Court of Justice 29-05-1974 ECLI:EU:C:1974:61

Facts

Tariff heading No 22.09 of the Common Customs Tarif is subdivided as follows:

‘ 22.09

Spirits (other than those of heading No 22.08)(*) liqueurs and another spirituous beverages; compound alcoholic preparations (known as “concentrated extracts”) for the manufacture of beverages: Spirits (other than those of heading No 22.08) Compound alcoholic preparations (known as “concentrated extracts”) Spirituous beverages: Rum, arrack and tafia Gin Whisky Vodka Other’.

Article 38 of the Treaty provides:

1. The common market shall extend to agriculture and trade in agricultural products. “Agricultural products” means the products of the soil, of stockfarming and of fisheries and products of first-stage processing directly related to these products.

2. Save as otherwise provided in Articles 39 to 46, the rules laid down for the establishment of the common market shall apply to agricultural products.

3. The products subject to the provisions of Articles 39 to 46 are listed in Annex II do this Treaty. Within two years of the entry into force of this Treaty, however, the Council shall, acting by a qualified majority on proposal from the Commission, decide what products are to be added to this list.

4. The operation and development of the common market for agricultural products must be accompanied by the establishment of a common agricultural policy among the Member States.’

1 January 1958 being the date of the entry into force of the EEC Treaty, the time limit of two years fixed by Article 38 (3) expired on 31 December 1959.

EEC Regulation No 7a/59 adding certain products to the list in Annex II, adopted pursuant to Article 38 (3), was published in the Official Journal on 30 January 1961 (OJ 1961, p. 71).

Article 1 of the Regulation purports to ‘add to the list in Annex II to the Treaty’ the following products, under Nos 22.08 and 22.09 in the Brussels Nomenclature:

Ethyl alcohol or neutral spirits, whether or not denatured, of any strength, obtained from agricultural products listed in Annex II to the Treaty, excluding liqueurs and other spirituous beverages and compound alcoholic preparations (known as ‘concentrated extracts’) for the manufacture of beverages.

According to Article 2 of the Regulation, the latter entered into force on 31 December 1959. It has as its closing formula: ‘Done at Brussels, 18 December 1959’.

Article 191 of the EEC Treaty provides:

Regulations shall be published in the Official Journal of the Community. They shall enter into force on the date specified in them or, in the absence thereof, on the twentieth day following their publication.

Directives and decisions shall be notified to those to whom they are addressed and shall take effect upon such notification.

In regard to products under heading No 22.09-A, which are thus agricultural products, derogations are permissible from certain rules providing for the establishment of the Common Market. On the other hand, in regard to products under subheading No 22.09-C, the rules of the Common Market and, in particular, of the Common Customs Tariff apply.

In accordance with the ‘Acceleration Decision’ of 26 July 1966, national customs duties were to be finally abolished as from 1 July 1968 and replaced, in respect of imports from third countries, by the Common Customs Tariff. Products listed in Annex II were excluded from the ambit of this decision and of EEC Regulation No 950/68 of the Council, concerning the Common Customs Tariff, by virtue of Article 2 of that Regulation.

Accordingly, the German customs authorities continued to collect customs duties in respect of products under heading No 22.09-A (agricultural products) but not in respect of those under heading No 22.09-C (spirituous beverages).

The Company Offene Handelsgesellschaft in Firma H. C. König (hereinafter referred to as ‘König’) imported a product described as ‘brandy for drinking, from molasses spirit, watered down to drinking strength’.

The Customs office at Bielefeld did not levy customs duty, since it considered that a spirituous beverage (No 22.09-C) was involved.

Having examined the product, the Customs office established that it was in fact a ‘chemically pure and completely neutral …’ product which must fall under tariff sub-heading No 22.09-A. Forming the view that it was therefore an agricultural product and that the levying of customs duties was not prohibited, the office subjected the product to a customs duty of , DM per 100 litres.

The complaint by Konig to the Head Customs Office at Bielefeld (hereinafter referred to as ‘HZA Bielefeld’) against this rectification of duty having been unsuccessful, König instituted proceedings before the Finanzgericht Münster, which by Order of 20 November 1970 annulled the notice of rectification and the rejection of the complaint.

The Bundesfinanzhof, to which HZA Bielefeld appealed against the order on a point of law, decided by order of 16 October 1973 to stay the proceedings and to ask the Court for a preliminary ruling on the following questions:

1. Is EEC Regulation No 7a/59 of 18 December 1959 (OJ 1961, p. 71) valid, in spite of being issued only after the expiration of the power conferred in Article 38 of the Treaty establishing the European Community?

2. If Question 1 is answered in the affirmative: Was the Council of the European Economic Community permitted to add spirits to the list in Annex II to the Treaty establishing the European Economic Community without regard to its alcoholic strength?

3. If Questions 1 and 2 are answered in the affirmative: How are the products under tariff headings Nos 22.09-A-II and 22.09-C-V-b to be distinguished from one another?

Summary of the grounds of the order for reference

Procedure

The order for reference was filed with the Registry of the Court on 3 December 1973.

In conformity with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted on behalf of the Council of the EEC by its Legal Adviser, Daniel Vignes, acting as agent; on behalf of the Commission of the EEC by its Legal Adviser, Peter Kalbe, acting as agent; on behalf of Ireland by the Chief State Solicitor, Liam J. Lysaght, acting as agent; and on behalf of the United Kingdom by the Treasury Solicitor, W. H. Godwin, acting as agent.

Having heard the report of the Judge-Rapporteur and the opinion of the Advocate-General, the Court decided not to undertake any preparatory inquiry.

As to the first question

The first question asks whether Regulation No 7a of the Council, adding certain products to the list in Annex II to the Treaty, is valid, although not adopted until after the expiry of the period of validity of the power conferred by Article 38 of the Treaty establishing the EEC.

The national court points out in this connexion that Regulation No 7a, although bearing the date of 18 December 1959, was not published in the Official Journal until over a year after the expiry of the time limit set by Article 38.

The fact that that Regulation was to have taken effect as from 31 December 1959, the last day of the said time limit, does not alter the legal position, since the publication of a regulation has a constitutive effect.

According to the wording of the second sentence of Article 38 (3), ‘within two years of the entry into force of this Treaty, however, the Council shall, acting by a qualified majority on a proposal from the Commission, decide what products are to be added’ to the list in Annex II to the Treaty.

This provision, by giving the Council power to decide the products to be added to the list, could not, after 31 December 1959, provide a legal basis for a decision of the Council supplementing that list.

In any case, it has been shown that within the time limit set by Articles 38 (3) the Council had in fact decided, on a proposal from the Commission, to insert in Annex II the products with which Regulation No 7a is concerned, as is shown in the text of the Regulation — dated 18 December 1959 — as published in the Official Journal.

The validity of this Regulation is not affected by the fact that this publication, on 30 January 1961, did not take place until after the expiry of the time limit, since this belatedness has no significance save as to the date from which the Regulation could be applied and take effect.

For present purposes, the Court is not called upon to examine the compatibility with general principles of law of the provision in Article 2 (1) of the Regulation, under which the Regulation was to ‘enter into force’ on a date prior to its publication, this question not having been raised by the national court.

Accordingly, examination of the first question does not reveal any elements such as to affect the validity of Regulation No 7a of the Council.

As to the second question

The second question asks whether the Council was permitted to add ethyl alcohol to the said list without regard to its alcoholic strength.

The national court, forming the view that only those products could be added to the list which complied with the definition of agricultural products given in the first paragraph of Article 38, expresses doubt as to whether ethyl alcohol can come within this definition, by reason of the fact that alcohols of a strength of less than 80^o would, in practice, be subjected after their distillation to an additional process, that is, dilution with water.

The intervening governments deny that the Council had, in any circumstances, acting within the scope of Article 38 (3), the option of adding alcohol to the list in question.

They submit that the competence of the Council was limited by the definition of agricultural products given in the first paragraph of Article 38, so that it was not permitted, in interpreting the concept of ‘products of first-stage processing’ contained therein, to rely on the list of products given in Annex II by the authors of the Treaty.

They suggest that the concept of first-stage processing should be interpreted as being restricted to a single operation on the raw material.

According to the definition in Article 38 (1), agricultural products are ‘the products of the soil, of stockfarming and of fisheries and products of first-stage processing directly related to these products’.

Paragraph (3) of that Article provides that the products subject to the provisions of Articles 39 to 46 are listed in Annex II to the Treaty.

In this list appear, not only the principal agricultural products, but also a certain number of foodstuffs, the remoteness of which in industrial terms from the basic agricultural product goes beyond the point of first-stage processing as understood in a restricted sense.

The element common to these products resides in the close economic interdependence between them and the basic products, so that it would not be justifiable to apply the agricultural system to the basic products, while applying to the processed products the general rules of the Treaty.

The definition of agricultural products, placed at the head of the Title devoted to agriculture, would be devoid of practical meaning if it were not to be interpreted, as regards the power of the Council to fill the gaps with which Article 38 (3) is concerned, in the light of the aims of the common agricultural policy and with reference to the products with which the authors of the Treaty considered that policy to be concerned.

The concept of ‘products of first-stage processing directly related’ to basic products must, accordingly, be interpreted as implying a clear economic interdependence between basic products and products resulting from a productive process, irrespective of the number of operations involved therein.

Processed products which have undergone a productive process, the cost of which is such that the price of the basic agricultural raw materials becomes a completely marginal cost, are therefore excluded.

There is no reason to consider that ethyl alcohol falls within this category.

Since the number of operations necessary to obtain a processed product is not the criterion for determining its classification as a product of first-stage processing, the dilution of ethyl alcohol with water after distillation does not affect its classification.

Accordingly, the fact that the Council added ethyl alcohol to the list in Annex II, without regard to its alcoholic strength, does not affect the validity of Regulation No 7a.

As to the third question

The third question asks how the products listed under tariff subheadings Nos 22.09-A-II and 22.09-C-V-b are to be distinguished from one another.

Heading No 22.09 in the Brussels Nomenclature covers both undenatured ethyl alcohols of a strength of less than 80^o, and brandies, liqueurs and other spirituous beverages whatever their degree of alcoholic strength.

In the Common Customs Tariff, this heading is subdivided into No 22.09-A, ethyl alcohol, undenatured, of a strength of less than 80^o, and No 22.09-C-I to V, spirituous beverages.

In the interests of legal certainty and the simplification of administrative procedures, it is the characteristics and objective properties of products which, as a general rule, afford the decisive criterion for their classification in the Common Customs Tariff.

In the absence, at the material time, of Community explanatory notes in this field, the Notes provided for by the Brussels Convention on Nomenclature for the classification of goods in the Customs Tariff afford an authoritative source for the interpretation of common headings;

In these notes it is specified that heading No 22.09 includes ‘ethyl alcohol, undenatured, whether rectified or not, of a strength of less than 80^o … whether intended for human consumption or for industrial uses …’ which is ‘distinguished from “spirituous beverages” by the fact that it is devoid of all flavouring substances’.

Subheadings Nos 22.09-C-I to V of the Common Customs Tariff are subdivided according to the types of beverage known to the trade, subheading No 22.09-C-V being a residual subheading.

Accordingly, ethyl alcohol, under subheading No 22.09-A, is distinguished from the products under subheading No 22.09-C-V by the presence in those products of flavouring substances or distinctive properties of taste.

Costs

The expenses incurred by the Government of Ireland and the Government of the United Kingdom, by the Council and by the Commission of the EEC, which have submitted observations to the Court, are not recoverable, and as these proceedings are, insofar as the parties to the main action are concerned, a step in the action before the national court, costs are a matter for that court.