Italian Republic v Commission of the European Communities (256/85)

Contents

Judgment of the Court4 February 1988^noteIn Case 256/85Italian Republic, represented by Luigi Ferrari Bravo, Head of the Department for Contentious Diplomatic Legal Affairs, acting as Agent, assisted by Oscar Fiumara, Avvocato dello Stato, with an address for service in Luxembourg at the Italian Embassy, 5 rue Marie-Adélaïde,vCommission of the European Communities, represented by its Legal Adviser, Alberto Prozzillo, acting as Agent, with an address for service in Luxembourg at the office of G. Kremlis, a member of the Commission's Legal Department, Jean Monnet Building, Kirchberg,THE COURT,composed of Lord Mackenzie Stuart, President, G. Bosco and O. Due (Presidents of Chambers), T. Koopmans, K. Bahlmann, R. Joliét and F. Schockweiler, Judges,Advocate General: J. C. da Cruz VilaçaRegistrar: H. Rühi, Principal Administratorhaving regard to the Report for the Hearing and further to the hearing on 17 February 1987,after hearing the Opinion of the Advocate General delivered at the sitting on 2 June 1987,gives the following

Judgment

1By an application lodged at the Court Registry on 19 August 1985, the Italian Republic brought an action under the first paragraph of Article 173 of the EEC Treaty for the annulment of the Commission's Decision of 7 June 1985 fixing a standard amount for the reimbursement of costs incurred in treating denatured or coloured cereals with a view to their use in animal feeds at least in so far as it applies to the colouring operation provided for in Commission Regulation (EEC) No 2794/83 on the sale on the internal market of 450000 tonnes of common wheat of bread-making quality held by the Italian intervention agency (Official Journal 1983, L 274, p. 18).

2Council Regulation (EEC) No 1322/83 of 26 May 1983 on the transfer of 550000 tonnes of common wheat of bread-making quality by French and German intervention agencies (Official Journal 1983, L 138, p. 63) provided inter alia for the transfer of 450000 tonnes of common wheat from the French intervention agency to the Italian intervention agency with a view to its use in animal feed.

3In order to facilitate verification of the use in animal feed of the cereals involved, Article 5 of Regulation No 2794/83, in which the Commission laid down the detailed arrangements for transferring the 450000 tonnes of common wheat, required the intervention agency concerned to colour the product so that it could be identified; colouring was to be carried out at minimum expense.

4After carrying out the colouring, the Italian intervention agency applied to the Community authorities for reimbursement of the costs which it had actually incurred in that operation, namely ECU 6.15 per tonne.

5The Commission considered, on the basis of Article 6 of Council Regulation (EEC) No 1883/78 of 2 August 1978 laying down general rules for the financing of interventions by the EAGGF, Guarantee Section (Official Journal 1978, L 216, p. 1), that those costs should be financed by means of standard amounts rather than in their entirety. Accordingly, it adopted for that purpose its Decision of 7 June 1985, at issue in this case, which determined a standard amount of ECU 1.17 per tonne for the colouring of cereals with a view to their use in animal feeds.

6Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the applicable Community legislation and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

7The Italian Government, considering that that decision adversely affected it, instituted the present proceedings, relying on two submissions. It maintains in the first place that by adopting that decision the Commission infringed and misapplied Articles 4 and 6 of Council Regulation No 1883/78 and Annex I to Council Regulation (EEC) No 3247/81, in conjunction with Council Regulation No 1322/83 and Commission Regulation No 2794/83. It also claims that the adoption of the decision was vitiated by misuse of powers on the part of the Commission which, by its misinterpretation and misapplication of Article 6 of Regulation No 1883/78, had arrogated to itself the power to reimburse the colouring costs at a standard rate.

8It must be stated that the applicant's submission as to the misuse of powers constitutes, in substance, an allegation that a legal provision has been infringed, namely Article 6 of Regulation No 1883/78 which is already the subject of the first submission. It thus appears that the second submission merges with the first and that they should be considered together.

9The Italian Government maintains that an operation such as colouring does not fall within any category of operations specifically referred to in point I, 1 of Annex I to Council Regulation No 3247/81 of 9 November 1981 on the financing by the European Agricultural Guidance and Guarantee Fund, Guarantee Section, of certain intervention measures, particularly those involving the buying in, storage and sale of agricultural products by intervention agencies (Official Journal 1981, L 327, p. 1), for which a system of reimbursement by means of standard amounts is applicable. Consequently it ought be regarded, on a residual basis, as one of the other operations referred to in point I, 3 of the same annex which are covered by a system of full reimbursement. The Italian Government emphasizes that the Commission was also aware of that fact when it took the trouble to make clear in Article 5 of Regulation No 2794/83 that ‘colouring must be carried out at minimum expense’.

10For its part, the Commission, relying on Article 6 of Regulation No 1883/78, postulates the principle that, in the absence of an express derogation, the costs of intervention measures for which no amount is fixed per unit are to be reimbursed according to the system of standard amounts. A reimbursement system of that kind should therefore apply to the operation of colouring in the absence of an express derogation in Regulation No 3247/81.

11It claims that in any case the costs connected with colouring should be subject to the system of reimbursement by standard amounts regardless of whether it is considered that colouring, which was introduced for control purposes, constitutes a material operation relating to the withdrawal from stock of a product held by an intervention agency within the meaning of point I-1 (c) of Annex 1 to Regulation No 3247/81 or whether colouring is assimilated to a material operation forming part of product processing, which would enable it to be included in point I-1 (d) of Annex I. It maintains that the requirement in Article 5 of Regulation No 2794/83 that ‘colouring must be carried out at minimum expense’ is accounted for by the fact that, even where reimbursement is effected by means of standard amounts, those amounts are calculated on the basis of the real costs and the latter must be kept at a low level to ensure that the standard amounts paid are reduced to the minimum.

12In that connection, it must be pointed out that Article 6 of Regulation No 1883/78, upon which the Commission relied in adopting its contested decision of 7 June 1985, provides that‘Material operations arising from the storage and, where appropriate, processing of intervention products shall be financed by the EAGGF, Guarantee Section, by means of standard amounts uniform throughout the Community, to be laid down in accordance with the procedure provided for in Article 13 of Regulation (EEC) No 729/70 and, where necessary, after examination of the matter by the Management Committee concerned.’

13It is clear from the very wording of that provision that it does not cover all the material operations relating to an intervention measure but only those deriving from storage or processing, so that the costs incurred in the operation of colouring cannot be lawfully made subject by the Commission to a system of reimbursement by means of standard amounts unless that operation can be classified as a material operation deriving from the storage or processing of an intervention product.

14Since Annex I, point I, of Regulation No 3247/81 clarifies how the term ‘material operations’ within the meaning of Article 6 of Regulation No 1883/78 is to be understood, it is necessary to consider whether the colouring of cereals can be defined either as a material operation relating to withdrawal from stock (point I-1 (c)), or as a product-processing operation (point I-1 (d)).

15The colouring of cereals cannot be regarded as a processing operation, within the meaning of point I-1 (d) of Annex I, for the conversion of a product intended for human consumption into a product intended for consumption by animals, as contended by the Commission. Processing, in its usual sense, implies that there is an alteration in the intrinsic characteristics of the product, whereas the colouring at issue here does no more than render the cereals identifiable in order to facilitate verification of their use in animal feeds. In that connection, it is also significant that the Commission, in its decision of 7 June 1985, considered it appropriate to include the costs at issue in the costs of withdrawal from the warehouse.

16The Commission's argument that the costs of colouring should be assimilated to verification costs which are normally an integral part of the costs of withdrawal from stock likewise cannot be upheld.

17Whilst it is true that the colouring of cereals was prescribed for verification purposes and cereals cannot be withdrawn from stock for use in animal feeds until after colouring has been carried out, it must nevertheless be stated that the only purpose of such an operation is to verify the final use of the products. It is thereby distinguished from the other control operations which the Commission, having regard to the questionnaires which it sends to the Member States for the adjustment of the standard amounts and to the working documents relating to the determination of such amounts, considers to be included within the operations of withdrawal from stock. Their purpose is to check the quantity or quality of the goods before they are withdrawn from stock and not to verify at a later stage the use to which the goods are put. Therefore, by contrast with the operation of colouring, their purpose relates directly to withdrawal from stock.

18Since colouring cannot be regarded as a material operation involved in withdrawal from stock or processing, it is necessary to refer to the only provision dealing with costs connected with colouring, namely Article 5 of Regulation No 2974/83 which provides that ‘colouring must be carried out at minimum expense’. The wording of that article suggests that the costs connected with colouring must be reimbursed in full provided that the method adopted was the least costly possible, a point not raised in the proceedings.

19It is apparent from the foregoing considerations that the submission that Articles 4 and 6 of Council Regulation No 1883/78 and Annex I to Council Regulation No 3247/81 have been infringed and misapplied is well founded.

20It follows that the Commission Decision of 7 June 1985 must be declared void in so far as it applies to the operation of colouring referred to in Commission Regulation No 2794/83 of 6 October 1983.

Costs

21Pursuant to Article 69 (2) of the Rules of Procedure, the unsuccessful party is to ordered to pay the costs. Since the Commission has failed in its submissions, it must be ordered to pay the costs.

Operative part

On those grounds,THE COURThereby:

(1).Declares void Commission Decision C(85) 839 of 7 June 1985 fixing a standard amount for the repayment of expenditure resulting from the treatment of denatured or coloured cereals with a view to their use in animal feed in so far as it applies to the colouring operation provided for in Commission Regulation (EEC) No 2794/83 of 6 October 1983 on the sale on the internal market of 450000 tonnes of common wheat of bread-making quality held by the Italian intervention agency (Official Journal 1983, L 274, p. 18);

(2).Orders the Commission to pay the costs.

Delivered in open court in Luxembourg on 4 February 1988.