After careful reconsideration of this case on reargument, a majority of the court feel constrained to reach the same decision as that expressed in our first opinion. The opinion, however, contains an error which should be corrected.
We stated in our opinion, "Since the promulgation of the regulations referred to [Treasury Regulations 48] Congress on one occasion amended Section 602 1/2 [26 U.S.C.A. Int. Rev. Acts, page 778] without any indication of disapproval of the interpretation of the Treasury Department as to the prospective operation of the state.", and we went on to say that Congress by Section 402 of the Revenue Act of 1935, 49 Stat. 1026, 26 U.S.C.A. Int. Rev. Acts, page 810, imposed a compensatory tax upon the importation of articles produced from the oils named in Section 602 1/2.Obviously, the word "amended" was used erroneously. Congress did not amend Section 602 1/2, but it dealt with a subject matter closely allied to that contained in Section 602 1/2 and in doing so indicated no disapproval of the interpretation put upon that section by the Treasury Department in Regulations 48.
After consideration of every point raised by the appellant we can perceive no reason why our prior decision should be altered. Accordingly the judgments will be affirmed.
MARIS, Circuit Judge (dissenting on rehearing).
After full consideration of the arguments advanced upon the rehearing of this case I find myself constrained to dissent from the judgment of the court. In my view the construction placed by the majority of the court upon Section 602 1/2 of the Revenue Act of 1934 cannot be supported either by its language or by the intent of its framers as shown by its legislative history. I shall briefly set forth the reasons for my view.
In the first place the phrase "first domestic processing" seems to me to be wholly free from ambiguity. "First", when used as here in respect of time, means earliest in point of time. If no reference point in time is specified the reference must be to the beginning of time. The majority say that another reference point, the effective date of the act, was intended. But it is not so expressed in the act and I find no convincing evidence that Congress so intended.
The provisions of Section 602 1/2 were derived largely from Section 9(a) of the Agricultural Adjustment Act of May 12, 1933, 7 U.S.C.A. § 609(a), and the phrase "first domestic processing" was taken verbatim thereforom. It is conceded that in the Agricultural Adjustment Act the word "first" was used in the absolute sense of earliest in time. I find nothing to indicate that Congress did not intend to use the word in the same sense when it included the phrase in Section 602 1/2. Furthermore when Congress in the Revenue Act of 1936 amended Section 602 1/2 it indicated by the use of the phrase "first domestic processing taxed under this section" that it recognized that not all first domestic processings were taxable.
Secondly the legislative history of Section 602 1/2 convinces me, as it convinced Judge Sullivan in Durkee Famous Foods v. Harrison, D.C. Ill. 1942, 46 F.Supp. 642, that it was the purpose of Congress to protect domestic farm products against competition from specified oils which were brought from outside the United States, by levying a tax on their first use within the United States. As Judge Sullivan pointed out in the case just cited: "The Philippine Independence Act had been passed on March 24th, 1934, 48 U.S.C.A. § 1236 (b), specifically authorizing the importation, free of duty, of a designated amount of coconut oil each year for a period of ten years, thus precluding Congress from placing an import duty thereon. Therefore, the amendments to subdivision (a) of Section 602 1/2, as adopted, provided for (1) a surtax of two cents per pound on coconut oil of non-Philippine origin; and (2) provided for the segregation and payment into the Philippine treasury of the entire tax collected on Philippine coconut oil. Tracing the progress of the oil processing tax statute from its inception as Section 602 of the Revenue Act of 1934 [26U.S.C.A. Int. Rev. Acts, page 776], to its final enactment as Section 602 1/2 thereof, the Congressional debates and reports all evidence the same legislative purpose of protecting the American farmers' products against oils brought in from outside the United States.The debates show that it was the intention of Congress, in enacting Section 602 1/2, to extend to foreign oils the same type of processing tax as had already been levied upon the American farmers' products by the Agricultural Adjustment Act, * * * and to use such tax as a substitute for a protective tariff. * * * Congressional Record, Vol. 78, pages 2513-2529; 2614-2658; 6308-6324-6314-6316-6380."
The majority rely for their decision largely upon two guide posts but these do not seem to me to point to the conclusion which the majority reach.The first is the rule that a statute is presumed to operate prospectively unless the contrary intent is declared. I am quite willing to concede that this rule is applicable to Section 602 1/2. Its application, however, should merely result in imposing the tax upon those processings within the statutory definition which actually took place after the effective date of the act, not in modifying the definition so as to impose the tax upon transactions which upon the normal application of the rule would have been exempt.
The second guide post to which the majority refer is Treasury Regulation 48 interpreting Section 602 1/2. The regulation defines "first domestic processing" as "the first use in the United States on or after the effective date of the act." But the act itself defined "first domestic processing" as "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, but does not include the use of palm oil in the manufacture of tin plate." It will be observed that in the statutory definition there is no suggestion of a reference to the effective date of the act. It seems to me that in importing such a reference the regulation goes beyond its rightful field of interpretation and into the realm of amendment. Consequently I think that the regulation is invalid and that its application violates the settled rule, to which, however, the courts too frequently pay only lip service, that ambiguities in a revenue statute must be construed strictly against the Government and that doubts therein must be resolved in favor of the taxpayer.