Joseph E. Seagram & Sons v. Smith

• Decision Date: 20 June 1940
• Docket Number: No. 7187.,7187.
• Parties: JOSEPH E. SEAGRAM & SONS, Inc., v. SMITH, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Seventh Circuit

113 F.2d 357 (1940)

JOSEPH E. SEAGRAM & SONS, Inc., v. SMITH, Collector of Internal Revenue.

No. 7187.

Circuit Court of Appeals, Seventh Circuit.

June 20, 1940.

Estal G. Bielby, of Lawrenceburg, Ind., and Alfred D. Van Buren, of New York City, for appellant.

Val Nolan, U. S. Atty., and B. Howard Caughran, both of Indianapolis, Ind., Julian D. Simpson, Dept. of Justice, of Washington, D. C., and Elbert H. Loyd, U. S. Treasury Dept., of Chicago, Ill., for appellee.

Before EVANS and MAJOR, Circuit Judges, and WILKERSON, District Judge.

Plaintiff seeks a reversal of a judgment of the District Court denying it a refund of $6,102 (and $235.94 interest) theretofore paid as a Federal tax on distilled spirits, by it manufactured.

The ground on which recovery is sought is that 3,051 proof gallons on which the tax was imposed ($2 per proof gallon) were lost through spillage occasioned solely through plaintiff's negligence in transferring the spirits from tanks in its "still house" to tanks in the cistern room. The spirits were erroneously run into an already partially filled tank, instead of into the appropriate empty tanks, and overflowed, causing the loss of the spirits upon which the tax is challenged.

The District Court found that despite orders of plaintiff to its employees that the spirits were to be transferred to tanks No. 2 and No. 3, plaintiff's employees neglected to so notify the Government employee — the storekeeper-gauger — who always had custody of the keys to the cistern room, pursuant to statutory and regulatory provisions, and that when the Government agent opened the valves the spirits ran into tank No. 6 which was already nearly full.

This loss occurred after distillation process was completed. Plaintiff had, regardless of this loss, complied with the Federal regulation requiring it to manufacture, at least 80% of its capacity.

After the loss occurred on September 1, 1934, plaintiff applied for a remission of the tax, which claim was rejected, and thereafter (November, 1935) a $6,102 tax was assessed and the collector made demand (December 3, 1935) for the payment of the tax. Plaintiff, on December 13, 1935, filed a claim for abatement of the assessed tax, which claim was rejected August 1, 1936, and plaintiff, on August 10, 1936, paid the tax under protest and filed the claim for refund (October 2, 1936), which was rejected November 6, 1936. Plaintiff thereupon instituted this suit for refund.

EVANS, Circuit Judge.

Plaintiff makes the following contentions: The tax on its distilled spirits does not attach until they are withdrawn. The loss of the spirits in question did not constitute such a withdrawal or removal as to warrant the assessment of a tax. In other words, losses occurring during operation and production in the distillery are to be distinguished from losses in warehouse after the spirits have been withdrawn from the cisterns, and...