Court Opinion

ID: 6890991
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:41:20.489555+00
Date Added: 2024-06-11T16:05:50.317028
License: Public Domain

HINCKS, District Judge
(dissenting).
Under Sec. 501(b) (3) of the Revenue Act of 1936, 49 Stat. 1648, 26 U.S.C.A. Int. Rev. Acts, page 944, the appellant, Insular, was exempt from the so-called windfall tax (tax on unjust enrichment) imposed by said act, Sec. 501(a), if under any statute it "would have been entitled to a refund from the United States of the Federal excise tax * * * otherwise than as an erroneous or illegal collection * * The use of the past subjunctive “would have been entitled” clearly imports a contrary to fact condition which, since not expressed, must be implied. And plainly the condition to be implied is in substance the situation and the legal relationships which existed after the exportation had been accomplished and Insular had paid the processing tax to its vendor Diamond and before Diamond had collected a refund of the tax from the government. For, of course, when the statute spoke of a taxpayer who would “have been entitled to a refund” it must have meant a taxpayer so entitled before any refund therefor had been made; after the refund of a specific tax is made the right to a refund, having been discharged, no longer continues.
Under Sec. 17(a) of the Agricultural Adjustment Act, 7 U.S.C.A. 617(a), upon the exportation of the bags with respect to which Insular had paid the processing tax a refund of the tax was required and the refund was allowable to “the consignor named in the bill of lading under which the product is exported or to the shipper * * * provided the consignor waives any claim thereto in favor of such shipper * *
The relevant situation upon which the implied condition of Sec. 501(b) (3) depended, was as follows. Diamond, the middleman, had paid the processing tax to the manufacturer and had been reimbursed therefor by Insular, its vendee. Insular having acquired title to the bags in this country was the shipper as well as the consignee. Diamond, to be sure, was the consignor but in that capacity acted only as the agent for Insular, the owner. Diamond had notified Insular in advance of the sales as follows: “In the event it is determined that on any bags herein referred to, seller is entitled to refund of all or any part of such tax, and when and if payment of such refund is received by seller, the amount of such payment received will be remitted to the buyer.”
This notice, fortified as it was by subsequent practice, constituted an offer on the part of Diamond to prosecute necessary *12claims for refund for the benefit of its customers, including Insular, who had already reimbursed it for its payment of the tax to the manufacturer.
In this situation Insular had a choice of action. By acquiescence it might avail itself of Diamond’s proffered services in making claim for the refund and accounting for the proceeds; in other words, Insular might avail itself of Diamond’s services as its collection agent. Or, having already reimbursed Diamond for its payment of the processing tax, Insular might legally proceed to collect the refund itself. To be sure, to perfect a claim for refund in its own name as shipper — which it was — Insular would have needed among other things Diamond’s waiver. But there is utterly nothing in the record to suggest that Diamond, which had already acknowledged Insular’s beneficial interest in the refund, would not have cooperated to that end by voluntarily furnishing the necessary waiver of its right as consignor. And if it had objected, the relationship of the parties was such that Insular could have compelled the execution of the necessary waiver. Thus viewed, in the situation which the statute envisaged Insular “would have been entitled” to the refund and to any waiver by Diamond necessary to effectuate the refund. For present purposes, it makes no difference that in that situation Insular might have proceeded either to collect the refund directly upon a waiver by Diamond or indirectly through Diamond, which in its role as consignor and claimant would be acting as Insular’s agent.
No one will dispute that in the situation envisaged the refund would have been allowable not because of the invalidity of the processing tax but because it was required to accomplish a drawback provided by Congress under the Agricultural Adjustment Act to encourage and sustain foreign commerce. Cudahy Bros. v. LaBudde, 7 Cir., 92 F.2d 937, certiorari denied, 303 U.S. 659, 58 S.Ct. 763, 82 L.Ed. 1118.
My conclusion seems to me to be wholly consistent with the applicable Revenue Act and the Agricultural Adjustment Act. Yet it gives effect to the clear Congressional intent, just referred to, to save our foreign trade from the dampening effect of the processing tax, — an objective which is frustrated if the proceeds of the drawback are subjected to the windfall tax.