Commission of the European Communities v Italian Republic (28/69)

I —Summary of the facts

II —Conclusions of the parties

In its application the Commission claimed that the Court should:Declare:(1) that by imposing on cocoa powder imported from other Member States of the EEC an excise duty in excess of that levied on the corresponding product processed in Italy by milling cocoa beans imported under the system of temporary duty-free imports, the Italian Republic has failed in its obligation under Article 95 of the Treaty establishing the European Economic Community;(2) that by imposing on cocoa powder, cocoa butter, shells and husks imported from other Member States an excise duty in excess of that levied on corresponding products obtained in Italy by milling cocoa beans imported for domestic consumption, the Italian Republic has in this respect also failed to fulfil its obligation under the abovementioned provision;(3) that by granting on products obtained in Italy by milling cocoa beans a refund of the excise duty in excess of the amount actually charged on entry, the Italian Republic has failed to fulfil the obligation imposed on Member States by Article 96 of the EEC Tretay ;(4) order the defendant to bear the costs.In its defence the Italian Government merely stated that in its view ‘it appears… that the conditions for the withdrawal of the Commission's application have been fulfilled and, pending notification from the Commission as to whether it shares this view, the defendant for the moment refrains from submitting further observations’.In its reply the Commission declared that it maintained its application.In its rejoinder the Italian Government contended that the Court should :(1) principally, declare that the present case is devoid of object;(2) if the conclusion set out at (1) is rejected: dismiss the Commission's application;(3) order the Commission to bear the costs.At the hearing the Commission declared that it was withdrawing the third head of its application.

III —Procedure

On 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.The parties submitted oral observations at the hearing on 3 February 1970. At the request of the Court they expressed their views, sent by telex messages and received at the Court Registry on 5 and 9 February 1970, on certain points put to them by the Judge-Rapporteur.The Advocate-General delivered his opinion on 4 March 1970.

IV —Submissions and arguments of the parties

The first submission: Infringement of Article 35 of the EEC Treaty by the imposition on cocoa powder directly imported from other Member States of an excise duty in excess of that levied on the corresponding domestic productIn its application the Commission states the following:(a) In accordance with Article 13 of Decree Law No 50 of 11 March 1950, which subsequently became Law No 202 of 9 May 1950, the excise duty on imports of cocoa beans and products obtained therefrom was imposed in accordance with the following scales:— on unroasted cocoa beans, shells and husks: 25000 lire per 100 kg;— on cocoa beans, roasted, unshelled: 27500 lire per 100 kg;— on cocoa, roasted, shelled, ground, in paste or powder, cocoa butter: 31250 lire per 100 kg.(b) In accordance with Article 2 of Law No 291 of 25 May 1954 temporary imports of unroasted cocoa beans are to be given customs clearance in the following proportions per 100 kg.— 40 kg of cocoa butter;— 40 kg of cocoa powder containing less than 1 % of such butter on which, if not re-exported, the excise duty for 32 kg of cocoa beans shall be payable;— 13 kg of shells and husks;— 7 kg for losses, earth, spoiled beans and loss of weight in roasting.(c) In view of the rates of the duty and of the ratios established, those two provisions result in the following findings when read together :— every kilogramme of cocoa powder imported into Italy is liable to an excise duty of 312.50 lire (31250 lire per 100 kg) ;— every kilogramme of cocoa powder obtained in Italy from cocoa beans imported duty-free under the temporary import system is liable on subsequent sale on the Italian market to an excise duty of 200 lire; in fact, as is clear from the figures given above at (b), 40 kg of cocoa powder not re-exported are liable to the excise duty on 32 kg of cocoa beans, that is: 8000 lire (250 X 32); dividing this figure by 40 the figure of 200 lire per kilogramme is obtained.(d) It follows from these figures that every kilogramme of imported cocoa powder is subject to a discriminatory tax differential amounting to 112.50 lire (312.50—200) in comparison with the similar domestic product.In its defence the Italian Government confines itself to claiming that the Italian Parliament had, within the period prescribed for submitting the said defence, approved a draft law meeting the complaints made by the Commission.In its reply the Commission admits the adoption of this draft law removes the infringement referred to in this submission.In its rejoinder the Italian Government does not devote specific arguments to the Commission's first submission; it appears however that certain of its arguments appearing below in connexion with the second submission are also intended to refer to this complaint. It indicates, as a matter of general interest, that the draft law mentioned in its defence has in the meantime become Law No 684 of 1 October 1969, published in the ‘Gazzetta Ufficiale’ No 267 of 21 October 1969.At the hearing the Commission declared that it maintained its first submission for two reasons: first, because the said infringement had continued for almost three years after the expiry of the period laid down in the reasoned opinion and for almost four months after the application had been lodged; secondly, because the infringement persists under the new law in a new guise, as the Commission explains in detail.Also at the hearing, the Italian Government replied that since the Commission had withdrawn its first submission in its reply that submission is henceforth irrelevant. With regard to the substance it may be considered that certain of the arguments set out below in connexion with the second submission are intended to refer also to this complaint.The second submission: Infringement of Article 95 resulting from the higher rate of excise duty on products processed from milled cocoa beans imported directly from other Member States in comparison with corresponding products produced in Italy from cocoa beans imported for domestic consumptionIn its application, the Commission states that on the basis of the previously cited provisions (Article 13 of Decree Law No 50; Article 2 of Law No 291) there is a second case of tax discrimination.The exercise duty on 100 kg of unroasted cocoa beans imported for domestic consumption (‘assuming that products processed from the said beans are sold in the proportion of 40 kg of butter, 40 kg of powder and 13 kg of shells and husks with 7 kg deducted for losses’) amounts to 25000 lire.On the other hand, the excise duty levied on imports of products processed abroad from 100 kg of cocoa beans is calculated as follows :40kg of cocoa butter (40 x 312.50) | 12500 lire40kg of cocoa powder (40 x 312.50) | 12500 lire13 kg of shells and husks (13 x 250) | 3250 lire| 28250 lireThe 93 kg of products imported from other Member States, in the proportions shown above, are thus subject to a duty 3250 lire in excess of that imposed on the same quantity of similar products processed in Italy from cocoa beans imported for domestic consumption.The Italian Government's defence is set out above under the first submission.In its reply, the Commission states that Law No 684 allows the said infringement to continue. In fact, the 93 kg of products imported from other Member States are still liable to a tax burden 2340 lire in excess of that imposed on the same quantity of corresponding products processed in Italy from cocoa beans imported for domestic consumption.This amount is calculated as follows :— The excise duty levied on 100 kg of unroasted cocoa beans imported for domestic consumption (assuming that the products processed from the said beans are sold in the proportion of 40 kg of butter, 40 kg of powder and 13 kg of shells and husks with 7 kg deducted for losses) now amounts to 18000 lire; on the other hand, the excise duty levied on imports of products processed from 100 kg of cocoa beans is henceforth as follows:— 40 kg of cocoa butter(40x280) | 11200 lire40 kg of cocoa powder(40xl70) | 6800 lire13 kg of shells and husks (13 X 180) | 2340 lire| 20340 lireIn its rejoinder and at the hearing the Italian Government replied in particular that:— The legislation impugned was and is intended to put an end to discriminatory treatment to the detriment of Italian producers. In fact, the same duty was previously imposed on cocoa powder with a low butter content (and consequently of little value) as on cocoa powder with a high butter content and on cocoa butter;— The difference indicated by the Commission is explained by the fact that the respective rates are imposed on two different products, that is, cocoa powder containing less than 1 % of oils and fats, and cocoa powder containing more than 20 % of oils and fats;— Account must also be taken of losses in manufacture and of the higher costs involved in milling;— The Commission has failed to give the proportions in which, allegedly, the duty exempted on imported beans is re-imposed on the various derived products— The variation in the tax of which the Commission complains is the same as the duty imposed on shells and husks. The latter are exempted from excise duty if they are used in the extraction of theobromine or in the manufacture of coffee substitutes. Furthermore, it is practically impossible to use the said products in other ways. In fact, Law No 916 of 9 April 1931 prohibits the use of shells and husks in the manufacture of cocoa and chocolate; in order to reinforce this prohibition, the Italian legislature has imposed a very high excise duty on shells and husks, whose commercial value is 4 lire per kilogramme: no sensible dealer would buy goods worth only 4 lire at a price of 254 or 184 lire ;— For the same reasons it would be just as ‘uneconomical’ to use them for any other purpose (such as fertilizers, animal fodder, etc.). Furthermore this is not possible because of the chemical composition of the shells and husks.According to the Commission such considerations are irrelevant. Furthermore, it is by no means inconceivable that shells and husks should have uses other than those for which the exemption is available or which are prohibited by the legislature.The third submission: Infringement of Article 96 by the refund of excise duty, on exports of products obtained in Italy by processing cocoa beans, in excess of the duty actually paidIn its application the Commission points out in detail that when the products in question are exported a refund is payable which is 3250 lire in excess of the amount of duty in fact imposed on them. This is the consequence of Article 4 of the Decree of the Provisional Head of State No 206 of 14 October 1946.In its rejoinder the Italian Government replies in particular that the above-mentioned Article 4 was repealed by Article 3 of Decree No 691 of 3 May 1948.At the hearing the Commission accepted this argument as correct and declared that it withdrew its third submission.

The first submission

The second submission

The third submission

Costs