JUDGMENT OF 5. 2. 1981 — CASE 50/80 HORVATH v HAUPTZOLLAMT HAMBURG-JONAS

In Case 50/80 REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht [Finance Court] Hamburg for a preliminary ruling in the action 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: F. Capotorti Registrar: J. A. Pompe, Deputy Registrar

gives the following

JUDGMENT

Facts and Issues

I — Facts and written procedure

II — Summary of written observations submitted to the Court

Questions submitted by the order of 15 January 1980

The supplementary question referred to the Court by the order of 8 July 1980

III — Oral procedure

Decision

Costs

I —. Facts and written procedure

1. By a final judgment of the Landgericht [Regional Court] Hamburg of 18 July 1977 Joszef Horvath, the plaintiff in the main action, was sentenced to five years' imprisonment for dealing in drugs in substantial quantities and evading tax by means of smuggling.

2. The gravamen of the plaintiff's case in the main action before the Finanzgericht is that he did not smuggle in any heroin. The Hauptzollamt regards the facts as proved and considers that a preliminary ruling on the determination of the value for customs purposes of smuggled goods should be obtained from the Court of Justice.

3. According to the grounds of the order making the reference the Finanzgericht is of the opinion that Community law contains no provisions dealing with the question whether in cases of smuggled goods there is any liability to pay customs duty and, if so, who is liable. Therefore on these points German customs law is to be applied.

4. The Finanzgericht then points out that the questions have been submitted for a preliminary ruling because it is uncertain what rules are to be followed for the purpose of valuing goods for customs purposes in cases in which the liability to pay customs duty arises in accordance with the above-mentioned rules. In the grounds of the order making the reference it explains the different views and practices on this point in the Federal Republic of Germany.

5. The order making the reference was registered at the Court Registry on 6 February 1980.

6. After this information had been supplied to it the Finanzgericht Hamburg, by an order of 8 July 1980, supplemented and amended the questions referred to the Court for a preliminary ruling by its order of 15 January 1980 by the following additional paragraphs :

7. The new order making the reference was registered at the Court Registry on 11 July 1980.

II —. Summary of written observations submitted to the Court

III —. Oral procedure

1. By an order of 15 January 1980, which was received at the Court on 6 February 1980, the Finanzgericht Hamburg referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty three questions relating to the determination of the value for customs purposes of goods which have been smuggled into the customs territory of the Community.

2. By an order of 8 July 1980, which was received at the Court on 11 July 1980 and which supplemented and amended the order of 15 January 1980, the Finanzgericht referred to the Court for a preliminary ruling a further question worded as follows :

3. The national court has pointed out that an affirmative answer to the fourth question would make it unnecessary to consider the other three questions. Accordingly, the Court will first consider the fourth question.

4. The main proceedings are concerned with determining the customs duty chargeable on a quantity of heroin purchased on the black market in Amsterdam and discovered when it was being taken across the Netherlands-German frontier. The heroin was seized and destroyed and the smuggler was sentenced by a German criminal court to five years' imprisonment for illegal dealing in heroin and smuggling. Subsequently the German customs authorities claimed payment from him of the sum of DM 1296 by way of customs duty on the smuggled goods.

5. In its first order of 15 January 1980 the Finanzgericht referred to German legislation, case-law and administrative practice relating to the determination of value for customs purposes of smuggled imported drugs, especially in regard to the time when liability to pay customs duty arises. It questioned whether, and if so, to what extent, Community regulations on the determination of value for customs purposes, in particular Regulation No 803/68 of the Council of 27 June 1968 on the valuation of goods for customs purposes (Official Journal, English Special Edition 1968 (I), p. 170), apply.

6. In its second order of 8 July 1980 the Finanzgericht reacted to the information which the Commission had supplied to the Court at its request and which was to the effect that in the eight Member States other than the Federal Republic of Germany illegally imported drugs are seized and, as a rule, immediately destroyed without any customs duty being charged. However, in some Member States drugs which have been seized are occasionally sold to the pharmaceutical industry at a price corresponding to that which the industry usually pays for the drug in question; in such a case the value for customs purposes is calculated on that price.

7. In the grounds of the second order the national court expresses doubts as to whether it is compatible with the fundamental concept of a customs union for one Member State to charge customs duty on smuggled drugs which have subsequently been destroyed when the other Member States merely prosecute persons smuggling drugs under the criminal law.

8. The Commission has submitted that Community provisions on value for customs purposes apply to any goods referred to in the Common Customs Tariff. Since heroin must be classified under tariff subheading 29.42 A II as an other alkaloid of the opium group, its value for customs purposes should in principle be determined in accordance with Community law irrespective of whether it has been imported legally or illegally. To the extent to which there are still lacunae in Community law — as at the date in question in this case in regard to the time when liability to pay customs duty arises — the domestic law of the importing Member State applies.

9. It is important to stress at the outset that the fourth question referred to the Court by the national court is not concerned simply with the case of the illegal importation of any product but concerns the smuggling of a harmful substance intended for an unlawful use, which was destroyed as soon as it was discovered.

10. It should next be remembered that a product such as heroin is not seized and destroyed only because the importer has not complied with customs formalities but primarily because it is a narcotic whose harmfulness is recognized and whose importation and marketing is prohibited in all the Member States except in trade which is strictly controlled and limited to authorized use for pharmaceutical and medical purposes.

11. Although in these circumstances the Common Customs Tariff includes such a product amongst its classifications for the purpose of fixing the applicable rate of customs duty — 13.6% in the case of subheading 29.42 A II — it can only apply to imports of the product which are intended for an authorized use. Indeed, ad valorem customs duty cannot be determined for goods which are of such a kind that they may not be put into circulation in any Member State but must on the contrary be seized and taken out of circulation by the competent authorities as soon as they are discovered.

12. It should be noted in this connexion that all the provisions of Regulation (EEC) No 803/68 of the Council on the valuation of goods for customs purposes are based on the assumption that the imported goods are capable of being put on the market and absorbed into commercial circulation.

13. Furthermore, since Article 18 of the EEC Treaty indicates that the setting-up of the Common Customs Tariff is seen as a contribution to the development of international trade and the lowering of barriers to trade, it cannot relate to the importation of narcotics which are intended for unlawful use and are withdrawn from circulation as soon as they are discovered.

14. This interpretation of the Common Customs Tariff is confirmed by the practice followed by the customs authorities of eight Member States. The same conception also underlies Articles 10 and 11 of Council Regulation No 1430/79 of 2 July 1979 on the repayment or remission of import or export duties (Official Journal 1979, L 175, p. 1) which provide that import duties must be repaid or remitted where goods subject to payment of such duties are destroyed under the supervision of the competent authorities.

15. It follows from the foregoing that the introduction of the Common Customs Tariff no longer leaves a Member State the power to apply customs duties to drugs which have been smuggled in and destroyed as soon as they were discovered but does leave it full freedom to take criminal proceedings in respect of offences committed, with all the attendant consequences, including fines.

16. In the light of this answer it is unnecessary to reply to the first three questions.

17. 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 proceedings before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT (First Chamber), in answer to the questions referred to it by the Finanzgericht Hamburg by orders of 15 January and 8 July 1980, hereby rules: