1 BY APPLICATION OF 7 AUGUST 1978 , THE COMMISSION LODGED UNDER ARTICLE 169 OF THE EEC TREATY AN APPLICATION FOR A DECLARATION THAT THE ITALIAN REPUBLIC , BY APPLYING DIFFERENTIAL TAXATION ON SPIRITS , HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER ARTICLE 95 OF THE EEC TREATY .
2 AT THE SAME TIME , THE COMMISSION SUBMITTED TO THE COURT OF JUSTICE APPLICATIONS AGAINST THE KINGDOM OF DENMARK AND THE FRENCH REPUBLIC RELATING TO PROBLEMS OF THE SAME NATURE . THE APPLICATIONS CONTAIN , IN ALL THREE INSTANCES , CERTAIN GENERAL CONSIDERATIONS FROM WHICH IT FOLLOWS THAT THOSE APPLICATIONS FORM PART OF A GENERAL ACTION AIMING TO ENSURE THAT THE MEMBER STATES CONCERNED COMPLY WITH THE OBLIGATIONS IMPOSED ON THEM BY THE TREATY IN THIS RESPECT . IT THEREFORE SEEMS APPROPRIATE TO CLARIFY FIRST OF ALL CERTAIN QUESTIONS OF PRINCIPLE COMMON TO THE THREE CASES AS REGARDS THE INTERPRETATION OF ARTICLE 95 IN THE LIGHT OF THE SPECIAL FEATURES OF THE MARKET IN SPIRITS .
THE INTERPRETATION OF ARTICLE 95
3 UNDER THE FIRST PARAGRAPH OF ARTICLE 95 ' ' NO MEMBER STATE SHALL IMPOSE , DIRECTLY OR INDIRECTLY , ON THE PRODUCTS OF OTHER MEMBER STATES ANY INTERNAL TAXATION OF ANY KIND IN EXCESS OF THAT IMPOSED DIRECTLY OR INDIRECTLY ON SIMILAR DOMESTIC PRODUCTS ' ' . THE SECOND PARAGRAPH OF THAT ARTICLE ADDS AS FOLLOWS : ' ' FURTHERMORE , NO MEMBER STATE SHALL IMPOSE ON THE PRODUCTS OF OTHER MEMBER STATES ANY INTERNAL TAXATION OF SUCH A NATURE AS TO AFFORD INDIRECT PROTECTION TO OTHER PRODUCTS ' ' .
4 THE ABOVE-MENTIONED PROVISIONS SUPPLEMENT , WITHIN THE SYSTEM OF THE TREATY , THE PROVISIONS ON THE ABOLITION OF CUSTOMS DUTIES AND CHARGES HAVING EQUIVALENT EFFECT . THEIR AIM IS TO ENSURE FREE MOVEMENT OF GOODS BETWEEN THE MEMBER STATES IN NORMAL CONDITIONS OF COMPETITION BY THE ELIMINATION OF ALL FORMS OF PROTECTION WHICH RESULT FROM THE APPLICATION OF INTERNAL TAXATION WHICH DISCRIMINATES AGAINST PRODUCTS FROM OTHER MEMBER STATES . AS THE COMMISSION HAS CORRECTLY STATED , ARTICLE 95 MUST GUARANTEE THE COMPLETE NEUTRALITY OF INTERNAL TAXATION AS REGARDS COMPETITION BETWEEN DOMESTIC PRODUCTS AND IMPORTED PRODUCTS .
5 THE FIRST PARAGRAPH OF ARTICLE 95 , WHICH IS BASED ON A COMPARISON OF THE TAX BURDENS IMPOSED ON DOMESTIC PRODUCTS AND ON IMPORTED PRODUCTS WHICH MAY BE CLASSIFIED AS ' ' SIMILAR ' ' , IS THE BASIC RULE IN THIS RESPECT . THIS PROVISION , AS THE COURT HAS HAD OCCASION TO EMPHASIZE IN ITS JUDGMENT OF 10 OCTOBER 1978 IN CASE 148/77 , H . HANSEN JUN . & O . C . BALLE GMBH & CO . V HAUPTZOLLAMT FLENSBURG ( 1978 ) ECR 1787 , MUST BE INTERPRETED WIDELY SO AS TO COVER ALL TAXATION PROCEDURES WHICH CONFLICT WITH THE PRINCIPLE OF THE EQUALITY OF TREATMENT OF DOMESTIC PRODUCTS AND IMPORTED PRODUCTS ; IT IS THEREFORE NECESSARY TO INTERPRET THE CONCEPT OF ' ' SIMILAR PRODUCTS ' ' WITH SUFFICIENT FLEXIBILITY . THE COURT SPECIFIED IN THE JUDGMENT OF 17 FEBRUARY 1976 IN THE REWE CASE ( CASE 45/75 ( 1976 ) ECR 181 ) THAT IT IS NECESSARY TO CONSIDER AS SIMILAR PRODUCTS WHICH ' ' HAVE SIMILAR CHARACTERISTICS AND MEET THE SAME NEEDS FROM THE POINT OF VIEW OF CONSUMERS ' ' . IT IS THEREFORE NECESSARY TO DETERMINE THE SCOPE OF THE FIRST PARAGRAPH OF ARTICLE 95 ON THE BASIS NOT OF THE CRITERION OF THE STRICTLY IDENTICAL NATURE OF THE PRODUCTS BUT ON THAT OF THEIR SIMILAR AND COMPARABLE USE .
6 THE FUNCTION OF THE SECOND PARAGRAPH OF ARTICLE 95 IS TO COVER , IN ADDITION , ALL FORMS OF INDIRECT TAX PROTECTION IN THE CASE OF PRODUCTS WHICH , WITHOUT BEING SIMILAR WITHIN THE MEANING OF THE FIRST PARAGRAPH , ARE NEVERTHELESS IN COMPETITION , EVEN PARTIAL , INDIRECT OR POTENTIAL , WITH CERTAIN PRODUCTS OF THE IMPORTING COUNTRY . THE COURT HAS ALREADY EMPHASIZED CERTAIN ASPECTS OF THAT PROVISION IN ITS JUDGMENT OF 4 APRIL 1978 IN CASE 27/77 , FIRMA FINK-FRUCHT GMBH V HAUPTZOLLAMT MUNCHEN-LANDSBERGER STRASSE ( 1978 ) ECR 223 , IN WHICH IT STATED THAT FOR THE PURPOSES OF THE APPLICATION OF THE FIRST PARAGRAPH OF ARTICLE 95 IT IS SUFFICIENT FOR THE IMPORTED PRODUCT TO BE IN COMPETITION WITH THE PROTECTED DOMESTIC PRODUCTION BY REASON OF ONE OR SEVERAL ECONOMIC USES TO WHICH IT MAY BE PUT , EVEN THOUGH THE CONDITION OF SIMILARITY FOR THE PURPOSES OF THE FIRST PARAGRAPH OF ARTICLE 95 IS NOT FULFILLED .
7 WHILST THE CRITERION INDICATED IN THE FIRST PARAGRAPH OF ARTICLE 95 CONSISTS IN THE COMPARISON OF TAX BURDENS , WHETHER IN TERMS OF THE RATE , THE MODE OF ASSESSMENT OR OTHER DETAILED RULES FOR THE APPLICATION THEREOF , IN VIEW OF THE DIFFICULTY OF MAKING SUFFICIENTLY PRECISE COMPARISONS BETWEEN THE PRODUCTS IN QUESTION , THE SECOND PARAGRAPH OF THAT ARTICLE IS BASED UPON A MORE GENERAL CRITERION , IN OTHER WORDS THE PROTECTIVE NATURE OF THE SYSTEM OF INTERNAL TAXATION .
8 THE APPLICATION IN THIS INSTANCE OF THE CRITERION OF SIMILARITY , WHICH DETERMINES THE SCOPE OF THE PROHIBITION LAID DOWN IN THE FIRST PARAGRAPH OF ARTICLE 95 , HAS GIVEN RISE TO DIFFERENCES OF OPINION BETWEEN THE PARTIES . ACCORDING TO THE COMMISSION , ALL SPIRITS , WHATEVER THE RAW MATERIALS USED FOR THEIR MANUFACTURE , HAVE SIMILAR PROPERTIES AND IN ESSENCE MEET THE SAME NEEDS OF CONSUMERS . THEREFORE , WHATEVER THE SPECIFIC CHARACTERISTICS OF THE VARIOUS PRODUCTS COMING WITHIN THAT CATEGORY AND WHATEVER THE CONSUMER HABITS IN THE VARIOUS REGIONS OF THE COMMUNITY , SPIRITS AS FINISHED PRODUCTS REPRESENT , FROM THE POINT OF VIEW OF CONSUMERS , A SINGLE GENERAL MARKET . IT IS NECESSARY TO OBSERVE THAT THIS CONCEPT IS EXPRESSED IN THE PROPOSALS SUBMITTED BY THE COMMISSION TO THE COUNCIL FOR THE ESTABLISHMENT OF A COMMON ORGANIZATION OF THE MARKET IN ALCOHOL , BASED ON THE APPLICATION OF A SINGLE RATE OF TAX FOR ALL THE PRODUCTS IN QUESTION ON THE BASIS OF THEIR PURE ALCOHOL CONTENT .
9 THIS CONCEPT IS CONTESTED BY THE GOVERNMENTS OF THE THREE DEFENDANT MEMBER STATES . IN THEIR OPINION , IT IS POSSIBLE TO DISTINGUISH IN THE CASE OF SPIRITS VARIOUS CATEGORIES OF PRODUCT WHICH DIFFER EITHER IN TERMS OF THE RAW MATERIALS USED OR OF THEIR TYPICAL CHARACTERISTICS OR OF THE CONSUMER HABITS OBSERVED IN THE VARIOUS MEMBER STATES .
10 IN THIS CONNEXION , THE COMMISSION POINTS OUT HOWEVER THAT THE APPRAISAL OF THE CHARACTERISTICS OF THE VARIOUS ALCOHOLIC BEVERAGES , IN THE SAME WAY AS CONSUMER HABITS , IS VARIABLE IN TIME AND SPACE AND THAT SUCH FACTORS CANNOT PROVIDE VALID CRITERIA AS REGARDS THE COMMUNITY TAKEN AS A WHOLE . IT DRAWS ATTENTION MOREOVER TO THE DANGER OF HARDENING SUCH HABITS BY MEANS OF TAX CLASSIFICATIONS MADE BY THE MEMBER STATES .
11 THESE ARGUMENTS PROMPT THE FOLLOWING REPLY FROM THE COURT . THE APPLICATION OF THE PROVISIONS OF ARTICLE 95 TO SPECIFIC NATIONAL SITUATIONS FORMING THE SUBJECT-MATTER OF THE APPLICATIONS SUBMITTED BY THE COMMISSION MUST BE EXAMINED IN THE CONTEXT OF THE GENERAL STATE OF THE MARKET IN ALCOHOLIC BEVERAGES WITHIN THE COMMUNITY . IN THIS RESPECT IT IS NECESSARY TO TAKE INTO ACCOUNT THREE LINES OF THOUGHT :
( A ) IT IS IMPOSSIBLE , FIRST OF ALL , TO DISREGARD THE FACT THAT ALL THE PRODUCTS IN QUESTION , WHATEVER THEIR SPECIFIC CHARACTERISTICS IN OTHER RESPECTS , HAVE COMMON GENERIC FEATURES . ALL ARE THE OUTCOME OF THE DISTILLATION PROCEDURE ; ALL CONTAIN , AS A PRINCIPAL CHARACTERISTIC INGREDIENT , ALCOHOL SUITABLE FOR HUMAN CONSUMPTION AT A RELATIVELY HIGH DEGREE OF CONCENTRATION . IT FOLLOWS THAT WITHIN THE LARGEST GROUP OF ALCOHOLIC BEVERAGES SPIRITS FORM AN IDENTIFIABLE WHOLE UNITED BY COMMON CHARACTERISTICS ;
( B)IN SPITE OF THOSE COMMON CHARACTERISTICS , IT IS POSSIBLE TO DISTINGUISH WITHIN THAT WHOLE PRODUCTS WHICH HAVE THEIR OWN MORE OR LESS PRONOUNCED CHARACTERISTICS . THOSE CHARACTERISTICS SPRING EITHER FROM THE RAW MATERIALS USED ( IN THIS CONNEXION IT IS POSSIBLE TO DISTINGUISH IN PARTICULAR SPIRITS DISTILLED FROM WINE , FRUIT , CEREALS AND SUGAR-CANE ), OR FROM MANUFACTURING PROCESSES OR , AGAIN , FROM THE FLAVOURINGS ADDED . TYPICAL VARIETIES OF SPIRITS MAY IN FACT BE DEFINED BY THESE PARTICULAR CHARACTERISTICS , SO MUCH SO THAT SOME OF THEM ARE EVEN PROTECTED BY REGISTERED DESIGNATIONS OF ORIGIN ;
( C)AT THE SAME TIME , IT IS IMPOSSIBLE TO DISREGARD THE FACT THAT THERE ARE , IN THE CASE OF SPIRITS , IN ADDITION TO WELL-DEFINED PRODUCTS WHICH ARE PUT TO RELATIVELY SPECIFIC USES , OTHER PRODUCTS WITH LESS DISTINCT CHARACTERISTICS AND WIDER USES . THERE ARE , ON THE ONE HAND , NUMEROUS PRODUCTS DERIVED FROM WHAT ARE KNOWN AS ' ' NEUTRAL ' ' SPIRITS , IN OTHER WORDS SPIRITS OF ALL ORIGINS INCLUDING MOLASSES ALCOHOL AND POTATO ALCOHOL ; THESE PRODUCTS OWE THEIR INDIVIDUALITY ONLY TO FLAVOURING ADDITIVES WITH A MORE OR LESS PRONOUNCED TASTE . ON THE OTHER HAND , IT IS NECESSARY TO DRAW ATTENTION TO THE FACT THAT IN THE CASE OF SPIRITS THERE ARE PRODUCTS WHICH MAY BE CONSUMED IN VERY DIFFERENT FORMS , EITHER NEAT OR DILUTED OR , AGAIN , IN THE FORM OF MIXTURES . THESE PRODUCTS MAY THEREFORE BE IN COMPETITION WITH A RANGE OF VARYING SIZE OF OTHER ALCOHOLIC PRODUCTS OF MORE LIMITED USE . A CHARACTERISTIC OF THE THREE CASES BROUGHT BEFORE THIS COURT IS HOWEVER THE FACT THAT IN EACH THERE ARE , IN ADDITION TO WELL-DEFINED SPIRITS , ONE OR SEVERAL PRODUCTS WITH A BROAD RANGE OF USES .
12 TWO CONCLUSIONS FOLLOW FROM THIS ANALYSIS OF THE MARKET IN SPIRITS . FIRST , THERE IS , IN THE CASE OF SPIRITS CONSIDERED AS A WHOLE , AN INDETERMINATE NUMBER OF BEVERAGES WHICH MUST BE CLASSIFIED AS ' ' SIMILAR PRODUCTS ' ' WITHIN THE MEANING OF THE FIRST PARAGRAPH OF ARTICLE 95 , ALTHOUGH IT MAY BE DIFFICULT TO DECIDE THIS IN SPECIFIC CASES , IN VIEW OF THE NATURE OF THE FACTORS IMPLIED BY DISTINGUISHING CRITERIA SUCH AS FLAVOUR AND CONSUMER HABITS . SECONDLY , EVEN IN CASES IN WHICH IT IS IMPOSSIBLE TO RECOGNIZE A SUFFICIENT DEGREE OF SIMILARITY BETWEEN THE PRODUCTS CONCERNED , THERE ARE NEVERTHELESS , IN THE CASE OF ALL SPIRITS , COMMON CHARACTERISTICS WHICH ARE SUFFICIENTLY PRONOUNCED TO CONSTITUTE EVIDENCE IN ALL CASES OF AT LEAST PARTIAL OR POTENTIAL COMPETITION . IT FOLLOWS THAT THE APPLICATION OF THE SECOND PARAGRAPH OF ARTICLE 95 MAY COME INTO CONSIDERATION IN CASES IN WHICH THE RELATIONSHIP OF SIMILARITY BETWEEN THE SPECIFIC VARIETIES OF SPIRITS REMAINS DOUBTFUL OR CONTESTED .
13 IT APPEARS FROM THE FOREGOING THAT ARTICLE 95 , TAKEN AS A WHOLE , MAY APPLY WITHOUT DISTINCTION TO ALL THE PRODUCTS CONCERNED . IT IS SUFFICIENT THEREFORE TO EXAMINE WHETHER THE APPLICATION OF A GIVEN NATIONAL TAX SYSTEM IS DISCRIMINATORY OR , AS THE CASE MAY BE , PROTECTIVE , IN OTHER WORDS WHETHER THERE IS A DIFFERENCE IN THE RATE OR THE DETAILED RULES FOR LEVYING THE TAX AND WHETHER THAT DIFFERENCE IS LIKELY TO FAVOUR A GIVEN DOMESTIC PRODUCTION . IT WILL BE NECESSARY TO EXAMINE WITHIN THIS FRAMEWORK THE ECONOMIC RELATIONSHIPS BETWEEN THE PRODUCTS CONCERNED AND THE CHARACTERISTICS OF THE TAX SYSTEMS WHICH FORM THE SUBJECT-MATTER OF THE DISPUTES IN THE CASE OF EACH OF THE APPLICATIONS LODGED BY THE COMMISSION .
14 IN THE VARIOUS PROCEDURES , THE PARTIES HAVE RELIED , WITH REGARD TO THE DISTINCTION BETWEEN SEVERAL CATEGORIES OF ALCOHOLIC PRODUCT , UPON CERTAIN STATEMENTS MADE BY THE COURT OF JUSTICE IN THE JUDGMENT IN THE HANSEN & BALLE CASE , SUPRA , WHICH WAS DELIVERED AT A TIME WHEN THESE APPLICATIONS WERE PENDING . REFERENCE HAS BEEN MADE MORE PARTICULARLY TO A PASSAGE IN THAT JUDGMENT WHICH STATES AS FOLLOWS : ' ' AT THE PRESENT STAGE OF ITS DEVELOPMENT AND IN THE ABSENCE OF ANY UNIFICATION OR HARMONIZATION OF THE RELEVANT PROVISIONS , COMMUNITY LAW DOES NOT PROHIBIT MEMBER STATES FROM GRANTING TAX ADVANTAGES , IN THE FORM OF EXEMPTION FROM OR REDUCTION OF DUTIES , TO CERTAIN TYPES OF SPIRITS OR TO CERTAIN CLASSES OF PRODUCERS . INDEED , TAX ADVANTAGES OF THIS KIND MAY SERVE LEGITIMATE ECONOMIC OR SOCIAL PURPOSES , SUCH AS THE USE OF CERTAIN RAW MATERIALS BY THE DISTILLING INDUSTRY , THE CONTINUED PRODUCTION OF PARTICULAR SPIRITS OF HIGH QUALITY , OR THE CONTINUANCE OF CERTAIN CLASSES OF UNDERTAKINGS SUCH AS AGRICULTURAL DISTILLERIES ' ' .
15 SINCE CERTAIN OF THE DEFENDANT GOVERNMENTS HAVE RELIED UPON THESE STATEMENTS IN ORDER TO JUSTIFY THEIR TAX SYSTEM , THE COURT HAS ASKED THE COMMISSION QUESTIONS AS TO THE COMPATIBILITY WITH COMMUNITY LAW OF THE DIFFERENCES IN THE RATES OF TAX APPLIED TO VARIOUS CATEGORIES OF ALCOHOLIC BEVERAGES AND AS TO ITS INTENTIONS IN THAT RESPECT WITHIN THE CONTEXT OF THE HARMONIZATION OF TAX LEGISLATION . THE COMMISSION , AFTER RE-STATING ITS VIEW THAT ALL SPIRITS ARE SIMILAR AND ITS INTENTION TO PROPOSE THE INTRODUCTION , AT LEAST IN PRINCIPLE , OF A SINGLE RATE OF TAX IN FUTURE COMMUNITY REGULATIONS , DRAWS ATTENTION TO THE FACT THAT THE PROBLEMS LINKED TO THE USE OF CERTAIN RAW MATERIALS , CONTINUED HIGH-QUALITY PRODUCTION AND THE ECONOMIC STRUCTURE OF MANUFACTURING UNDERTAKINGS TO WHICH THE COURT REFERRED IN THE ABOVE-MENTIONED JUDGMENT MAY BE RESOLVED BY MEANS OF AID TO PRODUCERS OR SYSTEMS OF COMPENSATION BETWEEN PRODUCERS , TAKING INTO ACCOUNT THE DIFFERENCE IN THE COST OF THE RAW MATERIALS USED . IT DRAWS ATTENTION TO THE FACT THAT THIS OBJECTIVE HAS ALREADY BEEN ATTAINED WITHIN THE CONTEXT OF THE COMMON ORGANIZATION OF THE MARKET IN WINE AS REGARDS SPIRITS OBTAINED BY DISTILLING WINE . ACCORDING TO THE COMMISSION , SUCH MECHANISMS MIGHT SAFEGUARD THE MARKETING CHANCES OF CERTAIN PRODUCTS WHICH ARE HANDICAPPED BY PRODUCTION COSTS , WITHOUT ITS BEING NECESSARY TO HAVE RECOURSE FOR THIS PURPOSE TO THE PROCEDURE OF VARIATION IN THE RATES OF TAX .
16 IN VIEW OF THESE OBSERVATIONS , THE COURT POINTS OUT THAT ALTHOUGH IT ACKNOWLEDGED IN THE JUDGMENT IN THE HANSEN & BALLE CASE , TAKING INTO ACCOUNT THE STATE OF DEVELOPMENT OF COMMUNITY LAW , THAT CERTAIN TAX EXEMPTIONS OR TAX CONCESSIONS ARE LAWFUL , THIS IS ON CONDITION THAT THE MEMBER STATES USING THOSE POWERS EXTEND THE BENEFIT THEREOF WITHOUT DISCRIMINATION TO IMPORTED PRODUCTS IN THE SAME CONDITIONS . IT IS NECESSARY TO EMPHASIZE THAT IT WAS ACKNOWLEDGED THAT THOSE PRACTICES WERE LAWFUL IN PARTICULAR SO AS TO ENABLE PRODUCTIONS OR UNDERTAKINGS TO CONTINUE WHICH WOULD NO LONGER BE PROFITABLE WITHOUT THESE SPECIAL TAX BENEFITS BECAUSE OF THE RISE IN PRODUCTION COSTS . ON THE OTHER HAND , THE CONSIDERATIONS EXPRESSED IN THAT JUDGMENT CANNOT BE UNDERSTOOD AS LEGITIMATING TAX DIFFERENCES WHICH ARE DISCRIMINATORY OR PROTECTIVE .
THE SUBJECT-MATTER OF THE DISPUTE AND THE ADMISSIBILITY OF THE APPLICATION
17 THE APPLICATION LODGED BY THE COMMISSION RELATES TO THE AFFIXING , LAID DOWN BY THE ITALIAN TAX LEGISLATION RESULTING FROM THE PROVISIONS OF ARTICLE 6 OF DECREE LAW NO 745 OF 26 OCTOBER 1970 ( GAZZETTA UFFICIALE DELLA REPUBBLICA ITALIANA , P . 7193 ), RATIFIED BY LAW NO 1034 OF 18 DECEMBER 1970 ( GAZZETTA UFFICIALE DELLA REPUBBLICA ITALIANA , P . 8543 ), OF TAX BANDEROLES ON RECEPTACLES CONTAINING SPIRITS INTENDED FOR RETAIL . IT APPEARS FROM THOSE PROVISIONS THAT THOSE RATES , WHICH ARE ON A GRADUATED SCALE ACCORDING TO THE CAPACITY OF THE RECEPTACLES , ARE , AS FAR AS SPIRITS OBTAINED FROM CEREALS AND SUGAR-CANE ARE CONCERNED , SEVERAL TIMES THE RATES APPLICABLE TO SPIRITS OBTAINED FROM WINE AND MARC . THE COMMISSION CONSIDERS THAT THIS TAX SYSTEM IS CONTRARY TO THE PROVISIONS OF ARTICLE 95 OF THE EEC TREATY IN THAT THE HEAVIEST RATES OF TAX ARE LEVIED ON PRODUCTS WHICH ARE , ESSENTIALLY , IMPORTED PRODUCTS , WHEREAS THE MOST FAVOURABLE RATES OF TAX ARE RESERVED TO SPIRITS OBTAINED FROM WINE AND MARC WHICH ARE TYPICALLY ITALIAN PRODUCTS .
18 IN ITS APPLICATION , THE COMMISSION POINTS OUT THE FACT THAT THE SYSTEM OF TAX BANDEROLES FORMS ONLY ONE OF THE ASPECTS OF THE ITALIAN SYSTEM OF TAX ON SPIRITS WHICH CONTAINS IN ADDITION OTHER TAXES , IN OTHER WORDS THE ' ' STATE TAX ' ' , LEVIED AT THE PRODUCTION STAGE , AND THE VALUE-ADDED TAX , WHICH IS LEVIED AT THE MARKETING STAGE . PROCEDURES FOR A DECLARATION THAT THE ITALIAN GOVERNMENT HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER THE TREATY BASED ON ARTICLE 169 OF THE TREATY ARE PENDING OWING TO THE DISCRIMINATORY FEATURES OF THOSE TWO TAX SYSTEMS .
19 THE ITALIAN GOVERNMENT CONTESTS THE ADMISSIBILITY OF THE APPLICATION BECAUSE OF THE FACT THAT THE COMMISSION HAS THUS SEPARATED THE QUESTION OF THE TAX BANDEROLES FROM THE OTHER COMPONENTS OF THE TAX ARRANGEMENTS APPLICABLE TO SPIRITUOUS BEVERAGES . ACCORDING TO THE ITALIAN GOVERNMENT , THIS PRESENTATION OF THE APPLICATION PREVENTS THE PROBLEM FROM BEING PERCEIVED AS A WHOLE AND MAY WELL THUS LEAD THE COURT TO PREJUDGE THE SITUATION IN THE LIGHT OF A SECONDARY FEATURE OF THE TAX SYSTEM IN QUESTION .
20 THIS OBJECTION OF INADMISSIBILITY CANNOT BE ACCEPTED . ALTHOUGH IT MAY APPEAR ADVANTAGEOUS TO EXAMINE AS A WHOLE A SYSTEM OF TAX WHICH GIVES RISE TO CRITICISM ON THE PART OF THE COMMISSION FROM VARIOUS ASPECTS , THE SYSTEM OF TAX BANDEROLES NEVERTHELESS CONSTITUTES WITHIN THE SYSTEM IN QUESTION AS A WHOLE A PERFECTLY SEPARABLE FACTOR WHICH MAY AS SUCH BE APPRAISED SEPARATELY . IT IS CLEAR THAT IN THESE CIRCUMSTANCES THE SCOPE OF THE JUDGMENT OF THE COURT CANNOT EXTEND FURTHER THAN THE FACTS BROUGHT BEFORE IT AND THAT THEREFORE NO PREJUDICE CAN FLOW FROM IT WITH REGARD TO THE SOLUTION OF OTHER CONNECTED PROBLEMS .
21 IT IS APPROPRIATE TO RECALL IN ADDITION THAT ACCORDING TO THE ITALIAN GOVERNMENT THE APPLICATION , WHICH WAS INTRODUCED PRINCIPALLY ON THE BASIS OF THE FIRST PARAGRAPH OF ARTICLE 95 , IS INADMISSIBLE IN SO FAR AS THE COMMISSION HAS BASED IT SIMULTANEOUSLY , IN THE ALTERNATIVE , ON THE SECOND PARAGRAPH OF THE SAME ARTICLE , RELYING , AS REGARDS THE SECOND INFRINGEMENT COMPLAINED OF AGAINST THE ITALIAN REPUBLIC , ON EXTREMELY GENERAL TERMS .
22 IT IS SUFFICIENT TO POINT OUT THAT THIS DEFENCE PUT FORWARD BY THE ITALIAN GOVERNMENT IN FACT COMES WITHIN THE SUBSTANCE OF THE DISPUTE AND MUST THEREFORE BE EXAMINED WITH THE SUBSTANCE OF THE CASE .
23 AS REGARDS THE SUBSTANCE OF THE CASE , THE ITALIAN GOVERNMENT PUTS FORWARD TWO SERIES OF ARGUMENTS AS REGARDS
- THE LACK OF SIMILARITY WITHIN THE MEANING OF THE FIRST PARAGRAPH OF ARTICLE 95 BETWEEN THE PRODUCTS WHICH ARE SUBJECT TO DIFFERENTIAL TAXATION AND
- THE ABSENCE OF INDIRECT PROTECTION FOR NATIONAL PRODUCTION UNDER THE SECOND PARAGRAPH OF ARTICLE 95 .
THE APPRAISAL OF THE CONTESTED TAX SYSTEM
24 IN ACCORDANCE WITH THE VIEWPOINT RECALLED ABOVE , THE COMMISSION CONSIDERS THAT THE PRODUCTS CLASSIFIED BY THE ITALIAN LEGISLATION IN SEPARATE TAX CATEGORIES - SPIRITS OBTAINED FROM CEREALS AND SUGAR-CANE ON THE ONE HAND , AND SPIRITS MADE FROM WINE AND MARC , ON THE OTHER - MUST BE CONSIDERED TO BE ' ' SIMILAR ' ' PRODUCTS WITHIN THE MEANING OF THE FIRST PARAGRAPH OF ARTICLE 95 OF THE TREATY .
25 THE APPLICATION LODGED BY THE COMMISSION IS BASED IN THE ALTERNATIVE ON THE COMPLAINT THAT THE ITALIAN REPUBLIC HAS BEEN IN BREACH OF THE SECOND PARAGRAPH OF ARTICLE 95 IF THE COURT DOES NOT RECOGNIZE THE EXISTENCE OF A RELATIONSHIP OF SIMILARITY BETWEEN THE PRODUCTS REFERRED TO . THE COMMISSION CONSIDERS THAT IN SPITE OF THEIR TYPICAL CHARACTERISTICS , THE VARIOUS TYPES OF SPIRITS IN QUESTION , IN THAT THEY ARE SUBSTITUTE PRODUCTS , ARE AT LEAST IN THE COMPETITIVE SITUATION REFERRED TO BY THE SECOND PARARAPH OF ARTICLE 95 . THAT SITUATION IS ILLUSTRATED BY THE EFFORTS MADE BY CERTAIN MEMBER STATES TO OBTAIN PROTECTION FOR THE REGISTERED DESIGNATIONS OF ORIGIN OF CERTAIN SPIRITS WHICH WOULD NOT BE OF INTEREST IF THOSE PRODUCTS WERE ENTIRELY DISTINCT FROM OTHER COMPETING PRODUCTS .
26 AS REGARDS THE APPLICATION OF THE FIRST PARAGRAPH OF ARTICLE 95 THE ITALIAN GOVERNMENT CONTESTS THAT PRODUCTS CLASSIFIED IN VARIOUS CATEGORIES FOR THE PURPOSE OF THE FIXING OF TAX BANDEROLES - SPIRITS OBTAINED FROM CEREALS AND SUGAR-CANE , ON THE ONE HAND , AND SPIRITS OBTAINED FROM WINE AND MARC , ON THE OTHER - MAY BE CONSIDERED TO BE ' ' SIMILAR ' ' PRODUCTS WITHIN THE MEANING OF THAT PROVISION . REFERRING TO CRITERIA LAID DOWN BY THE COURT IN THE JUDGMENT IN THE REWE CASE , SUPRA , THE ITALIAN GOVERNMENT POINTS OUT THAT WITHOUT MINIMIZING THE IMPORTANCE OF THE CHARACTERISTICS OF A PRODUCT FROM THE POINT OF VIEW OF CONSUMERS , THAT FACTOR SHOULD HOWEVER NOT BE GIVEN SUCH PRECEDENCE THAT THE SUBSTANTIVE CRITERIA BASED ON THE DIFFERENCE IN RAW MATERIALS , THE TYPE OF SPIRIT AND THE MANUFACTURING PROCESSES ARE DISREGARDED . THE ITALIAN GOVERNMENT CONSIDERS IN FACT THAT BY THE APPLICATION OF VARIOUS MANUFACTURING PROCESSES TO THE DIFFERENT RAW MATERIALS - WINE , MARC , FRUIT , MOLASSES , CEREALS OR CANE-JUICE - SPIRITS OF VERY DIFFERENT TYPES ARE OBTAINED , EACH OF WHICH CONSTITUTES SO TO SPEAK A WORLD OF ITS OWN AND WHICH ANY CONSUMER CAN DISTINGUISH WITHOUT DIFFICULTY .
27 IN THIS INSTANCE , ACCORDING TO THE DEFENDANT GOVERNMENT , THEY ARE ' ' ABSOLUTELY DIFFERENT ' ' PRODUCTS , BOTH BY THE DIVERSITY OF BASIC RAW MATERIALS AND BY THE MANUFACTURING PROCESSES AND THE TYPICAL CHARACTERISTICS OF THE PRODUCTS RESULTING FROM THE COMBINATION OF THOSE TWO FACTORS . EXPERIENCE SHOWS THAT THE CHOICE OF CONSUMERS IS ALWAYS VERY SPECIFIC , DETERMINED BY TASTE , HABITS AND THE TRUE OR PRESUMED QUALITIES OF THE PRODUCTS , INCLUDING THEIR CHARACTERISTICS AS REGARDS HEALTH .
28 MOREOVER , THE ITALIAN GOVERNMENT RELIES UPON THE CUSTOMS CLASSIFICATION AS APPEARS IN THE SUBDIVISIONS OF TARIFF SUBHEADING 22.09 C OF THE COMMON CUSTOMS TARIFF WITHIN WHICH , TO BE PRECISE , RUM AND WHISKY FORM SPECIFIC SUBDIVISIONS . IN ADDITION IT DRAWS ATTENTION TO THE FACT THAT IN THE NOMENCLATURE OF THE CUSTOMS STATISTICS , WHISKY AND SPIRITS OBTAINED FROM WINE AND MARC BEAR SEPARATE STATISTICAL NUMBERS .
29 THE ITALIAN GOVERNMENT CONSIDERS THAT THE COMPLAINT OF DISCRIMINATION PUT FORWARD BY THE COMMISSION IS UNFOUNDED WHEREAS , IN ITS VIEW , THE PRICE OF THE TAX BANDEROLE LEVIED ON SPIRITS FROM CEREALS AND SUGAR CANE IS IDENTICAL AS REGARDS BOTH IMPORTED SPIRITS AND THOSE PRODUCED IN ITALY . IN THE SAME WAY , IMPORTED SPIRITS OBTAINED FROM WINE AND MARC ARE TAXED AT THE SAME RATE AS THE CORRESPONDING NATIONAL SPIRITS . THUS THE PRINCIPAL OF EQUALITY OF TREATMENT IS COMPLIED WITH IN RESPECT OF THE SAME PRODUCTS WHATEVER THEIR ORIGIN .
30 AS REGARDS THE APPLICATION OF THE SECOND PARAGRAPH OF ARTICLE 95 , THE ITALIAN GOVERNMENT CLAIMS THAT THAT PROVISION DOES NOT REFER , AS THE COMMISSION SEEMS TO BELIEVE , TO THE DIFFERENCE BETWEEN THE TAXATION IMPOSED ON DOMESTIC PRODUCTS AND IMPORTED PRODUCTS BUT TO THE PROTECTIVE NATURE OF A GIVEN NATIONAL TAX SYSTEM . HOWEVER , IN SPITE OF THE DIFFERENCE IN THE RATES OF TAX APPLICABLE , IT APPEARS THAT IMPORTS OF WHISKY INTO ITALY HAVE UNDERGONE A MASSIVE INCREASE WHEREAS THE CONSUMPTION OF SPIRITS OBTAINED FROM WINE AND MARC HAS ONLY GROWN SLIGHTLY . IN SHORT , THE COMMISSION IS ATTEMPTING BY ITS ACTION TO COMPEL A LEVELLING OF THE RATES OF TAX BY STATING THAT ALL SPIRITS ARE SIMILAR OR AT LEAST COMPETING WITHIN THE MEANING OF ARTICLE 95 .
31 THE CUSTOMS CLASSIFICATION OF ALCOHOLIC BEVERAGES , WHICH WAS DESIGNED HAVING REGARD TO THE REQUIREMENTS OF EXTERNAL TRADE , CANNOT IN THIS INSTANCE PROVIDE CONCLUSIVE INDICATIONS WITH REGARD TO THE APPRAISAL OF THE CRITERION OF SIMILARITY LAID DOWN IN THE FIRST PARAGRAPH OF ARTICLE 95 OF THE TREATY . THE SAME REMARK APPLIES TO THE CUSTOMS STATISTICS , THE AIM OF WHICH IS TO RECORD THE VOLUME OF MOVEMENT OF GOODS UNDER THE VARIOUS TARIFF HEADINGS BUT WHICH CANNOT SUPPLY AN INDICATION AS TO THE COMPETITION BETWEEN THE GOODS CLASSIFIED IN ONE OR OTHER OF THE VARIOUS CATEGORIES . THIS IS ALL THE MORE SO WHEN THE DISTINCTIONS MADE BY THE ITALIAN TAX LEGISLATION CORRESPOND ONLY RATHER DISTANTLY TO THE SUBDIVISIONS OF TARIFF SUBHEADING 22.09 C OF THE COMMON CUSTOMS TARIFF .
32 THE ITALIAN GOVERNMENT IS NO DOUBT CORRECT WHEN IT EMPHASIZES THE IMPORTANCE OF THE RAW MATERIALS AND THE MANUFACTURING PROCESSES FOR THE PURPOSES OF DETERMINING CHARACTERISTIC DIFFERENCES BETWEEN VARIOUS SPIRITS . THE COURT TOOK THAT FACTOR INTO ACCOUNT IN ITS JUDGMENT IN THE REWE CASE , IN WHICH IT ADOPTED , AS A CRITERION OF SIMILARITY , THE CHARACTERISTICS OF THE PRODUCTS AS MUCH AS THE NEEDS OF THE CONSUMERS . HOWEVER , EVEN IF IT WERE POSSIBLE TO IDENTIFY CERTAIN TYPICAL BEVERAGES WITH CLEAR CHARACTERISTICS WHICH THEREFORE CORRESPOND TO SPECIFIC USES , IT IS IMPOSSIBLE TO DENY THAT THERE ARE ON THE MARKET OTHER ALCOHOLIC BEVERAGES WHICH MAY BE CONSUMED IN A GREAT VARIETY OF CIRCUMSTANCES , EITHER NEAT OR WITH WATER OR IN THE FORM OF MIXES AND WHICH AS SUCH ARE CAPABLE OF MEETING THE WIDEST NEEDS ; THIS IS INTER ALIA THE CASE OF WHISKY AND RUM , THE TAXATION ON WHICH FORMS THE SUBJECT-MATTER OF THIS DISPUTE . THIS FLEXIBILITY IN PARTICULAR ENABLES THE BEVERAGES OF THAT TYPE TO BE CONSIDERED TO BE SIMILAR TO A PARTICULARLY LARGE NUMBER OF OTHER ALCOHOLIC BEVERAGES OR AS BEING AT LEAST PARTIALLY IN COMPETITION WITH THOSE BEVERAGES .
33 AFTER CONSIDERING ALL THESE FACTORS , THE COURT TAKES THE VIEW THAT IT IS NOT NECESSARY FOR THE PURPOSES OF SOLVING THIS DISPUTE TO GIVE A RULING ON THE QUESTION WHETHER OR NOT THE SPIRITUOUS BEVERAGES CONCERNED ARE PARTLY OR WHOLLY SIMILAR PRODUCTS WITHIN THE MEANING OF THE FIRST PARAGRAPH OF ARTICLE 95 , SINCE IT IS IMPOSSIBLE REASONABLY TO CONTEST THAT THEY ARE WITHOUT EXCEPTION IN COMPETITION , AT LEAST PARTIALLY , WITH THE DOMESTIC PRODUCTS TO WHICH THE APPLICATION REFERS AND , MOREOVER , THE PROTECTIVE NATURE OF THE ITALIAN TAX SYSTEM WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 95 CANNOT BE DENIED .
34 IN FACT , AS INDICATED ABOVE , SPIRITS OBTAINED FROM CEREALS AND RUM , AS PRODUCTS OF DISTILLATION , SHARE WITH SPIRITS OBTAINED FROM WINE AND MARC SUFFICIENT COMMON CHARACTERISTICS TO FORM , AT LEAST IN CERTAIN CIRCUMSTANCES , AN ALTERNATIVE CHOICE FOR CONSUMERS .
35 IN THESE CIRCUMSTANCES , THE PROTECTIVE NATURE OF THE TAX SYSTEM CRITICIZED BY THE COMMISSION IS SHOWN CLEARLY . THE MAIN CHARACTERISTIC OF IT IS IN FACT THAT THE MOST TYPICAL DOMESTIC PRODUCTS , IN OTHER WORDS SPIRITS OBTAINED FROM WINE AND MARC , ARE IN THE MOST FAVOURED TAX CATEGORY WHEREAS THE TWO TYPES OF PRODUCT ALMOST ALL OF WHICH IS IMPORTED FROM OTHER MEMBER STATES , IN OTHER WORDS RUM AND SPIRITS OBTAINED FROM CEREALS , ARE SUBJECT TO HEAVIER TAXATION . THE FACT THAT DOMESTIC PRODUCTION OF THOSE SPIRITS ALSO EXISTS DOES NOT ALTER THIS ASSESSMENT , SINCE IT IS NOT CONTESTED THAT ONLY MINIMAL QUANTITIES ARE INVOLVED AND THAT , IN ADDITION , THE GOODS MARKETED UNDER THOSE NAMES ARE , ACCORDING TO THE COMMISSION ' S UNCONTESTED STATEMENT , IN FACT BLENDS OF IMPORTED PRODUCTS WITH THE ADDITION OF A HIGH PROPORTION OF ITALIAN SPIRITS OBTAINED FROM WINE .
36 IT IS NECESSARY TO STATE IN CONCLUSION FROM THE FOREGOING THAT THE TAX SYSTEM APPLIED IN THE ITALIAN REPUBLIC RESULTING FROM THE LEGISLATIVE PROVISIONS MENTIONED ABOVE IS INCOMPATIBLE WITH THE REQUIREMENTS LAID DOWN IN ARTICLE 95 OF THE TREATY AS REGARDS THE TAXATION OF ALCOHOLIC BEVERAGES WHICH ARE THE RESULT OF THE DISTILLATION OF CEREALS AND SUGAR-CANE , ON THE ONE HAND , AND SPIRITS OBTAINED FROM WINE AND MARC , ON THE OTHER .
COSTS
37 UNDER ARTICLE 69 ( 2 ) OF THE RULES OF PROCEDURE , THE UNSUCCESSFUL PARTY SHALL BE ORDERED TO PAY THE COSTS .
38 AS THE DEFENDANT HAS FAILED IN ITS SUBMISSIONS , IT MUST BE ORDERED TO BEAR THE COSTS .
ON THOSE GROUNDS ,
THE COURT
HEREBY :
1 . DECLARES THAT , BY THE APPLICATION OF DIFFERENTIAL TAXATION ON SPIRITS IN THE FORM OF TAX BANDEROLES AFFIXED TO RECEPTACLES CONTAINING SPIRITS INTENDED FOR RETAIL , AS PROVIDED FOR BY THE ITALIAN TAX LEGISLATION RESULTING FROM THE PROVISIONS OF ARTICLE 6 OF DECREE LAW NO 745 OF 26 OCTOBER 1970 , RATIFIED BY LAW NO 1034 OF 18 DECEMBER 1970 , AS REGARDS , FIRST , SPIRITS OBTAINED BY THE DISTILLATION OF CEREALS AND SUGAR-CANE AND , SECONDLY , SPIRITS OBTAINED FROM WINE AND MARC , THE ITALIAN REPUBLIC , HAS FAILED , AS REGARDS PRODUCTS IMPORTED FROM THE OTHER MEMBER STATES , TO FULFIL ITS OBLIGATIONS UNDER ARTICLE 95 OF THE EEC TREATY .
2 . THE ITALIAN REPUBLIC IS ORDERED TO PAY THE COSTS .
