Opinion
This case having been heard by the Court of Claims, the court, upon the evidence introduced and the report of a commissioner, makes the following special findings of fact:
1. The plaintiff, a corporation under the laws of the State of Indiana, with its place of business at Lawrenceburg, Indiana, was the proprietor of Registered Distillery No. 1, duly established and registered as required by law, and located at Lawrenceburg, Indiana.
2. In connection with the distillery, plaintiff had provided a cistern room and receiving cisterns as required by law, into which the spirits produced were conveyed and held prior to withdrawal for deposit and entry in a warehouse. This room and the receiving cisterns were kept locked at all times, the key to the lock being in the possession of and under the charge of the storekeeper-gauger, an employee of the defendant, who had been assigned to the distillery. All spirits were deposited in the receiving cisterns and were withdrawn therefrom under the supervision of said storekeeper-gauger.
The cistern room was located approximately 450 feet from the gin house. There were twenty receiving tanks therein, three of which, Numbers 13, 14, and 15, were allocated for the storage of gin. A separate pipe line connected each of these tanks with a manifold located in a room constructed on a balcony on the outside of the cistern room, with a door secured by a Government lock, the key to which was at all times in the possession of the storekeeper-gauger. There was a valve on each of the pipes leading to the cistern tanks, by means of which the flow of spirits to the respective tanks was regulated. The gin was pumped from the gin house to the cistern room through pipes which were connected with the manifold in the balcony room. At the end of each day a pumping order was made out prescribing the tanks into which the spirits should be pumped during the nest twenty-four hours, and an inventory was made out by plaintiff's employee showing the tanks that were empty and those that were full and the amount of spirits in each tank.
3. It was required that the valve to only one tank be opened at a time. All other valves were required to be closed. When it was decided to change the flow of spirits from one cistern to another, an employee of the plaintiff would apply to the storekeeper-gauger to unlock the balcony room so that the valves might be changed. The storekeeper-gauger and plaintiff's employee would go to the balcony room together, and the employee would change the valves. At the end of the day plaintiff's employe would set the valve for the first tank into which the spirits were to be pumped; later when the flow was to be changed into another tank, another of plaintiff's employees would go with the storekeeper-gauger to the cistern room and make the change.
4. After the spirits had been distilled in the still house they were transferred to tanks in the gin house, where ingredients were added to give the gin flavor, and they were then further distilled and then conveyed through the pipe lines mentioned to the cisterns in the cistern room. When so conveyed they were of a high proof, and were reduced in proof in the cistern room before they were put into barrels.
5. On August 24, 1936, plaintiff's employee H.W. Seibel was in charge of the cistern room, imposed with the duty of taking an inventory of the cisterns at the end of the day's operations and of preparing a pumping order designating the cisterns into which the still house man was to pump during the next twenty-four hours. On the date stated, after having taken an inventory of the tanks, he found that tank Number 14 was the only one that was empty and, accordingly, he executed a pumping order directing the pumping of the spirits into this tank. Copies of the order were delivered to the warehouse office, to the gin house, to the plant manager's office, and to the defendant's storekeeper-gauger. However, he neglected to change the valve in the cistern room so that the spirits would be pumped into cistern Number 14, leaving the valve to tank Number 15 open. This tank was full, or nearly full, when the spirits were pumped into it during the night, as a result of which it overflowed and 726.6 proof gallons were lost. None of the plaintiff's employees requested the defendant's storekeeper-gauger to unlock the cistern room so that the valves could be changed so as to cause the spirits to flow into cistern Number 14, and such officer was not required to change the valves unless requested to do so by plaintiff's employees.
6. Plaintiff reported the loss of these spirits to defendant's district supervisor by letter dated August 25, 1936.
Plaintiff had produced spirits in excess of 80 percent of the producing capacity of its distillery for the month of August 1936, as estimated under the law and regulations by defendant's employees, exclusive of the 726.6 proof gallons of gin so lost.
7. The tax provided for by law was assessed against the 726.6 proof gallons lost. Plaintiff applied for remission of said tax, but its claim therefor was rejected. Payment was demanded and was paid under protest by the plaintiff on November 2, 1936. The amount thereof was $1,453.20.
On November 5, 1936, plaintiff filed a claim for refund of the tax so paid, but this claim was rejected by the Commissioner of Internal Revenue on August 10, 1937.
8. Plaintiff is the sole owner of this claim and no assignment or transfer of it or any part thereof has been made.
Plaintiff has not been indemnified by insurance, or in any other way, on account of the loss of said 726.6 gallons of gin. Alfred D. Van Buren, of New York City, (Davies, Richberg, Beebe, Busick & Richardson, of Washington, D.C., on the brief), for plaintiff.
S.E. Blackham, of Washington, D.C., and Samuel O. Clark, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and GREEN, Judges.
WHITAKER, Judge.
Plaintiff sues to recover the tax assessed on 726.6 proof gallons of gin which were lost as a result of the overflowing of one of the cisterns or tanks in the cistern room of its distillery. The tank overflowed as a result of the failure of the plaintiff's employee to change the valve on the pipes leading from the gin house to the cistern room so as to change the flow of spirits from tank Number 15 into tank Number 14.
Prior to the transfer of the gin from the gin house to the cistern room the manufacture of gin had been fully completed, except that the proof had to be reduced by the addition of water; but the distillation of the distilled spirits used in the manufacture of the gin had been fully completed prior to the time that the gin was pumped from the gin house into the cistern room. Under these facts, is the plaintiff liable for the tax on distilled spirits?
Section 1150(a)(1) of Title 26 of the United States Code, 1934 Edition, in effect at the time of this occurrence, levies a tax "on all distilled spirits * * * produced in or imported into the United States * * * to be paid by the distiller or importer when withdrawn from bond."
Subsection (b) provides for the time of payment. It reads: "The tax upon any distilled spirits, removed from the place where they were distilled and not deposited in bonded warehouse as required by law, shall, at any time within the period of limitation provided in section 3312, when knowledge of such fact is obtained by the Commissioner, be assessed by him upon the distiller of the same, and returned to the collector, who shall immediately demand payment of such tax, and, upon the neglect or refusal of payment by the distiller, shall proceed to collect the same by distraint. * * * "
Subsection (c) relates to the time the tax attaches. It reads: "The tax shall attach to distilled spirits, spirits, alcohol or alcoholic spirit, within the meaning of subsection (b) of section 2809 as soon as this substance is in existence as such, whether it be subsequently separated as pure or impure spirit, or be immediately, or at any subsequent time, transferred into any other substance, either in the process of original production or by any subsequent process."
Section 2809 (b) defines "distilled spirits." It defines them as follows: "Distilled spirits, spirits, alcohol, and alcoholic spirits, within the true intent and meaning of this chapter, is that substance known as ethyl alcohol, hydrated oxide of ethyl, or spirit of wine, which is commonly produced by the fermentation of grain, starch, molasses, or sugar, including all dilutions and mixtures of this substance."
When the 726.6 proof gallons of this liquid were spilled it had been manufactured into gin except that the alcoholic content had not been reduced to the proper amount. This reduction was accomplished by the addition of water. But whether or not the gin had been fully manufactured is immaterial to the question here because the tax is levied not on the manufacture of gin, but of distilled spirits. The distillation of the distilled spirits used in the manufacture of the gin had been completed some time before the loss. It was completed before the liquid was transferred from the gin house to the cistern room, and, indeed, before the spirits reached the gin house, where there was added the aromatic ingredients for the making of gin.
It is clear, therefore, that the tax levied on distilled spirits, spirits, alcohol, or alcoholic spirits had attached within the meaning of section 2800(c), since the distilled spirits had clearly come into "existence as such." The plaintiff contends, however, that although the tax may have attached, it was not payable until the spirits were withdrawn. This is true, but this only applies to distilled spirits withdrawn from bond. It does not apply to spirits which had not been deposited in a bonded warehouse. This is provided for by section 2800(b)(2), which provides: "The tax upon any distilled spirits, removed from the place where they were distilled and not deposited in bonded warehouse as required by law, shall, * * * when knowledge of such fact is obtained by the Commissioner, be assessed by him upon the distiller of the same, and returned to the collector, who shall immediately demand payment of such tax * * *."
We do not think there can be any doubt that the tax is due under the provisions of this section and under the provisions of subsection (c) relating to the time the tax attaches, since there is no provision of law which has been called to our attention, or of which we are aware, that exempts a distiller from payment of the tax because the liquors were lost or destroyed in the process of being removed from the distillery to the cistern room. Since the tax attaches as soon as the spirits were never deposited in the bonded warehouse, the provision fixing the time of payment as the time when they were withdrawn therefrom cannot be applicable; but it seems clear to us that the case comes squarely within the provision for the payment of the tax when it is removed from a distillery to a place other than a bonded warehouse.
We do not think that sections 2846(a) and 2847(a) have any application to the case at bar. Section 2846(a) relates to a failure to produce a certain percentage of the estimated capacity of the distillery and to a use of materials in excess of its capacity; and section 2847 provides relief for the distiller for a failure to produce this percentage of the distillery's capacity and for a use of excess materials, in certain cases. The assessment in the case at bar was not made under section 2846(a), but under section 2800. But even if these sections were applicable, the plaintiff is entitled to relief under them for liquors lost only if they were lost without negligence on its part, and it is conceded that the loss here was occasioned solely by its negligence.
This decision is in accord with the decision of the Seventh Circuit of Appeals in Joseph E. Seagram & Sons, Inc., v. Smith, 113 F.2d 357. Cf. Greenbrier Distillery Co. v. Johnson,
Mason v. Peabody, Hamilton v. Kentucky Distilleries & Warehouse Co.,Plaintiff's petition, therefore, will be dismissed. It is so ordered.