The opinion of the court was delivered by: ROSENBERG
These two consolidated actions were brought by Harbison-Walker Refractories Company, plaintiff, against the United States of America, defendant, for the recovery of payments of income and excess profits taxes for the taxable years 1951 and 1952. They were brought by authority of the provisions of Title 28 U.S.C.A. § 1346
by virtue of possible entitlement by the plaintiff to depletion allowances as provided under Title 26 U.S.C.A. § 23.
Since the application of law and fact here is retrospective in that the material production accrued in the years 1951 and 1952, and since counsel and the witnesses at trial treated the subject matter almost entirely in the present tense, we shall here, for the sake of convenience, also make reference in the present tense.
The plaintiff is engaged in the business of producing refractories -- products designed to retain their physical shapes and chemical identities when subjected to high temperatures. Plaintiff's refractories are used in industrial application requiring high heat resistance such as in smelting and refining furnaces used for ores, ceramics, chemicals, and the like. The plaintiff relies on its sources of supply for its raw materials from the natural mineral deposits of four quarries situated variously in Alabama, Pennsylvania, Wisconsin and Ohio. In Alabama the plaintiff's quarry lies in the Weisner quartzite formation. In Pennsylvania its quarry is situated in the Tuscorora quartzite formation. In Wisconsin, its quarry is situated in the Baraboo quartzite formation, and in Ohio its Allyn Quarry lies in the Sharon Conglomerate formation.
The material procured from the first three of these quarries is hard, dense, solid rock existing in its natural state as large compact masses in which the individual grains and cementation have become inseparably blended and tempered in nature's processes so that when the rock is fractured, it breaks through the grains rather than around them. The deposits in which these three quarries are located were formed by nature by the metamorphic process,
while the deposit where the plaintiff's fourth quarry, the Allyn Quarry is situated in Ohio, was formed by nature by the process of sedimentation.
The deposits in the first three formation exist variably in places up to 400 feet in thickness and spread. The Ohio deposit at the plaintiff's Allyn Quarry is of a thickness of 40 feet or more (although in parts of the state it is very much more). This deposit is made up of various sized pebbles and sand which nature has bound together in a friable composite sufficiently strong and compacted to sustain the weight of heavy mining equipment in operation at its top,
and close to the ledge or vertical face of the quarry. Nature has retained the individuality of its component parts while stuck together in this friable mass, and when sufficiently disturbed the mass disintegrates into its individual pebbles and sand grains. The Sharon Conglomerate is an enormous deposit which has been laid down as a sediment principally in Ohio. It runs north and south over virtually the entire length of the state and extends in a band southwesterly from Lake Erie in northeastern Ohio to the Ohio River in the south.
It is not, however, so much the conglomerate or its cementation in its natural state with which the plaintiff is interested, but rather with its chemical composition and its various range of pebble and sand sizes. In order to produce its refractories, the plaintiff requires material which is composed of not less than 98% Silicon dioxide (Si0(2)) in a fairly pure state having a minimum of alumina, iron and such other chemical parts. It must have a variation of sizes of material which may be knitted angularly together into a closely compact refractory brick having little or no porosity. The material from all four of the plaintiff's quarries have these requisite characteristics and lend themselves to the making of its refractory products. Accordingly, it uses the material from all four of its quarries indiscriminately to produce its end-product silica brick under the same or interchangeable brand names.
The parties agree that the Alabama, Pennsylvania and Wisconsin deposits are quartzite, and that the plaintiff's quarries in these states produce quartzite. The disagreement relates only to the Sharon Conglomerate in Ohio.
The process of recovery of the product from the Ohio quarry and its preparation has some similarities and some variations from the process of recovery and preparation of the products from the other three quarries. Dynamite is used to break the rock formations in Alabama, Pennsylvania and Wisconsin, and it is also used to loosen the impaction in the Ohio quarry, although more is required for each of the first three operations than for the Ohio quarry. The first three admitted quartzite quarry productions are broken down from large rock masses to the eventual grades of sizes desired. The conglomerate is first reduced to convenient lumps and later (after a washing process) to the individual pebbles and sand grains. The large pebbles are reduced to the required sizes and mixed with quantities of sized sand and adhesive material for eventual shaping and firing.
Drilling and shooting in the quarry is more of a problem with the large, dense quartzite rock formations than with the conglomerate. Washing the conglomerate is more of a problem than it is with the large rocks after they are broken down. Ordinarily, these rocks need no washing except for the accumulation of dirt during shooting, quarrying, loading and trucking. The equipment working in the solid rock formations is not identically the same as that used for the recovery of the material in the friable formations, but the principle of recovery is the same for both.
Physically the formations in their natural states have fundamental differences. As already stated, the conglomerate is a friable mass composed of pebbles and sand with sand making up a variable amount of its density of from anywhere from 40 to 60 percent. Portions of the sand content must be discarded because of the unusable sizes of the grains. Pebbles and sand, as such, are lacking in the quartzite rock formations.
While the pebbles and sand in the conglomerate retain individuality, both before and after quarrying, they are easily separated one from the other, but the quartzite rock can only be fragmented or fractured. Conglomerate is an immense cluster of pebbles and sand, but in quartzite what were once grains and cementation have effectually become one blended mass in whole.
Counsel for both parties have expended a great deal of time and effort in this case. The trial, itself, was courteously but vigorously prosecuted and defended by the parties, and the voluminous briefs of the parties have sifted and refined the evidence down to its minutest details. Both parties have sought to define the law patiently, prevailingly and profoundly. It would, of course, be impossible to comment upon all these innumerable details, but they may be fairly well summarized.
To advance its burden of proving that the Allyn Quarry formation in Ohio is quartzite, within the meaning of the Act, the plaintiff contends:
1. The word 'quartzite' in the Act was intended by Congress to include the Sharon Conglomerate; 2. The material from the Sharon formation is commercially known in the refractory industry as quartzite; 3. The material from the Ohio quarry is the same as that from the other three quartzite quarries and serves the refractory industry the same end-use; and 4. The material taken from the plaintiff's Allyn Quarry is quartzite according to the judicial interpretation of our courts.
1. Does either the Act or the legislative history of the Revenue Act of 1951 amending § 114(b) of the 1939 Internal Revenue Code reflect an intention in Congress to include the Sharon Conglomerate in Ohio within the term quartzite of such Internal Revenue enactment?
The statute and the Congressional Committee reports are silent as to the precise definition of the word 'quartzite' as contained in the revenue enactment. However, the plaintiff maintains that its then president appeared before the Committee on Ways and Means of the House of Representatives and testified for the enactment of a depletion allowance for its Ohio quarry productions; that its Mr. Garber was the only witness to appear before the Committee; and that Congress responded by providing in the enactment the words 'refractory and fire clay, quartzite' which included its Ohio conglomerate material.
In 1950 the Committee on Ways and Means held hearings in connection with the development of the new revenue law. At this hearing, Mr. E. A. Garber, the then president of the plaintiff, appeared and spoke in behalf of the refractory producers, as well as for his own company,
and asked Congress to grant percentage depletion at the rate of 15% To 'refractory clay and quartzite', which had not theretofore enjoyed such treatment. The witness referred to 'highgrade refractories * * * made * * * from quartzite, a hard dense silica rock'.
He testified regarding commercial deposits of refractory quartzite (and ganister which occurs in some areas as in Pennsylvania where broken over deposits from the main quartzite formations have fallen down the mountainside), such as that in Alabama, Pennsylvaia, Wisconsin and Ohio.
As relates to Ohio, the following statement was made:
'* * * In Ohio a silica rock which may be regarded as quartzite, since it consists mainly of quartzite pebbles bonded together by fine particles of the same material, is mined and is used for the manufacture of refractories.' (p. 452)
A map was also presented to the Committee of two areas in Ohio in which deposits of quartzite were to be found.
When the Act of 1951 was passed, § 114 provided a basis for 'Depreciation and Depletion' under (A) of that section (For the textual language of Section 114(b), as so amended, see Appendix I). The pertinent parts are subsections (i) and (iii).
Under (i) was contained among terms for 5% Depletion these words: 'in the case of sand, gravel * * * brick and tile clay * * *'. Under (iii) in the category allowable for 15% Depletion, the pertinent terms are: 'in the case of * * * ball clay, sagger clay, china clay * * * refractory and fire clay, quartzite * * *'.
The plaintiff argues that the positioning of the word 'quartzite' immediately after the words 'refractory and fire clay' proves that the word 'quartzite' included the Ohio conglomerate as a refractory product because the testimony of the plaintiff's witness before the House Ways and Means Committee made inclusive reference to the conglomerate as quartzite.
I am not persuaded that the testimony before the Committee gave the entire Congress the belief or idea that it was legislating into the word 'quartzite' an extension which would include the words 'Sharon Conglomerate'. There is not one word in the evidence of these cases to indicate any connection between the legislation and the Committee testimony, or even that the Committee had been persuaded to the meaning that the Sharon Conglomerate was quartzite. Rather, that there was no persuasion is reflected in the context of the Act itself -- in the words which it contains and in the words which it does not contain. It appears obvious that Congress had the plaintiff's business in mind when it legislated, but not the plaintiff's alone. 'Refractory and fire clay' relates to the broad field, as does the term 'quartzite'. It is unreasonable to believe that the word 'quartzite' follows the term 'refractory and fire clay' and was added for the purpose of bringing the Sharon Conglomerate into higher and equal esteem with quartzite. The fact that the word 'quartzite' appears immediately after the words 'refractory and fire clay' or that 'diatomaceous earth' follows the word 'quartzite', or that the word 'tripoli' precedes the words 'refractory and fire clay' lends no significance whatsoever that any of these are related. The placement of the various terms appears to lend no legislative consequence for the plaintiff.
The plaintiff argues that there were no expert witnesses before the Congressional Committee in 1950, and therefore Congress was guided only by its witness in the enactment of the word 'quartzite' so as to include in it the Sharon Conglomerate. We must presume, and we do presume, that Congress knew what it was doing, that it was properly advised by competent experts in the various fields and by the staffs of the various departments related to this enactment, and that it intended to do what it did. But the plaintiff says that an ambiguity exists by reason of the fact that Congress had intended to include Sharon Conglomerate in the word 'quartzite'. Let us examine this further.
Congress recognized the broad refractory industry when it gave 15% Depletion allowance for refractory and fire clay, other enumerated baking or firing clays, additional related minerals and quartzite. If Congress had intended to include, as the plaintiff says, its conglomerate as quartzite, it could have easily used words indicating its intention.
2. Is the Sharon Conglomerate in Ohio commonly known as quartzite in the refractory industry?
The plaintiff contends that the commonly accepted commercial meaning of 'quartzite' within the refractory industry is any silica rock suitable for use in the manufacture of silica brick (plaintiff's brief, page 5).
As already stated, there is no definition or qualification of the word 'quartzite' either in the statute, itself, or as a guide to its meaning in any Congressional records or Committee reports. The reference by both parties is to a general statement made by the Senate ...