Recent ECJ judgment on classification of a malt beer base

Parties involved: Paderborner Brauerei Haus Cramer KG v Hauptzollamt Bielefeld

Background:

• Paderborner in Germany bought a malt beer base from Alko Intl in the Netherlands for use in the production of a mixed drink known as "Salitos Ice"
• The malt beer base is a liquid produced from brewed beer with 14% ABV. It is then subject to clarification and ultra-filtration to reduce the bitter substances and proteins therein. It is described as a "colourless, clear liquid that smells of alcohol and has a slightly bitter taste"
• The German Authorities assessed on the malt beer base the higher excise duty rate appropriate to spirits, on the basis that its customs classification is as an ethyl alcohol under heading 2208 of the CN (rather than a beer of heading 2203)
• Paderborner appealed this decision arguing that the correct classification of this product is as a product of heading 2203 because it was not obtained by distillation but rather by fermentation and has been classified in other Member States at heading 2203. The main legal arguments provided by Paderborner were that:
  1. The fermentation process is the crucial factor governing tariff classification
  2. The distillation necessary for the purposes of classification in heading 2208 is absent
  3. According to the HSENs to heading 2208, ethyl alcohol is characterised by "the absence of secondary constituents giving a flavour or aroma" whereas the malt beer base does have a bitter taste
• The German Court referred the following question to the ECJ:
  "Is the CN...to be interpreted as meaning that a product of a 'malt beer base' with an alcoholic strength by volume of approx. 14%, obtained from brewed beer which has been clarified and then subjected to ultra-filtration, by which the concentration of ingredients such as bitter substances and proteins has been reduced, is to be classified under heading 2208?"

Conclusions:

There are two key issues emerging from this judgment. The first is in relation to the treatment of "intermediate" bases of fermented products which, despite being technically consumable alcoholic liquids, cannot be considered an "alcoholic beverage". This is based on the HSENs to heading 2203 which state that beer is an alcoholic beverage and on the Dr Ritter ECJ judgment which held that "beverages" are liquids that are suitable and intended for human consumption. This is a very strict interpretation of what constitutes an "alcoholic beverage" and thus what constitutes a "beer".

The second is the treatment of fermented beverages that have undergone cleaning or filtration. The Paderborner judgment appears to extend to filtered or "cleaned-up" alcohol products the organoleptic criteria set out in the Siebrand case for mixed alcohol products. Thus, the type of filtration/clarification etc carried out is very important. If that process results (as was the case in Paderborner) in a fermented beverage losing the character (taste, smell and appearance) of such a product, then it fails the organoleptic test and is likely to be considered to be an ethyl alcohol product of heading 2208 based on this judgment. The fact that a product may retain a slightly bitter "beer" taste and aroma is not sufficient for classification at 2203, as products of heading 2208 may still have some aroma (and taste).

This decision will have ramifications for the rate of excise duty which is chargeable on the fermented base.