The opinion of the court was delivered by: CAMPBELL
CAMPBELL, District Judge.
This action is brought to recover $8,064.25 with interest on $7,812.93 from October 11, 1934, and on $251.32 from December 28, 1934, paid for taxes collected under section 602 1/2 of the Revenue Act of 1934, 26 U.S.C.A. § 999, on the processing of Philippine coconut oil.
The plaintiff is a New York Corporation and engaged in the manufacture of bakery products. In the manufacture of some of its bakery products, plaintiff uses coconut oil as shortening.
On May 10, 1934, when the Revenue Act of 1934 became effective, the plaintiff had on hand 260,431 pounds of coconut oil, wholly the product of the Philippine Islands, or produced wholly from materials grown or produced in the Philippine Islands. This coconut oil had been purchased by the plaintiff in the state of New York, from persons who had, prior to May 10, 1934, causticated, bleached, and deodorized the crude coconut oil for the purpose of manufacturing and producing that article which that person intended, and could and did sell to this plaintiff, as an article suitable for use as shortening in bakery products.
After May 10, 1934, the plaintiff used this coconut oil as shortening, in shortening bakery products manufactured by it. On October 11, 1934, pursuant to the Treasury Department's regulations, the plaintiff filed its return under section 602 1/2 of the Revenue Act of 1934 (48 Stat. 763, 26 U.S.C.A. § 999), reporting and paying a tax of $7,812.93 on the use by it after May 10, 1934, of the coconut oil mentioned. Later, on December 28, 1934, the plaintiff paid $251.32 as interest upon the payment made on October 11, 1934.
On October 30, 1934, a claim for refund of the amounts was filed, and on May 24, 1935, this claim for refund was rejected in full by the Commissioner of Internal Revenue.
The constitutionality of the statute has been sustained in Cincinnati Soap Co. v. United States (Haskins Bros. & Co. v. O'Malley), 301 U.S. 308, 57 S. Ct. 764, 81 L. Ed. 1122, decided by the United States Supreme Court May 3, 1937; therefore, the sole question which remains is the construction of the statute, the question presented being, Is the first domestic processing after May 10, 1934, the effective date of the law, taxable?
Section 602 1/2 of the Revenue Act of 1934 (48 Stat. 763, 26 U.S.C.A. § 999), reads in part as follows: "There is imposed upon the first domestic processing of coconut oil, * * * with respect to * * * which * * * there has been no previous first domestic processing, a tax of 3 cents per pound to be paid by the processor.* * * For the purposes of this section the term "first domestic processing" means the first use in the United States, in the manufacture or production of an article intended for sale, of the article with respect to which the tax is imposed."
Article I (1) of Treasury Regulations 48, issued pursuant to section 1101 of the Revenue Act of 1926, 26 U.S.C.A. § 1691 (a) (1), Appendix, infra, as made applicable by section 602 1/2 (f) of the Revenue Act of 1934 (26 U.S.C.A. § 999(f), Appendix, infra, authorizes the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury to prescribe and publish all needful rules and regulations for the enforcement of the Revenue Act of 1934. Pursuant to that authority, Treasury Regulations 48, relating to the processing tax imposed under section 602 1/2 of the Revenue Act of 1934 (26 U.S.C.A. § 999), were issued. The pertinent parts of these Regulations read as follows:
"Article I (1).First domestic processing means the first use in the United States on or after the effective date of the Act. * * *"
"Article III. Imposition of the tax. -- The tax is imposed only on the first domestic processing on or after the effective date of the Act. However, no tax is imposed on the use of palm oil, by the processor, in the manufacture of tin plate."
"Article IV. When tax attaches. -- (a) The tax attaches upon the first domestic processing of the oil. If some part of the processing of a particular quantity of oil takes place on or after the effective date, the tax attaches notwithstanding that some part of the processing of such quantity took place before the effective date. (b) If oil has been subjected to any of the processes, either prior to the importation of such oil or prior to the effective date, or both, the tax attaches to the first domestic processing of such oil, after the effective date, in the manufacture or production of an article intended for sale."
Plaintiff contends that the coconut oil in question, which was used by it, subsequent to the effective date of section 602 1/2, in the manufacture of bakery products, had been causticated, bleached, and deodorized in the United States by others, prior to the effective date of the act, and that such caustication, bleaching, and deodorizing constituted a first domestic processing within the meaning of the act, and that the processing or use to which it put the coconut oil in question was not the first domestic processing in the United States, and that, therefore, the act does not apply to the use made by the plaintiff of the coconut oil in question in the manufacture of bakery products.
The defendant contends that the first domestic processing to which the act applies is that which took place after the act went into effect, and that, therefore, the use by the plaintiff, of the coconut oil in question, constituted the first processing in the United ...