The opinion of the court was delivered by: Mercer, Chief Judge.
Plaintiffs, Scott Grant and Thomas J. Grant, d/b/a Marlatt
Battery Division, hereinafter referred to as plaintiffs or
Marlatt, as the context requires, filed this complaint for a
refund of excise taxes paid on February 10, 1956, in the amount
of $9,355.75, with interest on the said amount from the date of
payment. A timely claim for refund was disallowed on July 31,
The original complaint contained a single count. It alleged
that on February 9, 1956, defendant collected $9,355.75 from
plaintiffs as additional manufacturers' excise tax on automobile
parts and accessories pursuant to Section 3403(c) of the Internal
Revenue Code of 1939. 26 U.S.C. § 1952 Ed. 3403(c). A timely claim
for refund was filed and denied by the defendant. That claim was
based on the grounds that Section 3403 was void because it was
vague and ambiguous, that the revenue agent's determination was
contrary to the law and the evidence and that the statute, by
failing to set a reasonable standard of taxability, was an
unlawful delegation of legislative power to an executive agency
of the federal government. The complaint further alleged that,
during the period from May 1, 1952, through September 30, 1954,
Marlatt manufactured special type batteries under special orders
for use in industrial equipment and that such batteries were so
designed that no one had ever purchased them for use in vehicles
covered by Section 3403(a) and (b) of the Act, and that the
deficiency assessment against plaintiffs, to the extent of 90% of
the amount thereof, consisted of a tax upon such batteries.
Finally the complaint alleged that during the same period Marlatt
manufactured farm tractor batteries so made and designed that
they would not be purchased for use in vehicles covered by
3403(a) and (b) of the Act, and that the balance of the
deficiency assessment of tax was assessed against such tractor
When this complaint was filed, there was pending in this Court
under Docket Number P-1782 a certain cause of action wherein the
plaintiff Thomas J. Grant, d/b/a Red Diamond Battery Mfg. Co.,
was plaintiff and the defendant, District Director of Internal
Revenue, was defendant. The Red Diamond case was tried before a
jury. The trial ended on December 5, 1957, when the jury returned
its verdict finding the issues for the plaintiff and assessing
plaintiff's damages at the sum of $45,524.00. No appeal was taken
by the District Director from the judgment entered upon that
After the decision in Red Diamond plaintiffs filed a second
count by an amendment to their complaint alleging the facts
summarized in the above preceding paragraph, and realleging the
facts alleged in the first count of their original complaint.
Count two further alleged that Marlatt was engaged in the same
type manufacturing business as Red Diamond Battery Company, the
only difference being that Red Diamond is a sole proprietorship
owned by Thomas J. Grant and located in Peoria, Illinois, while
Marlatt is a partnership owned by Thomas J. Grant and Scott Grant
and is located in Danville, Illinois. Count two further alleged
that the batteries involved in this suit are the same in all
respects as those involved in Red Diamond. Count two of the
complaint continued, alleging that the parties to this case and
Red Diamond are the same or in privity with each other, that the
taxable period involved is embraced within the taxable period in
Red Diamond, and that the defendant is collaterally estopped by
reason of the verdict and judgment of this Court in Case No.
P-1782 to re-litigate and re-try the same issues of law and fact
in the instant proceeding.
The case is under advisement for decision upon a stipulation of
the parties and the affidavits of plaintiff, Thomas J. Grant, and
John E. Cassidy, Jr., the attorney for plaintiffs in this case
and the attorney who represented the plaintiff in Red Diamond.
Since those affidavits, in effect, merely supplement the
stipulation and are not controverted the facts may be found
therefrom as follows.
During the taxable period from May 1, 1952, to September 30,
1954, plaintiffs, d/b/a Marlatt Battery Division, were engaged in
the business of manufacturing storage batteries. Generally
speaking, they manufactured three types of batteries, namely,
batteries for sale on the general market, batteries manufactured
under specifications prescribed by a customer, Hyster Company,
which Hyster used as a component of industrial equipment, and
batteries specially designed by plaintiffs for use in farm
tractors. There is no issue as to the first category. In the
period involved, plaintiffs filed timely excise tax returns and
paid excise taxes due upon all batteries manufactured for sale to
the general market.
In June, 1955, defendant made an assessment of additional
excise taxes against plaintiffs, based upon the claim of
defendant that the batteries manufactured for Hyster and the
batteries manufactured for use in farm tractors were subject to
the assessment of excise taxes under the provisions of Section
3403(c) of the Code. The claimed deficiency, with interest, in
the aggregate amount of $9,355.75, was paid on February 10, 1956.
Their claim for a refund having been denied, this suit was filed.
Hyster Company was a manufacturer of various types of
industrial equipment and machinery. It manufactured no products
which were subject to the excise tax provisions of subsections
(a) and (b) of the Code. All batteries manufactured by Marlatt
and sold to Hyster were used as components in the manufacture of
All batteries manufactured for Hyster were constructed pursuant
to specifications drawn by Hyster. Such batteries were never
stocked by Marlatt as items of general inventory. On the
contrary, all such batteries were manufactured to fill previously
received, specific orders from Hyster.
Hyster was also a customer of Red Diamond. All Hyster
batteries, whether manufactured by Marlatt or Red Diamond, were
built to the same specifications. Certain component parts of
these batteries of Marlatt manufactury were purchased by Marlatt
from Red Diamond.
Farm tractors are vehicles not subject to excise taxes under
the provisions of 3403(a) or (b).
Red Diamond was a sole proprietorship owned and operated by
Thomas J. Grant, with its plant and offices at Peoria, Illinois.
The batteries involved in the Red Diamond case were identical ...