The opinion of the court was delivered by: LORD, III
This is a suit for refund of Federal Manufacturers Excise Tax (26 U.S.C.A. § 4061 et seq.) by plaintiff, a Pennsylvania corporation engaged in the manufacture and sale at wholesale of electronic equipment and appliances, such as radio and television sets, refrigerators and home freezers. Excise tax is paid by plaintiff, the manufacturer of these items, and is based upon the price charged plaintiff's vendees.
The claim for refund involves plaintiff's warranty program. The complaint is in three counts. Both parties have moved for summary judgment on Count I, and for that purpose have entered into a stipulation of facts. The claim under Count I is based on Section 6416(b)(1) of the Internal Revenue Code of 1954 and its predecessor, Section 3443(a)(2) of the 1939 Code, which provide that if the price on which the tax paid is based is thereafter adjusted, a proportionate part of the tax paid constitutes an overpayment refundable to the manufacturer. Plaintiff contends that its warranty fulfillment program involves a price adjustment within these sections.
Preliminary to a consideration of this case on the merits is the Government's contention that Philco is here barred by collateral estoppel. With respect to this issue, it has been stipulated by the parties that the issues presented in Count I were raised by plaintiff in a former suit in the Court of Claims. That suit, No. 105-56, involved a refund claim for a prior period, March 1, 1950 through December 31, 1953, but it is stipulated that plaintiff fulfilled its warranty obligations in a manner which in all material respects was identical with that in which it fulfilled its obligation during the period here in issue, January 1, 1954 through December 31, 1956. The former case was dismissed by the Court of Claims upon motion of the Government for judgment on the pleadings after the filing of briefs by both sides, the filing of an affidavit by plaintiff, and oral argument. Certiorari was denied by the Supreme Court, 361 U.S. 825, 80 S. Ct. 78, 4 L. Ed. 2d 71 (1959), rehearing denied, 363 U.S. 857, 80 S. Ct. 1606, 4 L. Ed. 2d 1739 (1960).
Both parties rely on the leading case on the application of collateral estoppel in the area of federal taxes, Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S. Ct. 715, 92 L. Ed. 898 (1948).
'* * * Of course, where a question of fact essential to the judgment is actually litigated and determined in the first tax proceeding, the parties are bound by that determination in a subsequent proceeding even though the cause of action is different. See The Evergreens v. Nunan, (C.C.A.2d) 141 F.2d 927 (152 A.L.R. 1187). And if the very same facts and no others are involved in the second case, a case relating to a different tax year, the prior judgment will be conclusive as to the same legal issues which appear, assuming no intervening doctrinal change. But if the relevant facts in the two cases are separable, even though they be similar or identical, collateral estoppel does not govern the legal issues which recur in the second case. Thus the second proceeding may involve an instrument or transaction identical with, but in a form separable from, the one dealt with in the first proceeding. In that situation, a court is free in the second proceeding to made an independent examination of the legal matters at issue. It may then reach a different result or, if consistency in decision is considered just and desirable, reliance may be placed upon the ordinary rule of stare decisis. Before a party can invoke the collateral estoppel doctrine in these circumstances, the legal matter raised in the second proceeding must involve the same set of events or documents and the same bundle of legal principles that contributed to the rendering of the first judgment. * * *' Commissioner of Internal Revenue v. Sunnen, supra, 601-602, 68 S. Ct. 721.
Although the facts in the case before us and those in the former case may be identical, they involve distinct and separate transactions and collateral estoppel is inapplicable.
We proceed then to the merits, bearing in mind the advice of the Court in Sunnen that consistency and reliance on the rule of stare decisis may still be desirable.
We start with the observation that the reported case authority in this area of manufacturers' warranties of their consumer products is, at least since 1957, uniformly against the plaintiff. See General Motors Corp., Frigidaire Div. v. United States, 142 Ct.Cl. 878, 147 F.Supp. 739 (Ct.Cl.1957), 142 Ct.Cl. 842, 163 F.Supp. 854 (Ct.Cl.1958), cert. den. 358 U.S. 866, 79 S. Ct. 97, 3 L. Ed. 2d 99 (1958); Ford Motor Company v. United States, 140 Ct.Cl. 487, 156 F.Supp. 554 (Ct.Cl.1957), cert. den. 358 U.S. 864, 79 S. Ct. 93, 3 L. Ed. 2d 97 (1958); Waste King Corp. v. United States, 60-1 U.S.T.C. P15,271 (S.D.Cal., 1959).
In each of these cases, the plaintiff taxpayer claimed that its expense of fulfilling its consumer warranties was an adjustment of the price it received for the article, on which price the tax had initially been computed. The Court of Claims had accepted the taxpayer's rationale in General Motors, Frigidaire Div., v. United States, 128 Ct.Cl. 465, 121 F.Supp. 932 (Ct.Cl.1954), cert. den. 348 U.S. 942, 75 S. Ct. 363, 99 L. Ed. 737 (1955), but reversed itself in the later Frigidaire case, 142 Ct.Cl. 878, 147 F.Supp. 739 (Ct.Cl.1957). The latter case reasoned:
'* * * The sales price was for an article free of defects. The cost of remedying defects that later appeared, therefore, cannot be an 'allowance' to the purchaser to be deducted from the sales price. It was not an 'allowance,' but a sum spent to give the purchaser what the manufacturer had represented it was selling him, to wit, a sound article. * * *'
In the Ford case, supra, the manufacturer made no repairs itself, but reimbursed its dealers. The court nevertheless stated, 156 F.Supp. at page 555:
'* * * The distinction plaintiff seeks to draw, that in the General Motors case the sale was to the consumer whereas in the present case it was to the dealer, is without merit. In both cases the manufacturer gave to its purchaser, in one case, the consumer, and in the other, the dealer, a warranty that it was selling him a sound article; hence, sums spent to remedy any defect appearing in the warranty period were spent to make good the manufacturer's representation that the article sold was free of defects, and therefore the sums spent were not a readjustment of the sales price or a rebate or allowance.
'In the General Motors case, supra, the seller made the necessary repairs; in the present case, the purchaser did so, and then was reimbursed by the manufacturer. In each case the expenditure by the manufacturer was for ...