1 BY ORDER OF 2 APRIL 1981 WHICH WAS RECEIVED AT THE COURT ON 20 JULY 1981 THE FIRST CIVIL SECTION OF THE TRIBUNALE DI MILANO ( DISTRICT COURT , MILAN ) REFERRED TO THE COURT FOR A PRELIMINARY RULING UNDER ARTICLE 177 OF THE EEC TREATY A QUESTION ON THE INTERPRETATION OF ARTICLE 95 OF THE EEC TREATY IN ORDER THAT IT MAY BE ABLE TO DETERMINE WHETHER A SYSTEM OF DIFFERENTIATED TAXATION APPLIED TO WHISKY AND TO SPIRITS DISTILLED FROM WINE UNDER THE TAX LEGISLATION IN FORCE IN ITALY AFTER THE ACCESSION OF THE UNITED KINGDOM TO THE EEC TREATY IS COMPATIBLE WITH THAT PROVISION .
2 THE DISPUTE BETWEEN THE PLAINTIFF IN THE MAIN ACTION , AN UNDERTAKING WHICH IMPORTS WHISKY , AND THE AMMINISTRAZIONE DELLE FINANZE DELLO STATO ( THE ITALIAN STATE FINANCE ADMINISTRATION ) AROSE OUT OF A CLAIM FOR A REFUND OF THE FRONTIER SURCHARGE ( SOVRIMPOSTA DI CONFINE ) PAYABLE ON THE IMPORTATION OF THAT PRODUCT AND CORRESPONDING TO THE MANUFACTURING DUTY PAYABLE ON SPIRITS PRODUCED ON THE NATIONAL TERRITORY AND OF THE STATE TAX ( DIRITTO ERARIALE ) CALCULATED ON THE BASIS OF THE PURE ALCOHOL CONTENT OF THE WHISKY , IN SO FAR AS SUCH TAXES HAVE BEEN LEVIED AND ARE HIGHER THAN THE TAXES CHARGED ON DOMESTIC SPIRITS OR ARE NOT IMPOSED ON THE LATTER .
3 SINCE THE NATIONAL COURT CONSIDERED THAT IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE COURT OF JUSTICE IN REGARD TO THE INTERPRETATION OF ARTICLE 95 , ON THE ONE HAND IN ITS JUDGMENT OF 27 FEBRUARY 1980 CASE 169/78 ( COMMISSION V ITALY ( 1980 ) ECR 385 ) IN WHICH THE COURT FOUND THAT THE COMMON CUSTOMS TARIFF IS NOT DECISIVE FOR THE QUESTION OF SIMILARITY , AND ON THE OTHER IN ITS EARLIER JUDGMENT OF 15 APRIL 1970 ( CASE 28/69 COMMISSION V ITALY ( 1970 ) ECR 187 ) IN WHICH THE FACT THAT PRODUCTS FALL UNDER THE SAME CLASSIFICATION FOR TAX PURPOSES WAS CONSIDERED TO BE AN IMPORTANT FACTOR IN THAT RELATIONSHIP OF SIMILARITY , THERE IS A RISK OF REACHING DIFFERENT RESULTS , IT DECIDED TO SUBMIT THE FOLLOWING QUESTION TO THE COURT OF JUSTICE :
' ' HAS THE ITALIAN STATE , BY APPLYING TO IMPORTS OF WHISKY FROM THE UNITED KINGDOM A SYSTEM OF TAXATION COMPRISING THE STATE TAX WHICH IS NOT CHARGED ON DOMESTIC SPIRITS DISTILLED FROM WINE AND THE FRONTIER SURCHARGE AT THE FULL RATE , WHEN THE MANUFACTURING TAX ON DOMESTIC SPIRITS DISTILLED FROM WINE IS PAYABLE AT A REDUCED RATE , INFRINGED ARTICLE 95 OF THE TREATY?
' '
4 THE QUESTION PUT BY THE NATIONAL COURT AMOUNTS TO REQUESTING THE COURT OF JUSTICE TO CLARIFY THE CRITERIA FOR THE INTERPRETATION OF ARTICLE 95 IN RELATION TO THE DISPUTE IN ORDER TO ENABLE THE NATIONAL COURT TO APPLY ITALIAN TAX LAW ONLY IN SO FAR AS IT IS NOT CONTRARY TO THE RELEVANT COMMUNITY LAW .
5 IN THIS REGARD IT IS IMPORTANT FIRST OF ALL TO RECALL THAT , IN ITS JUDGMENT OF 27 FEBRUARY 1980 DELIVERED IN CASE 169/78 , COMMISSION V ITALY , THE COURT DECLARED THAT ' ' BY THE APPLICATION OF DIFFERENTIAL TAXATION 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 ' ' .
6 THAT STATEMENT WAS BASED ON AN INTERPRETATION OF ARTICLE 95 WHICH WAS FOUNDED ON THE SYSTEM OF THE EEC TREATY AND ACCORDING TO WHICH THE FIRST AND SECOND PARAGRAPHS OF THAT ARTICLE COMPLEMENT THE PROVISIONS ON THE ABOLITION OF CUSTOMS DUTIES AND CHARGES HAVING EQUIVALENT EFFECT SINCE THEIR OBJECTIVE IS TO ENSURE THE FREE MOVEMENT OF GOODS BETWEEN THE MEMBER STATES UNDER NORMAL CONDITIONS OF COMPETITION BY ELIMINATING ANY FORM OF PROTECTION WHICH MAY RESULT IN THE APPLICATION OF INTERNAL TAXATION WHICH DISCRIMINATES AGAINST PRODUCTS FROM OTHER MEMBER STATES . IN THAT RESPECT ARTICLE 95 GUARANTEES THE COMPLETE NEUTRALITY OF INTERNAL TAXATION AS REGARDS COMPETITION BETWEEN DOMESTIC PRODUCTS AND IMPORTED PRODUCTS .
7 IT WAS STATED THAT THE FIRST PARAGRAPH OF ARTICLE 95 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 ; IN ORDER TO DO SO IT IS THEREFORE NECESSARY TO INTERPRET THE CONCEPT OF ' ' SIMILAR PRODUCTS ' ' WITH SUFFICIENT FLEXIBILITY . THUS 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 ACCORDINGLY 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 .
8 WITH REGARD TO SPIRITS FOR HUMAN CONSUMPTION IT SHOULD BE DETERMINED WHETHER , HAVING REGARD TO DISTINGUISHING CRITERIA SUCH AS THE ORIGIN AND METHOD OF MANUFACTURE OF THE BEVERAGES , THEIR POSSIBLE APPLICATION AND THE HABITS OF CONSUMERS THROUGHOUT THE COMMUNITY AS A WHOLE , THE PRODUCTS DISPLAY A SUFFICIENT DEGREE OF SIMILARITY . THAT DETERMINATION IS IS TO BE MADE WITHOUT TAKING INTO ACCOUNT ANY PURELY NATIONAL DIFFERENTIATIONS IN TAXATION AND WITHOUT THE NEED TO REFER TO CUSTOMS CLASSIFICATIONS . IF THE PRODUCTS ARE FOUND TO BE SIMILAR ON THE BASIS OF THE ABOVE-MENTIONED CRITERIA THE FIRST PARAGRAPH OF ARTICLE 95 IS APPLICABLE .
9 IF THE CONDITION OF SIMILARITY REQUIRED BY THE FIRST PARAGRAPH OF ARTICLE 95 IS NOT FULLY MET THE SECOND PARAGRAPH OF THAT ARTICLE , AS WAS STATED IN THE JUDGMENT IN CASE 169/78 , HAS THE FUNCTION OF COVERING ALL FORMS OF INDIRECT PROTECTION THROUGH TAXATION 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 .
10 WITH REGARD TO SPIRITS FOR HUMAN CONSUMPTION IT HAS ALREADY BEEN MADE CLEAR IN THE SAME JUDGMENT THAT 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 . THAT FINDING CONSTITUTES SUFFICIENT GROUND FOR HOLDING THAT SUCH PRODUCTS ARE IN COMPETITION WITH EACH OTHER AND THAT IT IS NOT PERMISSIBLE FOR TAXATION IMPOSED ON THEM TO HAVE A PROTECTIVE EFFECT IN FAVOUR OF NATIONAL PRODUCTION . IN THIS RESPECT IT IS IMPORTANT , DISREGARDING ANY COMPARISON OF QUANTITIES CONSUMED AND IMPORTED , TO TAKE INTO CONSIDERATION THE POTENTIAL MARKET FOR THE PRODUCTS IN QUESTION IN THE ABSENCE OF PROTECTIVE MEASURES .
11 WITH REGARD TO THE PROTECTIVE NATURE OF THE TAX SYSTEM IN QUESTION IT WAS FOUND IN THE JUDGMENT IN CASE 169/78 THAT THE SYSTEM WAS CHARACTERIZED BY THE FACT THAT THE MOST TYPICAL DOMESTIC PRODUCTS , NAMELY SPIRITS OBTAINED FROM WINE AND MARC , WERE IN THE MOST FAVOURED TAX CATEGORY WHEREAS TWO TYPES OF PRODUCT ALMOST ALL OF WHICH WERE IMPORTED FROM OTHER MEMBER STATES , THAT IS TO SAY RUM AND SPIRITS OBTAINED FROM CEREALS , WERE 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 . SUCH DIFFERENCES IN TAXATION AFFECT THE MARKET IN THE PRODUCTS IN QUESTION BY REDUCING THE POTENTIAL CONSUMPTION OF IMPORTED PRODUCTS .
12 THE REPLY WHICH MUST THUS BE GIVEN TO THE QUESTION SUBMITTED BY THE NATIONAL COURT IS THAT ARTICLE 95 PROHIBITS A SYSTEM OF TAXATION AFFECTING DIFFERENTLY WHISKY AND OTHER SPIRITS .
COSTS
13 THE COSTS INCURRED BY THE GOVERNMENT OF THE ITALIAN REPUBLIC , BY THE UNITED KINGDOM AND BY THE COMMISSION OF THE EUROPEAN COMMUNITIES , WHICH SUBMITTED OBSERVATIONS TO THE COURT , ARE NOT RECOVERABLE . 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 ON COSTS IS A MATTER FOR THAT COURT .
ON THOSE GROUNDS ,
THE COURT ( THIRD CHAMBER )
IN ANSWER TO THE QUESTION REFERRED TO IT BY THE FIRST CIVIL SECTION OF THE TRIBUNALE DI MILANO BY ORDER OF 2 APRIL 1981 , HEREBY RULES :
ARTICLE 95 PROHIBITS A SYSTEM OF TAXATION AFFECTING DIFFERENTLY WHISKY AND OTHER SPIRITS .
