Waterloo Distilling Corporation v. United States In re Various Items of Personal Property., 114

CourtUnited States Supreme Court
Writing for the CourtSUTHERLAND
Citation51 S.Ct. 282,75 L.Ed. 558,282 U.S. 577
Docket NumberNo. 114,114
Decision Date24 February 1931

Mr. Lewis Landes, of New York City, for petitioners.

Mr. G. A. Youngquist, Asst. Atty. Gen., for the United States.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

This was a proceeding, under Rev. St. §§ 3257 and 3281 (26 USCA §§ 261, 193), by the United States to forfeit a distillery, warehouse, and denaturing plant of the Waterloo Distilling Corporation on the ground that the corporation had conducted its distilling business upon the premises with intent to defraud, and had defrauded, the government of the tax on the spirits distilled, in consequence of which the premises had become forfeited to the government. The fraud alleged was the withdrawal of alcohol ostensibly for nonbeverage but in reality for beverage purposes, without payment of the tax on spirits diverted to beverage purposes imposed by section 600(a) of the Revenue Act of 1918, as amended (26 USCA § 245). The corporation denied any violation of law. Evidence was introduced by the government tending to support the libel. The government admitted that, prior to the filing of the libel, the corporation and others had been indicted and convicted for conspiring to violate provisions of the statute, involving the transactions set forth in the libel as a basis for the forfeiture. A motion to dismiss the libel on the ground that the forfeiture proceedings were therefore barred was denied by the district court. There was a verdict for the government and judgment declaring a forfeiture of the premises to the government. This judgment was affirmed by the court below. 40 F.(2d) 422.

The only questions arising upon the record which we deem it necessary to consider are two in number: (1) Whether under section 600(a) of the Revenue Act of 1918, as amended, there was a diversion of distilled spirits to beverage purposes; (2) whether a conviction of a conspiracy to violate section 600(a) barred the proceedings to forfeit the premises.

First. By section 600(a), as amended (U. S. Code, Supp. III, title 26, § 245(4), 26 USCA § 245(4), it is provided:

'On and after February 26, 1926, on all distilled spirits which are diverted to beverage purposes or for use in the manufacture or production of any article used or intended for use as a beverage there shall be leived and collected a tax of $6.40 on each proof gallon or wine gallon when below proof, and a proportionate tax at a like rate on all fractional parts of such proof or wine gallon, to be paid by the person responsible for such diversion. If a tax at the rate of $2.20, $1.65, or $1.10 per proof or wine gallon has been paid upon such distilled spirits a credit of the tax so paid shall be allowed in computing the tax imposed by this paragraph.'

Included in the $6.40 is the basic tax of $2.20, which is not a penalty but a true tax. Only the remaining part of the $6.40 may be regarded as a penalty; but, whether the exaction be a tax or a penalty o pa rtly one and partly the other, there is no constitutional objection to enforcing it by forfeiture of the offending property. See United States v. One Ford Coupe, 272 U. S. 321, 328, 329, 47 S. Ct. 154, 71 L. Ed. 279, 47 A. L. R. 1025.

The alleged diversion was accomplished by the withdrawal of pure alcohol, which was then specially denatured and made unfit to drink, and in that condition was sold. Petitioners contend that this was a diversion not of distilled spirits, but of denatured alcohol, and, therefore, not within the reach of section 600(a). But upon the evidence and the instructions of the court it was open to the jury to find that the alcohol was specially denatured to the contemplated end that, after it had passed into the hands of purchasers, it would be 'cleaned' and finally used for beverage purposes. In that view it is entirely accurate to say that the alcohol was diverted to beverage purposes, the special denaturing being only an intervening step.

Second. In United States v. La Franca, 282 U. S. 568, 51 S. Ct. 278, 75 L. Ed. 551, decided this day, we hold that, under section 5 of the Willis-Campbell Act (42 Stat. 223), a civil action to recover taxes, which in fact are penalties, is punitive in character and barred by a prior conviction of the defendant for a criminal offense involving the same transactions. This, however, is not that case, but a proceeding in rem to forfeit property used in committing an offense. At common law, in many cases, the right of forfeiture did not attach until the offending person had been convicted and the record of conviction produced. But that doctrine did not apply, as this court in an early case pointed out, where the right of forfeiture was 'created by s...

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