Ti Hang Lung & Co. v. United States , 12 Cust. Ct. 139 ( 1944 )

Ekwall, Judge:

Merchandise invoiced and entered as “Pak Nor Mi” was imported at the port of San Francisco, Calif., and classified and assessed with duty by the collector of customs at that port as rice wine or similar beverage, at the rate of $1.25 per gallon, under paragraph 804 of the Tariff Act of 1930, plus an internal revenue tax of $4 per proof gallon or wine gallon if below proof, as distilled spirits, under U. S. Code, Title 26, Section 2800 (a) (1), as amended by section 213 of the Revenue Act of 1940, and section 533 (a) of the Revenue Act of 1941. The commodity was entered for warehouse on December 2, 1941, and the entry liquidated June 16, 1942.

The correctness of the assessment of duty under the tariff act is not disputed by the plaintiff but protest is made against the imposition of the internal revenue tax, on the ground that the merchandise is neither wine nor distilled spirits.

The applicable provisions of the Internal Revenue Code, as amended by section 533 (a) of the Revenue Act of 1941, are as follows:

Sec. 2800. Tax — (a) Rate — (1) Distilled spirits generally.

There shall be levied and collected on all distilled spirits in bond or produced in or imported into the United States an internal revenue tax at the rate of $4 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tax at a like rate on all fractional parts of such proof or wine gallon, to be paid by the distiller or importer when withdrawn from bond. (USC 1940 ed. Title 26, p. 2298.)

In Columbia Co. v. United States, 5 Cust. Ct. 175, C. D. 395, this court held that certain “Pak Nor,” a Chinese wine made from rice by a process of fermentation, specifically provided for as rice wine in paragraph 804 of the Tariff Act of 1930 at the rate of $1.25 per gallon, was not subject, in addition to such rate, to the assessment of an internal revenue tax at the rate of $2.25 per gallon as distilled spirits. The testimony in the present case establishes that the wine here involved is of the same character and description as that which was the subject of our decision in the Columbia Co. case, supra, containing less than 24 per centum of alcohol, and by agreement of the parties and order of the court, the record in the earlier case was incorporated in and made part of the record in the instant case. We therefore have here the precise question which was'decided in favor of the importer in the earlier case and that question involves the internal revenue tax only.

The plaintiff herein has filed a short brief calling attention to the state of the record and to the previous decision on Pak Nor, and asking that said decision be followed. The Assistant Attorney General has filed a more elaborate brief, well written and well argued, quoting from and discussing the new section, 528, added to the Tariff Act of 1930 as section 20 of the Customs Administrative Act of 1938 (52 Stat. 1077), and urging also that the recent decision reported as De Fremery & Co. v. United States, 31 C. C. P. A. (Customs) 83, C. A. D. 253, requires a conclusion tbe reverse of that arrived at in the Columbia Co. case, supra, in respect to the internal revenue tax. For convenience of reference, said section 528 is set forth herewith.

SEC. 528. TAXES NOT TO BE CONSTRUED AS DUTIES.

No tax or other charge imposed by or pursuant to any law of the United States shall be construed to be a customs duty for the purpose of any statute relating to the customs revenue, unless the law imposing such tax or charge designates it as a customs duty or contains a provision to the effect that it shall be treated as a duty imposed under the customs laws. Nothing in this section shall be construed to limit or restrict the jurisdiction of the United States Customs Court or the United States Court of Customs and Patent Appeals.

The Government suggests in its brief the effect of this amendment to the law. We quote:

Under this section of the law, internal revenue taxes which are not in themselves designated as customs duties but which were formerly considered duties under the decisions of this and other courts (See Brown v. Maryland (1827), 12 Wheat. 419; Shaw & Co. v. United States (1922), 11 Ct. Cust. Appls. 226, T. D. 38990; Faber, Coe & Gregg, Inc. v. United States (1931), 19 C. C. P. A. (Customs) 8, T. D. 44851) are no longer to be considered as duties “for the purpose of any statute relating to the customs revenue,” but are exactions (within the jurisdiction of the Secretary of the Treasury) which are protestable under section 514 of the Tariff Act of 1930.

This particular point was not raised in the prior case.

The claim strongly urged by the Government, a claim going to the merits of the case, is that the commodity in suit is taxable under the internal revenue laws as distilled spirits. It seems justified by the decision in the I)e Fremery case, supra. Before taking up that particular phase of the case, some informative points should be presented.

' For that purpose only we resort to the tariff history of “rice wine or sake” as showing just what the article is. Before it received specific mention in the tariff law it had been variously classified as similar to still wine, as similar to beer, and as a nonenumerated article. The litigation was reviewed at length in the volume “Notes on Tariff Revision, 1908,” prepared for the use of the Committee on Ways and Means in drafting the bill which eventually became the Tariff Act of 1909. After reviewing the litigation the compiler of that volume suggested the insertion of a provision for rice wine or sake (see pp. 364, 365). This suggestion was adopted in substantially the form in which it was offered. A briefer review of the litigation will be found in vol. 1, Digest of Customs and Related Laws and of Decisions Thereunder, 1935, at p. 492. From this the inference is inevitable that rice wine, so-called, is not truly a wine at all. It is not included in dictionary definitions of wine.

More important still, in the determination of the instant case, it is not wine within the meaning of the internal revenue laws. Section 1310, title 26, USC 1934 edition, p. 1166, limits “natural wine” to that derived from the juice of the grape, and this section and definition are carried into the Internal Revenue Code as section 3044 (USC 1940 edition, p. 2340). Section 3045 of said Internal Revenue Code, on the same page, extends the provisions of the internal revenue laws applicable to natural wine to certain fruit wines therein named, none of which is rice wine. There is no “similitude clause” or “non-enumerated clause” in the internal revenue statutes, therefore rice wine is not subject to tax as wine. This circumstance does not, however, necessarily relieve it from internal revenue tax. The cassis; green menthe, an'd cherry cordial involved in the De Fremery case, supra, were not mentioned in the internal revenue statutes but they were held taxable thereunder, by virtue of the definition of distilled spirits contained in R. S. 3248. At the time of the importation here in suit, section 2809 of the Internal Revenue Code (Title 26, USC 1940 edition) had become effective, and subdivision (b) thereof defines distilled spirits in precisely the same wording as R. S. 3248, viz:

Sec. 2809. Definitions * * *.

(6) Distilled spirits — (1) General definition.

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.

The process by which the commodity now before us is produced is described in full in the Columbia Co. case, supra, and need not here be again described in detail. Sufficient to say that after the fermentation process is completed a liquor distilled from fermented rice is added. It seems to the court that under the rule announced in the De Fremery case, supra, this step brings the finished product within the definition of distilled spirits, specifically within that portion reading “including all dilutions and mixtures of this substance,” that is, the substance produced by the fermentation of grain (rice). Following this authority we hold that the imposition of internal revenue tax at the rate of $4 per gallon on the rice wine in suit was in accordance with the law. Plaintiff’s claim that the commodity is not subject to the imposition of the internal revenue tax is therefore overruled.

It may be proper to add that this ruling does not affect those wines that are specifically provided for as wines in the Internal Revenue Code.

Judgment will be rendered for the defendant.