
    NATIONAL FRUIT PRODUCTS COMPANY v. THE UNITED STATES
    [No. B-78.
    Decided June 2, 1924]
    
      On the Proofs
    
    
      Internal revenue tax; alcohol generated hi/ fermentation; penalty.— AVliere plaintiff mixes sugar and Avater and after fermentation adds the mixture to apple juice in order to manufacture cider, he is a distiller within the-meaning of section 3242, Revised Statutes, and the alcohol generated by such fermentation is subject to the tax on alcohol within the intent of section 3248, Revised Statutes, but he is not subject to the penalties imposed by section 8282, Revised Statutes, and is entitled to recover the amount of such penalties imposed with interest.
    
      
      The Reporter’s statement of the case:
    
      Mr. John Walsh for the plaintiff.
    
      Mr. Fred K. Dyar, with whom was Mr. Assistant Attorney General Robert II. Lovett, for the defendant. Mr. Robert A. Littleton was on the brief.
    The facts of the case, as stipulated by the parties and adopted by the court, are as follows:
    I. The plaintiff, National Fruit Products Co., is a corporation organized and existing under the laws of the State of Tennessee, having its principal office and place of business at Memphis, Tenn., and was engaged in the business of manufacturing and selling so-called cider at- the times herein mentioned.
    II. Heretofore, to wit, on December 15, 1919, the Commissioner of Internal Revenue of the United States, acting under the statutes of the United States assessed against plaintiff a tax, amounting to- $54,153.60, which ho designated as a “ Beverage tax on spirits alleged to have been illegally produced from fermented glucose sugar not on the premises of a regular bonded distiller.” The amount of such tax was arrived at by multiplying $3.20 by the estimated number of gallons of alcohol obtainable from fermented glucose sugar received in plaintiff’s plant between certain dates.
    
      At the same time the said commissioner assessed a 200 per cent penalty against plaintiff, Avhich said penalty amounted to the further sum of $108,307.20.
    Thereafter additional penalties, amounting to $8,123.04 were assessed against plaintiff, and the interest on said tax, amounting to $3,411.68, was charged against it. Such tax Í ogether with the penalties and interest was charged against plaintiff amounting in all to the sum of $173,995.52.
    III. Thereafter, and on or about the 26th day of December, 1919, the collector of internal revenue at Nashville, Tenn., made demands for the payment of said tax and penalties, and plaintiff, on or about the 7th day of April, 1920, paid the said amounts in full, but under protest-, after de-straint had been made xipon its property, denying that it owed any part of said tax, penalties and/or interest, and contending that no part of the amount so demanded by the defendant was in fact due or owing to the defendant, but that the same was erroneously, illegally, and wrongfully assessed and collected from him.
    IY. Thereafter, to wit, on or about the 15th day of July, 1920, plaintiff duly filed its claim for refund with said Commissioner of Internal Revenue, claiming that all of the tax, penalties, and interest so collected were erroneously and illegally collected. A copy of the claim for refund appears on page 9 of the plaintiff’s petition herein as “ Exhibit A” and is made a part hereof by reference.
    Y. Thereafter, to wit, on or about the 9th day of April, 1921, the same claim for refund was rejected in full by the Commissioner of Internal Revenue, with the privilege, how7ever, of making application for a rehearing, at which time plaintiff was given right to present such additional evidence for consideration as it might wish. A copy of the letter advising of such rejection appears on page 16 of plaintiff’s petition as “ Exhibit R ” and is made a part hereof by reference.
    VI. Thereafter, on or about the 5th day of August, 1921, plaintiff made application to said Commissioner of Internal Revenue for a rehearing of its said claim for refund, and at the same time made a separate claim for refund of the penalty assessed against it, in the manner above stated, upon the ground that even if the department had the power to assess a tax under the facts of this case, the penalty was erroneously, wrongfully, and illegally assessed and collected and should in any event be refunded to plaintiff, and at the same time presented an additional affidavit for consideration.
    VII. Thereafter, to wit, on or about the 20th day of March, 1922, the said claim for refund was again rejected in full, and a copy of the letter advising of said rejection is as follows:
    MARCH 20, 1922.’
    CCM-CPs.
    Mr. Louis B. EppkteiN,
    
      175 Fifth Avenue, New York City, Neve York.
    
    My Hear Mr. Eiu’Steix : Reference is made to the application of the National Fruit Products Company, Memphis, Tennessee, for a reconsideration of the decision of former Commissioner Williams with respect to the rejection of the company’s claim for the refund of taxes, interest, and penalty assessed and collected ttpon the estimated spirits contained in a fermented mixture of sugar and water used by it in the manufacture of imitation cider, amounting in the aggregate to $173,995.52. This entire case was referred to the Solicitor of Internal Revenue before whose office you had one or more conferences. The opinion of the solicitor rendered in this case under date of March 15th in part as follows:
    “In your memorandum of October 31, 1921, transmitting briefs submitted by Mr. Louis B. Eppstein and Mr. Francis McAdoo in support of the claim of the National Fruit Products Company, Memphis, Tenessee, Charles H. JSickert, president, for the refund of $173,995.52, taxes and penalties assessed upon the estimated spirits contained in a fermented mixture of glucose sugar and water used in the manufacture of imitation'cider, you request the opinion of this office as to the merits of the contentions presented. Since the receipt of your request supplemented briefs and oral arguments have been submitted by Mr. Eppstein and Mr. W. G. Mc-Adoo at a hearing before this office.
    “ Before considering the merits of the case it may not be improper to invite attention to the fact that the cíaim has been rejected and that the briefs are submitted in support of a request for reconsideration of the action of the bureau. Under the provisions of T. D. 3240 a rejected claim may be reopened only upon the presentation of new evidence or in the event of a reversal of the principle upon which the adverse action was predicated. Neither of these conditions is present in the instant case, and it would seem, therefore, that the application for the reopening of the claim might properly be denied without going into its merits at all. However, such summary disposition of the matter may be deemed inadvisable, and in order that the issues involved may be duly considered a brief review of the law and de-partamental rulings applicable to the process here employed is submitted.
    “ The process employed by the company in the manufacture of its product consisted in the addition of a fermented mixture of glucose, sugar, and water to fermented apple juice, and the. assessment was made on the theory that the addition of the alcoholic mixture to the cider subjects the manufacturer to liability to the distilled-spirits tax on the alcohol contained in the mixture. It is contended (1) that the alcohol thus produced by fermentation is'not subject to tax as distilled spirits and (2) that, even if it is, (a) tire amount of the tax assessed is in excess of the amount due and (b) there is no warrant whatever for the assessment of the penalty.
    
      “ Section 3247, R. S., provides:
    “ ‘ Every person who- produces distilled spirits, or who brews or makes mash, wort, or wash fit for distillation or for the production of spirits, or who by any process of evaporation separates alcoholic spirit from any fermented substance, or who, making or keeping mash, wort, or wash, has also in his possession or use a still, shall be regarded as a distiller. ’
    “ Section 3248, R. S., provides:
    “ ‘ Distilled spirits, spirits, alcohol, and alcoholic spirit, within the true intent and meaning of this act, is that substance known as ethyl alcohol, hydrated oxide of ethyl, or spirit of wine, which is commonly produced by the fermentation of grain, starch, molasses, or sugar, including all dilutions and mixtures of this substance; and the tax shall attach to this substance as soon as it is in- existence as such, whether it be subsequently separated as pure or impure spirit or be immediately or at any subsequent time transferred into any other substance, "either in the process of original production or by any subsequent process. ’
    “ Section 3282, R. S., as amended, provides:
    “ ‘ No mash, wort, or wash, fit for distillation or for the production of spirits or alcohol, shall be made or fermented in any building or on any premises other than a distillery duly authorized according to law; and no mash, wort, or wash so made and fermented shall be sold or removed from any distillery before being distilled; and no person, other than an authorized distiller, shall, by distillation, or by any other process, separate the alcoholic spirits from any fermented mash, wort, or wash; and no person shall use spirits or alcohol, * * * in manufacturing vinegar or any other article, or in any process of manufacture whatever, unless the spirits or alcohol so used shall have been produced in an authorized distillery and the tax thereon paid. Every person who violates any provision of this section shall be fined for each offense not less than five hundred dollars nor more than five thousand dollars, and be imprisoned not less than six months nor more than two years: Provided, further, That nothing in this section shall be construed to apply to fermented liquors, or to fermented liquids used for the manufacture of vinegar exclusively. * * *' ”
    (1) The substance of the contention in behalf of the company is that the term “ distilled spirits ” within the meaning of the taxing provisions includes only the alcoholic product of distillation or other mechanical process whereby the alcohol is separated from the materials from which it is produced., thus excluding alcohol produced by the natural process of fermentation and not so separated; but this contention ignores the literal language of section 3248, R. S., above quoted. Whatever the distinction between distilled spirits and alcohol, as these terms are ordinarily defined and understood, that section for taxing purposes treats them as synonomous. It defines both as “ that substance * * * commonly produced by the fermentation of grain, starch, molasses, or sugar, including all dilutions and mixtures of this substance,” and then provides that “the tax shall attach to this substance as soon as it is in existence as such, etc.” Alcohol in whatever form, whether gaseous, liquid or solid, and whether isolated as absolute alcohol or mixed with water or other materials, is a definite chemical substance consisting of the elements carbon, hydrogen, and oxygen in a fixed proportion. It is represented by the symbol C2H5OIT. It can come into existence but once and that is when these elements combine in the proportion indicated. It was at that moment that Congress intended the tax liability to attach and while ordinarily for practical reasons the amount of the tax is subsequently determined by the quantity of alcohol in the finished product, there is nothing in the law to suggest that the incurrence of liability is thus postponed. In short, it is difficult to conceive of more appropriate language than the phrase “ as soon as it is in existence as such ” to express the purpose to have the tax attach at the moment indicated. On the other hand, it is reasonable to suppose that if, as contended, it was the purpose to have the tax attach only when and if the alcohol is produced as a separate commodity, there would have been used instead of the words “ in existence as such ” some such expression as “ when recovered ” or “ when separated.” And that such Avas not the intention is further manifested by the express statutory provision that the tax shall attach to this substance “ whether it be subsequently separated as pure or impure spirit, etc.”
    The contention that merely because those engaged in the production of an alcoholic liquor by the process liei'e employed can not conform with the various statutory requirements applicable to distillers generally, may be answered with the statement that these requirements were designed to meet only the processes ordinarily employed by commercial distillers and were obviously not intended to apply to processes physically unadapted to their application. For instance, it would be physically impossible for a person who produces no spirits to! comply with all the requirements applicable to distillers, yet such person may,- nevertheless, be a distiller, for under the express provisions of section 3247, R. S., tlie mere making of a mask and possessing a still con stitntes one a distiller.
    But tlie view that tlie tax attaches to alcohol produced by fermentation and unseparated does not require, as contended, that it would attach to the alcohol developed in wine, beer, cider, sour milk, fruit juices, and similar fermented mashes. Literally construed, the language of the statutes is perhaps sufficiently broad to include all such alcohol, but obviously it was not the intention to tax all alcohol. Beer, for instance, was taxed as a separate commodity, and section 8282, R. S., above quoted, expressly exempted fermented liquors from the requirements tlierof. The term “ fermented liquors ” as used in the internal revenue laws has a definite and technical meaning, as is indicated by the fact that it appears as the heading of chapter 5 of Title XXXV of the Revised Statutes, which relates solely to brewers and brewery products. The term is used synonymously with “ malt liquors ” (U. S. v. Dooley, 25 Fed. Cas. 14984) and is used to describe such liquors as beer, porter, and ale, and never, as it contended, to include such fermented liquors as wine, champagne, or cider. The proviso to section 3282 exempting fermented liquors was clearly intended to exempt only beer and similar brewery products, and was probably unnecessarily inserted merely as an affirmative expression of an implied exemption already existing, as it is obvious that the production of brewery products, elsewhere authorized, which necessarily involved production of alcohol, was not intended to be subjected to the tax on the alcohol so produced. And the same implied exemption prevails in the case of wine and cider. Except as Congress has seen fit to impose a tax on wine as such no one would contend that that commodity is subject to tax on the alcohol it contains. Nor has the department ever assumed authority to tax the alcohol produced in the manufacture of cider. On the contrary, it has been uniformly held that tax liability-does not attach, either to the manufacture or sale thereof, irrespective, of the amount of alcohol it may contain, provided no distilled spirits, wine, or other alcoholic liquor has been added thereto.
    The department, by a long line of decisions, has recognized this implied exemption from the tax on alcohol of all fermented fruit juices the alcoholic content of which is restricted to that produced by the fermentation of the fruit itself. In T. D. 20097, dated September 27, 1898, it was held:
    “ Nothing is cider except the juice of apples, fermented or unfermented. Imitation cider, mixed with distilled spirit.-] or wine, is a compound liquor, for the manufacture or sale of which special tax is required.”
    In exempting cider from tax liability it was said:
    “For the sale of genuine cider made from the juice of apples no special tax is required to be paid under the internal revenue laws of the United States, because the only liquors for the sale of which special tax is required to be paid under these laws are ‘ distilled spirits, wine, or malt liquors ’ or compounds thereof.”
    Substantially the same ruling was made in T. D. 20309, dated November 9, 1898, in which it was held:
    “ Special tax is not required to be paid for the sale of cider — that is, the juice of apples — whether unfermented or fermented, and whether it is ‘hard cider’ (strongly alcoholic) or not, if not distilled spirits or wine or other alcoholic liquor has been added thereto.”
    In T. D. 27, dated January 29,1900, involving the question of the effect of the addition of sugar to the juice of the apple, but apparently not for the purpose of increasing the alcoholic content of the product, it was held:
    “ A beverage made of the juice of apples, even though by fermentation it develops ‘ an alcoholic strength of 7 or 8 per cent’ or more, does not on this account become a liquor for the sale of which the internal revenue laws require a special tax to be paid.”
    In T. D. 717, dated November 14, 1903, it was again held:
    “ There is no special tax under the internal revenue laws for the manufacture or sale of cider made from the juice of apples, though fermented, if it is not changed into a compound liquor by the addition of distilled spirits or other alcoholic liquors.”
    And T. D. 932, dated October 12, 1905, was to the same effect.
    In T. D. 1174, dated May 28, 1907, the rule was stated thus:
    “ Cider manufactured from the pure juices of apples, to which sufficient sugar to sweeten, coloring matter, and a small quantity of fruit flavoring extract to flavor, and to which nothing else than the substances noted has been added, is not a compound liquor, and special tax is not required for its sale.”
    However, in T. D, 1289, dated December 20, 1907, it was held that the “ addition of sugar and yeast to apple cider produces mash fit for distillation,” which, under the provisions of section 3282, R. S., can be made only upon premises of a registered distillery. This ruling was adhered to in — O. 348, dated February 13, 1918, and in T. D. ¿675, approved March 19,1918, it was said:
    “ Cider, alcoholic content of which is increased by adding sugar, is a £ mash fit for distillation ’ under sec. 3282 and is permitted to be made upon premises of a registered distillery only.”
    The attitude of the department as to the taxable status of cider was again clearly indicated in this ruling, which concludes as follows:
    “ The manufacture or sale of pure apple cider by any person in any place is permissible, whether the same be fermented or not, provided nothing is or has been added to it to increase the alcoholic content.”
    The same view was taken with respect to “ Pomace ” or “ Raisin ” wine in T. IX 1949, date February 16, 1914, in which it was held that the mash used in the production of these so-called wines is a “ mash fit for distillation ” and that the wine so produced is an “ alcoholic spirit ” within the meaning of section 3248, R. S., and can be produced only on premises authorized by law. It was recognized that this ruling was too broad, and in T. D. 2002, under date of June 29, 1914, it was held:
    “ T. I). 1949 applies to so-called raisin wine only where such product is made from a mash to which artificial sweetening is added.”
    In explaining this ruling it was stated that “ sugar or other artificial sweetening * * * may be added, but only after the fermentation of the product has been completed, as otherwise the addition of such fermentable material to a mash from which spirits may be obtained would render the mash fit for distillation within the contemplation of the statute.”
    The principle set out in the above rulings to the effect that the addition of sugar or other sweetening substances to fruit juices produces a “mash fit for distillation” within the meaning of section 3282, R. S., has never been abrogated. On the contrary, its latest expression is found in Regulations 60, section 38, which reads:
    “ In the manufacture of cider sugar or other fermentable substances should under no circumstances be added to- the apple juice for the purpose of increasing the alcoholic content, inasmuch as such practice is held to constitute the production of a mash.fit for distillation within the prohibition of section 3282, Revised Statutes.”
    It thus, appears that at least since 1907 the department has adhered strictly to the view that in the manufacture of cider the addition of sugar or other fermentable substances produces a “ mash fit for distillation ” within the meaning of section 3282, R. S., and. that the so-called cider so produced is an “ alcoholic spirit ” within the taxing provision of section 8248, R. S. This view necessarily requires that the expression “ the tax shall attach to this substance as soon as it is in existence as such ” be construed to mean that the tax shall attach to alcohol unseparated from the materials from which it is produced as well as to that obtained by-distillation or other separating process. Not only does this construction appear to reflect the intent of the framers of the law, as expressed in the language they employ, but it appears also to have tlio legislative approval of their successors. Section 5 of Title III of the national prohibition act provides that “ any tax imposed by law upon alcohol shall attach to such alcohol as soon as it is in existence as such.” This provision is-a substantial reenactment of the taxing provision of section 3248, R. $., and in view of the fact that it was enacted many years after the department’s interpretation of the previous provision and in the light of a long-established practice based thereon, it can only, under well settled rules of statutory construction, be regarded as an adoption by Congress of the construction theretofore placed upon the language by the Department (U. S. v. Falk, 204 TJ. S., 143; U. S. v. Hermanos y Compania, 209 U. S. 337).
    (2) (a) The basis of the contention that, even assuming the alcohol thus produced to be subject to tax, the amount of the tax assessed is greatly in excess of the amount due, is that only a small part of the sugar upon which the estimated production of alcohol was based was actually converted into alcohol. The amount of the tax assessed was $54,153.60 and was based upon the estimated production of alcohol from three carloads of -sugar received by the company in December, 1918, and February, 1919, after it had agreed to discontinue the use of sugar in the manufacture of its product. These shipments totaled 184,800 pounds, of which 15,568 pounds were on hand when the plant was seized in May, 1919, leaving 169,232 pounds as the amount'used. Estimating the production of one proof gallon of alcohol from each 10 pounds of glucose sugar, the sugar used would produce 16,923 proof gallons of alcohol and the tax thereon, at the rate of $3.20 per proof gallon, would amount to $54,153.60, the amount assessed.
    It is contended that the greater part of the sugar used was not fully fermented when the plant was seized and the mixture destroyed and that much of it was used for sweetening the produce after fermentation was complete. But, while not conceding that any substantial part of the sugar was not converted into alcohol, the bureau makes no pretention that tlio amount assessed is anything more than an approximation. The only certainty is that it is well within the amount due. It appears that subsequent to the issuance of T. D. 2675 in March, 1918, which expressly prohibited the use of sugar by cider manufacturers to increase the alcoholic content of their product, the company received 862,400 'pounds of sugar, the greater part of which was used in violation of this prohibition, and the tax originally recommended amounted to $266,259.84. The bureau might, well have asserted tax liability based on the entire quantity of sugar thus used, but in view of the fact that the company, upon ihe issuance of T. D. 2675, sought and obtained permission to continue operations for a limited period in order that it might use up the materials on hand, it was felt that the assertion of the full liability would work an undue hardship on the company. But this attitude of leniency oh the part of the department affords the company no ground for the contention that the assessment made should be further reduced. The department might properly proceed against the company to collect taxes due for the period even prior to the ruling in T. D. 2675. The mere failure to assert a tax in no way operates as a discharge of liability therefor.
    In the opinion of the solicitor the question whether a penalty was properly assessed against the National Fruit Products Company is a close one. He states, however, in view of the fact that the claim has once been rejected, he is inclined to believe that the bureau should adhere to that action. His recommendation is hereby approved.
    •Sincerely yours,
    (Signed) C. P. Smith,
    
      Acting Commissioner.
    
    VIII. On March 19, 1918, Treasury Decision 2675 was issued by the Commissioner of Internal Eevenue of the United States.
    Prior to said Treasury Decision 2675 the following Treasury Decisions, declaratory oí tiíe departmental interpretations of the internal revenue laws relative to the manufacture of cider and other fruit juices were issued:
    T. D. 20097, dated September 27, 1898; T. D. 20309, dated November 9, 1898; T. D. 717, dated November 14, 1903; T. D. 1174, dated May 28, 1907; T. D. 1289, dated December 20, 1907; T. D. 1949, dated February 26, 1914; T. D. 2002, dated June 29,1914.
    IX. About the time said Treasuiy Decision 2675 was issued, the plaintiff, who had been engaged in business for 12 years, bad invested in its business, plant, machinery, and equipment large sums of money, and had on hand about 500,000 gallons of apple juice and cider.
    X. In April, 1919, Charles H. Bickart, the president of the plaintiff company went to Washington, interviewed the commissioner, and submitted in writing a request to have the ruling modified. The ensuing correspondence, in so far as it is pertinent, is as follows:
    August 21, 1918.
    DS-JGC.
    Gates & MartiN,
    
      Attorneys at Lato, Memphis, Tennessee.
    
    GeotlemeN : Reference is made to your communication of April 12th in' which you request that Treasury Decision 2675 be modified in order to permit the addition of sugar to cider or apple juice at the time of manufacture and thus enable the National Fruit Products Company, your client, to equalize the alcoholic content of cider and produce a product of uniform or standard alcoholic strength, not to exceed 6 or 7 per cent.
    You are advised that this office is not disposed to change its ruling in this regard. Any person who adds sugar to cider or apple juice at the time of manufacture will be held to be a producer of a mash fit for distillation, which is permitted to be made on the premises of a duly qualified distiller only, and such party will be held amenable to the penalties denounced in section 3282, R. S., for violation thereof.
    The addition of sugar to cider is permitted at the time of bottling, for sweetening purposes only, and not for the pui’pose of increasing the alcoholic content of such product.
    (Signed) M. P. West,
    
      Acting Deputy Commissioner.
    
    Sept. 19, 1918.
    Commissioner oe Internal Revenue :
    Referring to your communication of Aug. 21, 1918, in which you advise that your office is not disposed to change its decision 2675, as requested by us in our communication of April 12, 1918, we now request that you modify your ruling, as embodied in your letter of Aug. 21, so as to enable our client, the National Food Products Company, to keep on premises, until disposition and to dispose of, cider or apple juice to which sugar has been added so as to equalize the alcoholic content of cider, because to compel it to remove the same from its premises at this time would work financial ruin and great hardship upon our client.
    At the time that Treasury Decision 2675 was promulgated, the National Food Products Company had on hand upwards of 500,000 gallons of apple juice and cooperage for same, and had contracted for all corn sugar necessary to manufacture this juice into cider. This resulted from the fact that the National Food Products Company made its contracts for its apples and all of its other materials at the beginning of each season — that is, made its contracts for all this material previous to the Treasury Decision 2675.
    At the time that the Treasury decision was promulgated we took up the matter with your office and requested modification of the decision, and understood from the official with whom the matter was taken up in person that until our application for a modification of the decision was disposed of it would be proper for our client to continue to use its materials then on hand in the manufacture of cider as it had heretofore done.
    Without any intention to violate the law or proceed counter to the rulings of the department, our client in good faith, believing that it had been sanctioned, proceeded to use the material on hand and for which it had contracted fin the manufacture of this cider and, consequently, now has on hand a very large quantity of cider.
    Our client has no disposition to further manufacture cider now that the attitude of the department has been made manifest, though it still has on hand upwards of three carloads of corn sugar delivered under its outstanding contract, made previous to the Treasury Decision 2675. It being an utter impossibility to forthwith remove the goods from the premises and, in addition to that, it will be necessary from time to time to bring cider already manufactured and belonging to it, which it has stored on other premises, to 'this place for the purpose of refiltering, flavoring, and putting in barrels for the market. We, therefore, ask the modification of your decision so as to relieve our client from this hardship. If the decision is adhered to and our client compelled to remove this product from his premises and is forbidden to bring the balance there to refilter, flavor, and barrel it would result in the practical destruction of .the goods and the financial ruin of our client.
    Confirming the conversation had with the officials of the department, our client proposes to make reasonable efforts to sell all of this product with reasonable dispatch and move it in regular course of the markets to the other purchasers.
    We, therefore, respectfully ask you to reconstruct a modification of the letter so as to give time in which this may be done.
    Respectfully,
    (Signed) Gates & Martin, Attorneys for National Fruit Products Oo.
    
    WASHINGTON, D. C., September 1918.
    
    The honorable Commissioner oe Internal Revenue,
    
      Washington, D. 0.
    
    In re: National Fruit Products Company
    Sir: Confirming the conversation we had with Mr. Boiv-den we beg to make and submit for your consideration a statement of facts as follows:
    At the time of the promulgation of the Treasury Decision 2675 this company had on hand upwards of 500,000 gallons of apple juice. Prior to that time it had contracted for the sugar necessary to make up the apple juice into its finished product. Since the time of the promulgation of that decision the company has bought neither apple juice nor apples for use in its mill except as hereinafter noted, nor has it purchased any sugar, but has merely accepted under its contract such sugar as was deliverable under contract in force at the time the decision was announced, and at this time after having ceased the manufacture of its article it still has on hand upward of three carloads of such sugar. The exception as to the apple juice is that this company recently purchased some selected apples for the purpose of experimenting in the endeavor to see if it could manufacture a cider without the use of sugar. This was but a small quantity and is not involved in this application, and finding that it could not use the cider in that wise it discontinued the purchase of apples and apple juice and has arranged to abandon this business and enter into another. It has absolutely ceased the manufacture of cider with the addition of sugar. All that remains to be done to market its product is to filter, • flavor, and barrel it for the market. In other words, to put on a few finishing touches, but is in no wise a part of the manufacture and there can not be any further fermentation.
    The course of business of the National Fruit Products Co. has been to make its contracts for apples, apple juice, and sugar in the spring and summer of each j^ear sufficient for its needs for tlie ensuing crop year. Apples are obtainable only in the fall season: therefore contracts must be made prior to that time. So that in the spring of 1916 the National Fruit Products Co. made contract for apples and apple juice in anticipation of its business requirements for the crop year, which would begin in September and ending the following September. The business of the company was fairly successful and showed a substantial growth," yet at the conclusion of the 12 months ending in August, 1917, it had on hand upwards of 5,000 barrels of the product in the course of manufacture. Anticipating- and believing that the business would continue to grow, the company, in May, 1917, began to contract for apples for fall delivery, and in addition thereto contracted with one concern for 500,000 gallons of apple juice, and later on, in the month of September, 1917, contracted for an additional 200,000 gallons of apple juice with another concern, and subsequently bought additional apple juice, but this latter purchase we bought prior to the promulgation of T. D. 2675. Against this purchase of apple juice the company in the course of its business contracted for the purchase of the requisite amount of sugar necessary to make up its product. ' The goods on hand when this decision was announced represented the balance of the purchases made in the spring, summer, and early fall of 1917. We reiterate that there have been no additional apple or apple juice purchases since the decision was announced nor since the interview with Mr. Bowden in April last, except the apples of this yearn crop noted above, bought for experimental purposes, and no sugar has been purchased since then, but sugar has been received upon contracts made prior to the decision, and at this time the company has on hand unused upwards of three carloads of sugar, which it will otherwise dispose of. The goods on hand have been manufactured from apple juice which was on hand at the time of the announcement of the decision and has in no wise been made from goods purchased since that date, and it is those goods made from material on hand at the time of decision which this company seeks to dispose of. Because of the large purchases in the spring and summer of 1917 and the anticipation of a large business, the quantity on hand is much larger than it was at the corresponding time of 1916. Had business through the summer of 1918 continued normal, most, if not all, of this stock would have been disposed of by this time, but because of the large quantity of goods contracted for and the disappointment in business, this company has on hand at this time probably a larger quantity than it had in the corresponding time of 1917.
    
      The time required for tlie disposition of this quantity will vary with the conditions of the weather. If the fall should be cool and there should be an early winter, it would be possible to dispose of this much more rapidly than if we should have warm weather late in the fall. We feel reasonably certain that under any circumstances we can make a good-faith disposition of all old goods by March 1st next and the bulk of it probably by January 1st.
    We submit this for your consideration, and remain,
    Very truly yours,
    (Signed) NatioNal Fruit Products Co..
    By C. H. Biokart.
    October 9, 1918.
    DS : JGC.
    Gates & Martin,
    Attorneys, Memphis. Tenn.
    
    GkNtuemen: Reference is made to office communication of August 21st, in which you were advised that the National Fruit Products Company would not be allowed to continue the manufacture of cider by the addition of sugar at the time of manufacture, thus increasing the alcoholic content of such cider in violation of Treasury Decision 2675.
    In this connection you are advised that the National Fruit Products Company will be permitted to market the cider which they have on hand and in which sugar was used in fermenting, it being thoroughly understood, however, that this cider is made from juice which was on hand and in the process of manufacture at the time of your visit to this office last April. Please advise us what quantity of this material was on hand and in the process of manufacture at that time. The amount does not appear from your letters to this bureau.
    The disposition of this product must be expedited as much as possible, as this office is not disposed to grant any extension of time, in order to effect the removal of such cider from the premises of this company beyond December 31, 1918. Respectfully,
    (Signed) Daniel C. Roper,
    HH :W. Commissioner.
    
    DS. : JGC.
    October 12, 1918.
    Commissioner oe Internal Revenue,
    
      Treasury Department, 'Washington, D. 0.
    
    In re : National Fruit Products Co.
    Dear Sir: This will acknowledge the receipt this day of your letter of the 9th inst., in the above matter, which we have promptly forwarded to our clients, with the request that they forthwith furnish the information so that we can comply with your request. We hope to be able to write you at length, giving the requested information not later than Tuesday next, the 15th inst.
    Yours very truly,
    (Signed) Gates & Martin. Diet, by Elias Gates but not read.
    EG :G.
    October 16, 1918.
    COMMISSIONER OF INTERNAL REVENUE,
    
      Treasury Department, Washington, D. 0.
    
    In re: National Fruit Products Co. Your file D. S. J. G. C.
    Sir: In further answer to your letter of October 9, 1918, in the above matter, we beg to inclose herewith a letter dated October 16, 1918, this day received by us from the National Fruit Products Company in -which it states that its records show that it had on hand in the early part of last April a stock of 578,000 gallons which was in process of manufacture at that time.
    We trust that the inclosed letter gives the requested statement. If it is not sufficient, please indicate what further information you desire and we will immediately procure it from our clients.
    Respectfully,
    (Signed) Gates & Martin, By Elias Gates.
    INCL.
    EG/P.
    Oct. 16,1918.
    Messrs. Gates & Martin,
    
      Exchange Bldg., Memphis, Tenn.
    
    Attention of Mr. Elias Gates
    Gentlemen: With reference to letter of the honorable Commissioner of Internal Revenue dated the 9th inst. regarding the quantity of apple juice this company had on hand in the early part of last April, you are advised that our stock of apple juice on hand and in process of manufacture amounted to 578,000 gallons.
    We are doing our level best to dispose of the present stock by the end of the year, but we doubt our ability to succeed entirely. However, if there is a small amount of stock left Dec. 3Íst we will suffer the loss.
    
      Trusting this is the information you desire, and thanking you very kindly for your interest in the matter, we beg to remain,
    Very truly yours,
    (Signed) Natloxal Fruit Products Co..
    By C. H. Btotcart, Pres.
    
    CHB H.
    XT. Thereafter, on December 5, 1918, December 31, 1919, and February 19, 1919, the plaintiff received at its plant three carloads of No. 70 corn or glucose sugar, each containing 61,600 pounds, and aggregating 184,800 pounds. In calculating the amount of the, tax, penalties, and interest involved in this suit the internal-revenue officers concerned therewith deducted the 15,568 pounds of glucose sugar found on hand at the time of the seizure of the plant from the 184,800 pounds of said sugar received by the plaintiff on the dates above set, forth, which left, a balance of 169,232. Plaintiff had received at its plant between June 12, 1918, and February 19, 1919, an aggregate of 862,400 pounds of glucose sugar.
    XII. The chemists of the Bureau of Internal Revenue, after careful analysis of samples of glucose, sugar found at the plaintiff’s plant at the time of seizure, and following established formulae, and methods of computation, calculated that 10 pounds of said sugar would produce 1 proof (100 per cent) gallon of alcohol. The 169,232 pounds of glucose sugar above mentioned, when divided by 10, the number of pounds of sugar calculated to produce 1 proof gallon of alcohol, gives a result of 16,923 proof gallons of alcohol. This quantity of proof gallons, multiplied by $3.20, the. rate of the tax, gives $54,153.60, the amount, of the special taxes assessed against the claimant. The, chemical analysis of samples of said glucose sugar showed that it contained 78.1 per cent of dextrose.. Ten pounds of said sugar contained 7.81 pounds of dextrose, which, when completely fermented, will produce 3.9 pounds of absolute (200 per cent proof) alcohol. The chemical symbol of dextrose is CGH1206, which on fermentation substantially produces 2C2H5OH2CC)2. Each proof (100 per cent) -gallon of alcoholic spirits contains 3.3 pounds of absolute (200 per cent) alcohol. If all the sugar in 10 pounds of glucose sugar fermented completely, it would produce 1.18 proof gallons of alcoliol. The assessment herein was based on the estimated production of only 1 proof (100 per cent) gallon of alcohol to 10 pounds of said glucose sugar.
    XIII. Plaintiff continued in said business uninterruptedly during the year 1918, but on Wednesday, May 7, 1919, internal-revenue agents seized the plant of the plaintiff and took possession of its properties on the ground that it had made a mash fit for distillation and was an unlicensed distiller.
    XIV. The said internal-revenue agents on taking possession of the plant destroyed seven filled and partially filled tanks of the product of the plaintiff which was in process of fermentation. The number of gallons contained in said tanks, as shown by a report to the commissioner from Revenue' Agent Sewall and Revenue Inspector Farrer, dated June 11, 1919, was 23,849. The Government also caused 19,169 gallons of the product of the plaintiff which was on hand fully fermented to be destroyed, according to the same report. A certified copy of the said report will be introduced in evidence and is made a part hereof by reference.
    XV. The process employed by the plaintiff in connection with the manufacture of its product at the time of the assessment of tax, interest, and penalties involved in this case wTas as follows:
    In large fermenting tanks which contained softwood shavings, which shavings like all softwood shavings contained yeast shell, to which sweet cider or other fermentable material was supplied to serve as yeast food, large quantities of glucose sugar and water in the proportion of one of the former to four of the latter were added and allowed to completely ferment. This fermented substance or product was then transferred into other large tanks containing apple juice which had been allowed to ferment, for the purpose of increasing the total volume of the finished product. The alcoholic content thereof was thus increased. This product was finally flavored and sweetened with cane sugar or saccharine and sold as a beverage.
    
      XYI. The plaintiff did not have on its premises any still, worm, vaporizer, or other machinery such as is used in the regular process of distillation.
    XVII. The plaintiff has at all times borne true allegiance to the Government of the United States, and has not in any way voluntarily aided, abetted, or given encouragement to rebellion against said Government.
    The Treasury Decisions indicated herein are made a part hereof by reference.
    XVIII. The plaintiff never complied with the provisions of sections 3258-3263, inclusive, Revised Statutes, and no survey of plaintiff’s plant was made under the provisions of section 3264, Revised Statutes.
    XIX. In no case other than the instant case has the Commissioner of Internal Revenue assessed and collected a distilled-spirits tax where sugar was fermented separately and the product obtained thereby subsequently mixed with 'apple juice and/or cider, thereby increasing the latter’s alcoholic strength and volume.
    XX. The process employed by the plaintiff was in general use by cider manufacturers throughout the United States, and except in this case there is no known instance of the exaction of a similar tax.
    XXI. In fermenting sugar and apple juice together no tax would attach, but this process caused plaintiff’s tanks to become contaminated with vinegar germs, and the process of adding the fermented product of a solution of w'ater, sugar, and wood shavings was adopted. The plaintiff, after abandoning this latter process upon orders of the Government, later resorted to it, after legal advice that i'ti whs not violating the law, merely for the purpose of putting its tanks in a healthy condition.
    The use of water and sugar with wood shavings did produce a mash, wort, or wash fit for distillation, but in the business of the plaintiff such mash, wort, or wash was not subsequently distilled, nor did the plaintiff have in its possession, or under its control, any stills, vaporizers, or other apparatus ordinarily used in distilling mashes, worts, or washes.
    
      XXII. Tlie plant of the plaintiff was never registered, and the plaintiff never gave bond in accordance with the provisions of sections 3258 to 3263, inclusive, and no survey of the plant of the plaintiff was ever made under section 3264, Revised Statutes.
   memorandum nr the corRT

The sum of $115,997.89 for which the plaintiff is granted a judgment is not disputed to be due the plaintiff by the United States.

Judgment in the said sum, with interest thereon from April 7, 1920, until paid.  