#### P. LORILLARD COMPANY v. THE UNITED STATES.1

[No. B-106.

Decided October 29, 1923.]

*On the Proofs.*

*Internal Revenue tax; floor tax; draivback.*— Where a company has paid the floor taxes required by section 702 oí the revenue act of 1918, approved February 24, 1919, 40 Stat. 1057, 1118, on certain cigarettes and has thereafter exported the same in accordance with the provisions of section 3386, Revised Statutes, as amended by the act of March 1, 1879, 20 Stat. 347, it is entitled to the drawback provided by that section.

*.Same; protest.*— The taxes having been lawfully collected protest was unnecessary to entitle the plaintiff to the drawback provided by the statute.

*,.iSame; interest.*— The claim not being for the refund of taxes erroneously or illegally collected, does not come within the purview of the act of November 23, 1921, 42 Stat. 316, allowing interest.

*The Reporter's*statement of the case:

*Mr. Milton G. Elliott*for the plaintiff. *Mr. W. B. Bell*was on the briefs.

*Mr. F. D. Dyar,*with whom was *Mr. Assistant Attorney General Robert H. Lovett,*for the defendant. *Messers. .Nelson T. Harston*and *Malcolm A.- Coles*were on the briefs.

The following are the facts of the case as found by the •court:

I. Petitioner is a corporation created under the laws of the ¡State of New Jersey, is a citizen of the United States, a resident of New Jersey, has been and is engaged in the manufacture of cigarettes and other tobacco products for export •as well as for domestic consumption as set forth in paragraphs (1) and (2) of the petition filed in this case.

II. Early in August, 1919, petitioner had an oportunity to export and sell 153,050,000 cigarettes manufactured by it *542known by the trade name or brand of “ Nebo,” upon which taxes had been paid to the United States in the following amounts and under the circumstances set forth.

*(a)*As required by section 3394, U. S. R. S., petitioner had paid the tax then in force of $1.25 per thousand, which tax was paid by the purchase of the necessary stamps and by attaching them to the original packages before the cigarettes were removed from the factory.

(5) As required by the revenue act of 1917, approved October 3, 1917, petitioner had paid an additional tax of 80 cents per thousand but without purchasing or affixing any additional stamps, it not being customary under the regulations and practices then in force to require the purchase of additional stamps.

*(o)*After the aforesaid taxes, aggregating $2.05 per thousand, had been paid and after the cigarettes had been removed from the factory the revenue act of 1918, approved February 24, 1919, was passed, which imposed a tax on cigarettes of $3.00 per thousand in lieu of the internal-revenue taxes then imposed by law. These cigarettes being in the possession of petitioner on the effective date of this act a further tax of 95 cents per thousand was paid, making a total tax paid on the cigarettes of $3.00 per thousand. The last sum (of 95 cents per thousand) was not paid immediately upon the passage of the revenue act of 1918, approved February 24, 1919, but under the practices then in force a bond was given to secure its payment and the tax was paid at a subsequent date.

III. On or about August 5,1919, after the tax of $2.05 per thousand had been paid on the cigarettes and bond had been given for the tax of 95 cents per thousand assessed under the act of 1918, petitioner’s representative conferred with the-Solicitor of Internal Revenue at Washington and asked for a ruling on the question whether the tax of $3.00 paid on these cigarettes would be refunded should such cigarettes be exported. It was explained to the solicitor that the ability of petitioner to fix a price which would enable it to consummate the sale and export these cigarettes was dependent upon whether or not petitioner would be allowed a refund

*543or drawback of tbe taxes paid. Statements made at this conference were confirmed in writing by letter dated August 6, 1919, reading as follows:

August 6, 1919.

Mr. P. A. Vize, *Solicitor,*

*Internal Revenue*Department.

*'Washington, D. O.*

Deae Sik: Deferring to our conversation in Washington yesterday regarding the question of drawback on certain cigarettes held by the P. Lorillard Company which it now contemplates exporting for sale in Belgium:

For the benefit of your records I now give you, as suggested, a brief statement of the facts, as follows: This company had on hand a quantity of “Nebo” cigarettes manufactured and removed from its factories prior to the passage of the revenue act of 1918. There are affixed to these packages proper internal-revenue stamps, for which the company has paid the Government, under the then existing revenue act, at the rate of $2.05 per thousand cigarettes. These cigarettes were inventoried by the company in its return of tobacco products on hand and held for sale at the effective date of that act for the purpose of the levy of the additional so-called “floor tax” imposed by section 702 of the act, and for the payment of such additional tax (amounting to 95 cents per thousand cigarettes) the company has given its bond, secured by a deposit of Liberty bonds, in accordance with the requirements of the Internal Revenue Department. This additional tax has not yet been paid, but by the terms of the bond mentioned is due and payable in the latter part of September, 1919.

The company now has an opportunity and desires to sell these cigarettes in export trade, but, naturally, its ability to fix a price which will enable it to consummate the transaction is dependent upon whether or not it will be entitled to an allowance of drawback, after the additional tax has been paid and the exportation completed, equal in amofint to the full tax of $3.00 per thousand paid.

For the reasons pointed out to you in person yesterday, it seems to us clear—

1. That the expression “ on which the tax * * * has been paid by suitable *stamps affixed thereto*before removal from the place of manufacture,” as used in the drawback statute (B. S. 3386), should be construed in the light of the fact that at the date of its passage the only taxes then in force on such products were out and out stamp taxes;

*5442.'That the additional tax imposed by section 702 of the revenue act of 1918, while called a “ floor tax,” is in reality a stamp tax (as is shown by the method of computation prescribed by that section itself), its payment really serving to increase *pro tanto*the “ value ” of the stamps theretofore affixed to the package of cigarettes upon which such additional tax applies, and that this interpretation can fairly, and should under the circumstances, be given effect in construing the drawback statute and the revenue act of 1918;

3. That the words “ * * * “When the same are exported, equal in amount to the value of the stamps found to have been so affixed,” used in the drawback statute means ths value, at the time of exportation, of the stamps affixed and not the value of the stamps at the time they were affixed; and

4. That, consequently, after the cigarettes in question are sold in export trade by the company, it is entitled either to an allowance of drawback to the extent of $2.05 per thousand and credit against the bond it has given to the extent of the remaining 95 cents per thousand or, upon payment of the bond in full, to an allowance of drawback amounting to the full $3.00 per thousand, depending upon whether it is considered that the exportation of these goods removes them from the stock of the company, “ held and intended for sale.”

Otherwise the effect will be that cigarettes manufactured and removed from the factory on February 26,1918, and subsequently exported will be allowed drawback at the rate of $3.00 per thousand, whereas identical cigarettes manufactured by the same company and removed from the factory on February 24, 1918, when subsequently exported, will be entitled to drawback of only $2.05 per thousand, and this in spite of the fact that on each lot of cigarettes the company has paid to the Government the same amount of tax per thousand, viz, $3.00. Manifestly, it was not the intention of the drawback statute to produce any such result.

As stated by you, the sale contemplated must be negotiated at once if it is to be effected at all. Therefore, I very much hope that* you will be able to let us have a decision on this matter not later than to-morrow, and beg to assure you that your prompt attention will be greatly appreciated.

Yours very truly,

Saml. B. Woods, Jr.

IV. On August 19,1919, petitioner contracted for the sale and export of the cigarettes. At that time it had received no response to letter of August 6 above set forth.

*545Y. On August 22, 1919, Mr. J. H. Callan, acting commissioner, wrote petitioner as follows:

T-RDB-79-65.

TREASURY DEPARTMENT, *Washington, August M, 1919.*

P. Lortllard Company,

*119 West Jfith Street, New York, New York.*

Sirs: Reference is made to visit of your representative, Mr. Sami. B. Woods, jr., August 5th, and letter of the following date in regard to the question of allowance for drawback on certain cigarettes held by your company, which it is contemplated exporting to Belgium. It appears that these cigarettes were manufactured and removed from factory prior to the passage of the revenue act of 1918 and tax paid at the rate of $2.05 per thousand; that they were included in inventory and return of floor stocks on hand February 25, 1919, and bond given to secure payment of the additional tax of 95 cents per thousand imposed by section 702 of the new act, which tax becomes due and payable in September of this year.

You state that the opportunity has been presented to market these cigarettes in export trade, hut that your ability to fix a price which will enable you to consummate the transaction is dependent upon your being entitled to an allowance of drawback after the additional tax has been paid and exportation completed of an amount equal to the full tax of $3 per thousand. Your contention for allowance of drawback of the full $3 rate is based on the language of the statute providing that allowance of drawback shall be “ equal to the value of the stamps found to have been so affixed.”

You state that in spite of the increased tax on cigarettes imposed by the act of February 24, 1919, the same stamps are being used as formerly, the stamps on hand having been inventoried and manufacturers required to pay the difference between the old and new prices for such stamps, and floor tax thereby operates to make the value of the stamps which were attached equal to the value of similar stamps purchased at the new rate and attached after the passage of the act of 1918. Therefore, you feel that refund of the whole amount paid, including the floor tax, should be made.

In reply you are advised that it would be desirable to make refund of the amount of floor tax to be paid on the cigarettes in question could it be done, but it is not believed that the argument presented furnishes a sound basis for such action. It is manifest from a reading of the floor-tax sections of the statute that they were not intended to work any increase in the value of stamps previously attached.

*546The drawback provisions relating to such, merchandise are contained in section 3386, Revised Statutes, which, as amended by section 16 of the act of March 1, 1897, reads in part:

“ There shall be an allowance of drawback on tobacco, snuff, and cigars on which the tax has been paid by suitable stamps affixed thereto before removal from the place of manufacture, when the same are exported, equal to the value of the stamps found to have been so affixed.”

The floor tax is an additional tax independent of and separate from the taxes previously paid. It does not increase the amount of the original tax nor does it increase the amount originally paid for stamps. The stamps represent only the amount originally paid, and their “ value,” within the meaning of the drawback statute, would seem to be the amount thus paid.

It has been held in previous cases that statutes extending a privilege should be strictly construed and that “ whoever claims a privilege from the Government should point to a statute which clearly indicates a purpose to grant the privilege.”

It is impossible in the case in question to point to a statute clearly indicating the purpose to grant the privilege of drawback of floor tax. It is only by a forced and strained construction of the language of the drawback statute that it can be regarded as covering floor tax, and it therefore is necessary to conclude that drawback privilege does not extend to floor taxes. The amount paid as such under section 702 of the revenue act of 1918 could not be included in allowance for drawback on cigarettes sold for export.

Respectfully,

(Signed) J. H. CallaN,

*Acting Commissioner.*

YI. The actual exportation of the cigarettes began on August 29 and was completed November 21, 1919.

VII. Sundry formal claims for drawback were filed with the Commissioner of Internal Revenue on the regularly prescribed forms. Each of these claims (about 31 in number) contained the following notation:

“ The tax covered by this claim has been paid as follows:

“ The stamps affixed to the packages were purchased at the rate of $2.05 per thousand cigarettes. The additional 95 cents per thousand represents so-called floor tax as per return filed with the collector of the third district of New York, March 26, 1919. Bond secured by deposit of United States Liberty bonds in the amount of $482,000 has been *547given for the payment of this additional tax within seven months from the passage of the revenue act of 1918, at which time it will be paid by this company.”.

VIII. After consideration of several of these claims the deputy commissioner, James M. Baker, under date of March 15, 1920, issued the following ruling in the form of a letter to the collector of internal revenue, second district, New York:

T&M-OFM.

CI-TD-214-229-235-238.

TREASURY DEPARTMENT,

Washington, *March*15, *1920.*Collector of Internal Revenue,

*/Second*District, *New*York, *N. Y.*

This office has passed for allowance and forwarded to the Auditor of the Treasury Department for settlement twenty claims filed with you by P. Lorillard Co., 18 of them for $15,000 each, one for $19,050 and one for $9,150 drawback of internal-revenue taxes paid on cigarettes exported to Antwerp, covered by bonds bearing the following customs entry numbers: 2061, 2062, 2063, 2245, 2246, 2247, 2248, 2249, 2540, 2541, 2542, 2543, 2544, 2545, 2623, 2624, 5230, 5231, 5232, 5233.

Your attention is called to the fact that the rate of tax claimed in each of these, bonds was $3.00 per thousand, but in slips attached to the bonds and other claim papers it is shown that 95 cents in each case was floor tax. As the law provides only for drawback in taxes paid for stamps and does not provide for drawback of floor taxes, the 95 cents has been deducted in each case, and the claims have been allowed at the rate of $2.05 per thousand, amounting in the case of the $15,000 claims to $10,250 each, in the case of the $19,050 claim to $13,017.50, and in the case of the $9,150 claim to $6,252.50.

You are requested to notify the claimants of these allowances and the changes made in the amounts, and to further state that the same action will be necessary on the other-claims from the same claimant still pending in this office-awaiting the outcome of correspondence with you concerning them, which you state in your letter on the 9th instant,, received on the 11th, are having attention.

(Signed) James M. Baker,

*Deputy Commissioner.*

McK.

*548IX. Pursuant to this ruling the tax of $2.05 per thousand has been refunded to petitioner, but the tax of 95 cents per thousand which was subsequently paid by petitioner has not been refunded.

X. The claim for refund or drawback of the tax of 95 cents per thousand was appealed to the Commissioner of Internal Revenue and argued on brief. Under date of February 28,1921, the acting commissioner in a letter addressed to counsel for petitioner ruled as follows:

T&M-PJM.

Cl-TD-214-229-235-238.

Treasury Department, *Feb.*

Washington, *Feb. 28,1921.*

MiltoN C. Elliott, Esq.,

*Southern*Building, *Washington, D. G.*

My Dear Judge Elliott : This is in reference to contentions made by you in brief and oral argument that the provisions of section 3386, R. S-, warrant allowance of drawback of amounts assessed and paid, under section 702 of the revenue act of 1918, on cigarettes, which cigarettes were exported subsequent to the date of imposition of the tax.

As I understand it, your argument centers upon two main propositions: (1) That section 702 does not impose an independent tax, but is the same tax as that imposed by section 700, differing merely in method of collection; and (2) that section 3386, R. S., does not grant a privilege of statutory exemption from taxation and consequently should not be strictly construed. Decision of the question raised, of course, depends upon the effect which should be given the language of section 3386, R. S.

Section 700 (a) so far as here material provides:

“That upon cigars and cigarettes manufactured in or imported into the United States, and hereafter sold by the manufacturer or importer, or removed for consumption or .sale, there shall be levied, collected, and paid under the provisions of existing law, in lieu of the internal-revenue taxes now imposed thereon by law, the following taxes, to be paid by the manufacturer or importer thereof.”

Section 702 provides:

“ That upon all the articles enumerated in section 700 or' 701, which were manufactured or imported, and removed from factory or customhouse, on or prior to the date of the passage of this act, and upon which the tax imposed by existing law has been paid, and which are, on the day after the passage of this act, held by any person and intended for sale, *549there shall be levied, assessed, collected, and paid a floor tax equal to the difference between *(a)*the tax imposed by this act upon such articles according to the class in which they are placed by this title, and *(b)*the tax imposed upon such articles by existing law’ other than section 403 of the revenue act of 1917.”

In order to ascertain the amount of tax imposed by the latter section and the kinds of articles subject thereto, it is necessary to read it in, connection with section 700, and also section 701; but I can not accept this as a conclusive or even persuasive indication that the tax under section 702 is the same tax as that imposed by section 700. Section 700 imposes a tax, in lieu of the tax theretofore imposed *upon articles not previously removed*to be paid *by the manufacturer or importer when sold or removed.*Section 702 imposes a further tax *upon tax-paid*articles, *which had theretofore been*removed, to be paid by *any person*holding the same for sale. Section 700 imposes the tax upon articles *manufactu/red or imported and sold or removed.*Section 702 imposes a tax upon articles *held and intended for*sale, and this is designated as a “ floor tax.” Thus the tax under section 702 differs from that under section-700 both in regard to the persons who must pay the same and the status of the articles with reference to which it is imposed. While the former refers to the latter for determination of the *hinds*of articles which are subject to the tax, no *article*which is subject to tax under section 700 could be subjected to tax under section 702. Furthermore, the tax under the latter section is to be “ assessed,” while that under the prior section is to be paid by stamp. In *Patton*v. *Brady,*184 U. S. 608, a tax almost identical in nature with that here in question was attacked very vigorously on the ground that an article once having been subjected to an excise may not be subjected to a second excise.

Exception is taken to the position of this office that section 3386, E. S., constitutes a privilege of statutory exemption from taxation. That section provides in part:

“ There shall be an allowance of drawback on tobacco, snuff, and cigars on which the tax has been paid by suitable stamps affixed thereto before removal from the place of manufacture, when the same are exported, equal in amount to the value of the stamps found to have been so> affixed, the evidence that the stamps were so affixed, and the amount of tax so paid, and of the subsequent exportation of the said tobacco, snuff, and cigars to be ascertained under such regulations as shall be prescribed by the Commissioner of Internal Revenue, and approved by the Secretary of the Treasury.”

*550• This section is not in the form of a specific exemption from taxation, but is designed to provide for the return of taxes lawfully collected. If the principle that one who “ claims a privilege from the Government should point to a statute which clearly indicates a purpose to grant the privilege,” applies in the case where one urges such privilege as a reason for noncollection of a tax, it certainly applies with equal force where return of a tax therefore lawfully collected is sought. The only basis for a claim that section 3386, E. S., does not grant a statutory privilege of exemption from taxation must be found in a contention that failure to allow such drawback would result in the imposition of a tax upon exports contrary to the constitutional prohibition against taxation of articles exported. That this result would not obtain is clear from a series of decisions of the Supreme Court. In *Turpin*v. Burgess, 117 U. S. 504, attack was made upon the requirement that an exportation stamp be purchased and affixed to' every package of tobacco intended for exportation on the ground that it resulted in taxation of articles exported contrary to the constitutional inhibition. In denying the applicability of this constitutional provision the court took occasion to state that, by the exemption of such tobacco from excise paid on account of other tobacco, *“*a special indulgence was granted to them.” And in *Cornell*v. Coyne, 192 U. S. 418, it was held that an excise upon all filled cheese manufactured must be paid on filled cheese manufactured expressly for export. The whole subject is summarized in *Peck*v. Louie, 247 U. S. 165, where the court said:

“ *If articles manufactured and intended for export are subject to taxation under general lemis up to the time they are put in course of*exportation, *as we have seen they*are, the conclusion is unavoidable that the net income from the venture when completed, that is to say, after the exportation and sale are fully consummated, is likewise subject to taxation under general laws.”

While, therefore, the opinion is entertained that the drawback provisions of section 3386, R. S., constitute a privilege conferred by Congress and not a recognition of any constitutional right to exemption from taxation, and should be strictly construed, irrespective of such rule a proper construction of that section precludes allowance of drawback for amounts paid under section 702. The allowance is a drawback on tobacco “ on which *the tax has been paid by suitable stamps affixed thereto before removal from the place of manufacture*” and is to be *“equal in amount to the vahie of the stamps found to have been so*affixed.” The evi*551dence tbat the “ *stamps were so offixed*” and the “ *amownt of tax so paid*” is to be ascertained under regulations prescribed by the commissioner. The tax under section 702 is not “ paid by suitable stamps ” but is paid by assessment. It is not paid before removal, but after removal. And the assessment is not made upon the basis *of stamps*owned or held by the manufacturer, but is made upon the basis of *articles held.*Whatever may be contended in regard to an automatic increase in the value of stamps because of assessments paid on such stamps prior to the removal of the articles to which they are affixed, it is not perceived how an assessment, the basis of which is not the possession of stamps but the possession of certain articles made after removal, can work any increase in the value of the stamps.

I am forced to conclude that existing provisions of law do not authorize return of taxes assessed and collected under section 702 because the articles in connection with which the tax was assessed were subsequently exported, and am constrained not to reopen the case of P. Lorillard Company, which is dealt with in your brief.

Respectfully,

(s.) Paul Mters,

*Acting Commissioner.*

XI. Under date of October 20, 1921, counsel for petitioner in requesting reconsideration of the foregoing ruling addressed the following letter to the Commissioner of Internal Revenue:

OCTOBER 20, 1921.

Hon. David H. Blais,

*Commissioner of Internal*Revenue,

'Washington, *D. C.*

Claim for drawback of taxes erroneously or illegally withheld from P. Lorillard Company, tobacco manufacturers, 119 West 40th Street, New York City. Your file T&M-PJM-C1-TD-214 — 229-235-238.

Dear Sir: I am inclosing herewith copy of office letter dated February 28, 1921, signed by Mr. Paul Myers, acting commissioner, disallowing the above claim. From this you will observe that the disallowance is based upon the department’s interpretation of section 3386, Revised Statutes. No consideration was given to subdivision C of section 1310 of the revenue act, 1918, which reads as follows:

“(c) Under such rules and regulations as the commissioner, with the approval of the Secretary, may prescribe, the taxes imposed under the provisions of Titles VI, VII, or IX shall not apply in respect to articles sold or leased for *552export and in due course so exported. Under such rules and regulations the amount of any internal-revenue tax erroneously or illegally collected in respect to exported articles may be refunded to the exporter of the article, instead of to the manufacturer, if the manufacturer waives any claim for the amount so to be refunded.”

This statute was not discussed nor referred to at any hearing or conference at which this claim was considered and was evidently overlooked. Claimant very confidently relied upon the. statutes referred to in the brief filed in this case.

In view of the very obvious importance of this statute in the case under consideration, I am writing to ask that this case be reopened and that claimant be given an opportunity to file a supplemental brief or be given an oral hearing.

Your favorable consideration of this request will be very sincerely appreciated.

Respectfully,

(s.) M. C. Elliott,

mce-rrf. *Of Counsel for Claimant.*

XII. In reply the following letter was received from Deputy Commissioner F. Gr. Matson, dated November 4, 1921:

T-RDB.

Cl-TD-214-229-235-238.

Treasury Department, Washington, *November 2, 1921.*

Mr. MiltoN C. Elliott,

*Southern Building,*Washington, *D. G.*

Sir: Acknowledgment is made of receipt of your letter of October 20th, inclosing copy of letter addressed you under date of February 28, 1921, in which you were advised of the inability of this office to favorably consider claims filed by the P. Lorillard Company, 119 West 40th Street, New York City, for drawback of floor taxes paid under section 702 of the revenue act of 1918. You state that these rejections were based upon interpretations of section 3386, R. S., and that at that time no consideration was given to subdivision C of section 1310 of the revenue act of 1918.

You request that the case be reopened and that you be given an oral hearing or an opportunity to file a supplemental brief based on the section mentioned.

In reply, you are advised that as explained in office letter of February 28th, there is no authority of law for allowance of drawback of floor taxes under the provisions of section 3386, R. S. However, P. Lorillard Company are *553privileged to file claim on Form 46 for refund of the amounts of floor tax involved, in connection with which any supplemental brief submitted by you will be given due consideration. At the same time, if desired, arrangements may be made for an oral hearing on the subject.

Respectfully,

(sgd.) F. G. MatsoN,

HES.” *Deputy Commissioner.*

XIII. A copy of petitioner’s request for reconsideration having been forwarded to the Solicitor of Internal Revenue, the following reply was received, dated November 4,1921:

SOL: 1:11: JDF.

31-1-1.

DEPARTMENT OP JlTSTICE,

Oppice op the Solicitor op Internal Revenue,

Washington, *November 4-, 19%1.*

(Copy of letter on file with Bureau of Internal Revenue, dated Nov. 5,1921.) Milton C. Elliott, Esq.,

*Southern*Building, Washington, *D. C.*

Sir : Receipt is acknowledged of your letter dated October 26,1921, inclosing a copy of a letter addressed by you to the commissioner, in which you call his attention to the provisions of section 1310 (c) of the revenue act of 1918 as giving P. Lorillard Company the right to a refund of the amount of floor tax paid upon certain tobacco which was subsequently exported. You state that this section was not considered at the hearing on the taxpayer’s claim, nor was it treated in your brief. You ask that this office recommend that the case be reopened, or that, in any event, you be permitted to file a supplementary brief in support of your contention.

• It is thought that section 1310 (c) does not apply to your particular case, and this office does not, therefore, see its way clear toward recommending that the claim be reopened. Any brief you may care to submit, however, will receive close and careful attention, and if, after consideration, it is thought that the action of the bureau in rejecting the claim was erroneous, the reopening of the claim will be recommended.

Respectfully,

(Signed) Carl Mapes,

*Solicitor.*

BL.

*554XIY. Claim for refund was again argued on brief in connection with, the request for reconsideration of the commissioner’s former ruling disallowing the claim for drawback. Under date of March 8, 1922, the commissioner, in ruling upon the request for reconsideration, wrote counsel for petitioner as follows:

SOL: 1.11: JDF.

31-1-1. Treasury DepartmeNt,

*Washington, March 8,19M.*

MiltoN C. Elliott, Esq.,

*Southern Building, Washington, D. O.*

Sir : Reference is made to the claim of P. Lorillard Company, 119 West 40th Street, New York, N. Y., for the refund of $145,397.50, floor tax paid under section 702 of the revenue act of 1918 upon 153,050,000 “ Nebo- ” cigarettes which were subsequently exported by the taxpayer.

These cigarettes were manufactured and removed prior to February 25, 1919, and stamps of the value of $2.05 per thousand were affixed. On the date above mentioned the cigarettes were held by the taxpayer and intended for sale, and hence became subject to the floor tax of $0.95 per thousand imposed by section 702 of the revenue act of 1918.

Early in August, 1919, the taxpayer had an opportunity to sell a large quantity of its cigarettes abroad. A contract was made with the foreign purchaser and the order was filled by the shipment of the cigarettes in question, exportation being begun on August 29, 1919, and completed November 21, 1919. The taxpayer made proof of exportation and applied, under section 3386, R. S., for a drawback of the internal-revenue taxes paid on these cigarettes at the rate of $3.00 per thousand. The claim for drawback was allowed to the extent of $2.05 per thousand (the amount of taxes paid by stamps), but was rejected to the extent of $0.95 per thousand (the amount of the floor tax). The partial rejection was due to the fact that the floor tax was not paid by stamp, and consequently did not come within the provisions of the drawback statute.

After the claim for drawback had been rejected in so far as it concerned the floor tax, you called, the attention of this office to the provisions of section 1310 (c) of the revenue act of 1918, as authorizing the refund of the floor tax, with the request that the claim be reopened. This office, declined to reopen the taxpayer’s claim, but expressed its willingness to give consideration to any arguments you might care to make in support of your contention.

After careful consideration of your arguments, both oral and written, this office has, upon the advice of the Solicitor

*555of Internal Revenue, reached tbe conclusion that section 1310 (c) of the revenue act of 1918 can not be given the ■effect for which you contend.

In your briefs you have laid great stress upon the immunity from taxation provided by the Constitution for articles exported, arguing that the enactment of the drawback statute was a recognition by Congress of its inability to lay a tax upon tobacco manufactured for export, and that consequently the drawback statute is not an exemption from taxation, and, as such, to be strictly construed. But this argument ignores the doctrine laid down in *Cornell*v. Coyne, 192 U. S. 418, 427, that “ subjecting ” an article *“*manufactured for the purpose of export to the same tax as all other ” articles of the same kind “ is casting no tax or duty on articles exported, but is only a tax or duty on the manufacturing of articles in order to prepare them for export.”

Section 1310 (c) of the revenue act of 1918 provides: “

“ Under such rules and regulations as the commissioner with the approval of the Secretary may prescribe, the taxes imposed under the provisions of Titles YI, VII, or IX shall. not apply in respect to articles sold or leased for export and in due course so exported. Under such rules and regulations the amount of any internal-revenue tax erroneously or illegally collected in respect to exported articles may be refunded to the exporter of the article, instead of to the manufacturer, if the manufacturer waives any claim for the amount so to be refunded.”

You state that, granting for the sake of argument that the department is correct in holding that the floor tax is not subject to drawback under the provisions of section 3386, R. S., this provision of law furnishes the only reason for the reference to the taxes under Title VII contained in section 1310 (c). You state that, the drawback of stamp taxes having been already provided for by section 3386, R. S., upon exportation of the tobacco, snuff, cigars, or cigarettes, the inclusion of Title VII in the provisions of section 1310 (c) is superfluous unless that section be taken to authorize the refund of the floor tax.

Two answers may be made to this argument: First, that section 1310 (c) of the revenue act of 1918 is reenacted verbatim as section 1305 of the revenue act of 1921, though no floor tax is imposed by the latter act, and second, that tobacco, snuff, cigars, and cigarettes are not the only articles upon which taxes are imposed by Title VII of the revenue act of 1918. Section 703, which is part of Title VII of the revenue act of 1918, imposes a tax “ upon cigarette paper made up into packages, books, sets, or tubes.” The tax upon this cigarette paper is not paid by stamps, nor is any provi*556sion made for a drawback of the tax previously paid upon exportation of the cigarette paper. The tax is imposed upon the sale of cigarette papers in specified quantities by a manufacturer or importer to any person other than a manufacturer of cigarettes. If it were not for section 1310 (c) cigarette papers sold to a foreign customer and shipped to him abroad would, under the doctrine announced in *Cornell*v. Coyne, supra, be subject to an internal-revenue tax upon their removal from the factory. The effect of section 1310 (c) is to prevent the imposition of tax in such cases and to-provide for a refund of the tax where the same has been erroneously or illegally collected. Such a construction of the section is reasonable and allows to it a proper effect.

It should further be noted that section 1310 (c) is not a drawback statute; it does not provide for the refundment of taxes which have once legally attached. It provides that certain taxes “ *shall not afply*in respect to articles sold or leased for export and in due course so exported.” Inasmuch, as the cigarettes in question were on February 25, 1919, held by the taxpayer and intended for sale, their liability to the floor tax was on that date instantly and irrevocably fixed,, and on future change of circumstances could affect the original application of the tax.

This office feels constrained to refuse to reopen the taxpayer’s claim.

Respectfully,

(Sgd.) D. H. Blair,

*C ommdssioner.*

No part of the tax of 95 cents per thousand involved in this suit has been refunded or repaid to petitioner by the United States.

1

 Appealed.

Campbell, *Chief*Justice,

delivered the opinion of the court:

The suit is for a drawback alleged to be authorized by section 3386, Revised Statutes.

The plaintiff, the manufacturer of the cigarettes, had paid the tax required by section 3394, Revised Statutes, which was $1.25 per thousand, and also the additional tax of 80 cents per thousand required by the revenue act of October 3, 1917, 40 Stat. 312, 313. The commissioner held that the amount of these two items should be refunded when the cigarettes had been exported, but he declined to allow a drawback of the tax required by section 702 of the revenue act of 1918, 40 Stat. 1118, which the plaintiff had also paid. *557As set forth in the findings, the commissioner’s action was stated by him as follows: “ The partial rejection was due to the fact that the floor tax was not paid by stamp and consequently did not come within the provisions of the drawback statute.”

The act of 1918, in section 700 thereof, levied a tax on cigarettes, of a stated weight, of three dollars per thousand. This was an increase in the taxable rate of 95 cents per thousand. The act became effective February 25, 1919, and in terms applied to cigarettes sold by the manufacturer or removed for consumption or sale after that date. But articles mentioned in section 700, which had been manufactured and removed prior to the effective date of the act, were not required by section 700 to pay the additional tax. It hence followed that if this section were alone to govern there would be an inequality of tax on goods manufactured and held for sale immediately prior to the act and those manufactured and held for sale immediately after the act, which would place an undue burden on the latter kind. Section 702, however, takes care of this situation and imposes a like tax on the articles manufactured and held for sale “ on or prior to the date ” of the passage of the act. Calling it a “ floor tax ” does not alter its purpose, which was that of an equalizing tax. The tax is accordingly imposed upon the articles mentioned which had been removed from factory or custom house before the date of the passage of the act “ upon which the tax imposed by existing law ” had been paid, and which on the day after the passage of the act were held and intended for sale. The same kinds of articles were thus made to pay the same tax. We do not think the Congress intended by designating the tax a “ floor tax ” to defeat a right of drawback when claimed by one who had removed his goods prior to the act and allow the drawback to one who produced his goods immediately after the act, both having paid exactly the same amount of taxes on identically the same kind of goods, and both having exported their goods. Broadly speaking, the intent of section 3386, as amended by the act of March 1, 1879, 20 Stat. 347, was to authorize the return to the manufacturer and exporter of goods upon their exportation of the amounts of specific taxes which had

*558been paid upon them. It authorizes a drawback “ equal in amount to the value of the stamps ” affixed. The stamps affixed were those required when the tax of $1.25 per thousand was imposed. No additional stamps were affixed when the additional tax of eighty cents per thousand was imposed, because it was the custom and practice of the department to value the first stamps as inclusive of those contemplated by the act imposing the additional tax. We see no-reason why the value of the stamps first affixed may not under the custom and practice mentioned be determined by the total of the three taxes paid, unless the view that the-floor tax was paid in cash, and was therefore not within the drawback statute, can be maintained. As already said, in our opinion the payment of the tax whether in the one form or the other comes within the spirit and intent of the statute' authorizing the drawback when the goods upon which the tax has been paid are exported. The Treasury officials, readily conceded the right of drawback as to two of the taxes, notwithstanding the goods had been taken from the factory and held for sale. They apparently recognize that the fact of export is sufficient to secure the right of drawback, so far as those items are concerned. We think the *“*floor tax ” does not differ from the others when the amount of drawback is to be determined.

There was no necessity for “ protest ” under the facts of this case. Plaintiff’s goods came within the provision of the statute imposing the floor tax, and the tax was paid. Thereafter the goods were exported. If they had not been exported, there would be no drawback. Its cause of action arose, not when it paid the tax, but when it exported the goods and the drawback was refused. We do not allow interest because, in our opinion, the claim does not come within the provisions of section 1324 of the revenue act of 1921, 42 Stat. 316.

Our conclusion is that the plaintiff is entitled to recover the taxes paid, and judgment will be entered in the sum of $145,397.50. And it is so ordered.

Graham, *Judge;*Hay, *Judge;*Downey, *Judge;*and Booth, Judge, concur.