#### THE AMERICAN TOBACCO CO. v. THE UNITED STATES.

[No. 33179.

Decided March 24, 1919.]

*On the*Proofs.

*Treasury Department; drawback on exports; statutes.*— The Treasury-Department did not violate section 30 of the act of July 24, 1897, 30 Stat., 211, and the act of August 5, 1909, 36 Stat., 11, when it used weight as the basis of the drawback instead of the relative value of the article.

*84
      *Departmental discretion.*— While the Treasury Department had the right to change the rate of drawback, which it subsequently did, such change can not have a retroactive effect so as to deprive plaintiff of the drawback already allowed.

*Parties in interest, who are.*— Although the drawback was payable under departmental regulations to agents of plaintiff, plaintiff is the real party In interest.

*The Reporteras*statement of the case:

*Mr. Thomas M. Lane*for the plaintiff. *Mr. John K. Maw-well*was on the briefs.

*Mr. Charles II.*Bradley, with whom was *Mr. Assistant Attorney General William L. Frierson,*for the defendants.

In brief, section 30 of the act of July 24, 1897, 30 Stat., 211, provides that a drawback will be allowed “ equal * * * to the duties paid on the materials used.”

The “ materials used ” was not the Sumatra wrapper tobacco unstemmed which was imported under a duty of $1.85 per pound. It was unquestionably Sumatra tobacco, but it was not wrapper tobacco, but clippings, or scraps, tobacco of another kind and character, and if it had been imported in that condition would have been classified either as “ filler tobacco stemmed,” or as other tobacco, and would have paid duties, respectively, of 50 cents and 55 cents per pound. (30 Stat., 169, secs. 213-215.)

The duties paid on the *“*materials used ” were not $1.85 per pound, as erroneously allowed as a drawback under T. D. 29462.

The act of 1897 defines “ wrapper tobacco ” as that qua! ity of leaf tobacco which is suitable for wrappers, and *“*filler tobacco stemmed ” as all other except wrapper tobacco.

The imported material was separated into wrappers and scraps, the former the valuable material, the latter being of little or no value. The valuable material being retained and sold in this country, while the less valuable part was exported.

The statute did not contemplate that an imported material might be separated into a principal product and a byproduct or waste, and that the by-product or waste should, after being manufactured into some article, become upon *85exportation entitled to drawback at the full duty rate on the imported material. If such were the case the effect would be that the valuable part of the imported material would come in duty free or at a rate much less than fixed by the statute.

In the instant case the payment of drawback upon the clippings and scraps used in the cigarettes at the full duty rate of $1.85 per pound would, in effect, be a mere reduction in the amount of rate of duty paid on the imported Sumatra wrapper consumed in this country.

In the case of the *Dean Linseed Oil Go.*v. *United*States, 87 Fed., 455, the court held that the relative value basis was the proper basis under circumstances similar to those in the instant case. The right to drawback is acquired from the statute and not from the regulations or decisions of the Secretary of the Treasury. Upon an exportation being made in compliance with the statute the right to drawback accrues and a contract is implied upon the Government’s part to pay it. A contract, however, does not arise and can not be implied from the regulations or decisions of the Secretary of the Treasury. *Campbell*v. *United States,*107 U. S., 407. An erroneous decision or unauthoried establishment of rate or allowance of drawback, would not bind the Government, upon the established principle that officers and agents of the Government can not bind it by, or make it liable for, their unauthorized acts. *Rvmler*v. *United*States, 5 Pet., 173; *Wis. Gent. R. Go.*v. *United*States, 164 U. S., 190; *Hume*v. *United*States, 132 U..S., 406; *Minturn*v. *United, States,*106 U. S., 437.

There was no privity of contract between the plaintiff and the defendant, and no agreement upon the latter’s part to pay drawback to the plaintiff, the American Tobacco Co.

The right to drawback is created by the statute, but it does not arise until the materials or articles are exported in conformity with the requirements of the statute and regulations of the Secretary of the Treasury. A *claim*for drawback does not arise until the materials upon which it is claimed are exported, and the person making the entries of claims for drawback is the only one who can collect it or who has the right to bring suit therefor. *Kennedy et al*v. *United*
      *86
      *States,*79 Fed., 898; 95 Fed., 127; *Dunlap*v. *United States,*173 U. S., 65.

Defendant’s contention that drawback is payable to the party making the entry, or to his order, is supported in the case of *Kennedy et al.*v. *United States, supra.*The drawback was claimed under section 3019, Eev. Stat., which, in so far as here pertinent, reads as follows:

“ 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.”

• One of the grounds of the Government’s defense was that the parties plaintiff were not the real owners of the cause of action and consequently not the proper parties to sue on the claim under Revised Statutes, section 3477, relating to the assignment of claims against the United States.

The circuit court, in disposing of this question said:

“ The provisions of section 3477 of the Revised Statutes do not apply for the reason that under the regulations of the Treasury Department (S. 6708; dated Jan. 5,1885) it is provided that the person producing an outward bill of lading in his own name, or duly indorsed to him by the party named in the bill of lading, authorizing the indorsee to act for customhouse purposes, shall be recognized as the exporter of the bags, for the purpose of making entry and receiving the drawbacks or refund. Since in this case it was the plaintiff’s firm, and not the manufacturer of the bags, who produced the outward bill of lading, the claim against the United States was, at its inception, the claim of the plaintiffs, and no assignment of it as a claim was necessary to entitle the plaintiffs to recover.” 79 Fed., 895.

The Circuit Court of Appeals,' in affirming the lower court, said:

“ The Secretary of the Treasury, in his general regulations in regard to drawbacks, recognized the indorsee of a bill of lading as the person entitled to receive the drawback. The claim to which section 3477 refers is a perfected claim against the Government, while the indorsement of the bill of lading is the act by which, in case a claim arises, the in-dorsee is recognized as the person to whom payment is to be *87made. When the bill of lading was signed and indorsed there was no claim against the United States, although one might arise in case the transactions should be completed, and an exportation of the bags should be actually made. *United States*v. *Ferguson,*45 U. S. App., 457, 24 C. C. A., 1, and 78 Fed., 103. At the beginning of the history of this claim, or at its inception, the plaintiffs were the payees and no subsequent assignment of it was necessary.”

The right to drawback is derived from the statute, not from the regulations of the Treasury Department, and the duties of the Secretary of the Treasury in ascertaining the amount of duties paid on the materials used and in determining the rate and amount of drawback due thereon are entirety ministerial. *Campbell*v. *United States, sufra.*

As was said in the case just cited:

“ It is an error to suppose that the officers of customs, including the Secretary, are in regard to this law created a special tribunal to ascertain and decide conclusively upon a right to drawback. Their function is entirety ministerial.”

The drawback provision being a governmental grant of a privilege or benefit is to be construed in favor of the Government and against the party claiming the grant. *United States*v. *Allen,*163 U. S., 499; *Swan, etc., Oo.*v. *United States,*190 U. S., 143; *Hannibal etc., B. B.*v. *Missouri Packet Oo.,*125 U. S., 260.

In granting gratuities Congress may specify the conditions upon which it will be bestowed and designate the persons who shall be entitled to receive it. *Ldbadie*v. *United States,*32 C. Cls., 368; *Davis*v. *United States,*17 C. Cls., •292.

In the last case cited, which was a suit for recovery of drawback, the court said, pp. 300, 301:

“ In the first place, as we held in *Campbell's case*(12 C. Cls. 470) so we hold here, that a drawback is a mere gratuity, proffered by the Government, imposing no obligation on the Government until the exporter’s right thereto is ascertained and established in the manner prescribed by law; and that not until after all the preliminary steps and acts have been taken and done in accordance with law and regulations can a claimant’s right to the drawback become established.

*88“ When a government declares by law that certain specified acts must be done, in order to a citizen becoming entitled to a gratuity out of the public treasury, to which, aside from that law, he would have no right, every one of the acts must be done before he can claim the gratuity.”

When the drawback statute provides that the drawback “ shall be paid to the manufacturer, producer, or exporter, to the agent of either, or to the person to whom such manufacturer, producer, exporter, or agent shall in writing order such drawback paid under such regulations as the Secretary of the Treasury shall prescribe,” and the Secretary has prescribed a regulation having the force of law, directing that the drawback be paid to the party making the entry, or to his order, this is controlling and no one else has the right to demand the drawback. The conditions prescribed must be strictly followed.

The right to claim drawback accrues upon *exportation*of the article or material, and if suit is not brought within six years thereafter the claim is barred and the court is without jurisdiction. *Kennedy, et al.,*v. *United States, supra.*

Campbell, *Chief Justice,*

reviewing the facts found to be established, delivered the opinion of the court:

The plaintiff brings this suit to recover certain drawbacks claimed to be due on account of the exportation of cigarettes manufactured from the clippings or scraps of Sumatra tobacco which had been imported, and upon which the duty required by law had been paid.

The statute under which the drawback is claimed is section 80 of the act of July 24, 1897, 30 Stat., 211, and the act of August *5,*1909, 86 Stat., 11. This statute provides:

> “That where imported materials on which-duties have been paid are used in the manufacture of articles manufactured or produced in the United States, there shall be allowed on the exportation of such articles a drawback equal in amount to the duties paid on the materials used, less one per centum of such duties: *Provided,*That when the articles exported are made in part from domestic materials the imported materials, or the parts of the articles made from such materials, shall so appear in the completed articles that the quantity or measure thereof may be ascertained: *89
>       *And provided further,*That the drawback on any article allowed under existing law shall be continued at the rate herein provided. That the imported materials used in the manufacture or production of articles entitled to drawback of customs duties when exported shall, in all cases where drawback of duties paid on such materials is claimed, be identified, the quantity of such materials used and the amount of duties paid thereon shall be ascertained, the facts of the manufacture or production of such articles in the United States and their exportation therefrom shall be determined, and the drawback due thereon shall be paid to the manuracturer, producer, or exporter, to the agent of either or to the person to whom such manufacturer, producer, exporter, or agent shall in writing order such drawback paid, under such regulations as the Secretary of the Treasury shall prescribe.

The plaintiff, or one of its subsidiaries, imported Sumatra tobacco, from which cigar wrappers were made, which left clippings, or scraps, including imperfect leaves, not suitable for cigar wrappers, and these were manufactured into cigarettes by the plaintiff for exportation, and were subsequently exported. The plaintiff called upon the Secretary of the Treasury to fix the amount of the drawback allowable on account of the exportation of these cigarettes, made, as stated, from tobacco upon which the duty had been paid. After an investigation and ascertainment of the facts, the Treasury Department promulgated a decision, known as Treasury decision 29462, referring to drawback on cigarettes manufactured by the American Tobacco Co. with the use of imported leaf tobacco. This decision was rendered on January 8, 1909, and provided that a drawback would be allowed equal in amount to the duty paid on the imported tobacco used, less the legal deduction of 1 per cent. After this decision was promulgated, a number of drawbacks were paid on account of the cigarettes, but later, in December, 1909, the payment of the drawbacks was suspended, and finally, in December, 1911, Treasury decision 29462 was revoked by an order issued at that time. The plaintiff sues for drawbacks alleged to have accrued while Treasury decision 29462 was in force.

There is no question under the facts that the amount of the drawback claimed is the correct amount if Treasury de-*90cisión 29462 be applied, except a portion of the claims which, in any event, are barred by the statute of limitations of six years, suit having been brought in this court on the 13th day of January, 1916.

The defendant interposes a defense that goes to the merits of the claim. That defense is that the Secretary of the Treasury had no right to establish the drawback fixed by Treasury decision 29462, and that he should have established a drawback, if any were allowable, upon the relative-value basis. The statute provides that the Secretary shall prescribe regulations under which there shall be (1) an identification of the imported materials used in the manufacture, (2) the ascertainment of the quantity of such materials used and the amount of duties paid thereon, (3) the determination of the facts of the manufacture of such articles in the United States and their exportation, and, further, that the drawback due thereon shall be paid to one or another of designated persons.

The Government insists that the Treasury decision under which the drawbacks are here claimed was erroneously or illegally made, because the defendant urges that there had been a uniform custom in the Treasury Department to fix the drawback on the relative value basis of the article exported. The fact is, however, that the Treasury Department did promulgate the decision relied upon by the plaintiff. Nor does it definitely appear that it was an unbroken practice of the department to do otherwise. It must be conceded that the statute does not in terms direct the adoption of the relative-value basis, and it may be conceded that the act left it open in proper cases for the department to prescribe the regulations under which the relative-value basis or the basis of the actual duty paid should be applied.

The facts in the instant case show that Sumatra leaf tobacco was imported. A part of this leaf tobacco was used in making cigar wrappers, a part, being clippings or imperfect leaf that were not suited for cigar wrappers, was used in the manufacture of cigarettes, and another part, namely, the stems, was used for some distinct purpose and had small value. That part which was used in cigarettes was subsequently exported, and the question is, What is the amount *91of drawback payable under the statute ? There would be no question that if all of the Sumatra tobacco upon which the duty was paid had been exported in the shape of a manufactured article “ a drawback equal in amount to the duties paid on the materials use, less 1 per centum of such duties,” would have been payable. And it is equally true that if the cigars into which the most valuable part of the imported tobacco had gone had been exported, the same rule would have been applicable, because the statute authorizes such drawback, where imported materials “ are used in the manufacture of articles ” subsequently exported, and provides that the amount of the drawback shall be equal to the duties paid on the materials used, less 1 per cent. The clippings or parts of leaves which went into the manufacture of the cigarettes was a part of the Sumatra leaf upon which the duty was paid and furnished a part of the weight of that leaf which determined the amount of the duty. When those clippings and imperfect leaves were used in the manufacture of cigarettes and exported, there seems to be no good reason for holding that their weight should not be considered and that their relative value only should be taken, notwithstanding that their weight alone was considered when the original duty was paid, and they were given as much value then as the wrappers themselves, so far as the duty was concerned. The use of these clippings in the cigarettes was not the creation of a by-product from the tobacco, but was the use of a part of the identical article which had paid the import duty, and the statute provides that upon the use of an imported article and its exportation a drawback shall be allowed equal in amount to the duties paid on the material. We think the facts distinguish this case from *Dean Linseed Oil Co.*case, 87 Fed., 455. Particularly, we think, must this be true where the department has fixed the rate and importation and exportations were made thereafter. If it be conceded that the rate could be changed by the department, as it was subsequently changed, we think it should not be given a retroactive effect as against the party entitled to the drawback. *A. G. S. Railroad Co.*case, 142 U. S., 615, 621.

Another question is raised upon the right of the plaintiff to recover, it being insisted that under the regulations of the *92Treasury Department the suit could only be maintained by Comstock and Theakston, to whom was transferred the bill of lading, and who made the claim for drawback in conformity with the regulations. The plaintiff asked leave to make Comstock and Theakston parties, and this motion is resisted by the defendant upon the ground that if the plaintiff is not the proper party plaintiff, nor the one legally entitled to receive the drawback from the Government, then its petition should be dismissed, and that it is not allowable to bring in new parties to prosecute the case; that, as to them, it Avould be barred by the statute of limitations, which in this court is jurisdictional. We agree with the defendant’s contention in this regard, but we think the facts sufficiently show that the party entitled to the drawback is the plaintiff, and that while Comstock and Theakston were the agents to whom payment would be made of the drawback under the regulations of the department, that condition does not prevent the real party in interest from prosecuting the suit in this court. Comstock and Theakston were the agents of the plaintiff, and if they had received the drawback they would have accounted to plaintiff therefor. We think the plaintiff is entitled to maintain this suit as the real party in interest. A part of the claim is barred by the statute of limitations. *Kennedy's*case, 79 Fed., 893.

Judgment will accordingly be given for $30,009.20, being the amount of the drawbacks which accrued under Treasury decision 29462 prior to its revocation, and within six years prior to the bringing of this suit.

Judge Hay, Judge DowNEY, and Judge Booth, concur.