Opinion of Mr Advocate General Lenz delivered on 5 July 1984. # Josef Hoche and Roomboterfabriek "De Beste Boter" v Bundesanstalt für landwirtschaftliche Marktordnung. # References for a preliminary ruling: Hessischer Verwaltungsgerichtshof - Germany. # Disposal of butter at a reduced price - Conditions for the release of the security. # Joined cases 154 and 155/83.

A — Facts

1. Provisions of Community law

2. The facts of the dispute

3. Proceedings in the main action

4. The questions referred for a preliminary ruling

B — Opinion

1. The extent of the purchaser's duty to ensure that butter sold at a reduced price is only processed into certain specified products

(a) Interpretation of Article 6 (a) of Regulation No 1259/72

(b) Interpretation of the word ‘only’ Article 6 (1) (c) of Regulation No 1259/72

(c) Conclusion

2. Conditions for the release of the security (duty to furnish proof)

(a) Proof of manufacture of the end product

(b) Proof of manufacture of the intermediate product within the prescribed period

3. Funher processing of the intermediate products

4. The addition of sodium caseinate

(a) Whether permitted

(b) Duty to funish proof concerning the final destination of the product

C — Conclusions

1.

The butter is sold by way of tender under Article 2 of Regulation No 1259/72 on the disposal of butter at a reduced price to certain Community processing undertakings (Official Journal, English Special Edition 1972 (II), p. 559), as amended by Regulation No 2815/72 (Official Journal, English Special Edition, 30/31 December 1972, p. 5). Under Article 6 of the regulation, a tenderer may not take part in the invitation to tender unless he gives a number of written undertakings, namely:

Article 6 also provides that processing must take place within four months, that the tenderer is to keep stock accounts showing the purchasers of the product obtained as a result of the first processing operation (concentrated butter with certain additives), and that he must ensure that the obligation to process into the final products specified and the obligation to keep stock accounts (referred to above) are incorporated into any contract for resale of the intermediate product which I have just mentioned. Subsequently, by virtue of Regulation No 1910/73 (Official Journal 1973, L 196, p. 10), Article 6 (a) was inserted, whereby further processing of the abovementioned end products is allowed only if such products also fall within the tariff headings referred to above ‘without, at an intermediate stage of such processing, resulting in a product which falls within any other heading.’

Article 9 of Regulation No 1259/72 provides that the minimum selling price and the amount of the processing security to be given by the successful tenderer are to be fixed (the latter in the light of the difference between the market price of butter and the minimum price, according to the provision) on the basis of the tenders received. Article 11 provides that before removing the butter from store, the successful tenderer must pay in principle only the amount of his tender.

Article 15 of the regulation provides that from the time of the butter's removal from store until it is processed into one of the products referred to in Article 6 (1) (c), it is to be subject to customs control or to an administrative control providing equivalent guarantees. Finally, Article 18 of the regulation, as amended by Regulation No 1237/73 (Official Journal 1973, L 128, p. 1), provides that the processing deposit is to be released only for quantities ‘in respect of which the successful tenderer has furnished the proof that the conditions referred to in Article 6 have been met’. The article also provides that the necessary proof, where processing is carried out in the selling Member State, is to be furnished ‘by the production of a document drawn up by the selling Member State’.

2.

The legislation described above is relevant to the determination of the cases pending before the national court for the following reasons:

In March 1974, the plaintiff in the first action bought butter from the German intervention agency and gave an undertaking, together with a processing security by way of guarantee, to have it processed into concentrated butter and from thence into products including ice-cream powder. It sold part of the butter to Otto Suwelack (a company), which was joined as a party in the administrative proceedings. The latter gave the plaintiff a written undertaking that it would process the butter in accordance with the provisions mentioned above. In July 1974, after the processing of the concentrated butter, Suwelack presented a certificate of the use of raw materials (Rohstoffverwendungsnachweis, a document required by German law) to the customs authorities, together with a processing declaration which stated that a powder for the preparation of edible ices falling within subheadings Nos 18.06 D or 21.07 F of the Common Customs Tariff had been made. However, according to the judgment making the reference, the correctness of which has been disputed in certain respects by the plaintiff and the party joined to the proceedings, considerable amounts of the product were sold not to ice-cream manufacturers but to, inter alia, a company which extracted the sugar (which was apparently sold to a chocolate factory) and processed the rest into milk powder preparations containing varying proportions, as set out in the order making the reference, of ice-cream powder. The milk powder preparations were then sold to a number of undertakings, and it has evidently not been discovered what finally became of them (in any event it has not been established, as was emphasized by the plaintiff, that ice-cream was not in fact manufactured).

The plaintiff in the second action bought butter from the German intervention agency in June 1974, and similarly gave an undertaking that it would process the butter into concentrated butter, which would then be used to manufacture, inter alia, ice-cream powder. It sold some of the butter to the plaintiff in the first action (which was authorized to process it into concentrated butter), and the latter in turn sold the concentrated butter, subject to the written undertaking mentioned above, to Suwelack. Again in this case Suwelack submitted its certificate of use of raw materials in July 1974, after the processing of the concentrated butter, together with a processing declaration in the same terms as those described above, and again (according to the order making the reference, with regard to which the plaintiff has expressed reservations), much of the production was sold not to ice-cream manufacturers but to other undertakings, one of which extracted the sugar and sold it, whilst the rest was processed into milk powder preparations; it is not known what was finally done with the latter after they were sold to various undertakings.

An examination of samples of the powder preparations produced by Suwelack established that they consisted of cream powder containing added sugar falling within tariff heading No 04.02 of the Common Customs Tariff. Thereupon the predecessor in law of the Bundesanstalt für landwirtschaftliche Marktordnung [Federal Office for the Organization of Agricultural Markets, hereinafter ‘the Bundesanstalt’] declared in January and February 1975 that the processing security was forfeit on the ground that the concentrated butter manufactured by the applicant had not been used for the purpose specified.

3.

The plaintiffs first lodged an unsuccessful objection against the decision and then appealed to the Verwaltungsgericht [Administrative Court], which granted their appeal. As regards the main issue, which was whether the powder preparation manufactured by Suwelack met the requirements of tariff subheadings Nos 18.06 D or 21.07 F, the court held in December 1980 that the expert opinions which had led to the security's being declared forfeit were valueless because the samples of ice-cream powder upon which they were based were already nine months old. Furthermore, the court held that the small proportion of flavouring agents which was found did not necessarily mean that ice-cream made from the powder would not be suitable for consumption, and that the addition of the binding agent sodium caseinate was unobjectionable because it was permitted in the Benelux countries and whether or not such a powder could be marketed in Germany (where the addition of such agents is prohibited) was not decisive. Moreover, the Verwaltungsgericht adopted the view that it was immaterial that the powder produced by Suwelack was processed by third parties into products other than icecream, since Regulation No 1259/72 governed only the production of powders for the preparation of edible ices and not the final use of the product. In that connection the court also attached significance to the fact that Suwelack had submitted the processing declaration referred to above. It took the view that the burden of proof was thereby reversed, especially as German legislation had not yet established the form of the document which was to be produced under Article 18 (2) of Regulation No 1259/72. Furthermore, it was the consistent practice of the Bundesanstalt für landwirtschaftliche Marktordnung to treat the processing declaration as the document referred to in the abovementioned regulation.

In February and March 1981, the Bundesanstalt appealed against the judgment in the two cases to the Hesse Higher Administrative Court. In the first place it argued that the decision to declare the security forfeit was correct, because powder for the preparation of ice-cream suitable for consumption had not been manufactured. The powder had not in fact been perceptibly sweetened and flavoured, and the ice-cream made from it had not shown sufficient consistency. In the second place, the Bundesanstalt submitted, the issue turned on whether it was proved that the powder had been processed into ice-cream. For that purpose the processing declaration submitted by Suwelack, which did not meet the requirements of Article 18 of Regulation No 1259/72 because it was not accompanied by a customs certificate, was clearly insufficient. Furthermore, the Bundesanstalt emphasized that it was under a Community obligation to extend its supervision to the stages of processing subsequent to the manufacture of the powder, and denied that its practice was to regard the further processing of the ice-cream powder as irrelevant. None the less, even if as a rule it had confined its supervision to the second stage of processing and had formerly released the security after the production of ice-cream powder, the plaintiffs had no right whatsoever to insist that the practice be continued. The existence of such a practice could certainly not prevent the Bundesanstalt from having regard to the fact that after manufacture a powder had been put to a use other than that specified by the legislation.

The respondents in the appeal contended in the first place that as regards the characteristics of the powder, the case-law of the Court of Justice indicated that either sweetening or flavouring was a condition of suitability for consumption, and that since the powder preparation at issue was perceptibly sweetened or flavoured it satisfied that requirement. They also took the view that it was not the end product into which the ice-cream powder was processed that was important but rather whether, as they claimed, the powder complied with the provisions of Article 6 (1) (c) of Regulation No 1259/72. The icecream powder should have been regarded as the end product, and that was why the Bundesanstalt itself regarded any further processing as irrelevant and also why there was no provision for checking what became of the powder, nor for any obligation to impose restrictions on the use of the icecream powder by a subsequent purchaser. The respondents in the appeal had relied on the continuance of that practice; in any event, as they also maintained, it was clear that the abovementioned Article 6 (a) of Regulation No 1259/72 was not applicable in their case because the preamble to Regulation No 1910/73, which introduced that provision, expressly refers only to products in tariff heading No 19.08 of the Common Customs Tariff (fine bakers' wares).

Suwelack, which was joined as a party to the proceedings, followed substantially the same line of argument. In addition it made the point that no reference to Article 6 (a) is made in Article 18 (2) of Regulation No 1259/72 (as amended); it took the view, moreover, that the fact that Article 18 did not provide for any penalties in connection with the way in which the butter was further processed could only mean that the subsequent use to which an ice-cream powder preparation was put was irrelevant for the purposes of the Community legislation.

4.

The dispute raised a number of questions for the Hesse Higher Administrative Court in connection with the interpretation of Community law, and an answer to those questions, as it explained in detail, was necessary before it could make its decision. Consequently, by orders dated 30 May 1983, it stayed the actions pending before it and submitted the following questions, which were the same in both cases, for a preliminary ruling under Article 177 of the EEC Treaty:

1.

The first group of questions relates to the extent of the duty of a purchaser of butter sold at a reduced price to have it processed within a specified period (four months) and only into certain specified products (icecream, ice-cream powder and fine bakers' wares), a duty imposed by Article 6 (1) (c), the third option provided by Regulation No 1259/72, which refers to the manufacture of powder for the preparation of edible ices falling within subheadings Nos ex 18.06 D or ex 21.07 F of the Common Customs Tariff. In that connection the national court seeks guidance as to whether the obligation in question is satisfied even if the powder is not used for the preparation of edible ices but is instead separated into its constituent parts and if those ingredients are further processed into milk powder preparations and chocolate. The question makes it clear that here, too, the aforementioned Article 6 (a) of Regulation No 1259/72, the effect of which is one of the points to be determined under Question (c), is relevant.

The view adopted by the plaintiffs and Suwelack with reference to that point is that a purchaser of butter sold at a reduced price is only under an obligation, in the circumstances of the main actions, to manufacture ice-cream powder. According to the wording and the general scheme of the legislation, the powder is to be regarded as the end product. Its subsequent use, however, has no bearing on the obligation placed upon the purchaser of the butter, because it is not referred to in the legislation and there is nothing in the required conditions of purchase relating to the ultimate destination of the product, so that the purchaser is not obliged to place corresponding obligations upon his customers. The Bundesanstalt and the Commission take the contrary view that the regulation on the disposal of butter at a reduced price must be construed strictly because it is a special measure. According to them the ultimate use of the butter is very important. It must be so defined as to preclude the possibility of the product's finding its way back to the ordinary butter market and thereby distorting competition. The rules governing the use of the butter under Regulation No 1259/72 are exclusive and exhaustive. Thus it must be ensured that the ice-cream powder, which must be regarded as an intermediate product (subject to the effect of Article 6 (a)), is processed only into ice-cream.

With reference to the aforementioned Article 6 (a), the plaintiffs and Suwelack consider that the only conclusion to be drawn from the fact that the preamble to Regulation No 1910/73 refers solely to products falling within heading No 19.08 of the Common Customs Tariff (fine bakers' wares), and from the consideration that Article 6 (1) (c) provides for two other possible methods of processing, is that Article 6 (a) does not apply to the third option therein mentioned, namely the manufacture of ice-cream powder. In addition they have stated that even on the assumption that Article 6 (a) has broader scope, there are no grounds for holding that it has been infringed by them. In fact, they maintain, it has not by any means been established beyond dispute that the sugar in the powder preparation manufactured by Suwelack was extracted, and even if it was the resulting alteration in the level of sweetness would not bring Article 6 (a) into play because the product that resulted was still ice-cream powder, and no other product had been produced at any intermediate stage of processing.

The Bundesanstalt and the Commission argue, however, that the interpretation of Article 6 (a) does not depend on the preamble to the regulation (because the statements of reasons such preambles contain are not always comprehensive), but on the wording of the provision itself; and that provision makes it quite clear that it is not restricted to fine bakers' wares but covers all the products referred to in Article 6 (1) (c), and therefore includes ice-cream powder. Furthermore, on the basis of that interpretation and the facts as presented by the court making the reference Article 6 (a) must apply in view of the conditions laid down by it (which are cumulative) precisely because sugar has been extracted from the ice-cream powder and sold: sugar falls within Chapter 17 of the Common Customs Tariff, and is thus a product which belongs to another tariff heading within the meaning of Article 6 (a).

2.

The second group of questions, to which I now turn, relates to the duty to furnish proof, which is governed by Article 18 (2) of Regulation No 1259/72 (as amended by Regulation No 1237/73) on the fulfilment of which the release of the processing security depends. The national court asks whether the purchaser's duty to furnish proof extends to the stages of processing subsequent to the manufacture of ice-cream powder, or in other words whether, if he does not process the ice-cream powder himself but sells it, he must prove that one of its subsequent purchasers has in fact manufactured ice-cream. That question may be taken together with Question (e), in which a ruling is sought on whether it is correct that an infringement of Article 6 (a) does not affect the release of the security because that provision is not referred to in Article 18 (2).

The plaintiffs and Suwelack have expressed the view that in the case of the third option under Article 6 (1) (c), all that is required is the manufacture of the powder preparation; in determining whether the security should be released no inquiry need be made as to further processing. Article 6 (a), or the failure to observe it, is not relevant in the context of Article 18 (2), in the first place because it is not referred to therein, and in the second place because the further processing of the powder preparation (for which no time-limit is set) generally takes place at a time which is far removed from the inquiry preceding the release of the security; furthermore, Article 18 (3) provides that the security is to be released immediately.

In its written observations, the Bundesanstalt first expressed the view that the duty to furnish proof extended to further processing of the intermediate product ‘icecream powder’, and that for that purpose there was no need for Article 18 (2) to refer to Article 6 (a), since the latter provision was introduced merely to facilitate the interpretation of Article 6 (1) (c). In the oral proceedings, however, that position seems to have been relaxed somewhat, since the argument at that stage was that the conditions for the release of the security and those for compliance with the contract of purchase were not equivalent, and that even if the intervention agency lost its claim to the security, that would not entail the extinction of the claim to payment of the full purchase price guaranteed by the security, which would exist if the butter was used in a manner contrary to the legislation. Again, the Commission has adopted a similar view. In its written observations, it states that proof of the manufacture of a powder preparation is insufficient, and it expresses the view that proof must also relate to the stages following the manufacture of the powder preparation. It also states in those observations that the omission of any reference to Article 6 (a) in Article 18 is not significant, since the duty to furnish proof, as may be seen from the subsequent consolidation in Regulation No 232/75, is taken for granted (the most that may be said is that no formal duty to furnish proof applies under Article 6 (a)). In the oral proceedings the argument was modified to the effect that proof of the manufacture of a powder preparation is generally sufficient (because it supports the presumption that it led to the manufacture of ice-cream), but that if there are grounds for believing that there have been irregularities as regards the ultimate use of the ice-cream powder, the competent national agency is entitled to inquire into the matter (here it may be that the burden of proof is reversed), and in any event the security must be declared forfeit if it is established that the product was not used as intended by the legislation or that Article 6 (a) has not been observed.

3.

A further question, namely question (d), also relates to the interpretation of Article 6 (a) of Regulation No 1259/72. The purpose of the question is to establish whether the permitted further processing of the products referred to in Article 6 (1) (c) includes all the products referred to under tariff subheadings Nos 18.06 D and 21.07 F, or whether it is only powder preparations under tariff subheadings Nos ex 18.06 D or ex 21.07 F, as referred to in Article 6 (1) (c), that may be so manufactured.

I may answer that question briefly. If the facts set out in the order making the reference are correct (that the powder preparations manufactured by Suwelack were subject to a treatment enabling sugar to be extracted and sold separately), then, as I have already explained, there has clearly been an infringement of Article 6 (a) because a product belonging to another tariff heading has resulted from the processing; it is therefore unnecessary to determine whether the remaining powder mixtures still satisfy the requirements of Article 6 (a).

It may, however, be added that the only possible answer to the question is that suggested by the Bundesanstalt, namely that not every product falling within tariff headings Nos 18.06 D and 21.07 F may be manufactured. In that connection it is sufficient to recognize that Article 6 lays down very precise requirements for powder for the preparation of edible ices (regarding milk-fat content and suitability for consumption). Those conditions would obviously be purposeless on a broad interpretation of Article 6 (a). Furthermore, it should be remembered that Article 6 (a) was introduced in order to prevent circumvention of the legislation allowing sale of butter at a reduced price. However, circumvention of those provisions would clearly be facilitated if all the products falling within tariff subheadings Nos 18.06 D and 21.07 F could be manufactured and if, therefore, the products referred to in Article 6 (1) (c) could be processed into all manner of foodstuffs with widely varying milk-fat content.

4.

Finally, I must deal with the group of questions relating to the addition of the binding agent sodium caseinate to the icecream powders. The first question that arises in that connection is whether such additives are compatible with Article 6 (1) (c) (third option) of Regulation No 1259/72, if powder preparations including them are permitted in the manufacture of ice-cream in only some EEC countries, and not in the Federal Republic of Germany. The second question is whether, if such additives are not harmful, the release of the security depends on whether the successful tenderer can prove that powder preparations of the kind described have been dispatched to a Member State where their use in the manufacture of ice-cream is permitted.

(a)

Where a purchaser of butter sold at a reduced price undertakes, pursuant to Article 6 (1) (c) (third option) of Regulation No 1259/72 as amended by Regulation No 2161/72, to have powder for the preparation of edible ices falling within subheadings Nos ex 18.06 D or ex 21.07 F of the Common Customs Tariff produced, he must ensure that that purpose, without prejudice to the provision for further processing contained in Article 6 (a), is actually fulfilled; the conditions laid down by Article 6 (1) (c) (third option) cannot be considered to be fulfilled if such powder preparations have been separated into their constituents at subsequent stages of processing and those ingredients have been further processed into milk powder preparations and chocolate.

(b)

The successful tenderer's duty to furnish proof pursuant to the first sentence of Article 18 (2) of Regulation No 1259/72 as amended by Regulation No 1237/73 does not extend to processing which takes place after the manufacture of the powder for the preparation of edible ices under Article 6 (1) (c) (third option) of Regulation No 1259/72 as amended by Regulation No 2161/72.

(c)

Article 6 (a) of Regulation No 1259/72 does not only apply to products falling within heading No 19.08 of the Common Customs Tariff but also covers icecream products falling within subheadings Nos ex 18.06 D or ex 21.07 F of the Common Customs Tariff.

(d)

The further processing permitted by Article 6 (a) embraces only the manufacture of the products referred to in Article 6 (1) (c) of Regulation No 1259/72 and not, therefore, all the products falling within subheadings Nos 18.06 D and 21.07 F of the Common Customs Tariff.

(e)

Breach of Article 6 (a) does not affect the release of the security under Article 18 (2) if the unauthorized further processing of a powder preparation manufactured in accordance with Article 6 (1) (c) takes place only after a decision on the release of the security was to be taken in accordance with Article 18 (3).

(f)

The addition of the binding agent sodium caseinate is not inconsistent with the objective of Article 6 (1) (c) (third option) of Regulation No 1259/72 if the powder thereby produced may be used for the preparation of ice-cream suitable for consumption in one of the Member States of the EEC in accordance with its foodstuffs legislation, even if that is not the case in the Federal Republic of Germany.

(g)

Where sodium caseinate has been used in the manufacture of a powder for the preparation of edible ices in the Federal Republic of Germany, it is irrelevant for the release of the security under Article 18 (2) of Regulation No 1259/72 as amended by Regulation No 1237/73 that the successful tenderer is unable to prove that the powder preparation has been dispatched to a Member State which allows the use of that binding agent.