R. C. Jal & Anr. v. Union of India
Ray, J. This is an appeal by certificate from the judgment
dated 15 April, 1968 of the High Court of Madhya Pradesh up
holding the judgment and decree passed by Nevaskar, J. of that
High Court.
The Union filed a suit against the appellant in the Court of
Small Causes J]ldge at Indore in the year 1953 and claimed a
decree for Rs. 83-12-0. The claim in the suit represented coal
production cess levied under Ordinance No. XXXIX of 1944 on
coal and coke despatched from collieries in the then British India
to the appellant.
The. only question which falls for consideration in this appeal
is whether the Union could make a valid claim for the amount.
Counsel on behalf of the appellant contended that the appellant
was at the material time a resident at Indore in the then Holkar
State and· the Ordinance passed in the then British India would
have no territorial operation to reach him.
The Ordinance was called the Coal Production Fund Ordi
nance of 1944. It extended to the whole of the then British
India. Section 2 of the Ordinance provided inter alia as · E
· follows:-
(1 ) With effect from such date as the Central
Government may, by notification in the Official Gazette,
appoint in this behalf, there shall be levied and collect-
ed as a cess. for the purposes of this Ordinan~. on all
coal and coke despatched from collieries in British India
a duty of excise at such rate not . exceeding one rupee
and four annas for ton, as may from time to time be
fixed by the Central Government by notification in the
official gazette;
Provided that the Central Government may, by noti- G
fication in the official Gaiette, exempt from liability to
the duty of excise any specified class or classes of coal
or coke.
(2) • • • •
( 3) A duty levied under this section shall be in H ·
addition to any other duty of excise or customs for the
time being leviable under any other law.
,
R. C. JAL v. UNION (Ray, J.) 563
( 4) The duties imposed by this section shall, sub
jec: to and in accordanee with the rules made under
this Ordinance in this behalf, be collected on behalf
of the Central. Government by such agencies and in
such manner as may be prescribed by the rules."
Section 5 of the Ordinance conferred power on the Central
Government to make rules and to provide for inter alia the man
ner in which the duties imposed by this Ordinance shall be collect
ed, the pets9ns who shall be liable to make the payments, the
making of refunds, remissions and recoveries, the deduction of
collections agencies of a percentage of the realisations to cover the
cost of collection, and the procedure to be followed in remitting
the proceeds to the credit of the Central Government.
The Coal Production Fund Rules, 1944 were made by the
Central Government in exercise of powers conferred by section
5 of the Coal Production Fund Ordinance 1944. Rule 3 related
to recovery of excise duty. Rule 3 (I) was as follows :-
"Recovery of excise duty : ( l) The duty of excise
imposed under sub-section ( 1) of section 2 of the Ordi
nance on coal and coke shall, when such coal or coke
is despatched by rail from collieries or coke plants, be
collected by the Ralway Administrations by means of a
surcharge on freight, and such duty of excise shall be
recovered:-
(a) from the consigner if the freight charges are
being prepaid at the destination of the consign
ment;
(b) from the consignee if the freight charges are
collected at the destination of the consignment;
( c) from the party paying freight if the consignment ·
is booked on the "Weight Only" system".
The Coal Production Fund Ordinance ,f 944 was repealed tiy
the Coal Production Fund (Repealing) Ordinance, 1947. The
Repealing Ordinance of 194 7 for the. avoidance of doubts
declared that the provisions of section 6 of the General Clauses
Act, 1887 applied in respect of such repeal. Therefore the
repeal of the 1944 Ordinance did not affect the right of the rail
way to recover the surcharge on freight or the liability of the
appellant to pay and the remedy in respect of the right and
liability.
The claim of the Union related to coal production cess on
three several consignments of coal despatched in the months of
564 SUPREME COURT REPORTS fl 972] 3 S.C.R.
~cember, 194?, January 1947 and February, 1947 from three A
~1fferent colli~es at !vf ohuda, Umaria and Burhar respectively
m the then Bntish India to the appellant the consignee at Indore.
Eac~ cons1g:tlfilent was under a railway invoice and a railway
rece1.pt. Freight was payable on each consignment. Coal pro
ductton cess was under the 1944 Rules to be collected by means
of a surcharge on freight. Freight and the coal production cess
as a surcharge thereon were payable at the destination at Indore
by the consignee. The appellant paid freight but did not pay
the coal production cess by way of surcharge. The Union there-
fore sued the appellant for the sums of Rs. 27-8-0, Rs. 27-8-0
and Rs. 28-12-0 aggregating Rs. 83-12-0 in respect of the afore-
said surcharge on the three several consignments.
The validity of the Ordinance came up for consideration by
this Court in R. C. Jail v. Union of India('). In that case suit
was filed in the year 19 5 3 at Chhindwara for recovery of coal
ce.ss on 3 consignments of coal despatched from collieries in the
then British India in the months of January/February, 1947 to
the consigb.ee at Indore. This Court held that coal cess was
levied and collected with the authority of laiiz. This Court how
ever did not decide two contentions sought to be raised. in that
case. These ',Vere first, that coal cess is a fee and not a tax or
duty and secondly, that the consignee was a non-resident and
therefore the Ordinance not having extra-territorial operation
could not reach him.
Counsel bn behalf of the appellant contended that the appel
lant was at the material time a resident" of Indore and was there-
fore not bound by the revenue law of the then British India· and
no suit could be filed for enforcing recovery of revenuei dues
against the appellant. Reliance was placed. in support of the
contention on the decision of the House of Lords in Government y
of India, Ministry of Finance v. Taylor and Anr.( 2 ). In Tay- ,
/or's(') case the Government of India sought to prove in the
voluntary liquidation of a company registered in the United King-
dom but trading in India for a sum due in Ie$pect of Indian
income-tax including capital gains tax, whicli arose on the sa:\e Qf
the company's undertaking in India. It was held by. the majority G
opinion that although under section 302 of the English Compa-
nies Act, 1948 a liquidator was require.cf to provide in the liquida-
tion of the company for liabilities of the company the tax claims
would not be a liability within the meaning of section 302 of the
English Companies Act The un;urimo~ opini?D was that ~e
revenue claims would not be enforceable m relation to assets m
England. The ratio of the decision in Taylor's(') c~ ~ that H
India being a foreign Gove!rnment could not ~ue the liquidator
(I) [ 1962] Supp. 3 S.C.R. 436. (2) [195.5] !A,C, 491; 27 l.T.R. 356.
R. c. JAL v. UNION (Ra.v, J.) 565
Taylor in England for income tax levied and declared to be pay
able under the Indian law. A foreign State cannot enforce . a
claim for revenues against a foreigner in his home country. The
reason is that a foreign court will not be an agency for tax
gathering.
The decision in Taylor's('') case is of no aid to the appellant
in the present case. The Union in the present case did not either
sue or enforce any revenue law in a foreign court.
The Coal Production Cess was levied on coal despatched
from collieries in the then British India. Under the Rules the
excise duty was to be collected by the railway administration as
a surcharge on freight and was to be recovered from the consignee
if the freight charges were to be collected at the destination. The
fact found in the present case was that the coa~ was despatched
from the collieries within the then British India. The appellant
was the consign'ee. Freight charges were to be collected at the
station of destination, namely, Indore. The appellant also paid
the freight charges on the consignments.
The levy of cess which is the taxable event happened within
the then British India. The duty of excise is determined by
reference to goods despatched from collieries. The tax is on the
production of coal. The liability to pay cess. is on the goods.
The cess is a tax on goods and not on the sale of goods. This
Court examined the true character of the cess in Jail's(') case
and Subba Rao, J. speaking for the Court said at page 451 of the 1
Report : "Excise duty is primarily a duty on the production or
manufacture of goods produced or manufactured within the coun
try. It is an indirect duty which the manufacturer or producer
passes on to the ultimate consumer, that is, its ultimate incidence
will always be on the consumer. Therefore, subject always to the
legislative competence of the taxing authoriy, the said tax can be
levied at a convenient stage so long as the character of the impost,
that is, it is a duty on the manufacture or prwuction, is not lost.
The method of collection does not affect the essence of the duty,
but only relates to the machinery of collection for administrative
convenience. . ........... A perusal of the provisions of the
Ordinance 'clearly demonstrates that the duty impOsed is in essence
excise duty and there is a rational connection between the said
tlllC and the person on whom it is imposed". The ruling in
Jail's(') case establishes two propositi0il1S. First, that the cess is
a tluty on the manufacture or production of coal and secondly,
the method of collection does not affect the essence of the excise
duty.
(1) [1955] A.C 491
8-L103 l Sup.CI/72
(2) [1962] Snpp. 3 s.r.R.436.
Sli6 SUPREME COURT REPORTS [1972] 3 S.C.R.
The transaction of sale is a composite transaction consisting
of agreement of sale, passing of title, delivery of goods and pay
ment _of. price and costs charges of transportation. The cess
fonned surcharge on the freight. The appellant being the con
signee was liable. for the same. The cess became a part of the
freight for purposes of collection but in essence the cess remained
a tax on goods. The machinery for collection of the duty is not
to be confused with the duty itself. Once the duty attaches to the
goods these b~ame impressed with the liability and the purchaser,
namely, the consignee in the present case was affixed with the
liability to pay. The liability arose at the colliery. Tho collec
tion was to be at Indore. The appellant became liable to pay the
cess along with the payment of the freight charges.
The suit was filed in the year 1953 when Indore was within
India and the right of the Union to claim as well as -the liability
of the appellant to pay the cess was valid and subsisting. The
Un!_on was therefore entitled to a decree against the appellant.
Counsel on behalf of the appellant &QUght to raise an addi
tional ground that there was no cause of action against appellant
No. 2. Notice of the application for urging additional ground
was given on 22 January, 1972. We did not allow this addi
tional ground to be raised at this late stage. If the appellant had
raised this question at the trial of the suit the respondent would
have dealt with the same. We therefore thought that it would
not be fair and proper to allow this ground to be raised.
For these reasons the judgment of the High Court is affinned.
The appeal is dismissed with costs.
V.P.S. Appeal dismissed.