United States District Court, Eastern District of Pennsylvania
July 16, 1952
SMITH, COLLECTOR OF INTERNAL REVENUE.
The opinion of the court was delivered by: Clary, District Judge.
A different aspect of this case was before this Court on
another occasion. Certain taxes were assessed against the present
plaintiff, an alleged manufacturer of adulterated butter. In the
first action he sued to enjoin collection of the taxes. Judge
McGranery on February 18, 1948 in an opinion reported at
76 F. Supp. 805, Gehman v. Smith, Collector of Internal Revenue,
Civil Action No. 7761, held a tax assessed against a manufacturer
of butter adulterated by excessive moisture to be a "tax" and not
a "penalty", and dismissed the complaint. Thereupon, plaintiff
paid the assessment and sued the Collector of Internal Revenue in
this action for refund of the taxes paid.
From the pleadings, proof, requests for admissions, testimony
and exhibits, I make the following:
Findings of Fact.
1. The plaintiff, Marvin L. Gehman, resides at R.D. 2, Telford,
Montgomery County, Pennsylvania, and at all times material hereto
was engaged in business under the trade name "Branch Valley
2. This action is brought to recover taxes, penalties and
interest paid after assessments under the provisions of Sections
2321(a)(1) and 3206(a)(2) of the Internal Revenue Code,
26 U.S.C. §
2321(a)(1), 3206(a), against the plaintiff as a manufacturer of
3. That on or about the 1st day of November, 1946, there was
duly assessed against the plaintiff as taxes under the
aforementioned Sections of the Internal Revenue Code the sum of
4. That thereafter plaintiff paid the amount of said taxes
assessed as aforesaid and on May 5, 1949 filed a claim for refund
of said taxes, which claim was rejected.
5. That this action is timely brought.
6. During the period January 1st to June 30th, 1946, the
plaintiff produced the following products and taxes and penalties
were assessed and paid as follows:
"Under Sec. 2321(a)(1) Pounds at 10¢ Tax paid
"Butter made from cream:
for Costella Bros. 4,500 450.00
" Paul Bowen 6,980 698.00
" self 3,255 325.50
"`Plastic' cream put in prints for
Witchwood Farms 2,520 252.00
"Rechurned tub butter put in prints 21,889 2,188.90
"Special tax (Section 3206(a)(2) 300.00
Ad valorem penalty 25% 75.00 375.00
7. That the butter made from cream for Costella Bros., Paul
Bowen and for self, and rechurned tub butter put in prints, as
set out in the preceding Finding of Fact was "adulterated butter"
as contained in Section 2320(b) of the Internal Revenue Code, in
that, plaintiff herein manufactured said butter with intent and
effect of cheapening in cost the butter product by causing the
absorption of abnormal quantities of water.
8. That plaintiff was a manufacturer of "adulterated butter"
within the definition of Section 3206(a)(2) of the Internal
9. That "plastic" cream is not butter but is a concentrated
form of pure cream having physical characteristics separate and
distinct from that of butter.
10. That the assessment of the tax under Section 2321(a)(1) of
a tax of 10¢ per pound upon the adulterated butter described in
Finding 7 and manufactured by the plaintiff herein was a proper
and legal assessment.
11. That defendant has properly collected in taxes the sum of
12. That the assessment of $252 at the rate of 10¢ per pound
upon plastic cream reworked by the plaintiff was improper.
13. That plaintiff is entitled to recover the sum of $252 with
such interest and penalty as he may have paid on that portion of
the total tax.
Conclusions of Law.
1. That the Court has jurisdiction of the parties and subject
matter of this action.
2. That Sections 2321 and 3206 of the Internal Revenue Code
constitute a valid exercise of the taxing power of the Congress
of the United States.
3. That of the sum assessed, $4,289.40, as taxes, $4,037.40 was
correct in amount and was assessed in accordance with the laws of
the United States.
4. That the assessment of $252 against the plaintiff was
improper and unlawful since it was assessed against a product not
constituting "adulterated butter".
5. That plaintiff is entitled to judgment in his favor in the
sum of $252 with interest and penalty paid on that portion of the
Counsel for the plaintiff will submit an order for judgment.
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