JUDGMENT OF 15. 10. 1969 — CASE 16/69 COMMISSION v ITALY

In Case 16/69

THE COURT composed of: R. Lecourt, President, R. Monaco and P. Pescatore, Presidents of Chambers, A. M. Donner (Rapporteur), A. Trabucchi, W. Strauß and J. Mertens de Wilmars, Judges, Advocate-General: K. Roemer Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts

II — Conclusions of the parties

III — Submissions and arguments of the parties

A — The admissibility of the application

B — The substance

IV— Procedure

Grounds of judgment

Costs

I —. Facts

II —. Conclusions of the parties

III —. Submissions and arguments of the parties

A —. The admissibility of the application

B —. The substance

1. Action taken by the Commission against a Member State on the ground of infringement of the Treaty is not conditional upon parallel action being taken against infringements by other Member States.

2. Potable spirits are not agricultural products, because they are not listed in Annex II to the Treaty and indeed are expressly excluded by Regulation No 7(a) of the Council (of 18 December 1959). Further there is no national market organization in Italy for the products in question and this is confirmed by the decisions applying Article 226 of the Treaty to Italy (Decisions of 18 May 1969 and 13 December 1961).

(a). The distinction between potable spirits and alcohol exists as is shown by the different definitions in the Brussels Nomenclature and by the distinctions made by the national laws including Italian law. The fact that the said distinctions are not identical is unimportant in this case as the argument does not relate to the merits of the criteria but only to the discriminatory treatment in the matter of taxation applied to the products which the Italian authorities have regard as potable spirits;

(b). The alleged existence in Italy of a national market organization in the sector in question presupposes the existence of two conditions: there must be an agricultural product and there must be a national market organization in Italy. In this case neither of these two conditions is fulfilled.

(a). The defendant calls attention to the fact that, the definition of potable spirits in the Brussels Nomenclature is not exhaustive, because it is limited to a list of the raw materials used in the distilling process and to a brief description of the products but neither states the necessary percentage of alcohol or the nature of the bouquet or aroma. The Council was aware of the actual position when it adopted Regulation No 7(b) of 1959, which includes ethyl alcohol in the list referred to in Article 38 of the Treaty, whereas it excluded potable spirits from it but obviously not the application of Community regulations to the alcoholic content of potable spirits. The provision of national law, which is the subject-matter of the present application, does not refer to potable spirits as such but to their alcoholic content.

(b). The defendant submits that Italy has never accepted the position taken up by the departments of the Commission in 1961. Moreover the situation has changed since that date as is shown in particular by Regulation No 24 on the progressive establishment of a common organization of the market in vine products (Official Journal of 4 April 1962, p. 989) and the Decision of the Council relating to the fixing of the import quotas of wines to be opened by the Federal Republic o. Germany, the French and Italian Republics (Official Journal of 4 April 1962, p. 1002), which was based on Article 43 of the Treaty.

(1). Synthetic alcohol and alcohol made from certain raw materials cannot in practice either be produced or sold on the market because these are subject to a special countervailing duty (6000 lire to one hectolitre of pure alcohol) which makes them almost completely uncompetitive, and this enables alcohol derived from agricultural raw materials, for which it is essential to find a market with the distillers, to be sold at satisfactory prices.

(2). A similar system has been established for natural alcohol (which is intended for consumption, the production of perfumes, cosmetics and certain medicines, etc.): under this system too, special countervailing duties (diritti erariali) are also charged upon alcohol derived from raw materials, the use of which the Italian Government wishes to reduce in order to ensure the sale at satisfactory prices of other agricultural raw materials the use of which the Government wishes to encourage. Therefore countervailing duties play the part of an indirect bonus for the national agricultural raw materials and amount to a system comparable to the existing French system of monopolies.

IV—. Procedure

1. By an application lodged at the Registry on 31 March 1969 the Commission applied to the Court under Article 169 of the Treaty for a declaration that the Italian Republic by applying a system of taxation which imposes a higher tax burden on potable spirits imported from other Member States than that on the corresponding national products has infringed Article 95 of the Treaty establishing the European Economic Community.

2. It is not denied that the Italian customs tariff (Section IV, Chapter 22, Heading 22.09, Note 3, p. 91) provides that in the case of potable spirits the frontier dues and all other duties which apply in the national territory to ethyl alcohol (alcohol), must be calculated on the basis of a minimum alcoholic content of 70 % and that this flat rate is not applicable if the alcohol has an alcoholic content exceeding 70 %.

3. Since the applicant takes the view that the alcoholic content of potable spirits is usually 40 % to 45 %, it considers that imported products are placed at a disadvantage as compared with national products which are taxed on their actual alcoholic content and that this method of taxation is incompatible with Article 95 of the Treaty.

4. The defendant, although it does not dispute the discriminatory nature of the provision in question, invokes the exceptions to the general rules of the Treaty relating to agriculture and in particular to agricultural products which are subject to a national market organization. More specifically it argues that potable spirits must be treated as equivalent to alcohol, an agricultural product which in Italy comes under a national market organization, since the same distillation process enables potable spirits as well as alcohol to be obtained from the same raw material. Therefore the distinction between alcohol and potable spirits is artificial and in fact does not exist.

5. The question of the nature of the criteria for distinguishing potable spirits from alcohol is not relevant in this case. It is sufficient to note that both Community law and Italian national law make such a distinction. The provisions which define the common market in agriculture, upon which the application of the exceptions relied on by the defendant is based, distinguish between potable spirits and alcohol.

6. In particular Regulation No 7(a) of the Council of 18 December 1959, which adds to the list of agricultural products in Annex II to the Treaty ethyl alcohol, whether or not denatured, obtained from agricultural products fisted in the said Annex II, states unequivocally that liqueurs and other spiritous beverages are excluded. Since, in the case of agriculture, the permitted derogations from certain rules laid down for the establishment of the Common Market are exceptions which must be construed strictly, it follows from this unequivocal statement that Articles 38 to 46 of the Treaty cannot be applied to products classified as potable spirits.

7. This case refers only to the fiscal treatment of products coming from other Member States which the Italian authorities consider to be potable spirits within the meaning of Heading 22.09 of their own national customs tariff, which in this respect corresponds to the Community customs rules.

8. It is true that the defendant alleges that the contested provisions do not refer to potable spirits as such but exclusively to the alcohol in it which is an agricultural product. This objection conflicts with the distinction expressly made by Community provisions between potable spirits and alcohol and cannot in any way be used to justify discrimination against products coming from other Member States as compared with comparable national products.

9. It is not necessary to consider whether there is in fact in Italy a national organization of the market in vine products or whether the existence of such an organization would be likely to justify the treatment to which exception is taken, since it is clear from the foregoing that Article 95 of the Treaty applies to this case without any qualification. Therefore the method provided under Italian law taxing potable spirits imported from other Member States must be regarded as being incompatible with the said article.

10. Under Article 69(2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs. The defendant has failed in its submissions.

On those grounds, Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community especially Articles 38 to 46 and 95; Having regard to the Protocol on the Statute of the Court of Justice of the European Economic Community; Having regard to the Rules of Procedure of the Court of Justice of the European Communities, THE COURT hereby:

1 Declares that the Italian Republic by continuing after 1 January 1962 to levy on potable spirits imported from other Member States frontier dues and all other duties which apply to alcohol in its national territory on the basis of a minimum alcoholic content of 70 % has failed to fulfil the obligations imposed upon it by Article 95 of the Treaty establishing the European Economic Community;

2 Orders the defendant to bear the costs.