CERTIORARI TO THE COURT OF CLAIMS.
Stone, Roberts, Black, Reed, Frankfurter, Douglas, Murphy, Jackson, Rutledge
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
This suit was brought in the Court of Claims to recover an overpayment of income taxes made by respondent. The United States conceded that the amount claimed was owed. But the Comptroller General, pursuant to his power under § 305 of the Budget and Accounting Act of 1921 (42 Stat. 20, 31 U. S. C. § 71) settled and adjusted the claim by offsetting against it an amount which he concluded respondent owed the United States under a contract. Since the latter claim equaled the overassessment on the income taxes, the Comptroller General refused to authorize a refund to respondent. This suit followed. The Court of Claims denied the offset and entered judgment for respondent in the amount claimed with interest. 101 Ct. Cls. 85, 53 F.Supp. 717. The case is here on a petition for a writ of certiorari*fn1 which we
granted because of an asserted conflict of the decision below with United States v. American Packing & Provision Co., 122 F.2d 445 and United States v. Kansas Flour Mills Corp., 314 U.S. 212.
The contract under which the claim against respondent was asserted was made in November, 1935. Respondent agreed to supply rice to the Navy Department at the bid prices specified in the contract. A typical price provision listed 290,000 pounds of rice at a unit price (per pound) of .046cent or a total price of $13,340. The contract contained the following provision:
"Prices bid herein include any federal tax heretofore imposed by the Congress which is applicable to the material on this bid. Any sales tax, duties, imposts, revenues, excise or other taxes which may hereafter (the date set for the opening of this bid) be imposed by the Congress and made applicable to the material on this bid will be charged to the Government and entered on invoices as a separate item."
Respondent made the required deliveries to the United States and received the full price specified in the contract. Respondent was the first domestic processor of the rice and accordingly paid the processing taxes imposed by the Agricultural Adjustment Act (48 Stat. 31, 7 U. S. C. §§ 609, 611) from April 1, 1935, until September 20, 1935. Before paying the processing tax on the rice processed for the month of October, 1935, respondent obtained an injunction against its collection. The tax was held invalid in United States v. Butler, 297 U.S. 1, decided January 6, 1936. Consequently respondent never paid the processing taxes on the rice supplied to the United States under the November, 1935, contract.*fn2
The tax was a federal tax "applicable" to the rice within the meaning of the contract. United States v. Glenn L. Martin Co., 308 U.S. 62, 65. Its amount was known, and the vendor was responsible by regulation for its payment. United States v. Kansas Flour Mills Corp., supra, p. 214. It is therefore arguable that the vendor fixed the bid price to provide a margin of profit after payment of those taxes for which it was responsible, that the price was designed to offset pro tanto the amount of the taxes, and that if they were not paid, the price should be reduced. That is the position taken by the United States and it relies on the following statement in United States v. Kansas Flour Mills Corp., supra, pp. 216-217: "In the contracts in question, the Government did not buy for resale. Unless it received the tax it suffered a definite disadvantage. Its purpose, as shown by the contracts, was to balance the tax element in the price paid with the tax collected. The Government, which could not pass on the tax on resale, was thus protected, not against a fall in the market price but against a loss in its tax revenues." But we were there only answering the argument that since the vendor did not undertake to pay the tax, the rule in private contracts should be followed and no readjustment of the price made where the tax was not paid. The difference between the cases was that in the latter situation the vendee presumably passed on the tax while the United States did not since it did not buy for resale. The vital fact in United States v. Kansas Flour Mills Corp. was the provision in the contract for an up-or-down revision of the price in
case of a change in the processing tax by Congress. It provided that if a processing tax was thereafter "imposed or changed by the Congress," the contract price was to be "increased or decreased accordingly." It was held that the decision in United States v. Butler and its recognition in the Revenue Act of 1936 amounted to a downward change calling for a decrease in the contract price. 314 U.S. p. 217. There is no such provision in the present contract. The clause that the bid prices include "any federal tax heretofore imposed by the Congress which is applicable to the material" must be read ...