JUDGMENT OF 14. 1. 1981 — CASE 46/80 VINAL v ORBAT

In Case 46/80 REFERENCE to the Court under Article 177 of the EEC Treaty by the Pretura Civile [Civil Court], Casteggio, for a preliminary ruling in the action pending before that court between

THE COURT composed of: P. Pescatore, President of the Second Chamber, Acting as President, T. Koopmans (President of the First Chamber), Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco, A. Touffait and O. Due, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

I — Facts and written procedure

II — Written observations submitted to the Court

The alleged discrimination in relation to the origin of the products

The alleged discrimination with regard to the raw materials used

Conclusion

The admissibility of the request for a preliminary ruling

Suggested replies

The procedural aspect of the case

The similarity of the products in question

III — Oral procedure

Decision

The jurisdiction of the Court

Substance

Costs

I —. Facts and written procedure

(a). Must the first paragraph of Article 95 of the Treaty of Rome be interpreted as meaning that two products derived from different raw materials but capable of being put to the same uses and having the same practical application must be considered to be similar?

(b). If the reply to Question 1 is in the affirmative:

(c). If the reply to either of the foregoing questions is in the negative:

II —. Written observations submitted to the Court

(a). The same special revenue charge, amounting to LIT 12000 per hectolitre of pure alcohol is payable on denatured synthetic alcohol whether it is of Italian or foreign origin; likewise, denatured alcohol obtained by fermentation, whether it is of Italian or Community origin, is liable to the same revenue charge of LIT 1000 per hectolitre of pure alcohol. Thus no discrimination is to be discerned in the letter of the law.

(b). There is likewise no discrimination in fact.

(a). The reduction in the revenue charge is not granted on the basis of the national origin of the products, the sole circumstance which could be contrary to Article 95, but on the basis of objective conditions which apply without distinction to Italian and Community products.

(b). In this case there is a specific justification for the difference in tax treatment. It is in no way intended to penalize Community products but is aimed at providing an incentive for products which deserve particular protection and is in line with the requirement which today is of ever-increasing moment, namely a reduction in the consumption of petroleum products.

(a). It should be pointed out that in the Italian tax arrangements for denatured alcohol synthetic alcohol is not considered as constituting an independent tax category, involving special treatment; they provide in fact for a single ordinary rate of the special revenue charge which is at present fixed at LIT 12000 per hectolitre of pure alcohol. That ordinary rate applies to synthetic alcohol and also to all denatured alcohol in general, including alcohol obtained by fermentation from raw materials other than those envisaged by special provisions. In addition to those ordinary tax arrangements there exist differentiated arrangements for three specified categories of denatured alcohol.

(b). Taken as a whole, the Italian arrangements for the taxation of denatured alcohol do not entail any violation of the principles laid down by Article 95 of the EEC Treaty, even if it is conceded for the sake of argument that all kinds of denatured ethyl alcohol are identical or at least similar.

(c). Tax arrangements according different treatment to the same product or to similar products may be declared incompatible with Article 95 only in two cases: that of failure to apply the arrangements for each of the subcategories fixed by national law to products imported from other Member States which fulfil the objective requirements for classification in the subcategory in question; and that of unlawful discrimination in the abstract determination of tax subcategories so that a group of products liable to a given tax is distinguished not in terms of objective features discernible in both domestic and imported products but of characteristics which are related more or less explicitly to their provenance. Neither of those cases obtains within the framework of the Italian tax arrangements for denatured alcohol.

(d). The provisions of Article 95 must be related to the tax categories in fact created by each national legal system; it is thus necessary to make a separate finding that the principle of non-discrimination has been observed for each of such tax categories and not to make inappropriate comparisons between products belonging to different categories. The treatment allotted to each group of products, determined objectively, must be applied both to domestic and to imported products; that uniformity of treatment is present in all its aspects in the Italian legislation on denatured ethyl alcohol: no discrimination exists between domestic and imported products in any of the three groups into which the kinds of alcohol are divided.

(e). The Italian tax arrangements for denatured alcohol do not display discriminatory characteristics either in respect of the treatment reserved for imported and domestic products within the various subcategories fixed by the tax legislation or in respect of the actual determination and the diversification of those subcategories. In particular, no discrimination resides in the fact that the ordinary, unreduced, rate is applied to synthetic alcohol, which is not produced in significant quantities in Italy.

(f). With regard to the problem whether the products at issue in the main action are identical or similar it must be noted that the fact that the various types of denatured alcohol have an identical chemical formula does not mean that they are completely interchangeable for economic purposes and that with respect to trade in those products the raw material employed and the manufacturing process are entirely irrelevant. Synthetic alcohol displays important objective differences in relation to alcohol of agricultural origin since a chemical synthesis effected on an industrial scale is very different from a distillate of products of the soil. The difference between the conditions of production leads, in the case of both products, to price structures which are so completely different that despite any competitive relationship between the finished products it is impossible to make a direct and immediate comparison from the tax point of view. The judgment of the Court of Justice of 27 February 1980 (Case 170/80 Commission v United Kingdom) shows that it is impossible to refrain from clarifying the tax-relationship which may be considered appropriate as between products which are in competition but which have different conditions of production. At all events, the automatic approximation of the tax arrangements for all denatured alcohol may not be required.

(a). Tax arrangements which subject identical or similar products to treatment differentiated on the basis of the raw materials employed are not contrary to Article 95 of the EEC Treaty provided that such differentiated treatment is extended under the same conditions to the products of other Member States;

(b). Such a system of differentiated taxation for identical or similar products cannot be considered as contrary to Article 95 solely by reason of the fact that the application of the higher rate of taxation has attained the objective of discouraging the corresponding production within the country in question;

(c). In the case under consideration an infringement of Article 95 can exist only if the sole objective in fixing differentiated rates is to present an obstacle to products which, for objective reasons, it is impossible to produce on the national territory.

(a). There in fact exists between the parties to the main action a dispute as to whether Vinal's claim to recover from Orbat the amount of the special revenue charge paid at the time of the importation of a consignment of denatured ethyl alcohol of synthetic origin is well-founded. The questions on the interpretation of Article 95 submitted in the order making the reference thus appear to be entirely relevant.

(b). Likewise there are no objections to be raised concerning the need experienced by the national court to refer the questions to the Court of Justice for a preliminary ruling for the purposes of the decision to be delivered in the main action.

(c). With regard to the fact that the importer Vinal has not instituted proceedings directly against the competent Italian administration to challenge the lawfulness of the special revenue charge paid at the time of the customs clearance of the goods it must be stated that Article 95 creates individual rights for all citizens regardless of the nature of their activity. Whoever enjoys an individual right also has a right to institute proceedings, which he exercises in complete independence and at his entire discretion every time he has an interest in obtaining protection for the individual right which is threatened by the claims of another, whether a private person or a public administration.

(d). The contractual nature of the dispute before the national court, which arose between two undertakings governed by private law regarding the implementation of a contract and not between an individual and a public administration, in no way prevents reference of that action to the Court of Justice for a preliminary ruling. The national courts are obliged to deliver rulings on all cases brought before them, including those concerning matters of principle which arise in disputes over matters of negligible economic importance. Without the mechanism of Article 177 the courts, in the performance of their duties, would be obliged to apply the provisions of Community law in accordance with criteria relevant to the interpretation of national law; they would thus develop a varied case-law differing from State to State and indeed within the same State. In a situation of conflict between judgments delivered by different courts, national and Community, all equally sovereign, independent and having the same substantive competence, the unity of Community law, the uniformity of its interpretation, its applicability and primacy would be irremediably impaired. Article 177 constitutes the sole means of ensuring that persons who defend rights which have been infringed through the misconduct of the Member States obtain the proper and uniform application of Community law. A reduction in the right to have recourse to the procedure under Article 177 amounts to imposing a like reduction in the individual rights of private persons.

(a). The Commission recalls that pure ethyl alcohol is obtained by distilling products of the soil (cereals, wine, grape marc, fruit, potatoes, sugar cane, beet, molasses from cane or beet, wood, etc.) or by synthesis of mineral products (petroleum or coal). Although these kinds of alcohol are of differing origin, namely agricultural or mineral, they are identical from a chemical point of view (C2H 5 OH); in the finished state their origin can be identified only by means of delicate and complicated chemical analysis based on their degree of radioactivity. Where the degree of purity obtained at the end of the distilling or synthesising procedure is the same ethyl alcohols are thus perfectly interchangeable and they may all be employed without distinction for the same purposes. Ethyl alcohol is used chiefly in products for human consumption (alcoholic beverages and pharmaceutical and food products) and for industrial purposes (paints, enamels, solvents, cosmetics and perfumes, essences, plastic products, etc.). For purely economic reasons the legislation of two Member States, one of which is Italy, expressly prohibits the use of synthetic ethyl alcohol in preparations intended for human consumption.

(b). Denatured alcohol is merely ethyl alcohol to which a denaturing product has been added in order to alter its taste and prevent its use for human consumption. The reasons for denaturing the alcohol are essentially of a fiscal nature, since denatured alcohol intended for industrial use is not liable to the taxation imposed on alcohol intended for human consumption.

(a). In the Italian tax system denatured alcohol is liable neither to the manufacturing duty nor to the normal revenue charge; on the other hand it is liable to the special revenue charge, fixed at LIT 1000 per hectolitre of pure alcohol in the case of alcohol obtained from molasses or similar materials, from sorghum or from sugar cane, and at LIT 12000 per hectolitre for other'alcohol, inter alia synthetic alcohol.

(b). On 31 July 1978 the Commission addressed a reasoned opinion to the Italian Republic under Article 169 of the EEC Treaty requesting the Italian Government to modify within a period of two months the provisions relating to the special revenue charge in order to bring them into line with Article 95 of the Treaty. Since the Italian Government did not comply with that reasoned opinion the Commission intends to bring proceedings before the Court of Justice in the near future.

(c). The tax arrangements of which the special revenue charge in question forms part could be considered compatible with the first paragraph of Article 95 of the Treaty only if an identical rate of taxation were applied to domestic products and similar products imported from other Member States, including denatured ethyl alcohol of synthetic origin. This conclusion appears to be in accordance with the principles laid down by the Court in its judgment of 27 February 1980 on the tax arrangements applying to alcoholic beverages.

(d). The first two questions submitted to the Court of Justice should receive the following reply:

III —. Oral procedure

1. By an order of 30 January 1980 which was received at the Court on 4 February 1980 the Pretura Civile [Civil Court], Casteggio, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty three questions on the interpretation of Article 95 of the EEC Treaty in order to make it possible to assess whether the system of differential taxation applied by virtue of Decree-Law No 1200 of 6 October 1948, as amended by Decree-Law No 836 of 16 September 1955, and Article 3 of Law No 506 of 18 August 1978 to denatured synthetic ethyl alcohol and denatured ethyl alcohol obtained by fermentation is compatible with the requirements of the Treaty.

2. These questions have been submitted in the context of civil proceedings concerning the performance of a contract concluded in January 1980 between the plaintiff in the main action, SpA Vinai, a producer and importer of alcohol, and SpA Orbat, relating to the supply of a consignment of denatured synthetic alcohol from France.

3. The order making the reference for a preliminary ruling shows that SpA Orbat, the defendant in the main action, does not dispute that it is bound to pay the agreed price but challenges the imposition in this case of the special revenue charge of LIT 12000 per hectolitre of pure alcohol, stating that it is prepared to reimburse the plaintiff only the special charge of LIT 1000 per hectolitre applicable to denatured alcohol obtained by fermentation. The defendant claims in fact that the levying of the said revenue charge of LIT 12000 per hectolitre of denatured synthetic alcohol is unlawful by virtue of Article 95 of the EEC Treaty since it constitutes tax discrimination which is prohibited by that provision.

4. In order to decide this dispute the Pretura submitted the following questions to the Court for a preliminary ruling:

5. The Italian Government has put in issue the admissibility of the request for a preliminary ruling submitted by the Pretura, Casteggio. It raises the question whether the action brought before the national court is not really a fictitious dispute and whether the procedure under Article 177 has not been employed in this case to impeach the Italian State in the absence of any actual dispute giving rise to questions of Community law as between the parties. In these circumstances the Italian Government asks whether the situation should not be compared to that which formed the subject-matter of the judgment of the Court of 11 March 1980 in Case 104/79 Foglia v Novello [1980] ECR 745 in which the Court held that it had no jurisdiction to give a ruling on the questions put by the national court.

6. In view of that contention, which the Italian Government set out in its written observations, the Court requested the parties to supply it with additional information.

7. Having studied the replies given to those questions the Court considers that in this case it is possible to set aside the doubts expressed by the Italian Government and to broach the substance of the case.

8. It appears from the order making the reference for a preliminary ruling that the defendant in the main action contends that the Italian tax arrangements are incompatible with Article 95 of the Treaty in reliance on two facts. It is maintained, first, that denatured synthetic alcohol should be considered as similar or indeed identical to denatured alcohol obtained by fermentation and, secondly, that synthetic alcohol is only imported into Italy whereas the denatured alcohol obtained by fermentation which is marketed in Italy comes exclusively from domestic production. Thus despite the formal identity of tax treatment a similar product from other Member States is in fact taxed more heavily than the domestic product.

9. That position is supported in principle by the Commission which has expressed the opinion that, despite the different origins of the two products in question — namely synthetic alcohol, which is derived in particular from petroleum, and alcohol obtained by fermentation, which is produced by distilling products of the soil (cereals, wine, fruit, potatoes, beet and molasses) — the two kinds of alcohol in question are chemically identical and fully interchangeable in their uses. There is thus not only similarity between these two products but actual identity in regard to the needs which the two products are called upon to fulfil. Furthermore, the two kinds of alcohol fall within the same tariff subheading, 22.08 A, under the description denatured spirits (including ethyl alcohol and neutral spirits) of any strength. In the absence of production of synthetic alcohol in Italy, the difference in the rate of tax prescribed by Italian law for denatured synthetic alcohol on the one hand and denatured alcohol obtained by fermentation on the other has the result of preventing practically all imports of synthetic alcohol from other Member States and of directly favouring national production of alcohol by fermentation. The Commission thus considers that, being a product similar to denatured alcohol obtained by fermentation, denatured synthetic alcohol imported from other Member States should qualify for the same rate of tax as the former.

10. The plaintiff in the main action on the other hand claims that the Italian system of taxes is compatible with the requirements of Article 95. It points out that Italy has a considerable production of ethylene, a petroleum derivative which is used in the manufacture of synthetic alcohol.

11. The argument advanced by SpA Vinal was further developed by the Italian Government. It recalls that in a number of judgments the Court has recognized that the Member States may lay down differing tax arrangements, even for identical products, on the basis of objective criteria such as the conditions of production and the raw materials used (judgment of 22 June 1976 in Case 127/75 Bobie [1976] ECR 1079; judgment of 10 October 1978 in Case 148/77 Hansen [1978] ECR 1787; judgment of 8 January 1980 in Case 21/79 Commission v Italy [1980] ECR 1). According to the Court, such arrangements are compatible with the Treaty if they are laid down on the basis of objective factors and are not discriminatory or protective in their nature.

12. The arrangements challenged before the national court meet these requirements. In fact the different taxation of synthetic alcohol and of alcohol produced by fermentation in Italy is the result of an economic policy decision to favour the manufacture of alcohol from agricultural products and, correspondingly, to restrain the processing into alcohol of ethylene, a derivative of petroleum, in order to reserve that raw material for other more important economic uses. It accordingly constitutes a legitimate choice of economic policy to which effect is given by fiscal means. The implementation of that policy does not lead to any discrimination since although it results in discouraging imports of synthetic alcohol into Italy, it also has the consequence of hampering the development in Italy itself of production of alcohol from ethylene, that production being technically perfectly possible.

13. As the Court has stated on many occasions, particularly in the judgments cited by the Italian Government, in its present stage of development Community law does not restrict the freedom of each Member State to lay down tax arrangements which differentiate between certain products on the basis of objective criteria, such as the nature of the raw materials used or the production processes employed. Such differentiation is compatible with Community law if it pursues economic policy objectives which are themselves compatible with the requirements of the Treaty and its secondary law and if the detailed rules are such as to avoid any form of discrimination, direct or indirect, in regard to imports from other Member States or any form of protection of competing domestic products.

14. Differential taxation such as that which exists in Italy for denatured synthetic alcohol on the one hand and denatured alcohol obtained by fermentation on the other satisfies these requirements. It appears in fact that that system of taxation pursues an objective of legitimate industrial policy in that it is such as to promote the distillation of agricultural products as against the manufacture of alcohol from petroleum derivatives. That choice does not conflict with the rules of Community law or the requirements of a policy decided within the framework of the Community.

15. The detailed provisions of the legislation at issue before the national court cannot be considered as discriminatory since, on the one hand, it is not disputed that imports from other Member States of alcohol obtained by fermentation qualify for the same tax treatment as Italian alcohol produced by fermentation and, on the other hand, although the rate of tax prescribed for synthetic alcohol results in restraining the importation of synthetic alcohol originating in other Member States, it has an equivalent economic effect in the national territory in that it also hampers the establishment of profitable production of the same product by Italian industry.

16. Having regard to the foregoing, the questions submitted by the Pretura, Casteggio, should be answered as follows.

17. With regard to the first and second questions, taken together, the reply should be that tax arrangements which impose heavier charges on denatured synthetic alcohol than on denatured alcohol obtained by fermentation on the basis of the raw materials and the manufacturing processes employed for the two products are not at variance with the first paragraph of Article 95 of the EEC Treaty if they are applied identically to the two categories of alcohol originating in other Member States. Such tax arrangements are justified even though the products in question, whilst derived from different raw materials, are capable of being put to the same uses and have the same practical application.

18. With regard to the third question the reply should be that where, by reason of the taxation of synthetic alcohol, it has been impossible to develop profitable production of that type of alcohol on national territory, the application of such tax arrangements cannot be considered as constituting indirect protection of national production of alcohol obtained by fermentation within the meaning of the second paragraph of Article 95 on the sole ground that their consequence is that the product subject to the heavier taxation is in fact a product which is exclusively imported from other Member States of the Community.

19. 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 the 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 referred to it by the Pretura, Casteggio, by order of 30 January 1980, hereby rules:

1 Tax arrangements which impose heavier charges on denatured synthetic alcohol than on denatured alcohol obtained by fermentation on the basis of the raw materials and the manufacturing processes employed for the two products are not at variance with the first paragraph of Article 95 of the EEC Treaty if they are applied identically to the two categories of alcohol originating in other Member States. Such tax arrangements are justified even though the products in question, whilst derived from different raw materials, are capable of being put to the same uses and have the same practical application.

2 Where, by reason of the taxation of synthetic alcohol, it has been impossible to develop profitable production of that type of alcohol on national territory, the application of such tax arrangements cannot be considered as constituting indirect protection of national production of alcohol obtained by fermentation within the meaning of the second paragraph of Article 95 of the EEC Treaty on the sole ground that their consequence is that the product subject to the heavier taxation is in fact a product which is exclusively imported from other Member States of the Community.