Excise duty exemption for products containing denatured alcohol – significant EU General Court judgment T-381/25

Manufacturers of products containing denatured alcohol intended for purposes other than human consumption cannot be deprived of the right to an excise duty exemption solely on the basis of the tariff classification of the product or the manner in which it is subsequently used by consumers.

In a Polish case, the General Court of the European Union ruled on the conditions governing the application of the excise duty exemption for denatured alcohol used in the manufacture of products not intended for human consumption (thinners).

The judgment confirms that the mere classification of a product under CN heading 2207, or the manufacturer’s knowledge that the product may subsequently be used for human consumption, cannot automatically deprive the manufacturer of the right to an excise duty exemption. The decisive factors are the proper denaturing of the alcohol and its use in the manufacture of a product marketed as not intended for human consumption. The ruling may be of significant importance to manufacturers of industrial, chemical and cosmetic products containing denatured ethyl alcohol.

Background to case T-381/25

A Polish company manufactured thinners by adding 1% by weight of propylene glycol to partially denatured ethyl alcohol. The company classified those products under CN code 3814 00 90. Following a tax audit covering the period from January to April 2014, however, the tax authority concluded that the products should instead be classified under CN code 2207 20 00 as denatured ethyl alcohol. Consequently, the authority challenged both the tariff classification adopted by the company and the treatment of the products as goods not intended for human consumption.

The authority further established that only three of P.’s contractors used the purchased products for their intended purpose in the course of their own business activities, whereas the remaining six resold them to unidentified purchasers, documenting the sales solely by means of fiscal receipts.

Following the audit, the authority assessed an excise duty liability against P. In the reasoning accompanying its decision, the authority stated that the excise duty exemption should not apply where an undertaking declares that partially denatured ethyl alcohol is used in the manufacture of products not intended for human consumption, whilst the product manufactured continues, according to the Combined Nomenclature (CN) classification, to constitute ethyl alcohol.

The company appealed against the decision. However, both the appellate authority and the Provincial Administrative Court in Łódź (judgment of 2021, case reference I SA/Łd 62/21) upheld the position of the tax authority. It was only during the cassation proceedings that, by order of 29 January 2025 (case reference I FSK 1126/21), the Supreme Administrative Court stayed the proceedings and referred the following questions to the Court of Justice of the European Union for a preliminary ruling concerning the conditions justifying the refusal of the excise duty exemption for such products:

1. Can the excise duty exemption be refused in respect of glycol-denatured alcohol used in products not intended for human consumption where that alcohol is classified under CN code 2207?
2. Does the refusal of the excise duty exemption require proof that the manufacturer knew that those products were being used for human consumption, or is it sufficient to demonstrate that, exercising due diligence, the manufacturer should have been aware of such use?

Excise duty exemption and CN classification

The General Court first pointed out that, pursuant to Article 27(1)(b) of Directive 92/83, the excise duty exemption applies provided that two cumulative conditions are satisfied:

1. the alcohol has been denatured in accordance with the requirements of the relevant Member State; and
2. the alcohol is used for the manufacture of products not intended for human consumption.

The General Court emphasised that the wording of that provision does not refer to tariff classification as a condition for the application of the exemption. This means that entitlement to the excise duty exemption does not depend on the classification of the product under a particular CN code, but solely on fulfilment of the conditions referred to above.

Secondly, the General Court noted that the excise duty exemption for the above products constitutes the general rule, whereas refusal to grant that exemption constitutes the exception. Although Member States are entitled, within the scope of the powers conferred upon them, to lay down their own conditions governing the application of that exemption “for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse”, when exercising those powers they must provide “specific, objective and verifiable evidence of the existence of a serious risk of tax evasion, avoidance or abuse and ensure that the conditions which they lay down in the exercise of that power do not go beyond what is necessary to achieve that objective.”

The General Court then referred to the earlier case law of the Court of Justice of the European Union, which clearly confirms that:

• ethyl alcohol contained in a product not intended for human consumption that has been denatured in accordance with a method approved by a Member State benefits from the excise duty exemption (judgment of 28 February 2019, Bene Factum, C-567/17, EU:C:2019:158, paragraph 21 and the case law cited therein);
• where alcohol is already contained in a product not intended for human consumption, the granting or refusal of the exemption under Article 27(1)(b) of Directive 92/83 depends on the method by which the alcohol has been denatured (judgment of 7 December 2000, Italy v Commission, C-482/98, EU:C:2000:672, paragraphs 40 and 41);
• refusing to grant an excise duty exemption for a product which satisfies the requirements laid down in the Directive solely because its actual use is found not to correspond to the name assigned to it by the undertaking would be contrary to Directive 92/83 (judgment of 28 February 2019, Bene Factum, C-567/17, EU:C:2019:158, paragraph 22 and the case law cited therein).

In summary, the General Court of the European Union explicitly held that making the application of the excise duty exemption for denatured ethyl alcohol contained in products not intended for human consumption conditional upon the classification of such products under a CN heading other than heading 2207 is contrary to the provisions of the Directive.

Such a restriction on the application of the exemption may only be permissible where specific and objective evidence demonstrates that it is necessary to ensure the proper application of that exemption and to prevent tax evasion, avoidance or abuse (within the scope of the powers granted to Member States).

Excise duty exemption and the use of products

In the second part of its judgment, the General Court examined whether the manufacturer’s knowledge, or the possibility of obtaining information, regarding the potential subsequent consumption of the product in a manner inconsistent with its intended purpose constitutes a sufficient condition for refusing the application of the excise duty exemption.

The General Court stated as follows:

“(…) ethyl alcohol denatured in accordance with the requirements of a Member State and contained in products presented as thinners, and therefore as products not intended for human consumption, cannot be excluded from the scope of the exemption from harmonised excise duty provided for in Article 27(1)(b) of Directive 92/83 on the ground that those products are at least partially used for human consumption (see, to that effect, judgment of 28 February 2019, Bene Factum, C-567/17, EU:C:2019:158, paragraph 23).”

In the case under consideration, the Court stated that, as long as the circumstances and measures relating to the sale do not deprive the products of their character as products presented as not intended for human consumption, they cannot, in themselves, result in the refusal of the exemption. This does not apply, however, to cases of tax evasion, avoidance or abuse.

Consequently, the Court held that a manufacturer of products not intended for human consumption containing ethyl alcohol subject to excise duty, such as thinners, cannot be refused the right to an excise duty exemption solely because it knew, or should have known, that such products were in practice used by certain individuals for consumption.

For the purposes of applying the exemption, the key issue is whether the product was manufactured and placed on the market as a product not intended for human consumption.

Importance of the judgment in case T-381/25 for polish taxpayers

The judgment of the General Court of the European Union is of significant importance for manufacturers of products containing denatured ethyl alcohol. The conclusions presented in the judgment provide a strong argument for protecting businesses in situations where tax authorities refuse to apply an excise duty exemption solely on the basis of circumstances which are not provided for in tax legislation as conditions for benefiting from that exemption.

In particular, the ruling challenges the practice of making the right to the exemption conditional upon:

• classification of the product under a specific CN code;
• finding that certain consumers use the product contrary to its intended purpose, including consuming it;
• an allegation that the manufacturer knew or should have known about instances of such use of the product.

The judgment confirms that entitlement to the excise duty exemption should, in particular, be determined by the proper denaturing of the alcohol and its use in the manufacture of a product not intended for human consumption. Neither the CN classification itself nor the subsequent use of the product contrary to its intended purpose may automatically determine the loss of the exemption.

Nevertheless, the judgment does not release businesses from the obligation to exercise due diligence in documenting the nature of their products. On the contrary, manufacturers should ensure that they maintain documentation confirming that the products were manufactured and placed on the market as goods not intended for human consumption.

In practice, the following may be of particular importance:

• technical documentation and product safety data sheets;
• descriptions and specifications indicating the industrial application of the product;
• marketing materials, user instructions, as well as markings and labels confirming that the product is not intended for consumption;
• procedures relating to product quality control and safety;
• documentation confirming the proper and compliant denaturing of ethyl alcohol.

The EU General Court judgment in Case T-381/25 may have significant implications for businesses using denatured alcohol in their production processes. Companies should consider whether their current documentation approach and application of the excise duty exemption remain compliant with the latest developments in case law. Our experts help businesses identify potential risks and implement solutions that strengthen tax certainty and compliance.