JUDGMENT OF 11. 3. 1982 — CASE 129/81 FANCON v SLAT

In Case 129/81 REFERENCE to the Court under Article 177 of the EEC Treaty by the Italian Cone Suprema di Cassazione [Supreme Court of Cassation], Second Civil Division, for a preliminary ruling in the proceedings pending before that court between

of the market in oils and fats (Official Journal, English Special Edition, 1965-1966, p. 221). THE COURT (Third Chamber) composed of: A. Touffait, President of Chamber, Lord Mackenzie Stuart and U. Everling, Judges, Advocate General: Sir Gordon Slynn Registrar: H. A. Rühi, Principal Administrator

gives the following

JUDGMENT

Facts and Issues

I — Facts and procedure

By contract of 2 July 1973 Ditta Fratelli Fancon purchased from SIAT, Società Industriale Agricola Tresse, a limited partnership, 10 COO quintals of Brazilian flour extracted from soya for the price of LIT 43500 per quintal, to be delivered in monthly batches between the end of July and September 1973.

After conclusion of that contract but before performance of it commenced, the Italian Government promulgated Decree-Law No 425 of 24 Julv 1973 (Italian Official Gazette No 189 of 24 July 1973; — which was converted into Law No 494 of 4 August 1973 — concerning the regulation of prices of goods produced or distributed by largescale undertakings. The compatibility of that decree-law with Community law has already given rise to a judgment of the Court (judgment of 23 lanuarv 1975, Case 31/74 Galli ECR [1975] 47).

That decree-law provides in particular that, in the case of undertakings whose volume of business exceeded LIT 5000 million during the first half of 1973, prices would be frozen at the level which they had reached on 28 June 1973 with regard to the performance of transactions which had not yet been completed by the date of entry into force of the decree-law in question, namely 24 July 1973.

As a result of proceedings originally initiated by Fancon the Italian courts have been called upon to determine whether the contract entered into on 2 July 1973 must be performed in accordance with the conditions therein stipulated, as SLAT contends, or with those prescribed by Decree-Law No 425, as Fancon maintains.

During those proceedings, a preliminary question has arisen — according to the Cone Suprema di Cassazione [Supreme Court of Cassation] — as to whether the exception provided for in the second paragraph of Article 1 of Decree-Law No 425 in favour of undertakings manufacturing or distributing products whose prices are “subject to other provisions” was valid in the case in point, in so far as Regulation No 136/66/EEC of the Council of 22 September 1966 on the establishment of a common organization of the market in oils and fats (Official Journal, English Special Edition, 1965-1966, p. 221) included oilseeds and flour or meal derived from them.

The Tribunale di Genova [District Court, Genoa] and subsequently the Corte d'Appello di Genova [Court of Appeal, Genoa] — despite having reached contran' decisions in the case — replied in the negative to that question on the ground that Regulation No 136/66, in expressly mentioning, by reference to heading 12.02 of the Common Customs Tariff, “non-defatted” flours or meals of oilseeds or oleaginous fruit, excluded “defatted” flour which is what flour extracted from soya is and that headings ex 15.17 and ex 23.04 of the Common Customs Tariff, likewise referred to in Regulation No 136/66, similarly do not apply to that flour, since the latter is different from the “residues” mentioned in those headings.

The wording of the three headings was, at the time in question, as follows:

The Cone di Cassazione before which this issue is pending took the view that in order to establish whether the exception provided for in the second paragraph of Article 1 of Decree-Law No 425 of 1973 is applicable, it is appropriate, in reliance on the principles laid down by the Court of Justice in the Galli judgment, to ask the Court “whether or not flour extracted from soya beans is included in the list of products set out in Article 1 (2) of Regulation No 136/66/EEC of the Council of 22 September 1966, in particular under headings 12.02, ex 15.17 or ex 23.04 of the Common Customs Tariff”.

The order referring the matter to the Coun was received at the Coun on 27 May 1981.

In accordance with Article 20 of the Protocol on the Statute of te Court of Justice of the EEC written observations have been submitted by the plaintiff in the main action, represented by Mr Leone of the Milan Bar, by the defendant in the main action, represented by Mr Ubertazzi and Mr Capelli of the Milan Bar, by the Italian Government, represented by Mr Ferri, Avvocato dello Stato, and by the Commission of the European Communities, represented by R. Wainwright, Legal Adviser to the Commission, acting as Agent, assisted by Mr Berardis, a member of the Legal Department of the Commission.

On hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided by order of 26 October 1981 to assign 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 — Written observations submitted pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

A — Observations of the plaintiff in the main action

The plaintiff in the main action observes in the first place that flour extracted from soya is produced when the oil is extracted from soya beans on an industrial scale using solvents. It is the best source of vegetable proteins for animal feeds. The flour contains no more than 1.3 to 1.5o/c of oils and fats. The pressing of 100 kilograms of soya beans produces:

approximately 79 to 82 kg of extracted flour;

approximately 17 to 20 kg of oil;

approximately 1 kg of soya lecithin (which is a byproduct and residue of the processing).

It further observes that Regulation No 136/66 does not relate to flour extracted from soya since such flour is not “subject to anv ‘levy’ at the time of importation from nonmember countries” and moreover that that regulation could not refer to soya beans before 24 July 1974 since the first regulation relating to that produce is Regulation No 1900/74 of 15 Julv 1974, laying down special measures for sova beans (Official Journal 1974, L 201, p. 5).

Moreover. Ditta Fratelli Fancon maintains thai flour extracted from soya — essentially a protein suibstance containing no more than above 1% of oils and fats — is not an oil or fat and must not therefore be considered as referred to by Regulation No 13c/66. In support of that view, it has produced nine certificates from research centres, laboratories and universities.

Consequently, “any possibility that the goods in question might objectively fall within the scope of the Community provisions referred to must be excluded”.

Fancon nevertheless examines the specific question raised by the Corte Suprema di Cassazione.

As regards tariff heading 12.02, it is “easy to see that flour extracted from soya, which is by definition a defatted product, cannot fall within that heading of the Common Customs Tariff, which, by contrast, deals with products rich in oil for extraction”.

Flour extracted from soya does not fall within heading 15.17 either, principally on the ground that it may not be regarded as a residue since it is the main product of the pressing of the beans and in that case it is the soya lecithin which is the residue.

Nor, finally, does flour extracted from soya fall within heading 23.04, since it is not “oil cake”, obtained by mechanical pressing, but a flour obtained by the use of solvents and cannot be considered as a residue.

The plaintiff in the main action further adds that even if the product in question did fall within heading 12.C2 or heading 23.04 — which it denies — “only the Common Customs Tariffis applicable to it by virtue of Article 2 (1) of Regulation No 136/66/EEC and not also the system of prices and levies, so that the application of the price-freeze decided upon by the Italian State as a temporary measure in order to cope with a time of crisis must be regarded as lawful ...”.

Consequently, it proposes that the following reply should be given to the question raised by the national court:

“1. Flour extracted from sova does not fall within the scope or Regulation No 136/66 of the Council of 22 September 1966 on the establishment of a common organization of the market in oils and fats; 2. Flour extracted from soya is not included among the products enumerated in Article 1 (2) of Regulation No 136/66 of the Council of 22 September 1966; in particular, it is not included among the products mentioned under heading 12.02 or those under heading 15.17, or those under heading 23.04 of Regulation No 136/66, by reason of the fact that it is essentially a protein product.”

B — Observations of the defendant in the main action

The defendant in the main action is of the opinion that the facts of this case are identical to those of the case which gave rise to the Galli judgment (cited above). It therefore reproduces the same oral argument as that submitted to the Court at that time with regard to the aspects pertinent to this case.

Returning then to the facts of this case, SIAT takes pains to demonstrate that Fancon's claim that it should pay LIT 30000 per quintal of flour extracted from soya — in accordance with the provisions of the Italian decree-law at issue — instead of LIT 43800, which was the contract-price voluntarily agreed to by Fancon in a contract of 2 July 1973, would involve for SLAT “an outright loss of more than LIT 10000 per quintal, quite apart from loss of profit” since SIAT buys the product for about LIT 40000 on the international market.

Indeed, the Court has already delivered a judgment unfavourable to Decree-Law No 425 but the facts of the present case are, from the point of view of municipal law, more complex than those in the Galli case.

One of the difficulties arises from the fact that between 20 June 1973 — the reference date for determination of the price by virtue of Article 4 of Decree-Law No 425 — and 24 July 1973 — the date of promulgation of that decree — the market price of flour extracted from soya underwent considerable increases as a result of the embargo ordered by the United States Government on the expon of sova on 27 June 1973 and moved from LIT 31 COO to LIT 42000 and above.

Fancon is not unaware of that price increase and moreover does not contest that it entered into the contract with SIAT for LIT 43800 per quintal but is merely seeking to avail itself of the right conferred on it by Decree-Law No 425 to pay a price lower than the price voluntarily agreed.

Moving on to the question raised by the Cone Suprema di Cassazione, the defendant in the main action contends that upon being imponed into the Community flour extracted from soya should be classified under customs heading ex 23.04. The same classification may also be based on customs declarations accepted by the Ravenna customs office, the declaration by the competent offices, a communication from the Venice customs area authoruv of 19 March 1976 and revision No 2 of the Common Customs Tariff of Februarv 1981.

This leads therefore to the conclusion “that flour extracted from soya mut be classified within tariff heading ex 23.04 and consequently is among the products referred to in Article 1 (2) of Regulation No 136/66/EEC” and the question raised should therefore be answered in the affirmative.

However, the defendant in the main action considers it necessary to reiterate the main features of the Galli judgment which demonstrate that there is “no doubt that Fancon's attempt to rely on Decree-Law No 425/73 to force SIAT to sell the flour extracted from soya at a price other than that which was freely agreed is totally inadmissible, as that decree-law is not applicable to negotiations concerned with the product in question” since the Galli judgment shows that a Member State may not intervene with regard to the determination of prices in the areas covered by a common organization of the market.

Despite a number of minor inconsistencies in the case-law of the Court during the years 1976 to 1978 — according to the defendant in the main action — the latest judgments (judgment of 6 November 1979, Case 10/79 Toffoli [1979] ECR 3301) and especially the judgment of 6 November 1979 in Cases 16 to 20/79 (Dams [1979] ECR 3327) finally confirm the line of decisions followed in the Galli judgment.

The Commission shares the view of the defendant in the main action and considers that flour extracted from soya falls within subheading 23.04 B of the Common Customs Tariff, a classification which “corresponds perfectly to the Explanatory Notes to the Nomenclature of the Customs Cooperation Council”.

According to the Commission, the oilcake and other residues under subheading 23.04 B are the solid residues from the extraction process, that is to say the “products” derived from the extraction of oil and not from “waste” and contain a minimum percentage of oil (1 to 2%). The Explanatory Notes to the Nomenclature of the Customs Cooperation Council on heading 23.04 make' clear that soya-residues, among others, are well-regarded as a feed for cattle. They are produced in various forms, including coarse flour and it is in that form that they are used as cattle-feeds.

Imports of the product into the Community are mainly from Brazil and the United States. The flour extracted from sova to which these proceedings refer in fact originates in Brazil and is intended to be used as cattle-feed.

On the other hand, flour extracted from soya does not fall within heading 12.02, which relates only to non-defatted flours, or within heading 15.17 which refers only to residues from fatty substances or waxes and soya beans may not be classified as such.

Accordingly, the Commission proposes that the questions raised should be answered as follows:

“Flours extracted from soya falls within subheading 23.04 B of the Common Customs Tariff.”

The Italian Government likewise wishes that a positive answer be given to the question raised.

In its view, flour extracted from soya may fall within heading 12.02 “provided that it is not a flour derived from a process involving total defatting”. If such were not the case, it would fall within heading 23.04, since it would have to be considered as a solid residue obtained when the oil is extracted from oleaginous seeds, “thus corresponding to the definition given in the explanatory note to the customs tariff for that heading”. For classification under that heading, it is of no importance whether the flour extracted from soya is or is not defatted since in the light of the note referred to above “the presence in that flour of a ‘certain amount of fatty substances’ is not incompatible with that customs classification”.

III — Oral procedure

At the sitting on 3 December 1981, the plaintiff in the main action, represented by Mr Capelli of the Milan Bar, the defendant in the main action, represented by Mr Leone of the Milan Bar, and the Commission of the European Communities, represented by Mr Berardis, acting as Agent, presented oral argument and answered questions put to them by the Court.

The Advocate General delivered his opinion at the sitting on 4 February 1982.

Decision

1. By order of 28 January 1981, received at the Court on 27 May 1981, the Cone Suprema di Cassazione [Supreme Court of Cassation], Second Civil Division, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question concerning the interpretation of Article 1 (2) of Regulation No 136/66/EEC of the Council of 22 September 1966 on the establishment of a common organization of the market in oils and fats (Official Journal, English Special Edition, 1965-1966, p. 221).

2. This question is raised in the context of a dispute between two Italian undertakings one of which bought from the other Brazilian flour extracted from soya which was to be delivered between the end of July and September 1973. During the period between the conclusion of the contract and the commencement of its performance the Italian Government promulgated Decree-Law No 425 of 24 July 1973 (Gazzetta Ufficiale No 189 of 24 July 1973), convened into Law No 494 of 4 August 1973, relating to the regulation of the prices to be applied by undenakings of a cenain scale. The dispute turns on the question whether the contract must be performed in accordance with the terms stipulated in it or whether those terms must be revised on the basis of Decree-Lauw No 425.

3. The solution of this problem depends on the nature of the product at issue. If it is covered by a common organization of the market the Member States may no longer interfere, through national provisions adopted unilaterally, in the machinery of price-formation as established under the common organization.

4. It was this precept, derived from the case-law of the Court (judgment of 23 January 1975 in Case 31/74 Galli [1975] ECR 47) which'led the Corte Suprema di Cassazione to ask the Court of Justice “whether or not flour extracted from soya is included in the list of products set out in Article 1 (2) of Regulation No 136/66/EEC of the Council of 22 September 1966, in particular under headings 12.02, ex 15.17 or ex 23.04 of the Common Customs Tariff”.

5. Regulation No 136/66/EEC is the basic Community text which established a common organization of the market in oils and fats. Article 1 (2) of the regulation lists the products in the sector of oil seeds and oleaginous fruit which come within that provision by classifying them under a number of the Common Customs Tariff.

6. The three headings specified by the national court were, at the material time, worded in Regulation No 1/73 of 19 December 1972 relating to the Common Custums Tariff (Official Journal 1973, L 1, p. 1) as follows:

“12.02: Flours or meals of oil seeds or oleaginous fruit, non-defatted, (excluding mustard flour) : A. Of soya beans B. Other ex 15.17: Residues resulting from the treatment of fatty substances or animal or vegetable waxes: A. Containing oil having the characteristics of olive oil: I. Soapstocks II. Other B. Other: I. Oil foots and dregs; soapstocks II. Other ex 23.04 Oilcake and other residues (except dregs) resulting from the extraction of vegebable oils: A. Oilcake and other residues resulting from the extraction of olive oil B. Other.”

7. It must first be noted that soya seeds come within this common organization of the market in oils and fats because they are oil seeds mentioned, generically, in heading 12.01 of the Common Customs Tariff, which appears in Article'l (2) of Regulation No 136/66/EEC.

8. It is then necessary to examine each tariff heading mentioned by the national court for the purposes of ascertaining whether or not flour extracted from soya comes within one of them.

9. It is an undisputed fact that the industrial treatment of soya seeds yields several products including flour extracted from soya which is a product rich in proteins whose intended use is as a feedingstuff for cattle. It owes its nutritive quality, which is useful for the production of meat, to this characteristic and to the fact that most of the oil has been extracted by pressure or by the use of solvents.

10. Heading 12.02 cannot apply to flour extracted from soya because its manufacture yields a defatted product. According to the wording of the heading and the Explanatory Notes to the Customs Cooperational Council Nomenclature only flours or meals of oil seeds and oleaginous fruit, non-defatted, come under the heading.

11. Since heading ex 15.17 refers only to residues resulting from the treatment of fatty substances, it, too, cannot apply to flour extracted from soya, as that heading refers to residues resulting from the treatment of fatty substances which cannot be used for feeding cattle, which is a characteristic quality of flour extracted from soya.

12. On the other hand, heading ex 23.04 refers to oilcake and other residues which, according to the abovementioned nomenclature, are “the solid residues remaining after the extraction of oil from oil seeds... by solvents or in a press or rotary- expeller”, which is the treatment used to obtain flour extracted from soya.

13. Classification of flour extracted from soya under heading ex 23.04 has given rise to the objection, on the one hand, that this flour is not totally defatted and that it therefore cannot be defined as the residue resulting from the extraction of a fatty substance and, on the other hand, to the objection that it does not constitute a residue but the main product resulting from the defatting process.

14. It is appropriate to reply to the first of these objections that the defatting process is taken as far as technology makes possible and that the presence of trifling quantities of residual oil does not adversely affect the quality of a flour whose main property is the presence of proteins of high nutritive value for cattle. The second objection must be refuted on the ground that the term “residue” is not to be confused with that of “waste”, as is shown by the wording of heading ex. 23.04 which excludes “dregs”, which are virtually worthless substances, whereas flour extracted from soya is the residue of sova seeds remaining after the industrial treatment of the seeds in order to obtain that product.

15. It must therefore be concluded that flour extracted from soya must be classified in heading ex 23.04 of the Common Customs Tariff and that it is therefore included among the products listed in Article 1 (2) of Regulation No 136/66/EEC of the Council on the establishment of a common organization of the market in oils and fats.

16. In view of this classification of flour extracted from soya, any examination of other headings to which the regulation refers would be purposeless.

Costs

17. The costs incurred by the Government of the Italian Republic and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. As this case is, so far as the parties to the main action are concerned, in the nature of a step in the action before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT, (Third Chamber) in answer to the question referred to it by the Corte Suprema di Cassazione, Second Civil Division, by order of 28 January 1981, hereby rules: