Thayer v. United States

delivered the opinion of the court:

The case was heard on demurrer. The material facts are that spirits distilled by the claimants, in 1864, were inspected at the distillery and marked and carried to a bonded warehouse, from which they were afterwards removed for consumption and sale. While the spirits were in the bonded warehouse a portion of them was lost by evaporation and leakage $ but the claimants were required to pay the duties on the whole quantity found at the inspection. They seek in this action to recover back the amount of duties paid on the portion of the spirits lost by evaporation and leakage in the bonded warehouse.

The question is, when did the duties attach ?

The 59th section of the act of 1864, chapter 173, (13 Stat. L., 244,) provides that all spirits, before they are used or removed for any purpose, shall be inspected, and the quantity and proof marked with permanent marks, which are protected by penalties. These marks are the criteria for assessing the duty, and when they are made the duty, attaches to all the spirits inspected according to those marks — absolutely to all spirits not removed to a bonded warehouse, and conditionally to those that are; and the condition is, unless the spirits are exported. If the spirits are exported, the condition takes effect and defeats the conditional assessment of the duty. But if the spirits are not exported, but are removed from the bonded warehouse for consumption or sale, then the condition is defeated, and the conditional assessment of the duty becomes absolute and as if absolute from the beginning..

*97The reasons for the construction made are as follows:

1. The duty on spirits removed to a bonded warehouse attach at the inspection, because the quantity and proof are fixed and marked then, and from that is calculated any deficiency or reduction of the number of proof gallons from subsequent circumstances, as from transportation or redistillation, &c. (Section Gl.)

2. Such assessment of duty is necessarily conditional, because spirits removed to a bonded warehouse may be exported, and exports are not subject to duty.

3. If the spirits are not exported, the conditional assessment of duty becomes as if absolute from the beginning, because, from the nature of a condition, when it is avoided it is avoided from the beginning, and all other things are as if it had never been.

4. Where the spirits are removed from a bonded warehouse for consumption and sale, as these were, the only means provided by the statute for assessing the duty is the inspection at the distillery, and the quantity and proof then found and marked.

When the spirits, in this case, were removed to the bonded warehouse, the quantityfoundby the inspection was the existing property of the claimants, to which the duty had attached, subject to be defeated by the exportation of the spirits and by that only. And when the claimants removed the spirits from the bonded warehouse for consumption or sale, they fixed the fact that they were not to be exported; and then the duty became immediately payable, as in all other cases of spirits removed for consumption or sale.

As, while the spirits Avere in the bonded warehouse, they were the property of the claimants, the leakages were at their risk by the general law of property. And so they would be by the policy of our revenue laws, as shown in the analogous case of imported spirits as to which no allowance for leakage in a bonded warehouse is permitted. Stat. 28th March, 1854, (10 Stat. L., 270,) and the Statute of 1864, chapter 173, though it provides for leakages by transportation, (section 61,) and thus shows that the subject of leakage was in the minds of the legislature, makes no allowance and no provision for leakage in a bonded warehouse.

If, when the spirits were removed to the bonded warehouse, they were the existing property of the claimants on which the duty had been assessed, then this case is entirely different *98from, those cited for the claimant: from that of Pennington v. Coxe, (2 Cranch, 33,) because in that the sugars assessed had not béen u sent out” from the refinery, and therefore were not subject to duty under the statute; from the cases of Marriott v. Brune, (9 How., 639,) and Lawrence v. Cadwell, (13 How., 495,) for in those the leakages assessed had occurred on the voyage of importation, and were not brought into the country, and therefore were never imports nor subject to duty.

On the construction of the statute made, a majority of the court are of opinion that the claimants cannot recover the duties paid on the spirits lost by leakage in the bonded warehouse, and there would seem to be neither injustice nor hardship in this; for the statute of 1864, section 60, contemplates that the bonded warehouse is the store of the owner of the spirits, who holds them there at his own option and for his own purposes and profit; and he has access to them at all reasonable times and for all proper purposes, and the sufficiency and preservation of his casks are matters for his responsibility, and the joint ■custody of the government of his warehouse and spirits is only that supervision that may prevent frauds on the revenue.

Judgment is to be entered for the defendants.

concurring:

A. is a manufacturer of distilled spirits. He removes the ■spirits which he has made to his own warehouse, “ for consumption or sale,” and' pays the tax thereon. After the spirits are stored in his own warehouse, and after the tax has been paid thereon, there is. a loss by evaporation and leakage. Shall A. bear this loss entire, or shall the government be made to refund pro tanto the tax which it has levied and he has paid ? Clearly the loss, like the loss of all property which has paid taxes, must foe borne by A.

. B. is also a manufacturer of distilled spirits. But when he removes the spirits which he has made, u for consumption or sale,” instead of paying the tax upon them, he avails himself of a credit given by the government, and places the spirits in a bonded warehouse. The spirits, like those of A., lose by evaporation and leakage. Shall B. bear the loss, like A., or, because he has not paid the tax as A. did, but- has enjoyed a credit not enjoyed by A., shall he have the greater advantage *99of making tbe government tbe insurer, without premium, of bis spirits, and refund, in effect, to him tbe loss wbicb tbe other manufacturer was compelled to bear ? Clearly such discrimination against tbe man who pays bis tax promptly, and in favor of tbe man who postpones bis payment so long as be pleases, would err greatly against every principle of just taxation, and is not to be thought of, unless tbe statute, in most plain and unmistakable terms, has thus enacted.

But suppose a third case: B. manufactures a certain quantity of distilled spirits, and reniovms half thereof to a bonded warehouse, and sells tbe other half to C. At tbe time of sale B. adds to tbe cost and profit of manufacture tbe tax paid to tbe government, so that 0. becomes, in effect, tbe payer of tbe tax. C. then removes his half of tbe spirits to bis own storehouse, where they lose by evaporation and leakage, just as B.’s half is losing in tbe bonded warehouse. Shall it be said that tbe government must insure and lose upon tbe half of tbe spirits wbicb have not paid tax, and tbe purchaser insure and lose upon tbe half which have paid tax "1 Or, to put tbe case more closely, was tbe law intended to give to distillers a benefit wbicb it withholds from every manufacturer, purchaser, and consumer in tbe land %

Tbe statute certainly has given to tbe distiller no such extraordinary favor in express terms ,• and my brother Boring, I think, has conclusively shown that no such provision exists by implication. Tbe illustrations and analogies cited by tbe learned counsel of tbe claimants, in bis able and ingenious argument, of imported spirits lost on tbe 'voyage, in tbe case of Marriot v. Brune, (9 How., 634,) and Lawrence v. Caswell, (13 id., 488,) bear no similitude to what is here contended for, because tbe rule there worked injustice to no one, and was but a loss in transitu, such as is given to tbe distiller by statute here.

For these reasons I agree with tbe majority of tbe court, and if any subsequent “ regulation” has been made by the Internal Bevenue Bureau, (Circular No. 40,) as is stated in the petition, I think that “regulation” against tbe policy, spirit, and letter of tbe law, and that it bestows such extraordinary grace upon distillers as is extended neither to producers, nor manufacturers, nor capitalists, nor to any other tax-payer in tbe United States.

dissenting:

I cannot concur in tbe rulings of tbe majority of tbe court in these cases. If tbe cases occurred as tbe claimants bave stated them in their petitions, and upon demurrer, we must assume them as proved. They are, in my opinion, under the law entitled to at least a part of the deductions claimed.

Tbe proviso to tbe 12th section of tbe act of March, 1863, expressly allows for leakage. That section is not repealed. It was in full force when tbe cases claimed occurred. “Tbe Commissioner of Internal Bevenue,” by this act, “is authorized to make rules providing for deductions on account of leakage,”

&c. Tbe reason why tbe deductions were not made was because tbe Commissioner construed the law to be discretionary with him, and that so long as be made no rules there could be no deductions. Nothing could be further from tbe true construction of tbe act. Instead of being discretionary with him, tbe right to tbe deduction is absolute. In tbe case of The Supervisors v. The United States, (4 Wallace, 435,) where tbe law said certain officers “ may, if deemed advisable, levy a special tax,” &c., it was insisted that there was a discretion vested in tbe officers whether they should levy tbe tax or not. But Mr. Justice Swayne, with great clearness, conciseness, and force, reviews tbe authorities and draws these deductions:

“ Tbe conclusion to be deduced from tbe authorities is, that, where power is given to public officers in tbe language of tbe act before us, or, in equivalent language, whenever tbe public interest or individual rights call for its exercise, tbe language used, though permissive in form, is in fact peremptory. What they are empowered to do for a third person tbe law requires' shall be done. Tbe power is given, not for their benefit, but for bis. It is placed with tbe depositary to meet tbe demands of right, and to prevent a failure of justice. It is given as a remedy to those entitled to invoke its aid, and who would otherwise be remediless. In all such cases it is held that tbe intent of tbe legislature, which is tbe test, was not to devolve a mere discretion, but to impose a positive and absolute duty.” This clear and authoritative interpretation, in every word and syllable, is as applicable to tbe case in band as it was to that in which it was delivered; and, in my opinion, is decisive of at least two of these cases.

*101By tbe 55th section of tbe act of June 30,1864, (13 Stat. L , 243,) tbe tax “ is to be levied, collected, and paid on all spirits that may be distilled and sold, or distilled and removed for consumption or sale.” By tbe 60tb section, p. 245, provision is made for bonded warehouses, in wbicb to store distilled spirits, &c. And it further provides: “ The duty on tbe spirits,” &c., “ stored in such warehouse shall be paid before it is removed from such warehouse, unless removed in pursuance of law.”

Then, the 61st section of the same act directs how they may “be removed in pursuance of law,” without the payment of duty. It enacts, “and may be transported from such warehouse to any one other bonded warehouse used for the storage of distilled spirits,” &e.; “ and after the arrival of such distilled spirits * * * * at the bonded warehouses within the district of the assessor to which it has been transferred, it shall be again inspected, and the duty shall be assessed and paid on any deficiency or reduction of the number of proof gallons, beyond such allowance for lealcage as may be established by the regulations of the Commissioner of Internal Bevenue, received at the warehouse, from the number of proof gallons as stated in the bond given at the place of shipment.”

These provisions are very plain and clear to my mind. When the spirits are removed, for consumption or sale, from the first bonded warehouse, the duty must be paid, and it is paid on the quantity removed for consumption or sale. But, if not removed from this warehouse for consumption or sale, it may, by the 61st section, be transferred, under bond, to another bonded warehouse.

And the idea that it is “ free spirits” while in transitu is a misapprehension. The law and the regulations require that it shall be transferred to the assessor of the district in which the bonded warehouse to which it is transferred shall be situated. It is not at any time under the control or direction or in the possession of the owner. It remains; at all times, until the duties shall have been ascertained and paid, in gramio legis: Nor does it matter, under this 61st section of the act of June 30,1864, for what purpose it was removed; it does not even so much as require that the purpose shall be stated. When it arrives at the warehouse to which it is transferred, it is to be regauged and reinspected, and allowance made for leakage, within the five per centum allowed by law, and ratably under *102tlie regulations of the Commissioner. Where the leakage exceeds this, the excess cannot be allowed. All this is plain, simple, and harmonious in its requirements, and just and fair in its results. The acts are all in pu/ri materia, and are to be construed together. Tax laws operate upon material, tangible objects, and are not supposed to be levied upon that which has no existence at the time it is levied and paid. If cousumed or destroyed, by fire or flood, in transitu, it would be manifestly unfair to require the payment of the tax; but not a particle more so than upon that which has leaked or evaporated, without fault upon the part of the owner. • The bonded warehouses were established for the benefit and advantage of the United States as well as for the manufacturer of the spirits. It was to afford the distiller facilities to continue the manufacture that the government postponed the payment of the tax till the time of sale, and for the purpose of encouraging the manufacture and the consequent increase of the revenue.

By a regulation made after these transactions by the Commissioner of Internal Revenue, all these leakages claimed are allowed, under this same law, or a subsequent law using the same terms. The reason why the abatement was refused in these cases was, that no regulations had then been made by the department allowing them and prescribing the particular mode and manner of ascertaining the loss.

We have already seen that these acts, using only permissive phrases, are intended to impose positive duties upon the officers, and confer absolute rights upon citizens; and are, therefore, not discretionary, but mandatory and peremptory in their character. (4 Wallace, 435.)

Entertaining these views, I thifilt the demurrers should be overruled, and the Attorney General directed to answer over.

dissenting:

I do not agree with the majority of the court, and concur in most of the conclusions of law stated by the Chief Justice. I think there may be conditions and circumstances under the law when, if a party removes spirits under bond, they become free spirits, and that no reclamation for leakage can be had.