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C-170/78. In order to promote FreeMovementOfGoods, Art. 90 of the ECTreaty prohibits member states from favouring domestic products over imports by taxing similar products in a discriminatory way (see ProhibitionOfDiscriminatoryInternalTaxation). This prohibition even applies (e.g., Humblot (1984)) when the discrimination is indirect -- a taxation scheme will be unlawful even if it appears on its face to treat domestic and imported products equally, if in fact imported products are penalized. However, the provisions concerning discriminatory taxation only apply to goods that are `similar' (Art. 90(1)) or in competition with each other (Art. 90(2)).
In this case, it was accepted that the UK's differential taxation of beer and wine could amount in fact to discrimination against imported produce, because although the taxation applied, on its face, equally to domestic and imported produce, in reality the UK produces very little wine, and a great deal of beer. So there was indirect discrimination. However, the issue to be determined was whether beer and wine were `similar', or in competition with each other. The ECJ had already held that different types of spirit were similar, but clearly the difference between wine and beer, although difficult to measure, is probably greater that the difference between vodka and brandy. The difficulty in determining this issue can be seen in the length of time it took the ECJ to decide the case: five years. The case turned, in the end, on whether beer and wine were substitutable, that is, whether they fulfilled the same need for consumers. The UK maintained that they did not -- wine was for the middle class, beer for the working class (of course, it wasn't put as crudely as that). The ECJ did not accept this argument. It pointed out that this distinction was not a fundamental property of the difference between beer and wine -- it was not apparent in other member states. Instead, the UK had made wine a luxury commodity by taxing it so steeply. If the taxes were equalized, beer and wine would be substitutable. Hence, the differential taxation of beer and wine was unlawful.
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