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

[No. 34477.

Decided March 29, 1926]

*On the Proofs*

*Import Unties; drawlach on cigarettes; relative values at point of separation.*— Where cigarettes for export are made from the “ clippings ” of tobacco leaf on which an import duty has been paid on weight basis, the allowance by the Treasury Department of drawback on the cigarettes exported “ on the basis of relative values at point of separation; that is, the values of the wrappers and scrap or residue,” is correct within the intent of Congress.

*Same; jurisdiction; conditions of damn.*— The jurisdiction of the Court of Claims attaches upon the refusal of the Secretary of the Treasury or a collector to pay drawback to which the party is entitled upon demand duly made for its payment, but the formal conditions for perfecting such a claim required by Treasury regulations made in pursuance of a law of Congress, must be complied with in order to entitle plaintiff to recover.

*The Reporter’s*statement of the case:

*Mr. William R. Harr*for the plaintiff. *Mr. Charles II. Bates*and *Gerry da Wakefield*were on the brief s.

*Mr. Charles F.*Jones, with whom was *Mr. Assistant Attorney General Herman J. Galloway,*for the defendant. *Mr. E. C. Corkhill*was on the brief.

The court made special findings of fact, as follows:

I. The plaintiff is, and was for a period long preceding the dates or periods hereinafter mentioned, a corporation *981organized under the laws of the State of New Jersey, engaged in the business of manufacturing and selling cigarettes and tobacco in various forms,.with its principal place of business in the city of New York, and operating a factory known as Kinney Bros. Branch, at 513 West 22nd Street in said city. The plaintiff owned a controlling interest in the American Cigar Company and also in the British-American Tobacco Company, both of which companies were subsidiaries of the plaintiff company down to 1911, when the connection between plaintiff and said companies was dissolved.

II. The plaintiff was the exclusive manufacturer of a brand of cigarettes designated as “Especiales,” made with rice paper and the clippings, cuttings, and imperfect leaves of Sumatra leaf tobacco imported by the American Cigar Company for cigar wrappers, and furnished by said company to plaintiff.

III. After the manufacture of such cigarettes by the plaintiff they were delivered to the British-American Tobacco Company and others for export, and the firm of Comstock & Theakston was authorized by plaintiff and the British-American Tobacco Company to act as their agent to collect drawback on such exports. The said firm did not know the respective interests of the American Tobacco Company and the British-American Tobacco Company in such drawback. The duty paid by the American Cigar Company on the unstemmed Sumatra leaf tobacco imported by it for cigar wrappers was $1.85 per pound. The amount of drawback on such exported leaf Sumatra tobacco on the quantity basis would be $1.83 per pound, and on one thousand cigarettes manufactured from one and three-fourth pounds of such tobacco on quantity basis would be $3.20 per thousand.

IV. Prior to the dissolution of the connection between the American Tobacco Company, the American Cigar Company, and the British-American Tobacco Company, which occurred in 1911, there was an understanding and arrangement substantially as follows:

The American Tobacco Company was to manufacture the cigarettes from the “ clippings ” supplied by the American Cigar Company and collect the drawback- on all exporta-*982tions, which drawback was approximately $1.83 per pound of the tobacco used in the cigarettes exported, and was to pay to the American Cigar Company $1.52 for each pound of the “ clippings,” which $1.52 represented the amount of the drawback per pound, less the cost of manufacturing the cigarettes therefrom, cost of collection of the drawback, and a small manufacturer’s profit.

Upon delivery of the cigarettes by the plaintiff to the British-American Tobacco Company for exportation a charge of three dollars and four and one-half cents per thousand of the cigarettes was entered by the plaintiff against said company, which was calculated and intended to represent the amount of the drawback per thousand cigarettes, less cost of its collection by the plaintiff. This charge, however, was merely nominal, as it was to be either canceled or refunded when the drawback had been collected by the plaintiff — -canceled in case it had not then been paid, or refunded if it had been paid.

This arrangement appears to have been in effect up to December 9,1911, when the quantity basis of allowing drawback was changed to the relative value basis by the Treasury Department.

Y. The proportions of the said Sumatra leaf tobacco constituting wrapper, stem, and “clippings” were: Wrapper, 30 per cent; stem, 15 per cent; and “ clippings,” 55 per cent. The relative values of these different portions of the tobacco were: Wrapper, $10.45 per pound; stem, one-fifth of a cent per pound; and “ clippings,” 12 cents per pound. The value of the said “ Especiales ” cigarettes in the foreign market ranged from *27y2*cents to $2.50 per thousand; the prevailing price was 50 cents per thousand.

VI. About December 9, 1911, the Secretary of the Treasury, following the rule laid down in Treasury Decision 19323 of May 9, 1898, decided to allow drawback on such cigarettes “ on the basis of relative values at the point of separation; that is, the values of wrappers and scrap or residue.” During the whole time of the various transactions out of which this claim arose it was the rule of the Treasury Department to allow drawback only on the relative value *983of exported articles or materials to the imported articles or materials at the time of their separation therefrom.

VIL The plaintiff’s petition was filed March 26, 1920, and claimed a drawback of $3.20 per thousand on 22,296,000 cigarettes alleged to have been manufactured by it from “ clippings ” of leaf Sumatra tobacco which had been imported for cigar wrappers and on which a customs duty of $1.85 had been paid, and which had been exported from January 31, 1912, to March 14, 1916, inclusive, amounting to $11,341.20. The claim for one shipment — notice of intent No. 69410, date of clearance, November 20, 1911, of 500,000 cigarettes — set out in plaintiff’s bill of particulars was abandoned. Another shipment — notice of intent No. 3162— erroneously stated in said bill of particulars at 2,600,000 cigarettes, was corrected by plaintiff to 1,350,000. The corrected quantity claimed by said petition to have been exr ported from January 31, 1912, to March 14, 1916, both dates inclusive, was 21,046,000 cigarettes at $3.20 per thousand, amounting to $67,347.20. Shipments aggregating 8,346,000 cigarettes were made prior to March 26,1914, and are barred by the statute of limitation. The drawback of $3.20 on 8,346,000 cigarettes would amount to $26,707.20, leaving a claim not barred by limitation of $40,640.00.

VIII. In every shipment set out in plaintiff’s bill of particulars a notice of intent to claim drawback was filed at the proper customhouse by the firm of Comstock & Theak-ston within the time limit prescribed by the custom regulations. In all of these shipments — except that mentioned in notice of intent No. 612, date of clearance March 14, 1916, ship *Southerner,*Baltimore to Bristol, 1,500,000 cigarettes— the British-American Tobacco Company was the exporter and the American Tobacco Company was named as the manufacturer. With notices of intent Nos. 5915, 63031, 63810, 20914, 27666, 31281, 31282, 32904, 6976, and 4846, in which drawback was claimed on 6,100,000 cigarettes exported, no export bonds for production of landing certificates from the proper persons at the places of landing were filed as required by the customs regulations in force at the time said notices were filed. Article 996, Customs Regu*984lations, 1915. Of the notices of intent to claim drawback with which no export bond ivas filed the cigarettes exported, not barred by limitation, aggregated 4,950,000, and the amount of drawback at $3.20 per thousand would amount to $15,840.00.

IX. The plaintiff and firm of Comstock & Theakston, plaintiff’s agent, failed to complete the final drawback claims within three years, and all notices of intent to claim drawback filed by said firm with the customs officers, except one which was overlooked — No. 4846 — were destroyed by order of the Secretary of the Treasury, under Treasury Decision 36105, of October 2, 1916, which prescribed a regulation allowing three years from the clearance of a vessel to file a final claim for drawback, and that a failure to do so within that time would be considered as an abandonment of the claim.

X. The said notices of intent to claim drawback filed by Comstock & Theakston having been all destroyed, except, one — -No. 4846, found in the Government’s possession — and Comstock & Theakston having lost or destroyed all of their copies except one — No. 612 — a different one from that kept by the Government, the plaintiff has undertaken to establish the contents of the destroyed notices by secondary evidence. It has introduced in evidence alleged duplicates of the lost notices of intent. The alleged duplicates were made out by Comstock & Theakston in the summer of 1921, on blank forms prescribed by the Treasury Department some time after the said original notices of intent had been filed. The original notices were on light blue paper and the later notices on yellow paper. There were also differences in form and contents. These alleged duplicates were made out from data on blue slips inclosed in yellow jackets furnished said agents by the American Tobacco Company. The alleged duplicate notices of intent gave in all of them among other things the number of “ Especiales Cigarettes ” to be shipped, the manufacturers and shippers as the American Tobacco Company, and state that the material on which the duty was claimed was “ imported tobacco and rice paper.”

*985The said notice of intent preserved by the Government— No. 4846 — stated among other things that the shipment would be of 4 cases of 50,000 each of Especiales cigarettes, to be shipped on the *Westerdyk*from New York to Rotterdam and that the material on which drawback is claimed was “ Turkish tobacco.” Clearance of vessel was February 5, 1916, at 10 o’clock a. m., and on this notice of intent was stamped, “ Entry abandoned.” The alleged duplicate of No. 4846 states that the material on which drawback is claimed was “ imported tobacco and rice paper.”

In the copy of the notice of intent preserved by Comstock & Theakston, No. 612, clearance March 14,1916, the material on which drawback was claimed is described as “ Turkish tobacco.” There were in this shipment 60 cases of Espe-ciales cigarettes of 25,000 each, a total of 1,500,000, and the alleged duplicate notice claimed drawback on “ imported tobacco and rice paper.” The jackets on the blue slips from which notices of intent Nos. 63810, 29861, 87142, 63031, 15173, 15174, 10570, 20914, 9604, 3161, 76, 53918, and 37843 were made out, had the words “ Turkish tobacco ” written thereon. The number of cigarettes on which drawback was claimed and the words “ Turkish tobacco ” were used as described above not barred by limitation was 4,500,000, and the total number described as “ Turkish tobacco ” was 7,350,000. All of the shipments made were to Bristol, Rotterdam, Malta, and Hong Kong except one shipment — 50,000 cigarettes to Porto Novo, India. The firm of Comstock & Theakston at the time it was collecting drawback on Espe-ciales cigarettes was also collecting drawback for the American Tobacco Company on cigarettes manufactured from Turkish tobacco.

XI. The completion of a drawback claim required the exporter or agent to supplement the notice of intent to claim drawback by setting out on the prescribed form in eight columns, (1) No. of notice of intent, (2) exporting vessel, (3) date of clearance, (4) destination of merchandise, (5) mark and numbers, (6) quantity and description, (7) by whom manufactured, (8) material on which drawback is claimed, and by adding thereto a “ Declaration of Exportation ” made by the exporter or agent before a notary public or deputy collector, that, to the best of his knowledge and belief, the merchandise described in the notice of intent was *986manufactured from the materials stated in the certificate of manufacture forming part of the entry on which duties were paid without allowance or deduction for damage or other cause except as noted; that no part of the duties paid had been refunded by way of drawback of otherwise; that the particulars of exportation, etc., as stated, were correct; and that such merchandise was not to be relanded in nor returned to the United States.

The certificate of manufacture is headed “ Imported articles used in the manufacture of the above-described articles.” Below are twelve columns, column (1) description of imported material or parts, (2) number of import entry, (8) by whom imported, (4) name of vessel, (5) when imported, (6) where imported, (7) whence imported, (8) quantity of imported material used, (9) value at the factory, (10) quantity of waste, if any, (11) value of waste, (12) rate of duty paid. Below these the form provided for a declaration by the proprietor and foreman that the described articles were manufactured on or about - by-at-of the kind and quantity of imported material particularly set forth on which the duties stated were paid, and in accordance with the sworn statement dated -- — -, on file at-; that such articles had not been in use; and that a true account of all imported materials and of all articles manufactured therefrom for export is kept at such place or factory, and that such account is at all times open to the inspection of officers of the customs. See Article 866, Customs Regulations, 1916.

The party making the drawback entry was required also to produce a certificate of the landing of the exported goods abroad or satisfactory evidence of such goods having been so landed. Articles 846 and 876, Customs Regulations, compilation of 1915. The shipper named in the bill of lading was held to be the exporter and was *'prima facie*entitled to the payment of drawback, but if the manufacturer of the articles on which drawback is claimed on exportation reserved the right to claim drawback he or his agent could make entry for drawback which should be paid to him on satisfactory evidence that such reservation was made with the knowledge *987and consent of the exporter. Art. 857, *id.*At the time of filing or before the liquidation of an entry for drawback the party making such entry should file with the collector with whom the entry was lodged a bill of lading issued by the proper representative of the exporting vessel covering the merchandise described in the entry. The bill of lading must in all cases, except those in which drawback was claimed by the manufacturer or his agent, show the merchandise was shipped by or on account of the party making the export entry, or must bear an endorsement of the party in whose name or on whose account the merchandise was shipped, showing that the party making entry was authorized to make it and to receive the drawback.

It does not appear that the plaintiff, the shipper on the bill of lading, reserved to itself the right to claim drawback on exportation of said cigarettes with the knowledge and consent of the consignee. Article 857, Customs Regulations, compilation of 1915. Nor does it appear that plaintiff filed with the collector a bill of lading issued by a representative of the exporting vessel with an endorsement thereon over its name that it was authorized to make the drawback entry and receive the drawback. Art. 875, *id.*The evidence fails to show that satisfactory proof was made to the customs .officials of the character and foreign origin of the tobacco used in the manufacture of said cigarettes and of export duty having been paid thereon, or that the formal procedure prescribed by the regulations of the Treasury Department for exportation and the establishment of the right of drawback was otherwise followed with respect to said cigarettes. The plaintiff or its said agent failed to complete a claim for drawback on said exportations made between the dates mentioned, January 31,1912, and March 14, 1916, both inclusive, because of the revocation by the Secretary of the Treasury •of his regulation number 29462 of January 8, 1909, that allowed drawback on the quantity basis, and his adoption of a regulation that allowed drawback only on the relative value basis. The plaintiff or its said agent while giving notice of intent, as already stated, failed to perfect the same. It does *988not appear from the evidence that plaintiff or its agent ever made application to the Secretary for the payment of any drawback on account of the said cigarettes.

XII. On January 8,1909, the Treasury Department established a rate of drawback on Especiales cigarettes manufactured by plaintiff on the quantity basis by Treasury Decision 29162, under which plaintiff was paid drawback on such cigarettes exported at the rate of $3.20 per thousand until about December 1, 1909, when the Treasury Department discontinued such payments pending consideration by the department of a proposed revocation or reduction of the drawback rate on such exportations. After hearings by the department on protests of the plaintiff, the department, on December 9, 1911, by Treasury Decision 32064, revoked Treasury Decision 29462 of January 8, 1909, and suspended all pending drawback claims based thereon. On January 13, 1916, the plaintiff filed suit No. 33119, and on March 24, 1919, the Court of Claims filed findings of fact and conclusion of law giving a judgment for drawback on Especiales cigarettes, exported between January 8, 1909 and December 9, 1911, not barred by limitation. On April 20, 1915, the Secretary of the Treasury wrote plaintiff’s attorney that following the rule laid down in Treasury Decision 19323 of May 9, 1898, it had been decided by the department to allow drawback on Especiales cirgarettes “ on the basis of relative values at point of separation; that is, the values of the wrappers and scrap or residue,” and that the usual investigation had been directed to be made with a view to establishing such rate. Nothing further appears to have been done by the department in relation thereto.

The court decided that plaintiff was not entitled to recover.

Campbell, *Chief*Justice,

delivered the opinion of the court:

This is a suit to recover drawback claimed to be due on account of the exportation of cigarettes manufactured from “ clippings ” of imported Sumatra tobacco on which the re-*989qnired duty had been paid. It was filed in March, 1920, and claims drawback to the amount of $67,347.20, this amount being arrived at by allowing $3.20 per thousand for 21,046,000 cigarettes. But of the shipments claimed a number of them occurred prior to March 26, 1914, and therefore in any event claims for them are barred by the statute of limitation of six years. Deducting these from the total there is still left a claim of $40,640. The drawback allowable by statute is governed by paragraph O, Section IV, of the act of Congress entitled “An act to reduce tariff duties and to provide revenue for the Government and for other purposes,” approved October 3, 1913, 38 Stat. 114.

The plaintiff brought a prior suit in this court by petition filed in 1916 for the recovery of drawback on cigarettes exported during the years 1909, 1910, and 1911, although, as is stated by plaintiff’s counsel, the evidence in that case was not confined to exportations during the dates mentioned. Judgment was rendered in plaintiff’s favor for approximately $31,000 June 28, 1919. (See 54 C. Cls. 83.) The present suit was brought after that judgment. It is apparent that if the claims now asserted had been included in the former suit none of the items in the present suit would have been barred by limitation, because six years back of 1916 would have included them all. As a consequence, items of claim aggregating more than twenty-six thousand dollars became barred while the former suit was in progress. This unusual condition gives rise to a natural inquiry as to .its cause, and the solution of it is not difficult. The former suit was for drawback under a decision of the Secretary of the Treasury, known as T. D. 29462, rendered January 8, 1909, which authorized a drawback on “ the exportation of cigarettes manufactured by the American Tobacco Company,” as stated in the decision. The recovery was sought and allowed upon the quantity or weight basis as being authorized by that ruling or decision.

The present suit seeks a recovery upon the same basis, notwithstanding the Secretary changed his ruling and held that drawback on account of exported cigarettes would be upon the relative value basis. This decision, No. 32064, was ren*990dered December 9, 1911, and revoked decision 29462 of January 8, 1909. In this decision 32064, set forth in Article VIII of the petition, reference is specifically made to cigarettes manufactured by plaintiff “ from Sumatra leaf scrap ” and to investigations the department had caused to be made in regard to their commercial value, and it is said: “ Treasury Decision 29462 is therefore hereby revoked. Liquidation of entries heretofore filed under said decision will be suspended pending further instructions.” The conclusions reached adverse to plaintiff’s claim furnished the cause for the former suit, which, as already said, was confined to claims of drawback under the earlier decision and to items arising prior to December 9, 1911, when the earlier decision was revoked. It seems plain, therefore, that the reason the claims here asserted were not included in the former suit was that the revocation of the earlier decision of the Secretary was regarded as putting an end to any substantial recovery of drawback on these exported cigarettes.

The rate of duty on the Sumatra leaf was $1.85 per pound and the allowable drawback on exportation was one per cent less, or $1.83 per pound,. on the weight basis, which, as applied to the cigarettes, amounted to $3.20 per thousand. The findings show that these cigarettes had a value in foreign market of about fifty cents per thousand, though it is stated in decision 32064 that there was “ no actual market for them.” Whatever the fact be in that regard it is plain that if a drawback of $3.20 per thousand could be claimed the use of the *“*clippings ” could be justified even if the defendant’s insistence that these clippings were mere waste were accepted. But when the relative value basis is applied to such shipments a different situation develops. On this basis the value of the leaf is $10.45 per pound, and of the clippings 12 cents per pound, which would produce a mere bagatelle of drawback as compared with the $3.20 per thousand under the earlier practice.

The plaintiff’s testimony shows that because of this changed condition it suspended efforts to complete its drawback claims. The contention now is that it is entitled to *991drawback on the weight basis, notwithstanding the action of the department taken in 1911, and notwithstanding the act of 1913, under which all claims recoverable in this suit, on either basis, must be established. Any claim prior to this act is barred by limitation. When the act of 1913 was passed the ruling of the Secretary upon the question of drawback here involved was in full force and it is to be presumed that Congress was cognizant of it and intended it should continue. In the former suit in this court, judgment was rendered because of the earlier ruling of the Secretary and the court gave full effect to his ruling. The instant case does not have the support of that ruling, and left to reach its conclusion free of the Secretary’s decision No. 29462 the court is of opinion that the cigarettes upon exportation should take the relative value basis and not the weight basis. See *National Lead Co.*case, 252 U. S. 140; 53 C. Cls. 635. It was said in this case by the Supreme Court (p. 145) : “ It does not seem possible that Congress could have intended that two-thirds of the duty should be returned when one-quarter in value of the manufactured product should be exported.” See *United States*v. *Dean Linseed Oil*Co., 87 Fed. 453, 456.

The uniform practice of the Treasury Department for many years has been to apply the relative value basis. *Dean*case, *supra.*The findings show that the plaintiff’s claim of drawback was not completed in accordance with the lawful regulations promulgated by the Secretary of the Treasury. Its proof tends to show that it was not completed because of the revocation of the Secretary’s earlier decision, it not being deemed worth while to claim drawback on the relative value of the tobacco in the cigarettes to that used in wrappers. It is, of course, recognized that it is the statute and not the decision of the Secretary that gives the right of drawback, but the statute provides that the claim itself be established under regulations which it authorizes to be made. These regulations must be complied with to complete the claim. To prove the contents of a notice of intent to claim a drawback on account of the exportation of cigarettes made *992from imported Sumatra tobacco, the proof must meet the requirements of the statute that the imported materials when exported shall be “ identified ” as well as meet other provisions of the statute and regulations. Proof by secondary evidence of a notice of intent to claim drawback on “ Turkish tobacco ” does not identify the exported material as being Sumatra tobacco. And in the absence of further and more definite proof it is questionable whether the notice to claim drawback on account of a particular kind of imported tobacco is sufficiently identified by a notice of intent to claim drawback on “ imported tobacco and rice paper.”

The original notices of intent are not produced because they were destroyed after three years’ delay in perfecting the claim, but they were probably all in existence when the plaintiff’s other suit was brought, and, as already suggested, no reason has been assigned for the omission of the claim here asserted from that other suit. This case is not controlled by the former one. Another statute, that of 1913, must be looked to, a different ruling of the Secretary must be considered because it revokes a right given, so far as the Secretary’s decision could give it, by an earlier decision, and the later decision accords more with the spirit and purpose of the statute. It remains to be said, though unnecessary to a decision of this case, that the jurisdiction of this court attaches upon the refusal of the Secretary or collector to pay a drawback to which the party is entitled upon demand duly made for its payment. The implied contract referred to in the *Campbell case,*107 U. S. 407, is predicated upon the application made for the drawback and its refusal. The claim here asserted is only sustainable as one based on a law of Congress, and even formal conditions must be complied with. *Rock Island, A. & L. R. R. Company case,*254 U. S. 141.

Our conclusion is that the petition should be dismissed. And it is so ordered.

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