For the first time, the General Court of the EU has addressed a question for preliminary ruling concerning a Czech tax entity in the field of excise duties. The HAVEL & PARTNERS legal team, representing the client in cooperation with EKP Advisory, has succeeded in a dispute over exemption from excise duty on ethyl alcohol used in ethyl alcohol-based flavours intended for flavouring of foodstuffs and non-alcoholic beverages. The General Court sided with our arguments, supporting our interpretation of Article 27(1)(e) of the Council Directive on excise duties.
At the heart of the case was the taxation of ethyl alcohol-based flavours sold in miniature bottles, used to flavour foodstuffs and non-alcoholic beverages with an alcohol strength not exceeding 1.2% volume. The Czech Customs Administration, followed by the Prague Municipal Court, had denied the producer of these flavours an exemption from excise duty on the ethyl alcohol contained in these products. The client distributed these flavours both directly to consumers and to other entities, primarily retail chains, for resale.
According to the Czech Customs Administration, the issue lay in the sale of flavours in miniature bottles to retail chains, which did not themselves use the products, i.e. did not consume them to prepare foodstuffs and non-alcoholic beverages but merely resold them to end consumers. This failed to meet the conditions set out in the Czech Excise Duty Act, and therefore the exemption from excise duty on the ethyl alcohol contained in these products could not be granted.
The case was subsequently addressed by the Supreme Administrative Court, which—based on the legal reasoning of the HAVEL & PARTNERS team led by managing associate Martin Pecha—referred a question for preliminary ruling to the General Court. The question was whether “Is it compatible with the obligation of a Member State to apply the exemption from duty set out in Article 27(1)(e) of Council Directive 92/83/EEC (1) to render an exemption for additives (ethyl alcohol-based flavours falling under CN code 330210) conditional on the flavours being demonstrably used for the preparation of foodstuffs and non-alcoholic beverages with an alcohol strength not exceeding 1.2 % vol., and not on the fact that those additives are simply intended for that purpose?”
Under the Czech legislation, the exemption from excise duty on ethyl alcohol contained in flavours was conditional on proof that the flavours were demonstrably used for the preparation of foodstuffs and non-alcoholic beverages with an alcohol strength not exceeding 1.2% volume.
The General Court concluded that such legal regulation contradicts the EU Council Directive on excise duties. According to the General Court, the decisive factor is the intended purpose of use of the flavours —not whether they were demonstrably used for the preparation of foodstuffs and non-alcoholic beverages with an alcohol strength not exceeding 1.2% volume. It is now up to the Supreme Administrative Court to decide in the case based on the General Court’s ruling.
“This ruling represents a form of satisfaction not only for our client but also for the HAVEL & PARTNERS legal team, which dedicated significant effort to this case. Although the case initially appeared unlikely to succeed due to existing negative case law of the Supreme Administrative Court in a similar matter, we believed in the strength of our precise legal arguments—now validated by the General Court. Its decision confirms that the respective Czech legislation was contrary to EU law, a discrepancy that the Czech legislature has already addressed through an amendment to the Excise Duty Act,” comments Martin Pecha, managing associate at HAVEL & PARTNERS, on this success before the General Court.
