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Senator BAILEY. You can get the difference there. A man comes in and files his return, he puts the Government on notice, and the Government does not act within 5 years. That is not the case here. This is the case of failing to pay the tax generally.

Mr. Sram. That law does not apply to the income tax.

Senator BAILEY. I just brought that in to compare this with the income-tax statement. If I may just say one word, it is retroactive for an unlimited time in the past.

Mr. HESTER. That is right.

Senator BAILEY. I do not see why you are so astonished because our chairman, Senator King, might have thought it was retroactive.

Mr. HESTER. I realize now that I should not have propounded the question, and I apologize for having done so.

Senator KING. Take a corporation in Cuba that manufactured rum and sold it to A and B and C, individuals, and A, B, and C brought it into the United States violation of the Volstead Act; as I understood you, that corporation might not do business here unless it would come in and voluntarily submit itself to the jurisdiction of the court with respect to claims which you might assess, which you might have asserted in the past or you might assess in the future?

Mr. HESTER. No, Senator. We would have claims against A, B, and C.

Senator King. I am speaking about the corporation.

Mr. HESTER. We would have claims against A, B, and C, but unless A, B, and had a substantial interest in the corporation we could not place an embargo on the liquor imports of that corporation.

Senator King. Even though that corporation may have suspected that A, B, and C intended to transport that liquor to the United States?

Mr. HESTER. If the claim was also against the corporation in addition to A, B, and C, we could impose the embargo. Otherwise we could not.

Senator BARKLEY. You could not substantiate a claim against the original corporation unless you showed collusion.

Mr. HESTER. Yes; we would have to show collusion in the smuggling

Senator King. Even in advance of the trial, in advance of proving that the corporation had knowledge that the liquor was to be shipped into the United States, you would bar the corporation from coming into the United States, in advance of proving in the court that it did sell to A, B, and C, knowing or suspecting that A, B, and C intended to ship the liquor into the United States ?

Mr. HESTER. If the results of investigation indicated that the corporation was involved, then the answer to your question would be "yes."

Senator KING. Then because of some investigation which some agent had made, an investigation that perhaps was imperfect, an investigation perhaps prompted by a zealous desire to establish himself in the good graces of the Department, and perhaps he had omitted to get all the facts but got some suspicious circumstances, you would proceed and debar the corporation, though perhaps a full investigation would indicate it was not in any way amenable to the law ?

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Mr. HESTER. Whether or not the embargo would be placed upon it would be for the Secretary of the Treasury to decide, and it would be an abuse of discretion on his part to bar à corporation from importing liquor, placing an embargo on the liquor imports of the corporation, unless he was satisfied the corporation was the smuggler and a "proceeding” had been instituted against it, or that the smuggler owned a “substantial interest” in such corporation.

Senator King. What remedy would the corporation have? Supposing there was a gross abuse of discretion based upon some fallacious report, an untrue report by some zealous officer of the Government?

Mr. HESTER. A person always has a remedy in such a case. Senator KING. What remedy would the corporation in Cuba have?

Mr. HESTER. It could petition the Supreme Court of the District of Columbia to review the action of the Secretary of the Treasury to determine whether or not there had been an arbitrary or capricious exercise of the discretionary power invested in him by law.

Senator BAILEY. In the meantime the person would have an embargo placed against him under this act.

Mr. HESTER. That is true.
Senator BAILEY. We will rewrite this.

Senator King. Proceed with the next. Have you any questions to ask on this bill, Senator?

Senator BAILEY. I would like to say that our friends the representatives of the Treasury Department should rewrite this section in line with the discussion this morning. We will be glad to consider it further.

Senator King. Senator Capper, have you any questions to propound?

Senator CAPPER. No.

Senator KING. Have the Treasury officials who are here anything further to submit to the committee?

Mr. HESTER. In conclusion I would like to point out that the pro-visions of section 403 are not without precedent. In fact, the policy embodied in those provisions is closely comparable to that expressed in provisions which have long been in force, having appeared in the Tariff Act of 1922 and in modified form in the Tariff Act of 1913. These are contained in section 511 of the Tariff Act of 1930, which provides as follows [reading]:

If any person importing merchandise into the United States or dealing in imported merchandise fails, at the request of the Secretary of the Treasury, or an appraiser, or person acting as appraiser, or a collector, or the United States Customs Court, or a judge of such court, as the case may be, to permit a dulyaccredited officer of the United States to inspect his books, papers, records, accounts, documents, or correspondence, pertaining to the value or classification of such merchandise, then while such failure continues the Secretary of the Treasury, under regulations prescribed by him, (1) shall prohibit the importation of merchandise into the United States by or for the account of such person, and (2) shall instruct the collectors to withhold delivery of merchandise imported by or for the account of such person. If such failure continues for a period of one year from the date of such instructions the collector shall cause the merchandise, unless previously exported, to be sold at public auction as in the case of forfeited merchandise.

The purpose of section 511 is to impose an embargo against any importer who fails to furnish the Secretary of the Treasury, or other

proper officer, with information contained in his books, papers, or records which is necessary for the purpose of ascertaining the value or classification of any merchandise imported by him. It is to be noticed that the embargo relates not only to merchandise, the value and classification of which is under consideration, but any merchandise imported by the importer or for his account. The penalty imposed even relates to merchandise which has been previously imported, but which remains under customs control. It can thus be seen that Congress has over a period of years adhered to a policy of using an embargo as a penalty where an importer refuses to permit the ascertainment of customs duties properly due the United States. Section 403 is based on the very same principle. An embargo is directed against any person who refuses to permit the United States to obtain an adjudication in a proper judicial proceeding of the amount of customs duties and internal-revenue taxes owed by such person. Although it is true that the provisions of section 103 also require that .security be given for the payment of a claim asserted by the United States, while such provision is not contained in section 511 of the tariff act, nevertheless it would seem that the absence of such provision in that section may be readily explained by the fact that the United States is amply protected by its lien on any imported merchandise in its custody, the duties on which remain unpaid.

The use of an embargo as a device for protecting the interests of the United States is also to be found in section 338 (b) of the Tariff Act of 1930, which reads as follows:

If at any time the President shall find it to be a fact that any foreign country has not only discriminated against the commerce of the United States, as aforesaid, but has, after the issuance of a proclamation as authorized in subilivision (a) of this section, maintained or increased its said discriminations against the commerce of the United States, the President is hereby authorized, if he deems it consistent with the interests of the United States, to issue a further proclamation directing that such products of said country or such articles imported in its vessels as he shall deem consistent with the public interests shall be excluded from importation into the United States.

It will be observed that under either of the provisions just referred to, the rights and interests of innocent parties may be affected. But this result is justifiable on the ground that the interests of the United States should be afforded protection even though incidental hardship may result to innocent parties. The same justification is present with respect to the provisions of section 403 (a).

Moreover, unless section 403 is enacted into law and foreign corporations are thereby compelled to adjudicate the revenue claims of this country against them, innocent holders of stocks in such corporations will profit at the expense of the revenue of the United States. Obviously, foreign corporations established during prohibition for the purpose of manufacturing solely American-type whisky and selling it in the United States without the payment of customs duties and internal-revenue taxes, and which are no longer engaged in the business of manufacturing whisky but have all of their assets invested in American-type whisky 'manufactured by them during prohibition (which is salable only in the United States), should not be permitted to sell such whisky in the United States without agreeing to submit to the jurisdiction of our courts to adjudicate our tax claims against them, notwithstanding some of the stockholders in such corporations may be innocent holders of stock.

Senator King. Thank you very much, gentlemen. Are there any witnesses here who desire to be heard this morning?

Mr. McCABE. Mr. Chairman, we would prefer, if it meets with the pleasure of the committee, to have Mr. Blanchard make his statement first.

STATEMENT OF GEORGE BLANCHARD, UNITED STATES BREWERS"

ASSOCIATION, WASHINGTON, D. C.

Mr. BLANCHARD. Mr. Chairman, referring to one statement made by Mr. Hester on Monday relative to the agreement of the industry, so far as the malt-beverage end of it is concerned, wherein he stated that he would be much surprised if the industry involved in this bill did not come forward with a statement that they were in agreement with the provisions of the bill.

Now, in the main, I might say on behalf of the association that I represent that we are in agreement with the main purpose of the bill but decidedly in disagreement with some features. In that connection, may I state very briefly that we desire to do everything that is possible to protect the revenues of the United States, not only from the standpoint of the Government but from the competitive standpoint in our own industry, which is highly competitive. It is necessary that a brewer in a competitive field know that his competitor is paying his taxes.

By the same token, however, nothing should be contained in this bill unless it is essential and necessary to protect the revenues of the United States.

I desire to point out some very important features that would place a serious burden upon the industry if enacted into law, and, at the same time, those features are not necessary in order to protect the revenues of the United States.

Now, there is a rather minor matter, and it does not concern the revenues of the United States; but I call your attention to the title of the bill, where it says "to insure the collection of the revenue on intoxicating liquor"; we suggest, after the word "intoxicating", the addition of the words and fermented malt beverages."

Senator BARKLEY. Why do you distinguish it? Is it your conten-' tion that beer is not intoxicating?

Mr. BLANCHARD. It is our contention that fermented malt beverages go into an entirely different class. When you go into any establishment and ask for a drink of liquor, they never give you beer.

Senator BARKLEY. Intoxicating liquor is a general term applying to all liquors, and beer is a liquor that is intoxicating. You do not mean to contend that beer is not intoxicating, do you? Mr. BLANCHARD. Yes. I contend further, Senator, that taxes are

, not levied upon intoxicating liquors as such. If you levy a tax upon an intoxicating beverage you designate it not as such intoxicating liquor but as distilled spirits of a certain class, rectified liquor, wine, or malt beverages.

Senator BARKLEY. I agree that there is a different type of liquor and it may be all right to mention it, certainly, but I am not going to

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agree to write any language in here that presumes that beer is not intoxicating liquor, because that is not true.

Senator BAILEY. Did not the Senate vote that way?
Senator BARKLEY. They voted 3.2. That is not beer.

Mr. BLANCHARD. Senator, may I say this, in that connection, we are not attempting to define in this act, we are not attempting to write in this act that beer may not be intoxicating, but there are certain types of beer which we do seriously contend are not intoxicating

Senator BARKLEY. That may be true. As a matter of fact, the Supreme Court of Wisconsin, and I think they ought to know, held beer to be intoxicating, and that decision was upheld by the Supreme Court of the United States.

Mr. BLANCHARD. There are various beers, however, that have a lesser alcoholic content.

Senator BARKLEY. I wanted to get that clear. As far as I am concerned, I would not be willing to write into law a suggestion that beer is nonintoxicating liquor. Some beer may be, near beer may be, but that is not beer. There is beer that is intoxicating, we all know that.

Mr. BLANCHARD. That is correct, I agree with you thoroughly.

Senator BAILEY. So there would be no objection to making a change then to describe the whole business?

Senator BARKLEY. I do not think the title makes much difference. Senator BAILEY. I do not either.

Mr. BLANCHARD. I make the same suggestion in section 1, "this act may be cited as the 'Liquor Tax Administration Act,'” I suggest the words "and malt beverage" be inserted after the word “liquor in the first line of section 1.

Now, if you will turn to page 28, I will discuss, in connection with that section, which is section 316 of the bill, some very important matters. This bill fixes a minimum bond requirement in the follow.

. ing language:

Every brewer, on filing notice as provided by law of his intention to commence or continue business, shall execute a bond to the United States in such penal sum, in proportion to the production capacity of the plant, as the Secretary of the Treasury shall by regulations prescribe, but in no event shall such sum be less than $1,000.

May I respectfully submit to you that this should also fix a maximum bond, and my suggestion is that that be placed at $100,000, with the additional protection to the Government as follows

Senator KING. Isn't that a rather heavy bond?

Mr. BLANCHARD. Not in view of the fact that the Treasury may prescribe the amount within the limit of $1,000, and if my suggestion is adopted, $100,000.

Senator King. What is the maximum that has been required by the Treasury?

Mr. BLANCHARD. Three times the amount of the monthly production tax, and you can readily understand, Senator, that some breweries with a large capacity would have a greater liability to the Government than a small brewery where the limited capacity may run as low as 25,000 barrels per year.

Senator Bailey. We have the right under this act to seize the property of the brewery upon the failure of paying the taxes.

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