JUDGMENT OF 15. 11. 1979 — CASE 36/79 DENKAVIT FUTTERMITTEL v FINANZAMT WARENDORF

In Case 36/79 REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht Münster for a preliminary ruling in the proceedings pending before that court between

THE COURT composed of: H. Kutscher, President, A. O'Keeffe and A. Touffait (Presidents of Chambers), J. Mertens de Wilmars, P. Pescatore, Lord Mackenzie Stuart and G. Bosco, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

I — Facts and procedure

II — Summary of written observations

III — Oral procedure

Decision

Costs

I —. Facts and procedure

1. When the Government of the Federal Republic of Germany took the decision on 24 October 1969 to revalue the German mark as from 27 October 1969 by 8.5 % in relation to its official parity, the Federal Republic and the Community faced the problem of compensation for the losses of the income resulting for German agriculture from the linking of the European agricultural prices to a common unit of account.

2. The German authorities and the Commission agreed in estimating the losses of the income suffered by German agriculture as a result of the revaluation at DM 1700 million a year. In order to compensate for those losses, the Council, by Regulation (EEC) No 2464/69 of 9 December 1969 (Official Journal, English Special Edition 1969 (II), p. 527), authorized the Federal Republic as from 1 January 1970 to grant agricultural producers direct aid, in respect of which provision was made for contributions by the EAGGF [European Agricultural Guidance and Guarantee Fund].

3. Article 1 (1) to (3) of Regulation No 2464/69 provides as follows:

4. The Council Decision of 21 January 1974 (which was notified to the Federal Republic of Germany on 24 January 1974, but not published) extends and amends the measure authorized by Article 1 (3) of Regulation (EEC) No 2464/69 inasmuch as the Federal Republic was provisionally authorized to grant aid to agricultural producers in the form of compensation, paid to the producer when he sells his products, subject to a maximum of 3 % of the selling price. The aid as thus amended may be paid in the same way as is provided in the regulation either by the buyer or by an agency to be appointed by the competent national authorities.

5. On 23 December 1969 the German legislature, basing itself on Regulation (EEC) No 2464/69, enacted the Aufwertungsausgleichgesetz (Law on compensation for the effects of revaluation), Article 4 of which authorized agricultural and forestry undertakings, within the meaning of Article 24 (2) of the Umsatzsteuergesetz (Law on turnover tax) in conjunction with Article 51 of the Bewertungsgesetz (Law on valuation) to reduce the turnover tax (value added tax) by 3 %. In order to qualify as an agricultural undertaking within the meaning of the latter provisions, establishments breeding and keeping livestock must have a certain agricultural area and prove a certain ratio between the head of livestock and that area.

6. The company which is the plaintiff in the main action apart from producing feeding-stuffs engages in fattening calves on milk-based substitute feeding-stuffs which it produces itself. For this purpose it buys calves of about one week old and sells them for slaughter after fattening them for four months. Not having, any agricultural land for the purpose of fattening its calves, the company constitutes not an agricultural undertaking but rather an industrial undertaking within the meaning of German tax law.

7. In 1974 the turnover of the plaintiff company on sales of calves which it had fattened was DM 21394474,21. In its tax return for that year, it claimed aid of DM 641834,24 (that is to say 3 % of its total turnover) under Article 4 of the Aufwertungsausgleichgesetz. By a decision of 26 March 1976, the Finanzamt (tax office) Warendorf, the defendant in the main action, refused to grant that aid, on the grounds that the plaintiff company is an industrial undertaking within the meaning of German tax law and not an agricultural undertaking.

8. After its objection to that decision had proved unsuccessful, the plaintiff company commenced before the Finanzgericht [Finance Court] Münster the proceedings which constitute the main action.

9. By an order of 26 September 1977, the Finanzgericht Münster stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty:

10. This reference was the subject of Case 139/77 ([1978] ECR 1317).

11. Although in that case the Finanzgericht relied only in a general way on the distinction made by German tax law between agricultural and industrial livestock breeders and keepers, the plaintiff in the main action devoted specific arguments in its written observations to the subject of fattening of calves. It alleged that from a structural and economic point of view there is no difference between the industrial fattening of calves on the one hand and agricultural fattening on the other under German tax law. Both the agricultural and industrial calf fatteners have to buy young calves from breeders and obtain mixed, milk-based feeding-stuffs from a manufacturer of such feedingstuffs. The size of the agricultural holding in the case of the agricultural fattener is therefore irrelevant to the fattening of calves, (cf. [1978] ECR 1320). The plaintiff in the main action claimed that in granting compensation for revaluation of the German mark only to industrial keepers and breeders, the German legislature was infringing the prohibition of discrimination in Article 40 (3) of the Treaty.

12. In its written observations the Commission alleged that the revaluation affected farmers more than industrial livestock keepers. In general a farmer farming his own land meets his fodder requirements at least partly with his own produce and thus can less easily turn to imported fodder made cheaper by revaluation (cf. [1978] ECR 1327).

13. In its judgment of 13 June 1978 in Case 139/77 (at paragraph 12, second subparagraph) the Court held in respect of the first question that since neither the context nor the objectives of the regulation demand a restrictive interpretation, it is not out of the question that the relatively broad expression agricultural producers which is used in the wording of the regulation, may include production of agricultural products by any method whatever.

14. Regarding the second question the Court held (at paragraph 16) that it must be considered whether the differentiation, for the purposes of German tax law, made by the Aufwertungsausgleichgesetz between agricultural breeders and keepers on the one hand and industrial breeders and keepers on the other, is discriminatory within the meaning of Article 40 (3) of the Treaty.

15. The sole paragraph in the operative part of the judgment of the Court of 13 June 1978 in Case 139/77 reads as follows:

16. It appears from the file in the present case that the Finanzgericht Münster does not consider itself bound by the operative part of the judgment in Case 139/77 because it takes the view that the court relied on inaccurate facts relating to the fattening of calves. By order dated 19 January 1979 it once again stayed the proceedings pending before it and referred to the Court under Article 177 of the Treaty the following question for a preliminary ruling (expressly limited to calf fatteners):

17. The order making the reference was registered at the Court on 2 March 1979.

18. It appears from the grounds given the order making the reference to the Court that according to the national court (accepting in this respect the argument of the plaintiff) agricultural calf fatteners within the meaning of German tax law use the same feedingstuffs as industrial calf fatteners, that is to say, solely industrially produced milk-based substitute feeding-stuffs such as the plaintiff itself produces and also uses for fattening its calves. Both agricultural and industrial calf fatteners must use these feeding-stuffs exclusively for feeding their animals in order to obtain the white meat which has a special market value and which alone is sold as veal. In theory certain agricultural calf fatteners can (also) fatten their calves with feeding-stuffs from their own agricultural production. In that case, however, they produce red meat which is sold as beef. In addition, the fattening costs are substantially increased if feeding-stuffs from a farmer's own agricultural products are used.

19. The Finanzgericht adds that if industrial calf fatteners are agricultural producers within the meaning of Community law and if Community law forbids the exclusion of specifically agricultural producers from aid by way of compensation for revaluation in respect of agricultural market products, then the action succeeds.

20. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC written observations were submitted by the plaintiff in the main action, represented by Dietrich Ehle and Ulrich C. Feldmann, Advocates at the Cologne Bar, by the defendant in the main action, represented by its manager, Mr. Ernst, and by the Commission of the European Communities, represented by its Legal Adviser, Peter Karpenstein.

21. 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.

II —. Summary of written observations

III —. Oral procedure

1. By an order of 19 January 1979 which was received at the Court on 2 March 1979 the Finanzgericht Münster referred to the Court, pursuant to Article 177 of the EEC Treaty, a question on the interpretation of the said Treaty, Article 1 of Regulation No 2464/69 of the Council of 9 December 1969 on measures to be taken in agriculture as a result of the revaluation of the German mark (Official Journal, English Special Edition 1969 (II), p. 527) and the Council Decision of 21 January 1974, notified to the Federal Republic of Germany on 24 January 1974, whereby the Council extended and amended certain provisions of Article 1 of the said regulation.

2. The reason for the main action is the rejection by the Finanzamt Warendorf, the defendant in the main action, of an application for aid under the Aufwertungsausgleichgesetz (Law on compensation for the effects of revaluation), which was enacted on 23 December 1969 pursuant to the said regulation. This application was made by the plaintiff company in the main action, whose business, apart from the production of animal feed, is the fattening of calves with milk-based substitute feeding-stuffs which it produces itself.

3. The defendant in the main action based its refusal to grant the aid applied for by the plaintiff company on the fact that, since the company did not have any agricultural land for the purpose of fattening its calves, it constituted not an agricultural undertaking within the meaning of German tax law, to which the previously mentioned Law refers, but rather an industrial undertaking.

4. It is right to recall that the main action has already given rise to a reference for a preliminary ruling made by the. same Finanzgericht, which was the subject of Case 139/77 in which the Court gave judgment on 13 June 1978 ([1978] ECR 1317). In that judgment the Court, after examining (pages 1329 to 1331) the origin and substance of the Community rules and the national law in question answered the following questions referred to it for a preliminary ruling:

5. Regarding the first question the Court held that since neither the context nor the objectives of Regulation No 2464/69 demand a restrictive interpretation, it is not out of the question that the relatively broad expression agricultural producers, which is used in the wording of the regulation, may include production of agricultural products by any method whatever.

6. Regarding the second question the Court stated that it must be considered whether the differentiation, for the purposes of German tax law, made by the Aufwertungsausgleichgesetz between agricultural breeders and keepers on the one hand and industrial breeders and keepers on the other, is discriminatory within the meaning of Article 40 (3) of the Treaty. The Court gave the following grounds for answering this question in the negative (paragraph 17):

7. In giving a preliminary ruling on the questions put by the Finanzgericht the Court held:

8. By its order for reference to the Court in the present case the Finanzgericht put a new question for a preliminary ruling worded as follow:

9. It must be observed on the one hand that this question, unlike the questions put in Case 139/77, refers not to livestock breeders and keepers in general but only calf fatteners and on the other hand that it assumes the premise, explained in the grounds of the order for reference, that agricultural calf fatteners use in fattening the same industrially produced milk-based substitute feeding-stuffs as industrial calf fatteners.

10. The correctness of this assumption was challenged by the Commission. In its view, apart from manufactured feed substitutes, agricultural calf fatteners also use to a considerable extent full cream milk or skimmed milk which they produce themselves. In this respect the Commission refers to the facts based on the Community system in force since 1969 of aid granted for milk for use as animal feeding-stuffs and to the statistics relating to feeding with full cream milk and skimed milk in the Federal Republic of Germany. The result is that very large quantities of full cream and skimmed milk are used as animal feeding-stuffs and more than half such quantities is used for feeding calves as is shown by the results of the application of the differentiated system of aid established by Commission Regulation No 2793/77 (Official Journal No L 321, p. 30).

11. On the basis of all the facts which it gives the Commission estimates that at present milk makes up a third of feeding-stuffs for calves and that this ratio was probably even higher during the period from 1969 to 1973.

12. The Court cannot, within the framework of proceedings brought under Article 177 of the Treaty, settle a difference of this kind which, like any other assessment of the facts involved, is within the province of the national court.

13. It is right, nevertheless, to observe that even assuming that agricultural calf fatteners exclusively use the same industrially produced milk-based substitute feeding-stuffs as used by industrial calf fatteners, this does not affect the answer to be given to the new question put by the national court.

14. As was recalled in the judgment given in Case 139/77, in the words of the first recital in the preamble to Regulation No 2464/69, the revaluation of the German mark and the present unaltered value of the unit of account entail a reduction in agricultural prices expressed in German marks … from 1 January 1970; … German agriculture will thereby suffer a loss of income. The losses contemplated, which the regulation aimed to compensate, were in the agricultural sectors such as milk and cereals where an intervention system applied. The revaluation almost automatically led to a reduction in agricultural prices expressed in German marks but fixed in units of account under the Common Agricultural Policy. It is precisely in these sectors that production depends on working an adequate amount of agricultural land.

15. Accordingly, the distinction between agricultural livestock breeders and keepers and industrial livestock breeders and keepers, which German tax law makes on the basis of a ratio between the head of livestock and the agricultural land used and which the Federal Republic of Germany adopted for the purpose of granting aid under the Aufwertungsausgleichgesetz meets the aim of the regulation.

16. It must be remembered that the fourth recital in the preamble to the regulation states : The aid must be granted only during a specific period, it being possible to ensure the continuation of aid through measures of social or structural policy. It follows from this that the aid contemplated falls within the perspective of considerations of a social nature corresponding to the requirement of Article 39 (2) (a) of the Treaty of taking account of the particular nature of agricultural activity, which results from the social structure of agriculture. For the purpose of granting aid as compensation for the effects of the revaluation, this nature justifies the Federal Republic of Germany in giving priority to the sectors of the agricultural economy which suffered most directly losses of income as a result of the revaluation, that is to say the sectors concerned with working the soil. Since such preference is not arbitrary it cannot be regarded as discrimination between producers prohibited by Article 40 (3) of the Treaty.

17. It follows from all these considerations that the answer to the national court should be that neither the provisions of the EEC Treaty nor Article 1 of Regulation No 2464/69 of the Council nor the Council Decision of 21 January 1974 forbade the Federal Republic of Germany to exclude industrial calf fatteners from the aid referred to in the said regulation.

18. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court are not recoverable.

19. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT, in answer to the questions submitted to it by the Finanzgericht Münster by an order of 19 January 1979, hereby rules: