Bene Factum (Excise duty - Definition of 'products not for human consumption' - Judgment) [2019] EUECJ C-567/17 (28 February 2019)

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(Reference for a preliminary ruling — Tax provisions — Excise duty — Directive 92/83/EEC — Article 27(1)(b) — Exemptions — Definition of ‘products not for human consumption’ — Assessment criteria)

REQUEST for a preliminary ruling under Article 267 TFEU from the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania), made by decision of 18 September 2017, received at the Court on 26 September 2017, in the proceedings

Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos,

composed of M. Vilaras, President of the Fourth Chamber, acting as President of the Third Chamber, J. Malenovský, L. Bay Larsen (Rapporteur), M. Safjan and D. Šváby, Judges,

having regard to the written procedure and further to the hearing on
19 September 2018,

– the Lithuanian Government, by R. Krasuckaitė, V. Kazlauskaitė-Švenčionienė, G. Taluntytė and by D. Kriaučiūnas, acting as Agents,

– the Czech Government, by M. Smolek, J. Vláčil and O. Serdula, acting as Agents,

– the Greek Government, by K. Georgiadis, K. Boskovits, E. Zisi and M. Tassopoulou, acting as Agents,

– the Portuguese Government, by L. Inez Fernandes, M. Figueiredo, T. Larsen and N. Vitorino, acting as Agents,

– the European Commission, by C. Perrin and J. Jokubauskaitė, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 28 November 2018,

1 This request for a preliminary ruling concerns the interpretation of Article 27(1)(b) of Council Directive 92/83/EEC of 19 October 1992 on the harmonization of the structures of excise duties on alcohol and alcoholic beverages (OJ 1992 L 316, p. 21).

2 The request has been made in proceedings between ‘Bene Factum’ UAB and the Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos (State Tax Inspectorate attached to the Ministry of Finance of the Republic of Lithuania, ‘the State Tax Inspectorate’) concerning the taxation of ethyl alcohol contained in cosmetics and personal care products.

3 Under Article 19(1) of Directive 92/83, Member States are to apply excise duty to ethyl alcohol in accordance with that directive.

‘Member States shall exempt the products covered by this Directive from the harmonized excise duty under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse:

(b) when both denatured in accordance with the requirements of any Member State and used for the manufacture of any product not for human consumption’.

‘If a Member State finds that a product which has been exempted under paragraphs 1(a) or 1(b) above gives rise to evasion, avoidance or abuse, it may refuse to grant exemption or withdraw the relief already granted. The Member State shall advise the Commission forthwith. The Commission shall transmit the communication to the other Member States within one month of receipt. A final decision shall then be taken in accordance with the procedure laid down in Article 24 of Directive 92/12/EEC. Member States shall not be obliged to give retroactive effect to such a decision.’

6 Article 27(1)(1) of the Lietuvos Respublikos akcizų įstatymas (Law of the Republic of Lithuania on excise duty), as amended by Law No XI‑722 of 1 April 2010, provides:

1) ethyl alcohol recognised as denatured ethyl alcohol, exempt from excise duty’.

7 Article 28(1) of the Law of the Republic of Lithuania on excise duty, as amended, is worded as follows:

‘Ethyl alcohol shall be exempt from excise duty under the following conditions:

1. Ethyl alcohol denatured in accordance with the requirements of the relevant Member State and used for the manufacture of non-food products which is exempt from excise duty under Article 27(1)(b) of Directive 92/83 ... As regards the Republic of Lithuania, those requirements shall be established by the Government or by an authority authorised by the Government’.

8 Under paragraph 3.3 of the 1992 m. spalio 19 d. Tarybos direktyvos 92/83/EEB dėl akcizų už alkoholį ir alkoholinius gėrimus struktūrų suderinimo 27 straipsnio 1 dalies b punkto taikymo Lietuvos Respublikoje taisyklės (Rules on the application of Article 27(1)(b) of Directive 92/83 ...), approved by Decree No 902 of the Government of the Republic of Lithuania of 13 June 2002, amended by Decree No 927 of the Government of the Republic of Lithuania of 17 August 2011), ‘denatured ethyl alcohol imported from another Member State of the European Union shall be exempt from excise duty only if it ... is contained in non-food products and, in the Member State from which those non-food products are imported, that denatured ethyl alcohol may be used for such non-food products without excise duty being paid’.

The dispute in the main proceedings and the questions referred for a preliminary ruling

9 During the period between 2009 and 2014, Bene Factum, which is established in Lithuania and, inter alia, manufactures and sells cosmetics and personal care products, imported into Lithuania, for commercial purposes, mouthwashes and alcohol for use in cosmetics (‘the products at issue’) acquired from a company established in Poland.

10 The Polish company produced those goods to order for Bene Factum, which controlled the manufacture process, in particular by deciding on the composition and packaging of the products, and the appearance of the labels. The products at issue were intended exclusively for Bene Factum and bore the trade mark BF cosmetics, of which it was the proprietor.

11 The ethyl alcohol contained in those products released for consumption in Poland was denatured in accordance with the requirements of that Member State. Isopropyl alcohol, namely a toxic substance, was used for the denaturation. Accordingly, Bene Factum, on the basis of the provisions of Lithuanian law, did not declare the importation of those goods into Lithuania and did not pay excise duty on the denatured ethyl alcohol contained in the products at issue.

12 The State Tax Inspectorate carried out a tax inspection of Bene Factum, during which it established that the products imported and supplied by Bene Factum were sold by various wholesale and retail undertakings which ran, inter alia, kiosks. In those kiosks, the marketing of the products at issue was essentially focused on the public consuming them as intoxicating alcoholic beverages.

13 The State Tax Inspectorate stated that Bene Factum had failed to take any measure to prevent the products which it imported from being consumed as alcoholic beverages. The referring court agrees with the assessment of that national authority that the labelling chosen by the applicant, in particular the indication of the alcoholic strength as a percentage, the addition of aromatic substances to the products at issue, the fact that the ethyl alcohol at issue had not been denatured in accordance with Lithuanian law, even though the products were manufactured to the applicant’s order and were essentially intended for sale in Lithuania, and the low price charged for the products may be regarded as factors contributing to the products at issue being consumed as alcoholic beverages. That court noted that Bene Factum did not, however, itself sell those products to the end consumers.

14 Furthermore, according to the referring court, there is nothing to suggest that the individuals who bought the products at issue with the aim of consuming them as alcoholic beverages did not know, or could not have known, that they were buying cosmetics or personal care products and not alcoholic beverages. That court considers, however, that Bene Factum knew that certain individuals consumed them as alcoholic beverages and that, when it ordered those products for manufacturing purposes, it clearly took that fact into account.

15 After appraising the facts ascertained during the tax inspection, the State Tax Inspectorate, on the basis, in particular, of the principle of substance over form applied in national law, decided that the products at issue which Bene Factum had imported into Lithuania were intended for consumption by individuals as food products and that, therefore, the ethyl alcohol contained in those products was subject to excise duty. It ordered Bene Factum to pay the excise duty due and the related amounts.

16 Bene Fact brought, in turn, an administrative appeal before The Tax Disputes Commission and court proceedings before the Vilniaus apygardos administracinis teismas (Regional Administrative Court, Vilnius, Lithuania); both upheld the decision of the State Tax Inspectorate and dismissed Bene Factum’s claims as unfounded. Bene Factum therefore brought an appeal before the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania) against the judgment dismissing its claim.

17 According to the referring court, the State Tax Inspectorate, having found that the products at issue were intended for human consumption and that, therefore, they were subject to excise duty, took the view that one of the conditions required for the exemption from excise duty, set out in Article 27(1)(b) of Directive 92/83, had not been met. Furthermore, according to that court, it is apparent from the position taken by the tax authority in the main proceedings that the latter did not take the view that the company at issue in the main proceedings had committed evasion, avoidance or abuse within the meaning of Article 27(5) of Directive 92/83.

18 In those circumstances, the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Is Article 27(1)(b) of ... Directive 92/83 ... to be interpreted as applying to all products not for human consumption in accordance with their main (direct) intended use (consumption), irrespective of the fact that some individuals consume cosmetics and personal care products such as those at issue in the main proceedings as alcoholic beverages for intoxication purposes?

(2) For the purposes of answering the first question, does it matter that the person who imported the products at issue from a Member State knew that the products, containing denatured ethyl alcohol, manufactured to his order and supplied (sold) to end consumers in Lithuania by other persons, are consumed by certain individuals as alcoholic beverages and he therefore manufactured and labelled those products with that in mind, having the objective of selling as many of them as possible?’

19 By its first question, the referring court asks, in essence, whether Article 27(1)(b) of Directive 92/83 must be interpreted as applying to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwash products which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals.

20 In that regard, it should be recalled that, under Article 27(1)(b) of Directive 92/83, Member States are to exempt the products covered by that directive, including ethyl alcohol, from harmonised excise duty under conditions which they are to lay down for the purpose of ensuring the correct and straightforward application of those exemptions and of preventing any evasion, avoidance or abuse, when they are both denatured in accordance with the requirements of any Member State and used for the manufacture of any product not for human consumption.

21 As the Court has held, ethyl alcohol contained in a product which is not intended for human consumption and which has been denatured in accordance with a method approved in a Member State benefits from the exemption provided for in Article 27(1)(b) of Directive 92/83 (see, to that effect, judgment of 7 December 2000, Italy v Commission, C‑482/98, EU:C:2000:672, paragraph 41).

22 It would be contrary to Directive 92/83 to withhold exemption for a product which meets the conditions laid down in Article 27(1)(b) solely because it has been found that the use for which it is actually intended does not correspond with the name assigned to it by the trader (judgment of 7 December 2000, Italy v Commission, C‑482/98, EU:C:2000:672, paragraph 42).

23 It follows from all the foregoing that products presented as cosmetics or mouthwash products which contain ethyl alcohol denatured in accordance with the requirements of a Member State, as products not intended for human consumption, cannot be denied the exemption from excise duty set out in Article 27(1)(b) of Directive 92/83 on the ground that certain individuals consume those products as alcoholic beverages.

24 In the present case, it is common ground that the products at issue, which bear the trade mark BF cosmetics, were sold as cosmetics or mouthwashes, and that the individuals who bought them as alcoholic beverages knew, or should have known, that they were buying cosmetics or mouthwash products.

25 Consequently, the answer to the first question is that Article 27(1)(b) of Directive 92/83 must be interpreted as applying to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwashes which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals.

26 By its second question, the referring court asks, in essence, whether Article 27(1)(b) of Directive 92/83 must be interpreted as applying to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwash products which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals, when the person who imports those products from a Member State in order for them to be supplied to end consumers in the Member State of destination by other persons, knowing that they are also consumed as alcoholic beverages, has them manufactured and labelled with that in mind in order to increase the sale of those products.

27 In that regard, it is apparent from the answer to the first question that products which are not intended for human consumption and which meet the requirement of denaturation set out in Article 27(1)(b) of Directive 92/83 are covered by the exemption from excise duty set out in that provision.

28 In the present case, the referring court has indicated that the fact that Bene Factum designed the packaging of the products at issue, and their labels, in particular the indication of the alcoholic strength as a percentage, and had aromatic substances added to the products, may be regarded as promoting the consumption of those products as alcoholic beverages. However, the referring court has also indicated that those products were sold as cosmetics or mouthwashes and that the individuals who bought them as alcoholic beverages knew, or should have known, that they were buying cosmetics or mouthwashes.

29 Consequently, the measures taken by Bene Factum in relation to the characteristics of the products at issue do not alter the fact that those products are presented as cosmetics or mouthwashes not intended for human consumption.

30 However, with the exception of cases of evasion, avoidance or abuse, justifying the application of Article 27(5) of Directive 92/83, as long as measures taken by the manufacturer of such products in relation to their characteristics do not prevent those products from appearing as products not intended for human consumption, then those measures cannot deprive those products of the exemption from excise duty set out in paragraph 1(b) of that article.

31 Furthermore, it is clear from paragraph 17 of the present judgment that the application of Article 27(5) of Directive 92/83 to the facts of the main proceedings was not contemplated by the competent national authority and the referring court has not asked the Court of Justice to interpret the latter provision.

32 Consequently, the answer to the second question is that Article 27(1)(b) of Directive 92/83 must be interpreted as applying to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwashes which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals, when the person who imports those products from a Member State in order for them to be supplied to the end consumers in the Member State of destination by other persons, knowing that they are also consumed as alcoholic beverages, has them manufactured and labelled with that in mind in order to increase the sale of those products.

33 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

1. Article 27(1)(b) of Council Directive 92/83/EEC of 19 October 1992 on the harmonization of the structures of excise duties on alcohol and alcoholic beverages must be interpreted as applying to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwashes which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals.

2. Article 27(1)(b) of Directive 92/83 must be interpreted as applying to ethyl alcohol that has been denatured in accordance with the requirements of a Member State and is contained in cosmetics or mouthwashes which, although not intended, as such, for human consumption, are nevertheless consumed as alcoholic beverages by certain individuals, when the person who imports those products from a Member State in order for them to be supplied to the end consumers in the Member State of destination by other persons, knowing that they are also consumed as alcoholic beverages, has them manufactured and labelled with that in mind in order to increase the sale of those products.

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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Bene Factum (Excise duty - Definition of 'products not for human consumption' - Judgment) [2019] EUECJ C-567/17 (28 February 2019) URL: http://www.bailii.org/eu/cases/EUECJ/2019/C56717.html Cite as: EU:C:2019:158, [2019] EUECJ C-567/17, ECLI:EU:C:2019:158

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