acting as Agents.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided by an order of 30 September 1981 to refer this case to the Third Chamber pursuant to Article 95 of the Rules of Procedure, and to open the oral procedure without any preparatory inquiry.

II — Observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice

A — Observations of the plaintiff in the main action

The plaintiff in the main action observes first that the question which has been referred to the Court for a preliminary ruling “ought to be clearer and more specific”. It appears from the grounds in the order making the reference that the Verwaltungsgericht wishes to know whether, first, payment of a denaturing premium is subject to the substantive condition that once the sugar has been properly denatured it must also be in fact used for animal feed, and secondly, should the Court reply to that question in the affirmative, whether the recipient of a denaturing premium is also responsible for the manner in which denatured sugar is used, which may be for a purpose other than the intended one, by third parties with whom he has no commercial relationship.

1. First question: Conditions for obtaining the denaturing premium for sugar

The plaintiff shares the Verwaltungsgericht's view on this question and therefore submits that entitlement to the denaturing premium is subject only to the condition that the sugar must have been denatured in the proper way.

It is in fact apparent from the wording, meaning and scope of Article 21 (2), Article 14 (1) (b) and the other provisions, in particular Articles 24 and 18, together with the recitals in the preamble to Regulation No 100/72 that the Community legislature “has made it clear ... that only the requirement that denaturing be performed correctly is a condition for payment of the denaturing premium”.

Interpreting Regulation No 100/72 in the light of Regulation No 2049/69 of the Council gives the same result. Following the same line of reasoning as the Verwaltungsgericht, the plaintiff comes to the same conclusion: the Council, in its capacity as legislature, considered either that the Commission would ensure observance of the duty laid down in Article 1 (1) of Regulation No 2049/69 by adopting appropriate measures, or that it would adopt clear and unambiguous legal provisions to be applied in that respect, and as the Commission has not taken such measures any ensuing disadvantages should not be placed on the shoulders of the plaintiff in the main action.

The plaintiff then takes up the argument already pursued by the Verwaltungsgericht, which is that a comparative analysis of the regulations in question with other Community regulations on similar rules reveals that “provisions on the use of goods subject to the common organization of the market are generally regarded as fulfilled if the required processing has been carried out, and the question whether or not the goods have also been put to their intended use is basically unimportant”. There is only one exception to that rule, namely the disposal at reduced prices of butter from intervention stocks which is provided for in Regulation No 649/78. If, therefore, the Commission and the Council had intended to make payment of the denaturing premium for sugar dependent on the use to which it was actually put, there was nothing to prevent them from doing so by means of provisions similar to those dealing with the penalties laid down in Regulation No 649/78.

It is further submitted by the plaintiff that the mere fact of performing the denaturing procedure correctly is sufficient to satisfy the sense and purpose of the denaturing premium because such regular processing already relieves pressure on the market in sugar and that is the purpose of the rules in question.

Since that is its purpose, moreover, to require that denatured sugar be used as intended would also run counter to the principle of proportionality, for “such means would exceed what is appropriate and necessary for achieving the objective in question, namely to relieve congestion on the sugar market”.

Finally, the plaintiff in the main action maintains, like the Verwaltungsgericht, that the principles of legal clarity and certainty speak likewise for that interpretation.

In consequence it suggests that the reply to the first question should be as follows :

“1. Article 14 (1) (b) and Article 21 (2) of Regulation (EEC) No 100/72 do not require denatured sugar to be, in addition, used in fact for animal feed; on the contrary, the only requirement for entitlement to and payment of the denaturing premium under Community law is that the sugar should have been denatured in the correct manner for use as animal feed.”

2) Second question: Liability of the recipient of the denaturing premium for use by third parties for a purpose other than that intended, to which attention has been drawn by the recipient

This question is considered by the plaintiff in the main action solely as an alternative should the Court decide, “against all expectation”, that a condition for payment of the denaturing premium is that the denatured sugar be actually used for animal feed.

Neither Articles 14 and 21 of Regulation No 100/72 nor Regulation No 2049/69 stipulate that the recipient of a denaturing premium is liable if third persons who have purchased the denatured sugar use it for purposes other than that intended. The provisions in question differ from those which were discussed in the judgments of the Court of 11 May 1977 (Joined Cases 99 & 100/76, De Beste Boter [1977] ECR 861) and 13 December 1979 (Case 42/79, Milch-, Fett- und Eierkontor [1979] ECR 3703) where it is apparent that the person entitled to the premium was subject to obligations of that nature. It may therefore be inferred conversely from these provisions, which are different, that the rules in question here prove precisely that no “responsibility for compliance with the intended use by thrid parties of sugar which has been duly denatured was or can be imposed on the recipient of a denaturing premium certificate”.

That is also the conclusion which is to be drawn from an examination of the recitals in the preambles to Regulation No 100/72 and Regulation No 2049/69 and from a comparative analysis of their general structure with that of the rules contained in other EEC regulations.

If, finally, the provisions in question are construed in the light of the principles of legal clarity and certainty that, too, will show that the holder of a denaturing premium certificate cannot be held liable if the denatured sugar is used by third parties for purposes other than that intended.

Accordingly, the plaintiff suggests that the reply to the second question should be as follows:

“2. Regulation (EEC) No 100/72 does not require the holder of a denaturing premium certificate to ensure, over and above the requirements of Article 14 (1) (b) and Article 21 (2) of Regulation (EEC) No 100/72, that third parties use the denatured sugar for animal feed; in particular, he is not liable for its use by third parties for purposes other than that intended.”

B — Observations of the defendant in the main action

The Federal Office maintains that the denaturing premium for sugar has its legal basis, first, in Regulation No 1009/67/EEC of the Council of 18 December 1967 on the common organization of the market in sugar (Official Journal, English Special Edition 1967, p. 304), Article 9 (2) of which empowers the national intervention agencies to grant denaturing premiums for sugar rendered unfit for human consumption. The regulation provides further that general rules for denaturing sugar are to be determined by the Council, whereas detailed rules for the application of the regulation are to be adopted by the Commission.

Pursuant to those provisions the Council laid down general rules in Regulation No 2049/69. It is apparent from the wording of that regulation, in particular Article 1 (1) thereof, and from the sense and purpose of the rules as a whole that the denaturing premium “is paid subject to the condition that the sugar is to be used, in the manner required by that provision, for animal feed”.

In the detailed implementing rules laid down by Regulation (EEC) No 100/72 of the Commission the latter, after recalling that principle in the sixth recital in the preamble, continues: “the specific denaturing processes which must be used if a denaturing premium is to be paid must therefore be determined”. It states further that the Member States must take all necessary measures to ensure that the denatured sugar is used solely for animal feed.

The defendant in the main action therefore claims that this means that “use for the purpose intended is an essential requirement for payment of a premium”. Pace the opinion of the Verwaltungsgerichtshof, the fact that the premium is paid as soon as denaturing has been carried out does not affect this, for such premiums do not represent payment in consideration of the denaturing but are intended to enable denatured sugar to compete as animal feed with other feedingstuffs, for example, maize, which are available on the market at prices considerably lower than the prices for sugar. Thus, as required by Regulation No 1009/67, the Commission attempted to dispose of some of the excess sugar in a denatured form on the animal feed market. Since that aim could only be achieved if the denatured sugar was competitive its price had to be reduced and that was accomplished by means of the premiums.

That aim would be frustrated, however, if cheaper sugar intended for animal consumption were used for other purposes; and in such a case the premium would amount to an unjustified extra profit for the recipient. Such a misuse would, moreover, not only be prejudicial to Community financial interests but would not enable congestion on the market to be relieved.

Payment of the premium on completion of denaturing does not represent an illegal advance — quite the contrary: it is a measure necessary in order to avoid placing upon the manufacturers of denatured sugar the cost of financing premiums when such sugar is sold. That does not mean, however, that the other condition, that sugar must be used for animal feed, need not be observed also.

Furthermore, the Federal Office is not compelled to pay the premium on presentation of proof that denaturing has been completed, for Aticle 24 of Regulation No 100/72 expressly provides for the possibility of delaying payment of the premium until the end of the month following that in which proof is submitted. Checks and penalties are therefore allowed for if the premium is paid only when the denatured sugar has been used for the purposes envisaged by the regulation in question.

If it is found that denatured sugar is being diverted from its proper use a mere check with no consequences, that is to say, no penalty, would not be sufficient to ensure that the sugar is used as intended; there is no use in having checks unless the negative result of an investigation has consequences (see the judgment in De Beste Boter cited above).

The national legislature was therefore acting in accordance with the principles concerning checks on the use to which goods have been put in stating in the national rules governing the grant of denaturing premiums that such premiums must be repaid if it is found that the denatured sugar has been used for purposes other than that intended.

Next, the Federal Office refers to the ruling by the Hessischer Verwaltungsgerichtshof sitting in Kassel that it is not possible to invoke, against the obligation to repay the premium, the argument “that the above-mentioned Community provisions do not make provision for repayment of the premium if the denatured sugar is not used for animal feed”. It also follows from the findings of that court that the argument that it is possible to carry out checks without any sequel is unrealistic for “there is no sense in having checks unless they produce consequences”.

The defendant in the main action concludes from that that “an essential requirement for payment of a denaturing premium is that the denatured sugar be used for animal feed”, which is wholly in keeping with the objective pursued, namely to relieve congestion on the market in sugar destined for human consumption by diverting some of it towards animal feed.

The requirement concerning the use to which such goods must be put is, moreover, laid down in other Community provisions concerning sugar subsidies, in particular in Regulation (EEC) No 1574/72 of the Commission of 24 July 1972 fixing the denaturing premium for sugar intended for animal feed (Official Journal, English Special Edition 1972 (III), p. 739) and in Regulation (EEC) No 2351/72 of the Commission of 8 November 1972 supplementing Regulations (EEC) No 100/72 and No 1574/72 as regards the denaturing process for sugar (Official Journal, English Special Edition 1972 (November), p. 40). The last-named regulation requires denatured sugar to be coloured in order to avoid its being used for purposes other than animal feed.

The Federal Office points out that there is another case outside the sugar sector where goods must be put to the intended use: that is the disposal at reduced prices of butter for direct consumption in the form of concentrated butter. The only difference is that in the case of concentrated butter it was the Commission itself which laid down in Regulation No 649/78 the detailed rules for checking whilst in the case of denatured sugar it left that task to the Member States. However, that difference in no way affects the intention expressly stated that denatured sugar must be used for the purpose intended, for there is nothing to prevent “the Commission from relying on the Member States to adopt detailed rules for ensuring compliance with the relevant rules” as was held in the judgment of the Court of 14 March 1973 Case 57/72, (W estzucker [ 1973] ECR 321).

It should also be observed that the regulation concerning concentrated butter was made much later than the regulation on denatured sugar and that “the Commission may in the meantime have reached the conclusion that continuous checks on the goods are necessary in order to avoid abuses”.

The inference to be drawn from that comparison and from the explanations given in the De Beste Boter judgment is that the recipient of the premium is also liable for the conduct of a third party if the latter does not use the denatured sugar for the purpose intended, even if the recipient of the premium is in no way at fault, as is shown likewise in the judgment in Milch-, Fett- und Eier-Kontor to which reference is made above.

The conclusion must therefore be, as indicated in those decisions, that a trader is bound to refund the premium paid “if he is aware of the use which must be made of the goods, even if, as is the case in the main proceedings, he has drawn the attention of the subsequent purchaser to the fact that bee sugar should only be used in agriculture”.

Accordingly the defendant in the main action suggests that the reply to the question which has been referred to the Court should be as follows:

“Regulation (EEC) No 100/72 of the Commission of 14 January 1972 laying down detailed rules on the denaturing of sugar for animal feed is to be interpreted as meaning that the holder of a denaturing premium certificate is required to use the denatured sugar solely for animal feed and is responsible for any use thereof by third parties other than that intended”.

C — Observations of the Commission

The Commission commences its observations with a preliminary review of the principal features of the sugar market, in particular the problem of surpluses which the Council has decided must be reduced by means of denaturing premiums. However, there has been a decline in denaturing since 1971 and 1972 and only small quantities are now involved. In addition, the Council stopped the grant of denaturing premiums when in 1981 it set up direct subsidies for farmers (Council Regulation No 1196/81 of 28 April 1981, Official Journal L 122, p. 1). It has always been difficult to supervise the grant of these premiums and the Community legislature decided to provide a precise description of the procedure for denaturing, leaving to the Member States the task of checking that the denatured sugar was put to its intended use.

After summarizing the Community law applicable to the case the Commission examines the national law, that is to say, the German regulation of 13 May 1970 on the grant of premiums for denaturing sugar to be used for animal feed (Bundesanzeiger No 89 of 16 May 1970, p. 1) which lays down the rules for ensuring compliance with the regulations and provides for repayment of premiums which have been wrongly paid.

On reasoning similar to that followed by the Federal Office, the Commission also takes the view that the intention and purpose of the relevant Community provisions, that is to say, to relieve congestion on the sugar market and to use denatured sugar for animal feed, makes it clear that “the grant of the denaturing premium is closely linked to the ultimate use to which the denatured sugar is put” and that the recipient of the premium who is aware of that intended use must ensure that that aim is achieved.

Next, the Commission considers the arguments raised by the national court and the plaintiff in the main action.

As to the first objection which was raised, namely the absence of Community legal provisions on the possibility of forfeiting the premium, the Commission's reasoning, which is similar to that of the Federal Office, relies on the twofold purpose of the provisions in question to refute the arguments put forward by the Verwaltungsgericht.

As to the second objection which was raised, that concerning breach of general principles of law, the Commission observes first that “a provision whereby if denatured sugar is put to unauthorized uses by third parties the undertaking which performed the denaturing is required to repay the premium does not exceed what is both appropriate and necessary in order to attain the double objective of the Community rules“, an argument based on the consideration of the principle of proportionality contained in the De Beste Boter judgment. The Commission maintains further that in the circumstances there is no question of a breach of the principle nulla poena sine lege since recovery of the premium is not a penalty within the meaning of that principle and the plaintiff in the main action, by inserting in the contract with the subsequent vendor a clause to the effect that the latter would be liable for any charges which might result from the absence of a proof that the sugar had been used for the correct purposes, itself acknowledged that recovery of the premium was logical. Finally, all those considerations go to show that the plaintiff in the main action may not rely on the existence of different rules in other market organizations.

The Commission therefore suggets that the reply to the question which has been referred to the Court should be as follows :

”Regulation No 2049/69 of the Council and Regulation No 100/72 of the Commission must be interpreted as meaning that the holder of a denaturing premium certificate is required to use the sugar solely for animal feed and is responsible for any unauthorized use by third parties.”

III — Oral procedure

At the sitting on 19 November 1981 oral argument and replies to the questions put by the Court were presented by the following: Messrs Schiller and Ehle, Rechtsanwälte, of Cologne, for Zuckerfabrik Franken GmbH, the plaintiff in the main action; Mr Schwieck, Agent for the Bundesanstalt, for the defendant in the main action; and Mr Hilf, a member of the Legal Department of the Commission of the European Communities, acting as Agent, for that institution.

The Advocate General delivered his opinion at the sitting on 21 January 1982.

Decision

1. By an order dated 26 February 1981 which was received at the Court on 7 April 1981 the Verwaltungsgericht [Administrative Court] Frankfurt am Main referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question concerning the interpretation of Regulation (EEC) No 100/72 of the Commission of 14 January 1972 laying down detailed rules on the denaturing of sugar for animal feed (Official Journal, English Special Edition 1972 (I), p. 21), in particular Article 14 (1) (b) thereof.

2. The question arose in the course of a dispute between a German sugar manufacturer, which after obtaining denaturing premium certificates in respect of 114550 tonnes of sugar in 1972 denatured that quantity and obtained the denaturing premium provided for by Regulation No 2049/69 of the Council of 17 October 1969 laying down general rules on the denaturing of sugar for animal feed (Official Journal, English Special Edition 1969 (II), p. 441), and the Federal Republic of Germany, represented by the Bundesanstalt für landwirtschaftliche Marktordnung [Federal Office for the Organization of Agricultural Markets], which claims the refund of the premiums as required by German law, principally on the ground that the denatured sugar was used not for feeding bees but as core-binder for foundries.

3. The plaintiff in the main action sold the denatured sugar to an agricultural dealer, stipulating that the sugar “must be used only for the feeding of bees” and that proof that it had been so used might be required. The dealer resold it to an undertaking which used it for a purpose other than that agreed. On discovering that fact the defendant demanded repayment of the premium from the plaintiff in the main action.

4. The national court before which the dispute was brought is of the opinion that German law requires a premium which has been unduly paid to be returned, but is in doubt whether the plaintiff in the main action was wrongly in receipt of the premium in this instance, for it had fulfilled all the requirements laid down by Community law for payment of the premium, there being no clear indication in Regulation No 100/72 that the undertakings concerned are required to use the product for the purpose envisaged.

5. The national court therefore referred the following question to the Court of Justice for a preliminary ruling:

“Is the recipient of a denaturing premium certificate under Regulation (EEC) No 100/72 of the Commission of 14 January 1972 laying down detailed rules on the denaturing of sugar for animal feed (Official Journal, English Special Edition 1972 (I), p. 21) obliged by the wording of Article 14 (1) (b) thereof to use the denatured sugar only for animal feed and is he liable for any use otherwise than for that purpose by third parties?”

The first part of the question

6. The basis for the reply to be given to the question whether it is a requirement of Community law that the recipient of a denaturing premium certificate must use the denatured sugar exclusively for animal feed may be elicited by first interpreting the wording of the relevant provisions of Regulation No 100/72 and then considering it in the light of the purpose of the Community rules in question.

7. Articles 14, 21 and 24 of Regulation No 100/72 lay down the conditions for payment of the denaturing premium. The premium may be paid only if the sugar has been denatured under supervision in an approved establishment and by one of the processes listed in the annex to the regulation. It is also provided that the premium may not be paid until proof is furnished that the sugar was denatured under the conditions laid down in the denaturing premium certificate.

8. Whilst those provisions do not state that payment of the premium depends on the denatured sugar's being used for animal feed, and although in addition the wording of Regulation No 100/72 does not lay down any Community provisions concerning a possible refund of the denaturing premium, Article 19 (1) provides that:

“The Member States shall appoint competent agencies to supervise denaturing and to ensure that the denatured sugar is only used for animal feed”.

9. It follows from that provision that although the Community legislature does not refer expressly to an obligation to use the product for its intended purpose it has imposed on the Member States a duty to exercise the supervision necessary to ensure that that purpose is met since they are required to ensure that after the denaturing the sugar is put to that use.

10. The fact that there is an obligation to use the denatured sugar for animal feed is also indicated not only in the title of Regulation No 100/72 of the Commission but also in the imperative and unambiguous terms of the sixth and seventh recitals in the preamble, according to which the Commission has adopted two measures to ensure that the sugar is put to its intended use, the first being the establishment of specific denaturing processes and the second being the supervision which the Member States must exercise by adopting all necessary measures to ensure that the denatured sugar is used exclusively for animal feed.

11. The efficacy of the system of checks provided for by the regulation would be seriously impaired if no consequences were attached to its application because there would no longer be any guarantee that the denatured sugar would be used for its intended purpose, as animal feed. The conclusion must therefore be that it follows from the wording of Regulation No 100/72 that the recipient of a denaturing premium is required to use the denatured sugar exclusively for animal feed.

12. That conclusion is also borne out by the title and Article 1 of Regulation No 2049/69 of the Council, in which Regulation No 100/72 has its legal foundation, where it is provided in Article 1 (2) that:

“Sugar in respect of which a denaturing premium has been granted shall be used only for animal feed”.

13. Further light is cast upon those provisions by their general purpose which is described in particular in the second and third recitals in the preamble to Regulation No 2049/69. They show that the aim of the Community legislature in these rules is two-fold: to relieve congestion on the sugar market and to absorb surpluses by reserving them for animal feed by means of denaturing.

14. It is therefore clear that traders to whom these Community rules applied — that is, according to Article 19 (2) of Regulation No 100/72, traders operating “factories manufacturing sugar” or “factories making compound feedingstuffs” or “warehouses in which denaturing can be effectively supervised” — could not interpret the provisions of Community law otherwise than as meaning that issue of the certificate entailed an obligation to denature the sugar under the appropriate conditions, and that they also required that the denatured sugar be used exclusively for animal feed.

15. That is exactly how the plaintiff in the main action understood them, moreover, because it informed its purchaser that the denatured sugar “must be used only for the feeding of bees”.

16. The reply to the first part of the question raised by the national court must therefore be that recipients of denaturing premium certificates under Regulation No 100/72 are required, in accordance with the provisions of that regulation and those of Regulation No 2049/69, to use the denatured sugar exclusively for animal feed.

The second part of the question

17. The second part of the question asks in essence whether national provisions which require the recipient of a denaturing premium to refund it if the denatured sugar has not been used for animal feed even if it is a third party who is responsible for the misuse giving rise to refund, are applicable in the light of Community law.

18. For the purposes of the reply it must be recalled, first, that it is part of the general scheme of the relevant Community provisions that Member States must take all necessary steps to ensure that the denatured sugar is used solely for animal feed.

19. The national authorities therefore enjoyed full discretion in laying down penalties designed to ensure that the provisions of Community law were observed.

20. As regards the relevant Community rules, first, the wording, the general scheme and the aim of the Community provisions which are applicable all indicate that the grant of a denaturing premium is a special measure designed to relieve congestion on the sugar market thereby providing animal feed under particularly favourable conditions. Suitable precautions had therefore to be taken in order to ensure that such denatured sugar was not diverted from that intended use but was actually used as animal feed. The arrangements made for that purpose would not be effective if the recipient of the denaturing premium certificate was no longer liable where a subsequent purchaser fails to use the denatured sugar for its intended purpose, when the recipient has incurred a legal obligation towards the competent authority to use the denatured sugar solely as animal feed.

21. In the circumstances national rules whereby the recipient of a premium which has been paid without the conditions laid down by Community law as to events subsequent to the denaturing having been observed might be asked to refund the premium even if the use contrary to the intended purpose was attributable to third parties, does not conflict with the relevant Community provisions.

22. It must now be considered whether such rules are compatible with superior rules of Community law, in particular with the principles of legal certainty and proportionality invoked by the plaintiff in the main action.

23. As regards the principle of legal certainty it is quite plain from all the considerations set out above that traders to whom the provisions in question apply were fully aware of the requirement that the denatured sugar must be used exclusively for animal feed. They ought therefore reasonably to have expected that penalties would be provided for failure to observe that requirement and that such penalties would be incurred by the only person who was in a legal relationship with the competent authorities of the Member States.

24. In those circumstances national rules providing for the refund of premiums unduly paid, even when third parties were responsible for the use contrary to the intended purpose do not amount to a breach of the principle of legal certainty.

25. As to the question of proportionality the test to be applied is whether such rules exceed the limits of what is necessary and appropriate to achieve the aim in view.

26. The characteristics of the premium granted for the denaturing of sugar must be considered in that context.

27. It is true that the premium is paid in order to cover the cost of the denaturing process, but it is clear from the Community provisions in question that it is primarily intended to enable sugar to be disposed of for purposes of animal feed. The second recital in the preamble to the basic regulation, Regulation No 2049/69, states moreover that “it might be desirable to specify that the denatured sugar should be used as feed for certain types of animal”. In accordance with that provision the national authorities provided that sugar denatured in the Federal Republic of Germany must be used for feeding bees. The premium was therefore to be paid primarily to enable beekeepers to purchase denatured sugar on more favourable terms.

28. In those circumstances it must be concluded that where the denatured sugar has been diverted from that purpose the payment of the premium becomes pointless and the penalty which has been laid down, namely repayment of the denaturing premium by the recipient where the sugar has not been used for the purpose which that premium was intended to serve — the feeding of bees — does not exceed what is appropriate and necessary in order to achieve the end in view.

29. The reply to the second part of the question must therefore be that national rules which provide that the recipient of a denaturing premium certificate is liable for any use otherwise than for the intended purpose by third parties do not conflict with Community law.

Costs

30. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. As the proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings before the national court, the decision as to costs is a matter for that court.

On those grounds, THE COURT (Third Chamber), in answer to the question referred to it by the Verwaltungsgericht Frankfurt am Main by order dated 26 February 1981, hereby rules: