LUXEMBOURG, April 8, 2008 (AFP) - A European court on Tuesday upheld Sweden's right to impose a higher tax rate on wine than beer, rejecting a legal challenge by the European Commission.

The Commission had argued that levying a higher excise duty rate on wine favoured Sweden's beer-making industry while discriminating against wine products, most of which are imported from France and other EU nations.

This, Brussels argued, violated European competition rules.

However the European Court of Justice in Luxembourg, while acknowledging the differing tax rates, ruled that they did not affect the market and therefore dismissed the EU action.

'The fact that wine is taxed more heavily is not liable to influence the market in question and does not have the effect of affording indirect protection to Swedish beer,' the court said in its ruling.

It added that the price difference before and after tax were virtually the same, with a litre of wine costing just over twice as much as a litre of beer.

Tuesday's legal victory overturns a recommendation by the EU's top court adviser, the advocate general, who opined last year that the Swedish tax practice should be changed.

A European Commission spokeswoman admitted that 'the commission has lost the case,' while saying the ruling should not be taken as a precedent.

'I don't think that I can link this court judgement with other cases,' spokeswoman Maria Simakopoulou told reporters in Brussels.

'We had already previous court cases that the court has ruled differently,' she added.

Under Swedish law, retail sales of alcoholic beverages in Sweden are carried out under a monopoly held by state-run alcohol retailer Systembolaget. Only Systembolaget and wholesalers authorised by the state may import such drinks.

Sweden maintains that the monopoly, and high taxes on alcohol, are needed to protect public health.

However the system has come under close EU scrutiny with Stockholm under pressure to relax its stringent rules on alcohol sales.

The EU court ruled last year that Sweden had no right to ban individuals from importing alcohol.