JUDGMENT OF 27. 2. 1980 — CASE 55/79 COMMISSION v IRELAND

In Case 55/79

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, G. Bosco, T. Koopmans and O. Due, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

I — The facts

II — Written procedure

III — Conclusions of the parties

IV — Submissions and arguments of the parties in the course of the written procedure

The discriminatory effects of the Irish legislation

The infringement of Article 30

The facts

The application of Article 95

The application of Article 30

The alleged failure to fulfil obligations

V — Oral procedure

Decision

Costs

I —. The facts

(b). Where spirits to which this subparagraph applies are delivered from a bonded warehouse, the Revenue Commissioners may, subject to compliance with such conditions for securing payment of the duty as they may think fit to impose, permit payment of the said duties to be deferred to a day not later than —

(c). Where spirits to which this subparagraph applies are delivered from a bonded warehouse in the month of March in any year, no deferment of payment of duty as provided for in this subparagraph shall be allowed in respect of the spirits.

II —. Written procedure

III —. Conclusions of the parties

1. Declare that by failing to repeal or amend the disputed provisions and/or refrain from continuing the disputed practices with regard to the collection of excise duty on spirits, beer and made wine, the Government of Ireland is in breach of Article 95 or, alternatively, Article 30 of the EEC Treaty;

2. Order the Government of Ireland to pay the costs of the proceedings.

1. Dismiss the application;

2. Order the Commission to pay the costs of the proceedings.

IV —. Submissions and arguments of the parties in the course of the written procedure

(a). Producers of domestic spirits are able to take advantage of a credit period of, on average, slightly over six weeks in respect of each payment of excise duty, subject to the payment of an additional excise duty, the amount of which is minimal compared with the commercial rates of interest which importers of spirits must bear in order to finance the payment of excise duty.

(b). Excise duty on Irish beer and imported beer is charged at a different stage of the manufacturing process: it is charged before fermentation on domestic beer, but at the time of clearance for home consumption on imported beer. The delay between the pre-fermentation stage at which duty is charged and delivery for home consumption does not normally exceed ten days; as the payment of excise duty on domestic beer may be deferred for several weeks, the domestic producer enjoys a considerable advantage. over the importer in the payment of excise duty.

(c). The importer of made wine is clearly at a disadvantage as against the domestic producer: he must pay excise duties four or five weeks before the latter.

(d). Irish legislation, by subjecting spirits, beer and made wine, imported from other Member States, to more difficult conditions of payment of excise duty than those laid down for the domestic products, imposes on importers what is in effect an advance payment of duty constituting a financial burden in excess of that supported by domestic producers even if the facility of deferred duty which they are accorded is combined with a nominal penalty in the guise of an additional excise duty.

(a). Article 95 aims to abolish fiscal obstacles to the importation of similar or competitive products. The prohibition of fiscal discrimination provided by it suffers no exception and has primacy over contingent policies at the national or Community level. Article 95 has the rank of a fundamental principle of the Customs Union and permits no argument either for conditional application or for subordinating it to interpretative criteria outside Community rules. It is designed to guarantee the principle of neutrality of taxation at the Community level. National legislation must conform to Community law where conflict arises as, it is submitted, it does in this case.

(b). There is no need to have recourse to harmonization of national laws as a means of removing obstacles to trade of a fiscal nature. It would be erroneous to subordinate the prohibition of fiscal discrimination under Article 95 (a directly applicable provision) to the adoption of implementing measures laid down in harmonization directives pursuant to Article 99 of the Treaty.

(c). The case-law of the Court has established that Article 95 also covers indirect discrimination, as would arise in particular if different conditions were to be applied in relation to the methods of payment of the tax with the result that the importation of goods would be made more difficult or more expensive.

(d). Ireland does not directly impose higher internal taxation on products imported from other Member States since the same rates of excise duty are imposed on similar imported and domestic products. However, according to the case-law of the Court, the Irish legislation indisputably entails indirect discrimination, since periods of credit for the payment of excise duty are accorded only to domestic producers and not to importers. The effect of this deferment option is to place a heavier financial burden on importers who have to finance payments of excise duty in advance of their domestic competitiors. Domestic producers have virtually interest-free working capital during the deferment period, whereas importers have to raise working capital on the open market at the current rate and indemnify themselves at the expense of the purchaser. That leads to an increase in the prices of imported products, which makes them less competitive with similar domestic products.

(e). The practice of the Irish Government in allowing the payment of excise duty on domestically produced spirits, beer and wine to be deferred, whilst refusing such deferment to importers, is, the Commission submits, contrary to Article 95 of the Treaty in that it indirectly imposes on the products of other Member States internal indirect taxation in excess of that imposed on similar domestic products.

(a). According to the case-law of the Court Article 30 of the EEC Treaty may be relied on only as a subsidiary argument. The purpose of Article 30 is to remove all quantitative restrictions on trade between Member States and all measures having equivalent effect. It ranks as a fundamental principle and is directly applicable in each Member State. The exceptions to this general prohibition, contained in Article 36, do not apply in the present case.

(b). Commission Directive No 70/50 defines certain measures which have an effect equivalent to quantitative restrictions. According to the case-law of the Court all trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions.

(c). The effect of the Irish deferment provisions is to make the payment of excise duty on imported spirits, beer and wine more expensive than the payment of duty on similar domestic products. As a result, the importers of these products must either accept lower profit margins or increase the prices of their products. In either event, there is a danger that imports would be affected. According to the case-law of the Court, in order to establish an infringement of'Article 30, it is sufficient to show that imports are capable of being hindered, directly or indirectly, actually or potentially.

(a). The stage of charging of duty in the case of home produced beer is early in the process of production, by reference to the specific gravity of the worts before fermentation; the periods of deferment provided for are no more than recognition of the fact that different beers require different periods of storage in the brewery premises. In the case of imported beer, duty is charged on clearance for home consumption. A domestic brewer required to pay excise duty at an earlier stage would be placed at a disadvantage vis-à-vis the importer.

(b). Made wine is a product of no real significance either in respect of imports or domestic production of wine as ordinarily understood. There is no provision for deferred payment of duty on wine.

(c). The 1975 Order was introduced by Ireland in accordance with the provisions of Article 38 of the Treaty of Accession; it introduced no discrimination in favour of domestic production for any of the products in question.

(a). The level of taxation is indisputably the same for imported products as for domestic products; Ireland does not directly subject imported products to higher taxes than those which apply to domestic products. Imported and domestic products are taxed at the same rates and on the same conditions. The only difference is that, in the case of domestic products, the payment of the duty may be deferred for a limited time, and even then subject to the payment of a fiscal penalty.

(b). According to the case-law of the Court, the essential question when applying Article 95 is whether imports are subject to higher taxation than domestic products. That is clearly not so in this case.

(c). In any case, there are a number of factors which must be taken into account, in particular the penalty payable by producers who defer payment and the fact that they must furnish a bond as security for payment of the duty. Furthermore, with particular reference to the case of whisky, the divergent rates of exchange between the Irish and United Kingdom Pounds confer a significant cost advantage on the United Kingdom distillers. There are no monetary compensatory amounts applicable to spirits to offset those differences in raw material costs. Thus, without any objective justification, a cost advantage is conferred on the distillers of Scotch whisky.

(a). The argument based on Article 30 cannot merely be subsidiary: the application of Articles 95 and 30 is mutually exclusive; they cannot be applied simultaneously.

(b). Article 30, concerning quantitative restrictions on imports and measures having equivalent effect, does not, according to the case-law of the Court, include a case such as the present one because the concept of quantitative restrictions, or measures having equivalent effect, does not include measures of a purely fiscal nature.

(c). The Commission's argument based on an alleged infringement of Directive No 50/70 is inadmissible as it was not included in the reasoned opinion.

(a). Neither of the two provisions of the Treaty upon which the Commission relies has any application to the present case.

(b). In any case, it is submitted that, if all the relevant factors and circumstances are taken into account in assessing the effect of those articles on the provisions the legality of which is challenged, it is evident that there is in substance no discriminatory effect vis-à-vis imported products.

V —. Oral procedure

1. By application of 9 April 1979, the Commission brought proceedings under Article 169 of the EEC Treaty for a declaration that, by the discriminatory application of provisions relating to the deferment of payment of excise duty on spirits, beer and made wine, Ireland is in breach of the first paragraph ot Article 95 or, alternatively, Article 30 of the EEC Treaty.

2. The facts which gave rise to the action are not contested by Ireland It is in fact common ground that the legal provisions applicable in Ireland, m particular pursuant to the Imposition of Duties (No 221) (Excise Duties) Order 1975, provide in favour of producers of spirits, beer and made wine for deferment of payment of between four and six weeks according to the product whereas, in the case of the same products from other Member States, the duty is payable either at the date of importation or ot delivery from the customs warehouse.

3. The Commission acknowledges that there is no discrimination as regards the rates of duty applicable. On the other hand, it considers that the tact that Irish products are granted deferment of payment beyond the date on which the products are put on the market amounts to conferring on national producers a financial benefit in comparison with importers who are obliged to pay the duty on the actual date on which the products are released to the market. This results, according to the Commission, in a disadvantage to imported products in competition with the corresponding Irish national production.

4. The Commission states that it brought proceedings under Article 169 as a result of the complaints received from importers who had unsuccessfully requested the Irish authorities to grant them the same deferred payment facilities as Irish producers. As a result of the representations made by the Commission in this connexion, the Irish authorities expressed their willingness to abolish this discrimination within the context ot the harmonization of tax legislation but refused to amend the provisions in question in the immediate future. As a result of that refusal the Commission brought the matter before the matter before the Court of Justice.

5. The Government of Ireland claims in its defence that the detailed arrangements for levying the duty have to be adaptable to the different circumstances of home-produced products and imported products. It states that the decisive criterion is the rate of duty applied, whilst the wording of Article 95 merely prohibits the Member States from imposing on the products of other Member States taxation in excess of that imposed on domestic products; to introduce factors which do not appear in its wording is to do violence to that provision.

6. The Government of Ireland relies in addition upon the fact that Irish producers, as consideration for the advantage given them as regards deferment of payment, must accept corresponding disadvantages. Thus, in order to obtain deferred payment, they must pay an additional duty and furnish the authorities with security for payment. It states that it is necessary moreover to take into account the disadvantage suffered by Irish whisky producers in competition with Scotch whisky owing to the divergent exchange rates between the Irish and United Kingdom green pounds.

7. Finally, the Government of Ireland claims once more that the discrimination complained of by the Commission must be abolished with the the context of the harmonization of tax legislation and that it does not come within the scope of Article 95.

8. These defences put forward by the Government of Ireland cannot be accepted. In fact, as the Court of Justice has stated in an established line of cases (see judgments of 5 May 1970, Commission of the European Communities v Kingdom of Belgium, Case 77/69 [1970] ECR 237, 20 February 1973 Fonderie Officine Riunite FOR v Vereinigte Kammgarn-Spinnereien VKS, Case 54/72 [1973] ECR 193, 17 January 1976, REWE — Zentrale des Lebensmittel-Großhandels GmbH v Hauptzollamt Landau-Pfalz, Case 45/75 [1976]ECR 181, 22 June 1976 Bobie Getränkevertrieb GmbH v Hauptzollamt Aachen-Nord, Case 127/75 [1976] ECR 1079, 16 February 1977 Schöttle & Söhne GmbH v Finanzamt Freudenstadt, Case 20/76 [1977] ECR 247, 22 March 1977, Ianelli & Volpi S.pA. v Ditta Paolo Meroni, Case 74/76 [1977] ECR 557 and 22 March 1977, Firma Steinike & Weinling v Federal Republic of Germany, Case 78/76 [1977] ECR 595), it is necessary, for the purposes of the application of the prohibition on discrimination laid down in Article 95, to take into consideration the provisions relating ot the basis of assessment and the detailed rules for levying the various duties in addition to the rate of tax. In fact the decisive criterion of comparison for the purposes of the application of Article 95 is the actual effect of each tax on national production on the one hand and on imported products on the other, since even where the rate of tax is equal the effect of that tax may vary according to the detailed rules for the basis of assessment and levying thereof applied to national production and imported products respectively.

9. Such is the case with the difference in treatment applied to the alcoholic beverages referred to in the application according to whether those beverages are produced in Ireland or imported from other Member States. Although the benefit reserved to national production in the form of facilities for deferred payment is small, the discrimination against products imported from other Member States is none the less obvious.

10. As the Commission has correctly stated, the fact that Irish producers may only benefit from the facilities for deferred payment by paying additional duty and furnishing financial security does not remove that discrimination. Those two obligations are so trifling that their effect is not to compensate for the benefit reserved to Irish producers. Moreover, there is nothing to prevent the Irish authorities from imposing the same additional duty on importers and from requiring the latter to supply similar security.

11. Similarly, the argument based on the difference in the rate of the Irish and United Kingdom green pounds must be rejected. If the Irish authorities consider that the exchange rates in question were not fixed appropriately, they should seek the remedy for that situation by the appropriate means. A monetary situation cannot be corrected by means of discriminatory tax provisions.

12. Finally, it is necessary to reject the argument that discrimination such as that which forms the subject-matter of the application must be eliminated by the procedure for the harmonization of tax legislation under Articles 99 and 100 of the Treaty, rather than by means of Article 95. There is no doubt that obstacles to the free movement of goods may be eliminated by applying the procedure for the harmonization of tax legislation, but the implementation of the provisions of the Treaty relating thereto and in particular of Article 99 cannot be posed as a condition for the application of Article 95, which imposes on Member States with immediate effect the duty to apply their tax legislation without discrimination even before there is any harmonization.

13. It is appropriate however to point out that in particular as regards beer manufactured in Ireland, where the excise duty is imposed on the worts before manufacture, the grant of deferment of payment cannot be considered as discriminatory in so far as that deferment corresponds to the period during which the beer must be kept in the brewery in order to mature. The finished product is therefore only in a situation similar to that of the imported product from the date on which it is marketed.

14. It follows from these considerations that, subject to the preceding observations, Ireland has failed to fulfil its obligations under the first paragraph of Article 95 of the Treaty by bringing into force and applying tax provisions the effect of which is to grant as regards excise duty on spirits, beer and made wine, benefits to Irish producers in respect of deferment of payment which are refused to importers of the same products from other Member States.

15. In view of this conclusion, it is unnecessary to examine the Commission's alternative conclusions based on the application of Article 30, which concerns the elimination of quantitative restrictions and all measures having equivalent effect.

16. Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs.

17. Since the defendant has failed in its submissions, it must be ordered to pay the costs.

On those grounds, THE COURT hereby:

1 Declares that by the discriminatory application to products imported from other Member States of provisions relating to deferment of payment of excise duty on spirits, beer and made-wine, pursuant in particular to the Imposition of Duties (No 221) (Excise Duties) Order, 1975, Ireland has failed to fulfil its obligations under the first paragraph of Article 95 of the EEC Treaty.

2 Orders Ireland to pay the costs.