The opinion of the court was delivered by: RAYFIEL
The plaintiff sues under Sec. 1346(a)(1) of Title 28 U.S.Code, to recover certain manufacturer's excise taxes which, it claims, were illegally and erroneously collected from it for the taxable years October 1, 1950 to September 30, 1954.
The facts which were stipulated by the parties, are as follows:
The plaintiff, a corporation organized in 1935 under the laws of the State of New York, has since been engaged in the business of manufacturing and jobbing automobile parts both in the domestic market and for export. It manufactured some of the parts itself and purchased others from domestic manufacturers. These latter it either repacked for sale under its label, as a jobber, or used as component parts of articles which it manufactured. Some of the parts which it purchased were sold in the domestic market, others were exported for sale in foreign markets, and still others, used as component parts of articles assembled or manufactured by the plaintiff, were sole either domestically or for export. The parts purchased by it during the period in question were not identified, labeled or earmarked as items for export, nor were they segregated in any way when placed in the plaintiff's general stock of goods.
The plaintiff paid the excise tax required by Sec. 3403(c) of the Internal Revenue Code of 1939 (26 U.S.C., 1952 Ed., Sec. 3403(c)) to the vendors from whom it purchased parts.
During the period in question the plaintiff reported an excise tax liability pursuant to Sec. 3403(c), supra, on all of its domestic sales, computed on the selling prices. It did not report any tax liability on foreign sales. However, the plaintiff, in its returns, claimed a credit for the excise taxes which it had paid to its vendors for the parts which it had purchased from them and resold.
Representatives of the Director of Internal Revenue conducted an examination and audit of the plaintiff's books and records for the period in question and determined that it was not entitled to the credit which it had taken against its own admitted tax liability for the tax which it had paid to manufacturers from whom it had purchased parts which it had sold in foreign markets. The Director assessed a deficiency tax of $ 18,276.44 against the plaintiff, consisting of $ 15,831.22 in taxes and $ 2,445.24 for interest thereon.
The plaintiff paid the entire deficiency and then filed two claims for refund, one for the tax and the other for the accrued interest. These claims were rejected but on subsequent review it was determined that the plaintiff was entitled to a refund of $ 935.68, plus interest of $ 357 .64, or a total of $ 1,293.32. This refund was made to the plaintiff which thereafter commenced this action for the recovery of the remainder of $ 16,983.14.
The plaintiff concedes that as a manufacturer of automotive parts its sales are subject to the excise tax imposed by Sec. 3403(c), supra. It points out, however, that under Sec. 2705 of the Internal Revenue Code of 1939 (26 U.S.C. 1952 Ed., Sec. 2705) articles sold for export are exempt from this tax.
'Under such rules and regulations as the Commissioner with the approval of the Secretary may prescribe, the tax imposed under Section 2700(a) shall not apply in respect of articles sold or leased for export or for shipment to a possession of the United States and in due course so exported or shipped. Under such rules and regulations the amount of any internal revenue tax erroneously or illegally collected in respect of such articles so exported or shipped may be refunded to the exporter or shipper of the articles, instead of to the manufacturer, if the manufacturer waives any claim for the amount so to be refunded.'
The plaintiff contends that the Treasury regulations promulgated by the Commissioner to implement this section, namely, 46 (1940) Sections 316.25 and 316.26, as applied to the plaintiff's business, are so unreasonable, harsh and inequitable as to be unenforceable. Those regulations read as follows:
'Sec. 316.25. Sales for export. -- (a) To exempt from tax a sale for export it is necessary that two conditions be met, namely, (1) that the article be identified as having been sold by the manufacturer for export and (2) that it be exported in due course.
'(b) An article will be regarded as having been sold by the manufacturer for export if the manufacturer has in his possession at the time title passes or at the time of shipment (whichever is prior), (1) a written order or contract of sale showing that the manufacturer is to ship the article to a foreign destination or (2) where delivery by the manufacturer is to be made within the United States, a statement from the purchaser showing (i) that the article is purchased to fill existing or future orders for delivery to a foreign destination; or that the article is purchased for resale to another person engaged in the business of exporting who will export the article, and (ii) that such article will be transported to its foreign destination in due course prior to use or further manufacture and prior to any resale except for export.
'(c) The written order or contract of sale or the statement referred to in (1) and (2) of the preceding paragraph suspends liability for the payment of the tax by the manufacturer on such sales for export for a period of six months from the date when title passes or the date of shipment, whichever is prior. If within such period the manufacturer has not received and attached to the order or contract, or statement, proper 'proof of exportation' (see section 316.26), then the temporary suspension of the liability for the payment of the tax ...