The Act of August 28, 1894, c. 349, does not grant a right
in praesenti to all persons who may, after the passage of
the law, use alcohol in the arts, or in any medicinal or other like
compounds, to a rebate or repayment of the tax paid on such
alcohol, but the grant was conditioned on use, in compliance with
regulations to be prescribed, in the absence of which regulations
the right did not so vest as to create a cause of action by reason
of the unregulated use.
Dunlap was, and had been for many years, "engaged in the
manufacture of a product of the arts known and described as
stiff hats,'" in Brooklyn, New York. Between August 28, 1894,
and April 24, 1895, he used 7,060.95 proof gallons of domestic
alcohol to dissolve the shellac required to stiffen hats made at
his factory. An internal revenue tax of ninety cents per proof
gallon had been paid upon 2,604.17 gallons before August 28, 1894,
making $2,344.40, and a tax of $1.10 per proof gallon had been paid
upon the remaining 4,456.78 gallons after August 28, 1894, making
$4,900.81 -- or $7,245.21 in all. In October, 1894, Dunlap notified
the collector of internal revenue of the First district of New York
that he was using domestic alcohol at his factory, and that, under
section 61 of the Act of August 28, 1894, 28 Stat. 509, 567, c.
349, he claimed a rebate of the internal revenue
Page 173 U. S.
66
tax paid on said alcohol, and he requested the collector to
take such official action relative to inspection and surveillance
as the law and regulations might require. Subsequently he tendered
to the collector affidavits and other evidence tending to show that
he had used the aforesaid quantity of alcohol in his business,
together with stamps showing payment of tax thereon, and he
requested the collector to visit the factory and satisfy himself,
by an examination of the books or in any other manner, that the
alcohol had been used as alleged. He also requested payment of the
amount of tax appearing from the stamps to have been paid. The
collector declined to entertain the application, and Dunlap filed a
petition in the Court of Claims to recover the full amount of the
tax which had been paid, as shown by the stamps, which, on December
6, 1897, was dismissed, whereupon he took this appeal.
The findings of fact set forth, among other things, that,
"in the early part of September, 1894, the Secretary of the
Treasury requested the Commissioner of Internal Revenue to have
regulations drafted for the use of alcohol in the arts, etc., and
for the presentation of claims for rebate of the tax,"
and that "subsequently there was correspondence between these
officers, as follows:"
From the Commissioner to the Secretary, October 3, 1894:
"I have the honor to report that the preparation of regulations
governing the use of alcohol in the arts and manufactures, with
rebate of the internal revenue tax, as provided by section 61 of
the Revenue Act of August 28, 1894, has been and is now receiving
very serious consideration from this office, and many
communications have been received from, and personal interviews had
with, manufacturers who use alcohol in their establishments, and it
is found in every case, without exception, all agree that no
regulation can be enforced without official supervision, and that
without such supervision, the interests of manufacturers and of the
government alike will suffer through the perpetration of
frauds."
"As it is found to be impossible to prepare these regulations in
a way that will prove satisfactory without official supervision, I
have the honor to inquire whether there is any
Page 173 U. S. 67
appropriation or any general provision of law authorizing the
expenditure of money by this department needed to procure such
supervision."
From the Secretary to the Commissioner October 5, 1894:
"Yours of the 3d instant, inquiring whether there is any
appropriation of general provision of law authorizing the
expenditure of money by the Treasury Department or by the
Commissioner of the Internal Revenue to provide supervision of
manufacturers using alcohol in the arts, etc., under section 61 of
the Act of August 28, 1894, is received, and in response I have the
honor to state that no appropriation whatever, either special or
general, has been made by Congress for the purpose mentioned, or
for any other purpose connected with the execution of the section
of the statute referred to."
From the Commissioner to the Secretary, October 5, 1894:
"I have the honor to acknowledge the receipt of your letter of
the 5th instant, in reply to my letter of the 3d instant, in which
you state that no appropriation whatever, either special or
general, has been made by Congress authorizing the expenditure of
money by the Treasury Department of by the Commissioner of Internal
Revenue to provide supervision of manufacturers using alcohol in
the arts, etc., under section 61 of the Act of August 28, 1894, or
for any purpose connected with the execution of the section of the
statute referred to."
"In reply, I would suggest that inasmuch as I have been unable,
as stated in my letter of the 3d instant, after thorough
consideration of the matter, and upon consultation by letter and by
personal interview with a large number of the most prominent
manufacturers, to prepare any set of regulations which would yield
adequate protection to the government and the honest manufacturer,
without official supervision, which has not been provided for by
Congress, the preparation of these regulations be delayed until
Congress has opportunity to supply this omission."
From the Secretary to the Commissioner, October 6, 1894:
"Your communication of yesterday, in reference to the execution
of section 61 of the Act of August 28, 1894, and
Page 173 U. S. 68
advising me that, for the reasons therein stated, you are
unable"
"to prepare any set of regulations which would yield adequate
protection to the government and the honest manufacturer, without
official supervision, which has not been provided for by
Congress"
is received. I have also given much attention to the subject,
and have fully considered all the arguments and suggestions
submitted by parties interested in the execution of the section of
the statute referred to, and have arrived at the conclusion that
until further action is taken by Congress, it is not possible to
establish and enforce such regulations as are absolutely necessary
for an effective and beneficial execution of the law.
"You are therefore instructed to take no further action in the
matter for the present."
In consequence of this last letter, a circular was issued by the
Commissioner, November 24, 1894, stating:
"In view of the fact that this department has been unable to
formulate effective regulations for carrying out the provisions of
section 61 of the Act of August 28, 1894, relating to the rebate of
tax on alcohol used in the 'arts, or in any medicinal or other like
compounds,' collectors of internal revenue will, on receiving
notice from manufacturers of the intended use of alcohol for the
purposes named, advise such manufacturers that, in the absence of
regulations on the subject, no official inspection of the alcohol
so used or the articles manufactured therefrom can be made, and
that no application for such rebate can be allowed or
entertained."
Finding VIII was:
"On December 3, 1894, the Secretary of the Treasury transmitted
to the Congress the annual report on the finances, containing the
following statement:"
" Owing to defects in the legislation, the Treasury Department
has been unable to execute the provisions of section sixty-one of
the Act of August 28, 1894, permitting the use of alcohol in the
arts, or in any medicinal or other like compound, without the
payment of the internal tax. The act made no appropriation to
defray the expenses of its administration, or for the repayment of
taxes provided for, and, after
Page 173 U. S. 69
full consideration of the subject and an unsuccessful attempt to
frame regulations which would, without official supervision,
protect the government and the manufacturers, the department was
constrained to abandon the effort and await the further action of
Congress."
" It is estimated in the office of the Commissioner of Internal
Revenue that the drawbacks or repayments provided for in the act
will amount to not less than $10,000,000 per annum, and that the
expense of the necessary official supervision will not be less than
$500,000 per annum. For the information of Congress, the
correspondence between the Secretary and the Commissioner of
Internal Revenue upon this subject will accompany this report."
"Appended to this report was a draft of regulations proposed for
carrying out section 61, copies of communications from the
Commissioner of Internal Revenue explaining the estimates of the
appropriations required, and copies of the official correspondence
between the Secretary and the Commissioner, given in the preceding
finding, showing the action of the department. The proposed
regulations were as follows."
"[These regulations, consisting of 33 articles, and including
many subdivisions, were set forth at length.]"
The ninth finding was to the effect that the amounts
appropriated in the Urgent Deficiency Act of January 25, 1895, 28
Stat. 636, c. 43, aggregating $245,095, were the amounts of the
Secretary's estimate transmitted to Congress December 4, 1894, as
necessitated by the income tax provisions of the Act of August 28,
1894.
The case is reported, 33 Ct.Cl. 135.
Page 173 U. S. 70
MR. CHIEF JUSTICE FULLER, after stating the facts in the
foregoing language, delivered the opinion of the Court.
Section 61 of the Act of August 28, 1894, read as follows:
"Any manufacturer finding it necessary to use alcohol in the
arts or in any medicinal or other like compound may use the same
under regulations to be prescribed by the Secretary of the
Treasury, and on satisfying the collector of internal revenue for
the district wherein he resides or carries on business that he has
complied with such regulations and has used such alcohol therein,
and exhibiting and delivering up the stamps which show that a tax
has been paid thereon, shall be entitled to receive from the
Treasury of the United States a rebate or repayment of the tax so
paid."
The Court of Claims held that as the rebate provided for was to
be paid only on alcohol used "under regulations to be prescribed by
the Secretary of the Treasury," and as this alcohol had not been so
used, there could be no recovery; and, speaking through Weldon, J.,
among other things, said:
"The right of the manufacturer to a rebate being dependent on
the regulations of the Secretary, such regulations are conditions
precedent to his right of repayment, and therefore no right of
repayment can vest until, in pursuance of regulations, the
manufacturer uses alcohol as contemplated by the statute. The
statute having prescribed certain conditions upon which the right
of the claimant is predicated, and from which it originates, there
can be no cause of action unless it affirmatively appears that such
conditions have been complied with on the part of the claimant.
This is a proceeding based upon an alleged condition of liability
upon the part of the defendants, and it must be shown that all the
essential elements of that condition exist before any liability can
accrue. Conceding that it was the duty of the Secretary to
prescribe regulations consistent with the purpose and requirements
of the law, his failure to do so will not supply a necessary
element in the cause of the claimant."
Alcohol had for years been used in the arts, and in medicinal
and other like compounds, and had been taxed and
Page 173 U. S. 71
no rebate allowed; but, by this section, manufacturers who used
alcohol in the arts, etc., under regulations prescribed by the
Secretary, were granted a rebate, on proof of such regulated use
and of the payment of the tax on the alcohol so used.
There were no regulations in respect to the use of alcohol in
the arts at the time this alcohol was used, but it is contended
that the right to repayment was absolutely vested by the statute,
dependent on the mere fact of actual use in the arts, and not on
use in compliance with regulations; so that, during such period of
time as might be required for the framing of regulations, or as
might elapse if additional legislation were found necessary, all
alcohol used in the arts would be free from taxation, although the
exemption applied only to regulated use. But, if the right of the
manufacturer could not enure without regulations, and Congress had
left it to the Secretary to determine whether any which he could
prescribe and enforce would adequately protect the revenue and the
manufacturers, and he had concluded to the contrary, or if he had
found that it was not practicable to enforce such as he believed
necessary without further legislation, then it is obvious the right
to the rebate would not attach. In any view, the right was not
absolute, but was conditioned on the performance of an executive
act, and the absence of performance left the condition of the
existence of the right unfulfilled.
The distinction between the one class of cases and the other is
clear, and has been observed in many decisions of this Court.
By the eighth section of the Act of June 12, 1866, 14 Stat. 60,
c. 114, it was provided
"that, when the quarterly returns of any postmaster of the
third, fourth or fifth class show that the salary allowed is ten
percentum less than it would be on the basis of commissions under
the act of eighteen hundred and fifty-four, fixing compensation,
then the postmaster general shall review and readjust under the
provisions of said section"
(namely, § 2, Act July 1, 1864, 13 Stat. 336, c.197), and in
United States v. McLean, 95 U. S. 750, it
was held that the law imposed no obligation on the government to
pay an increased salary, though warranted by the quarterly
Page 173 U. S. 72
returns of an office, until readjustment by the Postmaster
General. Mr. Justice Strong, delivering the opinion, after
remarking that the "readjustment was an executive act, made
necessary by the law in order to perfect any liability of the
government," said:
"But courts cannot perform executive duties, nor treat them as
performed when they have been neglected. They cannot enforce rights
which are dependent for their existence upon a prior performance by
an executive officer of certain duties he has failed to perform.
The right asserted by the claimant rests upon a condition
unfulfilled."
And see United States v. Verdier, 164 U.
S. 213.
On the other hand, in
Campbell v. United States,
107 U. S. 407, it
was ruled that where a statute declares that there shall be a
rebate or drawback of a tax under certain circumstances, the amount
to be determined under regulations prescribed by the Secretary of
the Treasury, the inaction of the Secretary is immaterial, and the
drawback must be paid, whether ascertained under the Secretary's
regulations or not, because the right to the drawback depends on
the statute, and not on the Secretary's regulations, which relate
merely to the ascertainment of the amount. The difference between
the statutes in regard to drawbacks and the wording of section 61
is very marked. Drawback laws relate to an article after it is
manufactured. The mere use of imported materials in manufacturing
does not entitle the manufacturer to a drawback, and it is only
when the manufactured goods are exported that the reason for the
repayment of duty arises. In such instances, the exportation, and
the ascertainment of the character and quality of the imported
materials existing in the manufactured article are subjected to
regulation, but not the process of manufacture. The case of
Campbell only concerned the ascertainment of the amount of
drawback, and it was held that inasmuch as the amount had been
proved to the satisfaction of the court as completely as if every
reasonable regulation had been complied with, a recovery could be
sustained.
If we compare section 61 with the statute involved in
Campbell v. United States (Act Aug. 5, 1861, 12 Stat.
Page 173 U. S. 73
292, c. 45, section 4), the distinction between this case and
that will be clearly discernible.
§ 61, Act of August 28, 1894.
"Any manufacturer finding it necessary to use alcohol in the
arts, or in any medicinal or other like compound, may use the same
under regulations to be prescribed by the Secretary of the
Treasury, and on satisfying the collector of internal revenue for
the district wherein he resides or carries on business that he has
complied with such regulations and has used such alcohol therein,
and exhibiting and delivering up the stamps which show that a tax
has been paid thereon, shall be entitled to receive from the
Treasurer of the United States a rebate or repayment of the tax so
paid."
§ 4, Act of August 5, 1861.
"From and after the passage of this act, there shall be allowed,
on all articles wholly manufactured of materials imported, on which
duties have been paid, when exported, a drawback, equal in amount
to the duty paid on such materials, and no more, to be ascertained
under such regulations as shall be prescribed by the Secretary of
the Treasury,
provided that ten percentum on the amount of
all drawbacks so allowed shall be retained for the use of the
United States by the collectors paying such drawbacks
respectively."
By the act of 1894, Congress required that the thing itself
should be done under official regulations; by the act of 1861,
simply that proof of the doing of the act should be made in the
manner prescribed.
In the case before us, the first condition was that the alcohol
should have been used by the manufacturer in accordance with
regulations, and, as that condition was not fulfilled, it is
difficult to hold that any justiciable right by action in assumpsit
arose.
This is the result of the section, taken in its literal meaning,
and, as the rebate constituted, in effect, an exemption from
taxation, we perceive no ground which would justify a departure
from the plain words employed.
Page 173 U. S. 74
Nor are we able to see that the letter of the statute did not
fully disclose the intent.
This section was one of many relating to the taxation of
distilled spirits, which imposed a higher tax, and introduced
certain new requirements in regard to regauging, general bonded
warehouses, etc., the object to derive more revenue from spirits
used as beverages being perfectly clear, and the general intention
to forego the revenue that had been previously derived from spirits
used in the arts could only be carried out in consistency with the
general tenor of the whole body of laws regulating the tax on
distilled spirits, which undertook to guard the revenue at all
points, and which required from the officers of the government
evidence that everything had been correctly done. The regulations
contemplated by section 61 were regulations to insure the
bona
fide use in the arts, etc., of all alcohol on which a rebate
was to be paid, and to prevent such payment on alcohol not so used,
and these were to be specific regulations under that section, and
could not otherwise be framed than in the exercise of a large
discretion, based on years of experience in the Treasury
Department.
Since, as counsel for government argue, the peculiar nature of
alcohol itself -- the materials capable of being distilled being
plentiful, the process of distillation easy, and the profit, if the
tax were evaded, necessarily great -- had led, in the course of
thirty years, to a minute and stringent system of laws aimed at
protecting the government in every particular, it seems clear that
when Congress undertook to provide for refunding the tax on alcohol
when used in the arts, it manifestly regarded adequate regulations
to prevent loss through fraudulent claims as absolutely an
essential prerequisite, and may reasonably be held to have left it
to the Secretary to determine whether or not such regulations could
be framed, and if so, whether further legislation would be
required. It is true that the right to the rebate was derived from
the statute, but it was the statute itself which postponed the
existence of the right until the Secretary had prescribed
regulations if he found it practicable to do so.
Page 173 U. S. 75
Without questioning the doctrine that debates in Congress are
not appropriate sources of information from which to discover the
meaning of a statute passed by that body,
United States v.
Trans-Missouri Freight Association, 166
U. S. 318, it is nevertheless interesting to note that
efforts were made in the senate to amend the bill by the addition
of sections which, while making alcohol used in the arts free from
the tax, sought to secure the government from fraud by provisions
for the methylating of such spirits so as to render them unfit for
use as a beverage; that these proposed amendments were rejected, 26
Cong.Rec. 6935, 6936, and that subsequently section 61 was adopted
as an amendment, it being urged in its support that
"if the Secretary of the Treasury and the Commissioner of
Internal Revenue think they cannot adopt any regulations which will
prevent fraud, then nothing will be done under it; but if they
conclude they can adopt such regulations as will prevent fraud in
the use of alcohol in the manufactures and the arts, then there
will be relief under it."
26 Cong.Rec. 6985.
As soon as the Act of August 28, 1894, became a law without the
approval of the President, Congress adjourned, and at its first
meeting thereafter the Secretary reported a draft of the
regulations he desired to prescribe, stating that their enforcement
would cost at least half a million of dollars annually, for which
no appropriation was available, and that therefore he could not
execute the section until Congress took further action, and he
transmitted the correspondence between himself and the
Commissioner, including his letter of October 6, 1894, instructing
the Commissioner to take no action regarding the matter.
Congress was thus distinctly informed that no claims for rebate
would be entertained in the absence of further legislation; but
none such was had, and finally, on June 3, 1896, section 61 was
repealed, and the appointment of a joint select committee was
authorized to
"consider all questions relating to the use of alcohol in the
manufactures and arts free of tax, and to report their conclusions
to Congress on the first Monday in December, eighteen hundred and
ninety-six,"
with
Page 173 U. S. 76
power to "summon witnesses, administer oaths, print testimony or
other information." 21, Stat. 195, c. 310.
Numerous other provisions of the act called for regulations by
the Secretary of the Treasury, such as those relating to the
collection of customs duties and the free list, to the importation
or manufacture in bond or withdrawal from bond free of tax, to
drawbacks on imported merchandise, to the collection of internal
revenue, and some others; but these related to matters for whose
efficient regulation the Secretary of the Treasury was invested
with adequate power, and their subject matter was different from
that of section 61.
If the duty of the Secretary to prescribe regulations was merely
ministerial, and a mandamus could, under circumstances, have issued
to compel him to discharge it, would not the judgment at which he
arrived, the action which he took, and his reference of the matter
to Congress have furnished a complete defense? But it is insisted
that, by reason of the exercise of discretionary power necessarily
involved in prescribing regulations as contemplated, the Secretary
could not have been thus compelled to act. We think the argument
entitled to great weight, and that it demonstrates the intention of
Congress to leave the entire matter to the Treasury Department, to
ascertain what would be needed in order to carry the section into
effect. Nothing could have been further from the mind of Congress
than that repayment must be made on the unregulated use of alcohol
in the arts if, in the judgment of the Department, as the matter
stood, such use could not be regulated.
All this, however, only tends to sustain the conclusion of the
Court of Claims that this was not the case of a right, granted
in praesenti to all persons who might, after the passage
of the law, actually use alcohol in the arts, or in any medicinal
or other like compounds, to a rebate or repayment of the tax paid
on such alcohol, but that the grant of the right was conditioned on
use in compliance with regulations to be prescribed, in the absence
of which the right could not vest so as to create a cause of action
by reason of the unregulated use. The decisions bearing on the
subject are examined and
Page 173 U. S. 77
discussed in the opinion of the Court of Claims, and we do not
feel called on to recapitulate them here.
Judgment affirmed.
MR. JUSTICE BROWN, MR. JUSTICE WHITE, MR. JUSTICE PECKHAM, and
MR. JUSTICE McKENNA dissented.
