Prep your own hookah? Germany can still tax that

(CN) — A truckload of tobacco scraps hauled through Germany turned into an EU court fight Wednesday, ending with judges saying it still counts as smoking tobacco even if you have to prep it yourself at home.

Scrap-Transporteur, a German transport company, got hit with a tax bill after customs stopped a shipment of more than a ton of processed but unfinished tobacco and classified it as smoking tobacco. The company argued the material wasn’t usable as-is and needed significant prep at home, then challenged the classification in German courts.

Germany’s top tax court hit pause and asked the General Court of the European Union to step in, zeroing in on two points: Whether “smoking tobacco” depends on how people actually use a product, and whether home preparation changes what the product is.

Judges in Luxembourg weren’t interested in how people use it. They focused on what the product can physically do. “The terms ‘capable of being smoked’ mean that the product can be smoked in the sense that heating and combustion of the product generate smoke that can be inhaled,” they wrote.

That knocks out the argument that had been gaining traction in Germany, where the focus had shifted toward real-world use and consumer expectations. The EU court rejected that approach outright, making clear that “to assess whether a product is ‘capable of being smoked,’ there is no need to rely on the perception of the public.”

The judges also dug into a second sticking point: How much prep is too much? This wasn’t ready-to-smoke tobacco. The German court described a process that involved boiling the scraps with water, glycerine and sugar, then mixing in flavoring before they could be used in a hookah.

That still didn’t change what the product is in the eyes of the law. EU judges made clear the number of steps doesn’t count. The real line is whether the process is industrial.

“The terms ‘without further industrial processing’ include methods consisting of several steps that consumers can nevertheless carry out at home,” the judges wrote.

Even a fairly involved DIY process doesn’t change the classification as long as a consumer can pull it off at home. The aim is to keep the rules aligned across EU countries, so the same product doesn’t get treated differently depending on how it’s used or prepared.

That push for consistency is baked into the EU’s tobacco tax rulebook, which sets common measures across the bloc. It is designed to keep the internal market running smoothly, preventing tax rules from distorting competition, while also supporting public health by discouraging tobacco consumption through taxation.

Scrap-Transporteur’s lawyers, however, say the court pushed the directive too far. Michael Nagel, one of the company’s counsel, argued the ruling blurs key legal distinctions and is not supported by the structure of the law.

“A judgment that, unfortunately, did not give sufficient consideration to the arguments,” he said in a statement, adding the court failed to separate the question of whether a product is intended for smoking from whether it is actually suitable to be smoked, and in doing so risks opening the door to taxing intermediate production steps.

German customs authorities declined to comment on the substance of the ruling, saying it is too early to take a position.

Aikaterini Pantazatou, associate professor in tax law at the University of Luxembourg, said the ruling doubles down on an objective, functional reading of EU law, focusing on the product’s intrinsic properties.

By excluding consumer perception, she said, the court builds a framework that “enhances legal certainty,” aligning with the directive’s core aims of uniform taxation, a level playing field across the bloc and limiting tax avoidance. She added that relying on consumer perception would have been especially problematic since the “average consumer” standard is inconsistently applied across EU law.

At the same time, she said the judgment pushes that logic further by treating even relatively complex preparation as nonindustrial if consumers can do it themselves. That leaves open tougher boundary questions, whether the line should depend on the type of equipment used, the scale of production or the degree of standardization, since tools once confined to industry are now common in households. The result, she warned, is a blurrier divide between raw and manufactured tobacco and a potentially broader, less predictable reach for excise taxation.

Beyond the immediate dispute, the case also reflects a broader shift in how EU law handles products that sit between market regulation and public health, according to Tamara Hervey, professor of EU law at City, University of London.

“The EU’s law on products that are demonstrably harmful to health has always been Janus-faced,” she said, noting that the bloc has long treated such products as part of the internal market while also addressing their health risks. For years, that balance leaned toward EU market rules, with health protection largely left to national authorities.

Since the Covid pandemic, she added, that line has started to move, with courts increasingly building health protection into the core of EU market law itself.

Across Europe, that shift is showing up in tougher tobacco policies. Countries including France and Spain have expanded smoke-free zones to beaches, parks and outdoor terraces. The Netherlands has rolled out plain packaging and repeated tax hikes, while Belgium is moving to curb disposable e-cigarettes. At the same time, regulators are struggling to pin down how newer products like heated tobacco and flavored vapes fit into existing categories.

The interpretation is binding, leaving little room for a challenge as the case returns to Germany’s Federal Finance Court, which will now apply the EU court’s guidance to determine whether the seized tobacco falls within the taxable category.

Courthouse News reporter Eunseo Hong is based in the Netherlands.