This case was concerned with the nationalisation of the Italian electricity industry, whose bills Costa refused to pay in protest (he had a stake in the private energy firm) since he said its creation breached EU law. The Italian Constitutional court said that subscription to the EC was an ordinary law, subject, like any other, to repeal. The ECJ ruling overturned this, saying (1) that upon the EEC Treaty coming into force a “new legal order” came to exist, which caused EC law to enter into domestic law and that domestic courts are “bound to enforce” it. And (2) that “transfer from [member states’] domestic legal systems to a Community legal system” meant a loss of sovereignty and hence any subsequent act made in breach of EC law would be ineffective, since EC law would prevail.
ECJ: To allow national laws to be effective even when they conflict with EC law would frustrate the aim of creating a truly common market. It is implied that EC law is supreme over national law: otherwise it would be meaningless to say that regulations are binding and directly applicable (art. 249) as national legislation could just nullify its effects. Law stemming from the treaty is an “independent source of law”. This ruling established that member states couldn’t deviate from EC treaties without prior permission. It also established that national high courts couldn’t determine incompatibility of national and EC law without consulting ECJ.