CJEC, March 22, 1977, No 74-76

THE COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES,

1. By order of 25 June 1976 which reached the court registry on 26 July 1976 the pretore di Milano, referred to the court under article 177 of the EEC treaty various questions relating to the interpretation of articles 30 and 95 of the treaty.

These questions were raised during proceedings against the defendant in the main action, an Italian purchaser of imported wallpaper, by the Italian vendor, the plaintiff in the main action, which charged the purchaser a proportion of the levy which on importing the goods into Italy it had previously paid to Ente Nazionale per la Cellulosa e per la Carta (hereinafter referred to as "ENCC" pursuant to law no 868 of 13 June 1940 (Gazzetta Ufficiale no 170 of 22 July 1940), law no 168 of 28 March 1956 (Gazzetta Ufficiale no 79 of 3 april 1956) and to the ministerial decree (decreto ministeriale) of 3 July 1940 (Gazzetta Ufficiale no 175 of 25 July 1940).

2. ENCC is a body governed by Italian public law and its object is to promote and regulate, in particular by means of subsidies, the production of cellulose and paper in this member state.

A large part of the aids administered by ENCC consists of subsidies to newspaper publishers for the purpose of enabling them to obtain at a reduced price paper purchased from paper mills and used for publishing.

ENCC's operations are financed by levies charged on home-produced cellulose, paper and cardboard at various stages of their production or marketing and on similar imported products when they are imported.

3. The abovementioned Italian legal provisions allow the importer who has made a payment to ENCC in respect of the levy which he was required to pay to pass on a proportion thereof to the ultimate purchasers.

The defendant in the main action submits by way of justification for its refusal to pay this proportion, on the one hand, that the scheme for granting aid introduced by the legislative provisions in question is, considered as a whole, incompatible with the treaty because it infringes article 30 of the said treaty, so that the scheme cannot in law justify the collection of the levies which the plaintiff in the main action was called upon to pay or consequently permit the latter to pass on part thereof to its purchaser and, on the other hand, that the levy at issue itself constitutes discriminatory internal taxation in contravention of article 95 of the treaty.

4. It is advisable to state that the alleged infringement of article 30 is due to the fact that the granting by ENCC of subsidies to newspaper undertakings to enable them to obtain newsprint more cheaply was at the time subject to the condition that the newsprint in question was newsprint produced in Italy or imported by ENCC other than newsprint directly imported from another member state.

As far as concerns the levy charged by ENCC the infringement of article 95 arises because there was one basis of assessment for paper and cardboard and paper products (including wallpaper) if they were manufactured in Italy and another if they were imported.

5. The main point raised by the questions referred is whether a national court, when asked to rule whether a system of state aids within the meaning of article 92 or some of its aspects are compatible with the treaty, may take account of a possible infringement of articles 30 and 95 and, if so, what are the criteria which make it possible to ascertain whether in circumstances such as those which have arisen in this case the said articles have in fact been infringed.

It is appropriate to point out that these questions refer to the situation which existed before the modification of the system of aids in question, which the commission required to be carried out under the powers vested in it by article 93 (2) of the treaty and which the Italian state put into effect as from 1 January 1974.

The first three questions

6. The first question asks whether' a system of subsidies involving a public body and based on national regulations which (with reference to the period in question) enable domestic publishers to obtain at reduced prices only newsprint produced by national paper-mills, whilst newsprint imported from member states can be obtained only at the full price since it does not benefit from any subsidy, constitutes a measure having equivalent effect to a quantitative restriction on imports prohibited by articles 30 et seq. Of the EEC treaty'.

On this question it is necessary to state that the abovementioned factors make it clear that the answer must be given after taking into account the fact that at the time withholding the benefit of aid to newspapers was limited to paper imported directly and not through ENCC.

The purpose of the second question is to ascertain whether' the fact that the abovementioned system of subsidies may be illegal within the meaning of article 30 or another rule of the EEC treaty (in particular directive no 70-50-EEC of 22 December 1969), taking into account that it is financed by levies similar to taxes imposed upon paper products imported from the other member states in its turn renders such levies illegal in so far as they are imposed upon imported community products - since the revenue concerned which is collected is intended to finance an activity contrary to the provisions of the treaty and so is illegal'.

The third question asks' whether, if an affirmative answer is given to the questions set out above, the rules in articles 30 et seq. Of the EEC treaty are directly applicable and whether they create an individual right for the importers of community products to request the reimbursement of levies paid (further, from what date such right can be enforced)'.

7. It is advisable to answer all these questions together.

8. The prohibition in article 30 of the treaty of all quantitative restrictions on imports or measures having equivalent effect is aimed, on the one hand, at those measures prohibiting imports in whole or in part and, on the other hand, as mentioned by commission directive no 70-50-EEC of 22 December 1969 (OJ, English special edition 1970 (i), p. 17) at' measures, other than those applicable equally to domestic or imported products', which hinder imports which could otherwise take place, including measures of importation' more difficult or costly than the disposal of domestic production'.

9. However wide the field of application of article 30 may be, it nevertheless does not include obstacles to trade covered by other provisions of the treaty.

In fact, since the legal consequences of the application or of a possible infringement of these various provisons have to be determined having regard to their particular purpose in the context of all the objectives of the treaty, they may be of a different kind and this implies that their respective fields of application must be distinguished, except in those cases which may fall simultaneously within the field of application of two or more provisions of community law.

Thus obstacles which are of a fiscal nature or have equivalent effect and are covered by articles 9 to 16 and 95 of the treaty do not fall within the prohibition in article 30.

10. Similarly the fact that a system of aids provided by the state or by means of state resources may, simply because it benefits certain national undertakings or products, hinder, at least indirectly, the importation of similar or competing products coming from other member states is not in itself sufficient to put an aid as such on the same footing as a measure having an effect equivalent to a quantitative restriction within the meaning of article 30.

11. Moreover it is apparent both from article 92 (1) and (3) and the third subparagraph of article 93 (2) that the incompatibility of aid with the common market as provided for in article 92 (1) is neither absolute nor unconditional.

Article 92 (2) not only provides for exceptions but in addition both article 92 and article 93 give the commission a wide discretion and the council wide powers to accept state aid in derogation from the general prohibition in article 92 (1).

12. The conclusion to be drawn from all these considerations is that the intention of the treaty, in providing through article 93 for aid to be kept under constant review and supervised by the commission, is that the finding that an aid may be incompatible with the common market is to be determined, subject to review by the court, by means of an appropriate procedure which it is the commission's responsibility to set in motion.

The parties concerned cannot therefore simply, on the basis of article 92 alone, challenge the compatibility of an aid with community law before national courts or ask them to decide as to any incompatibility which may be the main issue in actions before them or may arise as a subsidiary issue.

The effect of an interpretation of article 30 which is so wide as to treat an aid as such within the meaning of article 92 as being similar to a quantitative restriction referred to in article 30 would be to alter the scope of articles 92 and 93 of the treaty and to interfere with the system adopted in the treaty for the division of powers by means of the procedure for keeping aids under constant review as described in article 93.

13. The prohibition of quantitative restrictions and measures having equivalent effect laid down in article 30 of the treaty is mandatory and explicit and its implementation does not require any subsequent intervention of the member states or community institutions.

The prohibition therefore has direct effect and creates individual rights which national courts must protect ; this occurred at the end of the transitional period at the latest, that is to say on 1 January 1970 as the provisions of the second paragraph of article 32 of the treaty indicate.

14. Those aspects of aid which contravene specific provisions of the treaty other than articles 92 and 93 may be so indissolubly linked to the object of the aid that it is impossible to evaluate them separately so that their effect on the compatibility or incompatibility of the aid viewed as a whole must therefore of necessity be determined in the light of the procedure prescribed in article 93.

Nevertheless the position is different if it is possible when a system of aid is being analysed to separate those conditions or factors which, even though they form part of this system, may be regarded as not being necessary for the attainment of its object or for its proper functioning.

In the latter case there are no reasons based on the division of powers under articles 92 and 93 which permit the conclusion to be drawn that, if other provisions of the treaty which have direct effect are infringed, those provisions may not be invoked before national courts simply because the factor in question is an aspect of aid.

15. The fact that the inevitable consequence of the aid itself is often protection and therefore some partitioning of the market in question, as far as concerns the production of undertakings which do not derive any benefit from it, cannot imply that the aid produces restrictive effects which exceed what is necessary to enable it to attain the objectives permitted by the treaty.

This is the position in the case of an arrangement whereby aid is granted to traders who obtain supplies of imported products through a state agency but is withheld when the products are imported direct, if this distinction is not clearly necessary for attainment of the objective of the said aid or for its proper functioning.

16. Nevertheless when answering the second question it is necessary to state that, if one of the constituent elements of a system of aids might be a measure having an effect equivalent to a quantitative restriction which is not necessary for attainment of this objective of the aid, national courts are not entitled to make a declaration to the effect that the system of aids as a whole is incompatible with the treaty or, consequently, to hold that for this reason alone the levies which finance the aid are illegal, because they finance an aid incompatible with the treaty.

17. Therefore the answer to the first three questions must be : (a) that article 30 of the treaty has direct effect and creates, at the end of the transitional period at the latest, for all persons subject to community law rights which national courts must protect ; (b) that the aids referred to in articles 92 and 93 of the treaty do not as such fall within the field of application of the prohibition of quantitative restrictions on imports and measures having equivalent effect laid down by article 30 but those aspects of aid, which are not necessary for the attainment of its object or for its proper functioning and which contravene this prohibition, may for that reason be held to be incompatible with this provision ; (c) the fact that an aspect of aid, which is not necessary for the attainment of its object of for its proper functioning, is incompatible with a provision of the treaty other than articles 92 and 93 does not in fact invalidate the aid as a whole or for that reason vitiate by reason of illegality the system of financing the said aid.

The fourth question

18. The fourth question asks whether' if a negative reply is given to the preceding questions, the prohibition against tax discrimination established by article 95 of the treaty also covers special levies imposed upon both domestic goods and imported goods the revenue from which is intended for minor public bodies other than the state' having regard to the answers to the first three questions it appears to be advisable to answer the fourth question.

19. Since article 95 of the treaty refers to internal taxation of any kind, the fact that a tax or levy is collected by a body governed by public law other than the state or is collected for its benefit and is a charge which is special or appropriated for a specific purpose cannot prevent its falling within the field of application of article 95 of the treaty.

The fifth and sixth questions

20. The fifth question asks whether' discrimination prohibited by article 95 of the EEC treaty obtains if the abovementioned levies upon domestic products (in the present case, wallpaper), are imposed on the basis of the price of paper regarded solely as a raw material whilst the basis for the imposition of the levy upon the corresponding imported product is derived from its overall value ; by the overall value of the imported product is understood the cost of the finished product shown on the invoice (composed therefore of the cost of the original raw material together with the added value) increased by the' expenses of loading, shipping, commission, insurance, transport etc. As far as the frontier, even if the said expenses are not included in whole or in part in the invoice of sale'. The sixth questions asks whether, should it follow from the answer to the fifth question' that the imposition of a levy in a discriminatory manner is prohibited because the basis for its calculation is higher only for imported products, article 95 of the treaty creates for importers of products coming from community countries the individual right to request the reimbursement of that part of the said levy paid in excess as from 1 January 1962, the date of the beginning of the second stage'.

21. In order to apply article 95 of the treaty not only the rate of direct and indirect internal taxation on domestic and imported products but also the basis of assessment and detailed rules for levying the tax must be taken into consideration.

As soon as any differences in this respect result in the imported product being taxed at the same stage of production or marketing at a higher rate than the similar domestic product the prohibition of article 95 is infringed.

This is what would happen if a tax is assessed on the value of a product and in the case of the imported product factors for assessment are taken into consideration which are likely to increase the value of the imported product vis-a-vis the corresponding domestic product.

The fact that the administration has a discretion in specific cases to grant reductions of the tax assessed on both domestic and imported products cannot remove any discrimination which is incompatible with article 95.

22. As the court has held, on the last occasion in its judgment of 17 February 1976 (case 45- 75 rewe-zentrale des lebensmittel-grosshandels gmbh v hauptzollamt landau/pfalz (1976) ecr 193) article 95 of the treaty has direct effect and creates individual rights which national courts must protect.

It is nevertheless for the national court within the framework of its own legal system to decide whether the whole of any internal taxation which is discriminatory within the meaning of article 95 or only that part of it which exceeds the tax assessed on the domestic product is to be regarded as not payable.

Costs

23. The costs incurred by the government of the Italian republic and the commission of the european communities, which have submitted observations to the court are not recoverable and as these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision as to costs is a matter for that court.

On those grounds,

The court

In answer to the questions referred to it by the pretore di Milano, by order of 25 June 1976 hereby rules :

1. Article 30 of the treaty has direct effect and creates, at the end of the transitional period at the latest, for all persons subject to community law, rights which national courts must protect ;

2. The aids referred to in articles 92 and 93 of the treaty do not as such fall within the field of application of the prohibition of quantitative restrictions on imports and measures having equivalent effect laid down by article 30 but the aspects of aid, which are not necessary for the attainment of its object or for its proper functioning and which contravene this prohibition may for that reason be held to be incompatible with this provision ;

3. The fact that an aspect of aid, which is not necessary for the attainment of its object or for its proper functioning, is incompatible with a provision of the treaty other than articles 92 and 93 does not in fact invalidate the aid as a whole or for that reason vitiate by reason of illegality the system of financing the said aid ;

4. Since article 95 of the treaty refers to internal taxation of any kind the fact that a tax or levy is collected by a body governed by public law other than the state or is collected for its benefit and is a tax charge which is special or appropriated for a specific purpose cannot prevent its falling within the field of application of article 95 of the treaty ;

5. In order to apply article 95 of the treaty not only the rate of direct and indirect internal taxation on domestic and imported products but also the basis of assessment and detailed rules for levying the tax must be taken into consideration ;

As soon as any differences in this respect result in the imported product being taxed at the same stage of production or marketing at a higher rate than the similar domestic product the prohibition of article 95 is infringed ;

6. It is nevertheless for the national court within the framework of its own legal system to decide whether the whole of any internal taxation which is discriminatory within the meaning of article 95 or only that part of it which exceeds the tax assessed on the domestic product is to be regarded as not payable.