JUDGMENT OF 5.4.1984 — CASE 298/82 SCHICKEDANZ / OBERFINANZDIREKTION FRANKFURT AM MAIN
In Case 298/82 REFERENCE to the Court under Article 177 of the EEC Treaty by the Bundesfinanzhof [Federal Finance Court] for a preliminary ruling in the proceedings pending before that court between
THE COURT (First Chamber) composed of: T. Koopmans, President of Chamber, A. O'Keeffe and G. Bosco, Judges, Advocate General: S. Rozès Registrar: P. Heim
gives the following
JUDGMENT
Facts and Issues
The facts of the case, the course of the procedure and the observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:
I — Facts and written procedure
In 1981 Schickedanz imported gym shoes from the People's Republic of China. It asked the Oberfinanzdirektion [Principal Revenue Office) Frankfurt am Main, for a binding customs tariff notification for goods described as “gym shoes”. In a notification issued on 14 April 1981 the goods were classified as “sports shoes (training shoes) with outer soles of rubber and uppers of textile fabric” under subheading 64.02 B of the Common Customs Tariff. As such they are liable to a duty of 20%.
Schickedanz thereupon objected, claiming that as “sports shoes with outer soles of rubber and uppers of leather” the goods came under heading 64.02 A of the Common Customs Tariff, which attracts duty at the rate of 8%.
Schickedanz's argument was based on the fact that the leather was of special importance because, in view of its strength and durability, it was inserted deep into the welt and thus joined to the inner sole, whilst the underlying textile layer serving as a lining inside the shoe was shorter. The ratio of the cost of the leather to the cost of the textile material was 4 to 1. Schickedanz was of the opinion that the shoes would be unusable for their intended purpose as sports shoes if the upper part were made of textile fabric without leather parts.
The Oberfinanzdirektion dismissed the objection as unfounded, whereupon Schickedanz appealed to the Bundesfinanzhof, which by order of 19 October 1982 stayed the proceedings and referred the following questions to the Court for a preliminary ruling under Article 177 of the Treaty:
1) Is Commission Regulation (EEC) No 1074/80 of 29 April 1980 to be interpreted as including a sports shoe with a rubber outer sole, the upper of which consists entirely of textile fabric to which are stitched in the areas of the front part of the vamp, heel piece, eyelets and outside lateral sections and as decorative strips pieces of leather which cover about 70% of the textile fabric, account for more of the value of the upper than the textile fabric and also, on account of the protection and support which they provide and the special way in which the upper is bonded to the insole, are of essential importance for the use of the product as a sports shoe?
2) If the answer to Question 1 is in the affirmative: Is Regulation No 1074/80 valid?
3) If either Questions 1 or Question 2 is answered in the negative: Is subheading 64.02 of the Common Customs Tariff, read in conjunction with General Rule 3 for the Interpretation of the Nomenclature of the Common Customs Tariff, to be interpreted as meaning that sports shoes of the kind described in Question 1 are to be classified under subheading 64.02 Β of the Common Customs Tariff?
The classification of the shoes, which all have an outer sole of rubber or artificial plastic material, depends on whether the upper is to be regarded as artificial plastic material (64.01), leather (64.02 A) or textile fabric (64.02 B).
It appears that the uppers of the shoes consist of a 3-layer material (two textile layers and an intermediate layer of expanded plastic). Variously shaped pieces of leather are stitched on to this material. They provide support and protection in the areas of the toecap, the heel piece, the eyelets and the outside and inside lateral sections. A lateral decorative border made of leather is also stitched to the shoe. The total area of the upper part of the shoe made out of textile fabric (including the tongue and the parts of the fabric bonded to the inner sole) amounts to 1105 sq. cm.; the total area of the leather pieces amount to 751 sq. cm., of which 98 sq. cm. are accounted for by the decorative strips. The textile fabric and the leather are joined to the inner sole by means of a welt.
Subheadings 64.02 A and Β are worded as follows:
“64.02 Footwear with outer soles of leather and composition leather; footwear (other than footwear falling within heading No 64.01) with outer soles of rubber or artificial plastic material; A. Footwear with uppers of leather B. Others.”
In the preamble to Regulation No 1074/80 a distinction is made between (i) sports shoes in which it is “the textile material which gives the uppers their essential character, as it gives them the flexibility and lightness together required for sports use, while the strips or pieces of leather and/or plastic-coated textile fabric are to the considered merely as accessories or reinforcements” and (ii) sports shoes of which the uppers “are covered with strips or pieces of leather and/or plastic-coated textile fabric in such a way that the strips or pieces, given their importance, must be considered, not merely as accessories or reinforcements, but rather as one of the constituent materials of the uppers”.
Article 1 of the regulation reads :
“Sports shoes (training shoes) the outer soles of which are of coarsely patterned rubber or plastic material with uppers consisting of textile fabric on which strips or pieces of leather and/or plastic-coated textile fabric are sewn externally in various combinations covering the surface to a greater or lesser extent shall be classified in the Common Customs Tariff under subheading: 64.02 ... B. Other.”
The regulation was adopted after the Commission had submitted a draft to the Committee on Common Customs Tariff Nomenclature, which, after minor drafting amendments, approved it by a majority, notwithstanding the view expressed by the representatives of two Member States that the relevant shoes should be classified under subheading 64.02 A.
Rule 3 (c) of the Rules for the Interpretation of the Nomenclature of the Common Customs Tariff reads as follows :
“When goods cannot be classified by reference to Rule 3 (a) or 3 (b), they are to be classified in the heading which occurs latest among those which equally merit consideration in determining their classification.”
The order requesting a preliminary ruling was lodged at the Court Registry on 25 November 1982.
In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the EEC written observations were lodged by Schickedanz, represented by D. Ehle, Rechtsanwalt, Cologne, and the Commission of the European Communities, represented by C. Bail, and X. Yataganas, members of its Legal Department, acting as Agents.
Upon 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. By an order dated 4 May 1983, made in pursuance of Article 95 (1) and (2) of the Rules of Procedure, the Court assigned the case to the First Chamber.
II — Written observations submitted to the Court
(a) Observations of the plaintiff in the main proceedings
Schickedanz states in relation to the first question that the characteristics of the sports shoes referred to in Regulation No 1074/80 are as follows: Uppers of textile fabric and strips of leather or pieces of leather sewn outside. The sports shoes in question do not have those characteristics.
The material visible on the upper surface of the shoes in question is not of textile fabric but comprises two materials since the uppers are made of leather and textile fabric. Regulation No 1074/80 applies only to uppers made solely of textile fabric.
The fact that the pieces of leather, apart from the decorative lateral strips and the supports for the eyelets, are not “sewn on” prevents tariff classification in accordance with Regulation No 1074/80. The leather pieces, which serve particularly to give the sports shoes protection, stability, durability and resistance to wear, are sewn “one upon the other” on to the underlying textile fabric in the area of the toecap and heel piece, the outside and lateral sections and the decorative strip.
Rule 3 of the Rules for the Interpretation of the Nomenclature provides three different methods of tariff classification, namely:
i) Classification under the heading which provides the most specific description of the goods;
ii) Classification according to the material or article which gives the goods their essential character;
iii) Where the goods cannot be classified by reference to the aforementioned rules, classification under the heading which occurs latest among those which equally merit consideration.
Regulation No 1074/80 relates solely to the last of the aformentioned cases so that the shoes in question cannot be classified pursuant to that regulation. Where leather predominates on the uppers of sports shoes (covering 70% of the surface area) of where it is used at particularly critical points on the uppers (toecap, heel piece and lateral sections), it must be regarded as conferring the essential character.
As regards the second question, Schickedanz considers that Regulation No 1074/80 has an amending effect in relation to Rule 3 of the General Rules and in that respect the Commission has patently exceeded its powers. Moreover, it is not explained in the preamble why in cases where the uppers of sports shoes are covered by strips or pieces of leather it is impossible to determine the material which gives the essential character, for it is rare that the different materials are used in equal amounts. The principle of legal certainty, which requires the Community legislature to enact clear and precise rules (Case 169/80 Administration des Douanes ν Gondrand [1981] ECR 1931), also requires that the preamble to a Community measure should be drafted clearly and precisely. Finally, in the light of numerous judgments relating to the fundamental principle of equality of treatment, it must be held that sports shoes in respect of which leather has been used at places particularly subject to stress are just as appropriate for sports purposes as sports shoes in which the uppers are 100% leather and therefore should be in the same position as the latter. In the opinion of Schickedanz, Regulation No 1074/80 is therefore invalid.
As regards the third question, Schickedanz considers that for the purpose of determining the material which gives the goods their essential character the following factors are important:
The main material making up the uppers of the shoes;
The way in which the materials are used;
Their function;
The value of the respective materials; and
The use for which the goods are intended.
It follows that the leather is more important than the textile material in view of the shoe's function as conceived by the manufacturer or the use for which the sports shoe is intended. In fact, the report from the Prüf- und Forschungsinstitut für Schuhherstellung [Testing and Research Institute for Shoe Manufacture] clearly states that without the pieces of leather the shoe in question would no longer be suitable for the “use for which it is intended”. Accordingly, the third question calls for an answer in the negative.
(b) Observations of the Commission
The Commission contends that in spite of the large area of the pieces of leather and the value thereof in the shoes in question the following arguments favour classification of the goods under heading 64.02 Β of the Common Customs Tariff.
The structural part of the uppers is entirely of textile fabric and that material is of primary importance for the use of the shoes since it ensures that they have the flexibility and lightness required for the practice of sport. Even though covered to a large extent by leather, the textile fabric is not simply a lining or a reinforcement without any effect upon the classification; it covers, and does so with several layers, the whole inner and outer surface of the shoe. Even if it were possible validly to maintain that the pieces of leather must be regarded as the material constituting the upper it would still be necessary, in the Commission's opinion, to apply Rules 3 (c) and 5 of the General Rules for Interpretation in view of the impossibility of clearly determining the material which gives the essential character.
In addition to those three basic arguments, there are considerations of convenience and expedience, since there is a considerable variety of shoes of the kind in question on the world market and their classification in subheading 64.02 Β would constitute a desirable simplification. It must also be pointed out than when the Nomenclature Committee of the Customs Cooperation Council considered a draft of Chapter 64 of the harmonized system a new Note 4 (a) was provisionally adopted, according to which it is the textile fabric which gives the goods their essential character since that extends over the whole upper whereas leather covers only a part of the surface. Although it is true that that note is not yet in force, it should nevertheless be taken into account in determining the nature of the upper.
According to its wording, Regulation No 1074/80 covers the sports shoes referred to without taking account of the area or value of the pieces of leather sewn on to the textile fabric, or the function fulfilled by the leather in relation to the use of the shoe or the manner in which the leather and the textile fabric are joined to the inner sole. Nor is there any ground for interpreting the regulation restrictively to the effect that it does not cover sports shoes in which the leather parts are, in area or in value, preponderant. The question may be left open whether in a borderline case, where the pieces of leather sewn on the textile fabric are decisive, classification under heading 64.02 A is conceivable on the basis of General Rule 3 (b). That is not the case, even if the pieces of leather cover more than 70% of the textile fabric or are greater in value than the textile fabric. It is, on the contrary, much more important, also in relation to the function of protection and support allegedly fulfilled by the pieces of leather, to know which is the material which gives the shoes the requisite flexibility for the practice of sport and therefore is decisive from the point of view of use. As regards the shoes in issue in the main proceedings, the decisive part is not the leather but the textile fabric.
It follows that the validity of Regulation No 1074/80 is not in doubt. It is based on Regulation No 97/69 of the Council and was drafted in accordance with the procedural rules laid down in Article 3. It simply helps to remove a doubt in relation to the interpretation of heading 64.02 A and Β of the Common Customs Tariff in accordance with the General Rules for Interpretation, in particular Rule 3 (b).
The Commission therefore considers that the third question does not require to be answered.
III — Oral procedure
At the sitting on 14 July 1983 oral argument was presented by the following: for Schickedanz, Mr Schiller and Mr Nehm, Rechtsanwälte, Cologne; and for the Commission of the European Communities, Mr Bail, a member of its Legal Department, acting as Agent.
The Advocate General delivered her opinion at the sitting on 6 October 1983.
Decision
1. By an order dated 19 October 1982, which was received at the Court on 25 November 1982, the Bundesfinanzhof referred several questions to the Court for a preliminary ruling under Article 177 of the EEC Treaty on the interpretation and validity of Commission Regulation No 1074/80 of 29 April 1980, on the classification of goods under subheading 64.02 Β of the Common Customs Tariff (Official Journal 1980, L 113, p. 54), and on the interpretation of subheading 64.02 of the Common Customs Tariff in conjunction with General Rule 3 for the Interpretation of the Nomenclature of the Common Customs Tariff.
2. The plaintiff in the main proceedings, Schickedanz, imported from the People's Republic of China shoes which it described as “gym shoes” in an application for a binding customs tariff notification.
3. The Oberfinanzdirektion [Principal Revenue Office] Frankfurt am Main classified the goods as “sports shoes (training shoes) with outer soles of rubber and uppers of textile fabric” under subheading 64.02 B, which attracted import duty at the rate of 20%.
4. The plaintiff thereupon objected on the ground that, as “sports shoes with outer soles of rubber and uppers of leather”, the goods came under subheading 64.02 A, which attracted duty at the rate of 8%.
5. When that objection was dismissed Schickedanz challenged the decision of the Oberfinanzdirektion before the Bundesfinanzhof, which referred the following questions to the Court for a preliminary ruling: 1. Is Commission Regulation (EEC) No 1074/80 of 29 April 1980 to be interpreted as including a sports shoe with a rubber outer sole, the upper of which consists entirely of textile fabric to which are stitched in the areas of the front part of the vamp, heel piece, eyelets and outside and inside lateral sections and as decorative strips pieces of leather which cover about 70% of the textile fabric, account for more of the value of the upper than the textile fabric and also, on account of the protection and support which they provide and the special way in which the upper is bonded to the insole, are of essential importance for the use of the product as a sports shoe? 2. If the answer to Question 1 is in the affirmative: Is Regulation No 1074/80 valid? 3. If either Question 1 or Question 2 is answered in the negative: Is subheading 64.02 of the Common Customs Tariff, read in conjunction with General Rule 3 for the Interpretation of the Nomenclature of the Common Customs Tariff, to be interpreted as meaning that sports shoes of the kind described in Question 1 are to be classified under subheading 64.02 Β of the Common Customs Tariff?
6. According to the information before the Court, the shoes in question have rubber soles and uppers of a material consisting of two layers of textile fabric between which foam rubber is sandwiched. The leather pieces to which the national court refers are sewn on to the upper in the area of the toecap, heel piece, eyelets and the outside and inside lateral sections. They cover some 70% of the textile fabric. According to the national court, the leather pieces are of greater value than the textile fabric and because of their function as protection and support and the special way in which they are attached to the inner sole they are of vital importance in the use of the goods as sports shoes.
7. Subheading 64.02 is worded as follows:
“64.02. Footwear with outer soles of leather or composition leather; footwear (other than footwear falling within heading No 64.01) with outer soles of rubber or artificial plastic material: A. Footwear with uppers of leather B. Other.”
8. Thus the classification of the shoes under subheading A or Β depends on the material of which the uppers are made.
9. The Explanatory Notes to the Common Customs Tariff contain the following particulars :
“These uppers may consist of a mixture of leather and other materials. In such cases, classification is determined by application of General Rules 3 and 5 for the Interpretation of the Nomenclature of the Common Customs Tariff, and will not be affected by inner parts such as lining and reinforcements.”
10. Rule 3 of the General Rules for the Interpretation of the Common Customs Tariff provides:
“When ... goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
a) ...
b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.”
11. Rule 5 provides that the same rules apply mutatis mutandis when determining the appropriate subheading within a heading.
12. In a case where the external layer of the upper is made entirely of textile fabric to which pieces of leather are attached in different places covering no more than approximately 70% of the textile fabric and thus leaving the remainder of the external layer exposed, the Court considers that it is the textile fabric which gives the upper its essential character. The intrinsic value of the pieces of leather in relation to the textile fabric does not suffice for a finding that it is the leather which gives the essential character to the upper.
13. The national court considers that the pieces of leather, because of their function as protection and support and the manner in which they are attached to the inner sole, are of vital importance in the use of the shoes as sports shoes. In that respect it must be observed that, even if the pieces of leather are of importance in the use of shoes, the goods in question must be classified on the basis of the material which gives the upper its essential character and not on the basis of the use for which they are intended.
14. It follows from those considerations that the answer to the third question must be that the goods described by the national court are to be classified in subheading 64.02 B.
15. In view of the answer to the third question the first two questions cease to be relevant.
Costs
16. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable; as these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action before the national court, costs are a matter for that court.
On those grounds, THE COURT (First Chamber) in answer to the questions submitted to it by the Bundesfinanzhof by an order dated 19 October 1982, hereby rules: