United States v. A. Graf Distilling Company/Opinion of the Court

Other phases of this controversy have appeared in the courts below and are reported in 125 Fed. 52, and 63 C. C. A. 263, 129 Fed. 329. After the reversal of the judgment of forfeiture and the granting of a new trial by the circuit court of appeals, as disclosed by those reports, the information was amended by making the allegations contained in the foregoing statement, and the original averment as to placing other distilled spirits of a different quality in the barrels after being stamped is not before us.

We are here called upon to determine what is the proper construction of the language of the statute when it speaks of selling a barrel and its contents after it has been properly stamped, and which, at the time of sale, contained anything else than the contents which were therein when the barrel was stamped by the revenue officer. Does the addition, after such stamping, of burnt sugar, or caramel, placed in the barrel for the sole purpose of coloring the contents (in this case whisky), and without intent to defraud the revenue or any person, render the seller liable to the penalty provided by the statute, and the barrel and its contents liable to forfeiture? This coloring matter was not itself taxable. There is no charge that it is unhealthy, and it is plain that its use defrauds no one, within the legal meaning of that term. The statute is not a health law, nor is its purpose to prevent the coloring of whisky before its sale to the consumer. The matter which was added to the contents of the barrel, after it was stamped and branded, did not increase or decrease the amount of the tax otherwise payable on the spirits so colored.

The government, however, contends that it is wholly immaterial whether the coloring matter added is not itself taxable; it is, within the terms of the statute, something 'else than the contents which were' in the barrel when it was lawfully stamped by the officer of the revenue; and, if the person who adds the coloring matter subsequently sells the barrel and contents, such act subjects them to forfeiture, and renders the person making the sale subject to the penalty named in the first part of the section. The Counsel for the government insists that there is no room for construction other than such as the plain language of the statute calls for; and it is contended that to hold otherwise destroys the statute and opens the door to fraud which is not easy to detect, and which the statute was intended to prevent. In a very careful review of the various provisions of the internal revenue statute, counsel for the government has called attention to many acts which are forbidden and which would seem to be innocent, but which were, nevertheless, thought to be of such a character as to open the door for fraud upon the revenue, and hence it is argued that this addition of coloring matter was an act which although it might seem to be innocent in itself, yet nevertheless comes within the plain prohibition of this section, and effect must be given to that prohibition, because it may tend to prevent some subsequent fraud, however harsh or unreasonable the provision might otherwise seem to be. We must first, however, be satisfied that this alleged total, absolute, and unconditional prohibition was the real intention of Congress, to be gathered from the language of the section when read in connection with the language of the whole statute. There is no doubt that many of its provisions are harsh beyond anything known heretofore in our history (United States v. Ulrici, 3 Dill. 532, 539, Fed. Cas. No. 16,594), and yet we cannot persuade ourselves that the act proved in this case comes within the law.

The section is one of many dealing with the subject of collecting a revenue from the taxation of the articles therein mentioned and in the manner therein provided. The aim of the whole statute is to make all of the taxable articles actually pay the tax, and to that end it prohibits those acts which might possibly lead to an evasion of the payment of the tax due upon any taxable article. When, therefore, in the course of the many provisions for collecting the tax and for preventing any evasion of its due payment the statute prohibits the putting of anything else in the barrel or package, etc., after it has been branded or stamped, it seems to us the natural meaning of the language limits the addition to anything of a taxable nature, and does not include an article which is not taxable, is wholly harmless, and added for a purpose not illegal or is itself improper.

We concur, of course, in the rule which has been upheld in this court, that a statute like this one, for the raising of a revenue, even when accompanied by provisions of a very highly penal nature, is still to be construed as a whole and in a fair and reasonable manner, and not strictly in favor of a defendant. United States v. Stowell, 133 U.S. 1, 33 L. ed. 555, 10 Sup. Ct. Rep. 244. Construed under this rule, we are unable to conclude that the section applies to this case. The language used, when considered in connection with the whole statute, is not so plain as to preclude the application of those general rules of construction of statutes which frequently interpret language in accordance with what seems to be the real meaning of the legislature, although not in exact and literal obedience to the wording of the law.

We do not think that the opportunities for perpetrating a fraud upon the revenue are in any way extended by reason of the addition in question. A liquor dealer having a properly stamped barrel in his possession might violate the law and empty the contents of the barrel without destroying the stamps, and might then dispose of the barrel, so stamped, to an illicit distiller, who might then endeavor to perpetrate a fraud upon the revenue by filling the barrel with nontax-paid spirits, but we do not see that the prior addition, as mentioned, of coloring matter to the contents of the barrel, would aid him in his attempt, nor would the absence of such matter tend in any degree to its prevention or detection. It is not the coloring matter which was added to the contents of the barrel before they were emptied that would, in such case, aid the attempted fraud, for such coloring matter would probably have been emptied with the other contents of the barrel. The opportunities for fraud commenced at the time the liquor dealer emptied the contents of the barrel without destroying the stamp, and that opportunity was not in the slightest degree affected by the addition, and the attempted fraud of the distiller is not made more easy of accomplishment because of such addition. We cannot see, therefore, that any reasonable purpose could be attributed to Congress in prohibiting an addition, such as is charged in this case, and we cannot construe the section on the mistaken theory that, though the act was really innocent, yet it might aid in the evasion of payment of some portion of a tax, and hence must be regarded as prohibited.

The statute in question, although there has been no intent to defraud, makes a person violating it liable to the lighter penalty, while, if the intent to defraud be alleged, the article is still liable to forfeiture and the person may be fined a much larger sum and also imprisoned. On this ground it is contended the statute is intended to meet just such a case as the one before us, where there was no intent to defraud and where there was no addition of anything which was itself taxable, but where, nevertheless, something else had been added after the stamping and branding, which was not a part of the contents of the barrel when it was so stamped. It is therefore urged that, as the section provides for a forfeiture of the article and a fine upon the person guilty of the addition, even when no intent to defraud is alleged or proved, it emasculates the section to hold that the addition must be something which is itself taxable. We do not think so. When there has been an addition of anything that was taxable, the statute applies, although there was no intention to defraud; while, if there were such intention, a much heavier penalty is imposed. The two portions of the section are distinct, and each may be enforced, however harsh the first may appear to be, when imposed in a case where the action was really without any intention to defraud the revenue or any person.

It has been held under other sections of this act, somewhat similar, that the addition of water to the contents of a barrel or package is no ground of forfeiture. We do not say that the language is exactly the same, but only that it is somewhat similar. United States v. 32 Barrels of Distilled Spirits, 5 Fed. 188; 3 Packages of Distilled Spirits, 14 Fed. 569; United States v. Bardenheier, 49 Fed. 846, 848; United States ex rel. United States Attorney v. 9 Casks & Packages of Distilled Spirits, 51 Fed. 191. Reference is made to them in the opinion in this case in 125 Fed. supra.

We think the reasonable construction of this statute requires that the questions submitted should be answered in the negative. It will be so certified.