http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12  

PETITIONER: R. C. JALL

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT: 27/02/1962

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.

CITATION:  1962 AIR 1281            1962 SCR  Supl. (3) 436  CITATOR INFO :  RF         1963 SC1742  (54)  RF         1963 SC1760  (24)  R          1964 SC 925  (23)  R          1967 SC1512  (19,48,66)  R          1970 SC1589  (5)  RF         1971 SC 152  (8)  R          1977 SC1459  (6)  RF         1984 SC 420  (13)  RF         1986 SC 649  (25,28)  RF         1990 SC 781  (67)  RF         1990 SC1927  (70)

ACT: Railway--Suit    for    recovery    of    cess--Limitation-- Maintainability--Consignee,  if  liable--Indian   Limitation Act,  1908(IX  of 1908), Arts.  149,120.50--Constitution  of India, Arts 265, 372--Ordinance No. 39 of 1944--Ordinance  6 of  1947,  s.3--Coal Production Fund Rules, 1944,  rr.6,  3, 3(a), 3(b)--Supreme Court Rules,1950, as amended, O.  XVIII, r.2. 437

HEADNOTE: The  appellant, Amalgamated Coalfields, despatched  by  rail three  consignments  of coal to appellant R.  C.  Jall  from Junner-Deo  to Indore.  The appellant R. C. Jall took  deli- very  of the coal after paying the freight, but by,  mistake the cess payable as surcharge was not ’recovered from him at the time of delivery of goods.  On April 15, 1953, the Union of India representing the Central and Western Railways filed a  suit before the Civil judge Chhindwara, for the  recovery of   the   mid   cess.    Since   important   questions   of interpretation of the Government of India Act, 1935 and  the Constitution were involved, the High Court withdrew the case to  its  own  file for trial.  The  appellants  inter  alia, pleaded then the levy was illegal and the suit was barred by limitation.   The High Court decreed the suit and held  that it was within time and the appellants were liable to pay the cess  against which the present appeals were preferred.   It

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12  

was urged by the appellants (1)    that  art.  149  of   the Indian Limitation Act did not apply and the     suit     was governed by art. 120 of the Limitation Act; (2)   that   the tax   could  not  be  sustained  under  Art.  265   of   the Constitution;  (3) that the excise duty could not be  levied on the consignee; (4) that the purpose of the Ordinance  had exhausted  and the Central Government could no  longer  levy the  tax;  (5)  that  under the  statutory  rules  only  the consignee was liable to pay. Held that art. 149 of the Indian Limitation Act read with art. 120 of the said Act applied to the present case and the suit was within time. Kirpa Sanker v. Janki Prasad A.I.R. 1942 Pat. 87, Secretary of  State for India v. Guru Proshad Dhur, (1893) 1. L.R.  20 Cal  51;Inderchand v. Secretary of State for India (1941)  9 I.T.R.  673  and Government of India v.  Taylor,  (1955)  27 I.T.R. 356, held inapplicable. The  repealing  Ordinance, being a  temporary  one,  expired after  it  fulfilled its purpose.  As it had  continued  the life of the original Ordinance which was a permanent one, in respect  of past transaction, the expiry of its  life  could not  have any effect on that law to the extent  saved.   The repealed  to  ordinance, to the extent saved,  continued  to have  force under Art. 372 of the Constitution and it  could not be said that the coal cess was levied without  authority of law within the meaning of Art. 265 of the Constitution. Hansraj  Moolji v. The State of Bombay, (1957)  S.C.R.  634, relied on. The  Excise  duty is primarily a duty on the  production  or manufacture of goods produced or manufactured within 438 the  country.  Subject always to the legislative  competence of  the  taxing authority the said tax can be  levied  at  a convenient stage so long as the character of the impost,  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,  whether  in  a particular  case the tax ceases to be in essence  an  excise duty  and the rational conncction between the duty  and  the person  on  whom  it is imposed ceased to  exist  is  to  be decided  on  a  fair construction of  the  provisions  of  a particular act. In re the Central Proviaces and Berar Act.  No. XIV of 1938, (1939)  F.C.R. 18, The Province of Madras v. Boddu  Paidanna and  Sons, (1942) F.C.R. 90 and Governor General in  Council v. Province of Madras, (1945) L.R. 72 1. A. 91 applied. In  view of s. 3 of the repealing Ordinance it could not  be said that the purpose of the Ordinance had been exhausted In  the  present case r. 3(a) of the  Coal  Production  Fund Rules 1944, had no application and the only rules applicable was  r.  3 (b).  Rule 6 does not say that if  the  consignee does not pay the consignor is liable to pay and it does  not purport to enlarge the statutory liability of the  consignor or the consignee, as the case may be. Held,  further, that a point of law not taken in the  state- ment of case cannot ordinarily be allowed to be urged at the time of hearing of the appeal.

JUDGMENT: CIVIL  APPELLATE JURISDIICTION: Civil Appeals Nos. 183,  184 of 1959. Appeals  from  the judgment and decree  dated  September  5, 1954, of the Madhya Pradesh High Court in    M.C.  case  No.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12  

214 of 1954. A.   V. Vinwnatha Sastri and J. B. Dadachanji for the  appellant (in  C. A. No. 183 of 1959) and respondent No. 2 (in  C.  A. No. 184 of 1959). B.   Sen and I-N.  Shroff for the appellant in O.A. No.  184 of 1959) and Respondent No. (In C. A No. 183 of 1959). C.   K. Daphthary, Solicitor-General of Y.   Kumar and P. D. Menon for respondent No. 1. (in both-the appeals).  439 1962.  February 27.  The Judgment of the Court was delivered by SUBBA  RAO, J.-These two appeals by certificates  are  filed against the judgment and decree of the High Court of  Madhya Pradesh, Jabalpur, by the two defendants in Civil Suit No. 1 of  1957,  a  suit filed by the Union of  India,  owing  and representing  the  Central  and  Western  Railways  Adminis- trations,  Now  Delhi; against the said defendants  for  the recovery of coal cess amounting to Rs. 81-4-0 and costs. The  material facts may be briefly stated.  Under  Ordinance No.  39  of 1944, the Central Government was  authorised  to levy  and collect as a cess on all coal and coke  despatched from  collieries in British India a duty of excise  at  such rate,  not exceeding Rs. 1-4-0 per ton.  In exercise of  the power conferred on the Central Government under s. 5 of  the Ordinance,  the  said  Government  made rules  ;  and  r.  3 thereof,  the duty of excise imposed under the Ordinance  on coal  and coke shall, when such coal and coke is  despatched by rail from collieries or coke plants, be collected by  the Railway  Administration by means of a surcharge on  freight, and  such duty of excise shall be recovered either from  the consignor or the consignee, as the case may be.  On  January 1,  1947,  February  1, 1947 and  February  7/9,  1947,  the second  defendant,  namely  the  Amalgamated  Coal   fields, despatched by rail to the first defendant three consignments of  coal  from Junner-Deo to Indore.  The  freight  for  the three consignments was payable at the destination station i. e.  Indore.  The first defendant duly paid the  freight  and took  delivery  of  the coal but by some  mistake  the  cess payable  as  surcharge  on the three  consignments  was  not recovered  from the first defendant at the time of  delivery of the goods.  Under 440 s.   55(5)   of   the  Indian  Railways  Act   the   Railway Administration  can   recover  the freight  or  any  balance thereof left unrecovered by way of suit.  On April 15, 1953, the  Union of India,, representing the Central  and  Western Railways I Administrations, filed Civil Suit No. 126 of 1953 in  the Court of the Civil Judge, II Class,  at  Chhindwara, for the recovery of the said cess.  The High Court  withdrew the case and took it on its own file for trial on the ground that important questions of interpretation of the Government of India Act, 1935, and the Constitution were involved,  and it was numbered as Civil Brit No. 1 on 1957.  The defendants inter  alia pleaded that the levy was illegal and  the  suit was barred by limitation.  The High Court held that the suit was  within  time under Art. 149 of the Limitation  Act  and that the defendants were liable to pay the cess and  decreed the suit.  The first defendant filed Civil Appeal No. 183 of 1959 and the second defendant filed Civil Appeal No. 184  of 1959 against the said decree. At  the outset we may take up two of the points, which  were not  mentioned  in  the statement of  case,  raised  by  Mr. Viswanatha  Sastri.  learned counsel for  the  appellant  in Civil  Appeal  No. 183 of 1959.  The said points are  :  (1) Coal  cess is a fee and not a tax or duty and (2) the  first

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12  

defendant  i.e.,  the  consignee, was  a  non-resident  and, therefore,   the  Ordinance  not  having   extra-territorial operation could not reach him.  These two contentions do not find  place in the statement of case as they should.   Under Order  XVIII  r. 2 of the Supreme Court  Rules,  each  party shall  lodge  his case within the time  prescribed  therein, and, under r. 3 thereof, the said case shall consist of  two parts,  and  Part II, which is relevant now,  says  that  it shall set out the propositions of law to be urged in 441 support  of the contentions of the party lodging  the  case. The object of the statement of case is not only to enlighten the  Court on the questions that would be raised before  it, but  also Co enable the opposite party to know  before  hand the arguments he would have to meet and to prepare his  case that  the statement of case should be complete and  full  is also  emphasized  by the fact that, under  the  Schedule  of Fees,  a decent fee is prescribed to the junior  and  senior advocates for preparing the same.  But we regret to  observe that  sufficient care is not being taken in the  preparation of the statement of case as contemplated by the said  Rules. If  the  rules should serve the purpose they  were  intended for,  it  is necessary that counsel should, at the  time  of preparing the case, read their brief thoroughly, decide  for themselves  the  questions that will be raised  and  express them clearly therein.  Any dereliction of this obvious  duty cannot   easily  be  overlooked.   This  Court,   therefore, ordinarily will not allow counsel at the time of hearing  an appeal to raise questions not disclosed in the statement  of case.   There axe no exceptional circumstances in this  case for  us  to  depart from that  salutary  practice,  and  we, therefore.,  cannot allow the appellant to raise  these  two questions before us. The  first  question  is  whether  the  suit  is  barred  by limitation.  The coal cess should have been collected at the time  of  the delivery of the  three  consignments,  namely, January  9, 1947, February 8, 1947., and February 18,  1947, respectively.   The suit was filed on April 24.  1953,  that is, more than six years from the date of amount was payable. It is contended that the suit was, therefore, barred  ,under Art,  120  of the Limitation Act.  The High Court  held  the suit was within time under Art. 149, 442 read with Art. 50, of the Limitation Act.  The said Articles read -----------------------------------------------------------  Description of suit                               Period     Time from  which                               of limi-   period begins to                               tation.    run. =========================================================== 149.Anysuitby or on           Sixty      When the period behalf of the Central         years      of limitation Government or any                        would begin to State Government                         run under this except a suit before                     Act against a the Supreme Court                        like suit by a in the exercise of its                   private person. original Jurisdic-- tion. 50. For the hire of ani- Three      When the hire mals, vehicles, boats         years      becomes payable. or house-hold furni- ture. 120. Suit for which no        Six        When the right

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12  

period of limitation          years      to sue accrues. is provided  else- where in this sche- dule. ----------------------------------------------------------- The High Court held that the suit was of the character of  a suit  contemplated  by  Art. 50 and  therefore  the  Central Government could file the suit within 60 years from the date the  freight  became payable.  Mr. Sastri  contends  that  a private person cannot file a suit like the suit filed by the Central   Government  to  recover  a  statutory  cess   and, therefore,  Art. 149 does not avail the Government and  that in  the circumstances the suit is governed only by Art.  120 of  the  Limitation Act, which prescribes a  period  of  six years from the date the right to sue accrues. The   argument  of  the-  learned  counsel  appears  to   be plausible, but, in our view, has no merits.  It 443 mixes  up the question of maintainability of the  suit  with that  of limitation prescribed under the Act.  For  a.  suit described in Art. 149 a period of limitation of 60 years  is prescribed  and  the period would begin to run as  it  would "against a like suit by a private person".  The article does not posit that such a suit should have been maintainable  at the   instance   of  a  private  party:   it   assumes   its maintainability   and,  on  that  basis,  refers’   to   the appropriate,  article of the Limitation Act for the  limited purpose  of ascertaining the starting point  of  limitation. The  statute of limitation assumes the existence of a  cause of action and does not define it or create one.  To state it differently,  if  a private party had filed a suit  for  the recovery  of a statutory duty, what would be the article  of the  Limitation Act applicable to such a suit?  Article  50, which  prescribes  the period of limitation for  a  suit  to recover  the hire of animals, vehicles, boats  or  household furniture, cannot obviously apply to a suit for the recovery of  a  statutory  cess filed at the instance  of  a  private party.  There is no other specific article in the Limitation Act  applicable to such a suit and,. therefore, it would  be governed only by the residuary Article 120.  Under the  said article,  time  runs  from the time when the  right  to  sue accrues.   It follows that when such a suit is filed by  the Central  Government,  the period of limitation of  60  years should be computed when the right to sue accrues.  The right to  sue  accrued  in the present case  when  the  defendants refused to pay the cess when demanded.  The decisions relied upon  by the learned counsel in support of  his  contention, namely, Kirpa Sanker v. Janki Prasad Secretary of State  for India Guru Prasad Dhur Inderchand v. Secretary of State  for India(3)  and  Government of India v. Taylor  (1)  have.  no bearing on the question raised in the present case, as  none of  those  cases related to a suit filed  by  Government  to recover amount due to it from defendants therein (1)  A.I.R. 1942 Pat. 87. (3)  (1941) 9 I.T.R. 673. (2) (1893) I.L.R. 20 Cal. 51. (4) (1955) 27 I.T.R. 356. 444 We,  therefore, hold that the suit was clearly  well  within time and was not barred by limitation. The  next contention raises the question of validity of  the levy.  The argument of the learned counsel may be summarized thus:  Ordinance 39 of 1944 was a temporary  Ordinance,  and that it was repealed by Ordinance 6 of 1947; that the saving clause in the latter Ordinance applying s. 6 of the  General

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12  

Clauses  Act to the repealed Ordinance fell with the  expiry of  the  repealing Ordinance on January 1,  1947,  with  the result  that  there was no law when  the  Constitution  came ’into  force so as to be continued ’under Art.  372  thereof and, therefore, the duty, if any, payable under Ordinance 39 of  1944  could neither be levied nor  recovered  after  the Constitution  came  into force, as there was no  longer  any authority of law to sustain the said tax within the  meaning of  Art.  265  of  the  Constitution.   To  appreciate   the contention it would be necessary to read the material  parts of the relevant provisions. Ordinance 39 of 1944 Section  2. Imposition and Collection of excise and  Customs duties.-               (1)   With  effect  from  such  date  is   the               Central    Government  may,  notification  in-               the Official    Gazette,   appoint   in   this               behalf, there shall be levied and collected as               a cess for the purposes of this Ordinance,  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               per ton, as may from time to time be fixed  by               the Central Government by notification in  the               Official Gazette.               The  Repealing  ordinance.   Ordinance   6  of               1947.                Section 2. The Coal Production Fund Ordinance               shall be repealed, and for the                445               avoidance of doubts it is hereby declared that               the  provisions  of Section 6 of  the  General               Clauses  Act, 1897 (X of 1897) shall apply  in               respect of such repeal.               General Clauses Act, 1897 (X of 1897).               Section  6.  Where this Act,  or  any  Central               Actor  Regulation made after the  commencement               of  this Act, repeals any enactment  hitherto,               made  or hereafter to be made, then  unless  a               different intention appears, the repeal  shall               not :               (c)   affect  any right privilege,  obligation               or  liability  acquired, accrued  or  incurred               under any enactment so repealed.               (e)   affect  any legal proceedings or  remedy               in  respect  of  any  such  right,  privilege,               obligation, liability, penalty, forfeiture  or               punishment  and any such legal proceedings  or               remedy   may  be  instituted,   continued   or               enforced as if the Regulating Repealing Act or               Regulation had not been passed.               Section  30.   In  this  Act,  the  expression               Central  Act,  wherever  it  occurs  shall  be               deemed  to  include  an  Ordinance  made   and               promulgated by the Governor-General               Constitution of India               Article 372. (i) Notwithstanding the repeal by               this  Constitution of the enactments  referred               to  in  article 395 but subject to  the  other               provisions of this Constitution, all the  laws                             in force in the territory of India  immediatel y               before the commencement of this               446               Constitution  shall continue in force  therein

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12  

             Until  altered  or repealed or  amended  by  a               competent   Legislature  or  other   competent               authority. On  August  26,  1944, the  Governor-General  of  India,  in exercise  of  the powers vested in him under a.  72  of  the Ninth  Schedule to the Government of India Act,  1935,  read ’with  India  &  Burma  (Emergency  Provisions)  Act,   1940 promulgated  the Coal Production Fund Ordinance 1944 (39  of 1944). to constitute a fund for the financing of  activities for  the improvement of production, marketing and  distribu- tion of coal and coke.  This Court in Hansrdi Moolji v. The, State of Bombay(1) held that the deletion of the words  "for the space of not more than six months from its promulgation" from  s. 72 of the 9th Schedule of the Government  of  India Act,  1935,  by  s.1(3) of The India  and  Burma  (Emergency Provisions) Act, 1940, had the effect of equating Ordinances which  were promulgated between June 27, 1940, and April  1, 1946, with Acts passed by the Indian Legislature without any limitation of time as regards their duration, and  therefore continuing  in force until they were repealed.   It  follows from this decision that the Ordinance promulgated on  August 26,  1944. was a permanent one and would continue to  be  in fore  till it was repealed.  The second Ordinance,  that  is repealing, Ordinance, was promulgated on April 26, 1947, and the  repeal  took effect from May 1, 1947.  But  in  express term it declared that the provisions of s.. 6 of the General Clauses Act, 1897 (X of 1897) shall apply in respect of  the repeal.  Without the said express provision, s.6, read  with s.30,  of the General Clauses Act, might have  achieved  the said  result,  but  ex abundanti cautela and  to  place  the matter  beyond any controversy. s.6 of the  General  Clauses Act was expressly made applicable to the repeal.  Under s.6 (1)  [1957].S.C.R.,634 447 of General Clauses Act, so far it is material to the present case, the repeal did not affect the right of the railway  to recover  the freight or the liability of the  defendants  to pay  the same, and the remedy in respect of the  said  right and liability.  The result was that Ordinance 39 of 1944 and the rules made thereunder must be held to continue to be  in respect of the said right and liability, accrued or incurred before  the  said Ordinance was repealed  and  the  remedies available  thereunder.   But  the  life  of  the   repealing Ordinance  had  expired on November 1, 1917.  What  was  the effect of the expiry of the repealing Ordinance on the  said liability   continued  after  repeal  in  respect  of   past transactions?   The repealing Ordinance, being  a  temporary one,  expired  after it fulfilled its purpose.   As  it  had continued  the lift, of the original Ordinance, which was  a permanent  one, in respect of past transactions, the  expiry of  its  life could not have any effect on that law  to  the extent  saved.   The decisions relating to the repeal  of  a temporary Ordinance with a saving clause have no bearing  in the   present  Context,  for  in  that  case  the   repealed Ordinance, in so far as it was kept alive, could not have  a larger  lease of’ life than the repealed and  the  repealing Ordinances  possessed.  If so, it follows that the  repealed Ordinance,  to  the extent saved, continued  to  have  force under the Art. 372 of the Constitution until it was altered, repealed  or amended by competent Legislature.   It  cannot, therefore,  be  said  that  the  coal  cess  was  levied  or collected without the authority of’, law. It  is when  contended that the excise  duty not legally  be levied  on  the consignee  , who had nothing to do with  the manufacture or production of coal.  The argument confuses of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12  

the  incidence of taxation with the machinery  provided  for the collection thereof.  The or an excise duty has been 448 considered  by the Federal Court and the Privy Council.   In re  the Central Provinces and Berar Act No. XIV of  1938(1), which was a special reference by the Governor-General to the Federal Court under is. 213 of the Government of India  Act, 1935.  Gwyer, O.J., described "excise duty" thus:               But  its  primary and fundamental  meaning  in               English  is  still that of a tax  on  articles               produced or manufactured in the taxing country               and intended for home consumption." In  dealing  with the contention advanced on behalf  of  the Government of India that an excise duty was a duty which may be  imposed  on  home-produced  goods  at  any  stage   from production   to  consumption,  the  learned  Chief   Justice observed:               "This  is to confuse two things the nature  of               excise  duties and the extent of  the  federal               legislative power to impose them." After  referring to Blackstone and  Stephen’s  Commentaries, the learned Chief Justice proceeded to state:               "..........  a  brief  examination  of   those               duties shows that in practically all cases  it               is the producer or manufacturer from whom  the               duty is collected.  But there can be no reason               in theory why an excise duty should not be im.               posed  even on the retail sale of an  article,               if the taxing Act so provides.  Subject always               to  the legislative competence of  the  taxing               authority, a duty on home-produced goods  will               obviously  be imposed at the stage  which  the               authority  find to be the most convenient  and               the  most lucrative, wherever it may  be:  but               that   is  a  matter  of  the   machinery   of               collection, and does not affect the  essential                             nature of the tax.  The ultimate incidence  of               an excise duty, a typical indirect tax, must               (1)   [1939] F.C.R. 18, 40, 41, 107.               449               always  be  on the consumer, who  pays  as  he               consumes  or expends : and it continues to  be               excise duty, that is, a duty on  home-produced               or home-manufactured goods, no matter at  what               stage it is collected."’ Jayakar, J., made the following pertinent remarks               ,,And this, in my opinion, is as it should be,               for  if the proper import of an "excise  duty"               is  that it is a tax on consumption, there  is               no  reason why the State should not  have  the               power  to  levy and collect it  at  any  stage               before consumption, namely, from the time  the               commodity  is produced or manufactured  up  to               the time it reaches the consumer." The Federal Court again, in The Province of Madras v.  Boddu Paidanna  and in the context of a question that arose  under the  Madras General Sales Tax Act, 1939, restated the  scope of  an  excise  duty.  Therein  the  learned  Chief  Justice observed:               "There  is  in theory nothing to  prevent  the               Central  Legislature from imposing a  duty  of               excise on a commodity as soon as it comes into               existence,  no  matter  what  happens  to   it               afterwards, whether it be sold, consumed, des-               troyed,  or  given away.  A  taxing  authority

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12  

             will  not ordinarily impose such a  duty,  be-               cause  it is much more convenient  administra-               tively to collect the duty (as in the case  of               most  of  the  Indian Excise  Acts)  when  the               commodity  leaves  the factory for  the  first               time, and also because the duty is intended to               be an indirect duty which the manufacturer  or               producer  is  to  pass  on  to  the   ultimate               consumer,  which  he  could  not  do  if   the               commodity had, for example, been destroyed  in               the  factory  itself.   It  is  the  fact   of               manufacture which               (1)   [1942] F.C.R. 90, 101.               450               attracts  the  duty,, even though it  may,  be                             collected later........... The  Judicial Committee, in Governor-General in  Council  v. Province of Madras (1), approved the views expressed by  the Federal  Court  in regard to excise duties.  In  that  case, Lord Simonds, speaking for the Board, observed:               "An  exhaustive  discussion of  this  subject,               from  which  their  Lordships  have   obtained               valuable  assistance,  is to be found  in  the               judgment  of  the Federal Court in In  re  the               Central  Provinces Berar Act No. XIV  of  1935               (2).   Consistently with this  decision  their               Lordships are of opinion that a duty of excise               is  primarily a duty levied on a  manufacturer               or  producer  in  respect  of  the   commodity               manufactured  or  produced.  It is  a  tax  on               goods not on sales or the proceeds of sale  of               goods.   Here,  again,  their  Lordships  find               themselves   in  complete  accord   with   the               reasoning and conclusions of the Federal Court               in the Boddu Paidanna case(3)." Adverting  to the decision of Boddu Paidanna with  approval, Lord Simonds made the following observations in pointing out the difference between excise tax and sales tax:               "The   two   taxes,  the  one  levied   on   a               manufacturer  in  respect of  his  goods,  the               other  on  a vendor in respect of  his  sales,               may,  as  is there pointed out, in  one  sense               overlap.   But in law there is no  overlapping               The  taxes are separate and distinct  imposts.               If  in fact they overlap, that may be  because               the  taxing  authority,  imposing  a  duty  of               excise finds it convenient to impose that duty               at  the  moment when  the  exciseable  article               leaves the               (1) (1945) L.R. 72 I.A. 91, 103.  101               (3) [ 1942] F.C.R. 90.    101  [1939]   F.C.R.               18,                                    451               factory or workshop for the first time on  the               occasion  of  its sale.  But  that  method  of               collecting   the  tax  it;  an   accident   of               administration;  it is not of the  essence  of               the duty of, excise, which is attracted by the               manufacture itself. With  great respect, we accept the principles laid  down  by the said three decisions in the matter of levy of an  excise duty and the machinery for collection thereof.  Excise  duty is  primarily  a duty on the production  or  manufacture  of goods  produced or manufactured within the country.  It  in’ an  indirect duty which the manufacturer or producer  passes

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12  

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 authority,  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  production, 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.   Whether in a particular case the. tax  ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to  exist,  is to be decided on a fair construction  of  the provisions of a particular Act. In  this case, a perusal of the provisions of the  Ordinance clearly, demonstrates that the duty imposed is in essence an excise  duty and there is a rational connection between  the said tax and the person on whom it-is imposed.  Section 2 of Ordinance 39 of 1944 clearly shows that the tax is an excise duty  on  the manufacture or production, of  coal  or  coke. Section 5(2) thereof confers in express terms a power on the Central Government to make rules, Inter alia, to provide for the  manner  in which the duties imposed  by  the  Ordinance shall  be collected and the persons who shall be. liable  to pay 452 the  duty.   Rule  3  of  the  Rules  made  by  the  Central Government  provides for the recovery of excise duty on  the coal produced; under the said rule it would be collected  by the  Railway  Administration  by means  of  a  surcharge  on freight and such duty of excise shall be recovered from  the consignor, if the freight charges are being prepaid, at  the time  of consignment or from the consignee, if  the  freight charges are collected at the destination of the consignment. The machinery provided for the collection of the tax is,  in our view, a reasonable one.  Having regard to the nature  of the tax, that is, the tax being an indirect one to be  borne ultimately by the consumer, it cannot be said that there  is no  rational  connection between the tax  and  the  consign. When the consignor pays., it cannot be denied that it is the most convenient stage for the collection of the tax, for  it is  the  first time the coal leaves the  possession  of  the consignor.   The fact that the consignee is made to pay,  in the  contingency contemplated by r.3(b) of the rules  cannot affect the essence of the tax, for the consignor, if he  had paid  the freight, would have passed it on to the  consignee and  instead  the  consignee himself pays  it.  The  Central Government  was  legally  competent  to  evolve  a  suitable machinery  for collection without disturbing the essence  of the tax or ignoring the rational connection between the  tax and  the  person on whom it is imposed.  We  hold  that  the machinery evolved under the Rules for collection of the duty satisfies the said conditions and therefore the  exigibility of  the  tax at the destination point in the  hands  of  the consignee cannot legitimately be questioned. Another  facet of the contention of Mr. Sastri is  that  the purpose  of  the  Ordinance  had  worked  itself  out   and, therefore,  the Central Government could no Ionizer levy  or collect  the  tax.   The purpose of  the  Ordinance  was  to constituted a fund  453 for  the  financing  of activities for  the  improvement  of production,  marketing and distribution of coal.  Section  3 of  the  repealing Ordinance provided  that  the  unexpended balance, if any, at, the credit of the Coal Production  Fund constituted  under the aforesaid Ordinance shall be  applied

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12  

to  such purposes connected with the coal industry,  as  the Central  Government  may  direct.   The  validity  of   this Ordinance  has not been questioned.  It, therefore,  follows that  the purpose of the Ordinance has not  been  exhausted, for  under  s.3  of the  repealing  Ordinance,  the  Central Government  is authorized to apply the Coal Production  Fund to  such purposes connected with the coal  industry.   There is, therefore, no force in this argument. The  last  contention is raised by the  appellant  in  Civil Appeal No. 184 of 1959.  The High Court held him also liable for  the payment of the cess on the ground that he  was  the person   who   entered  into  contract  with   the   Railway Administration  for the carriage of the goods and  that  the collection  of freight was in respect of his goods and  that he  was the main contracting party.  The was  given  against him on the basin that he was under a contractual  obligation to  pay the amount.  Mr. Son, appearing for this  appellant, contends that the consignments were on F.O.R. basis and that under  the statutory rules only the consignee is liable  and that  the High Court was wrong in giving, a  decree  against him As we have already pointed out earlier, under r.3 of the Coal Production Fund Rules, 1914, the Railway Administration is  empowered  only  to  collect the  cess  by  means  of  a surcharge on freight from, (a) the consignor, if the freight charges  are being prepaid at the time of  consignment,  and (b) from the consignee, if the freight charges are collected at the destination of the consignment.  In the present case, r.3(a) has no application, for the freight charges were  not prepaid at the time of 454 consignment,  and therefore the only rule  applicable  where under  the Railway Administration earn seek to  recover  the cess is r.3(b) i.e., the consignee. has to pay it.  The rule does  not empower the Railway Administration to recover  the tax,  in the circumstance of the cast,, from the  consignor. Learned Solicitor General seeks to sustain the decree of the High Court on the basis of r.6, which reads :                "Refunds  and  Recoveries  :-(1)  Where   the               amount  of excise duty due under  these  rules               has  not  been collected either wholly  or  in               part  or  where  the amount  collected  is  in               excess   of  the  amount  due,   the   Railway               Administration  shall  deal  with  the   under               charges or overcharges, as the case may be, on               the  same principles as apply to  undercharges               and overcharges in  regard to Railway  freight               charges." It is suggested     that, under this rule in the case of an undercharge,  the  Railway Administration  can  collect  the deficit  either from the consignor on consignee.   The  rule does  not  say  that  if the  consignee  does  not  pay  the consignor is,, liable to pay.  The rule does not purport  to enlarge  the  statutory liability of the  consignor  of  the consignee,  as  the case may be and, therefore, it  must  be understood to provide only for the recovery of  undercharges from  persons statutorily’ liable to pay in accordance  with the principles governing the railway freight charges ca. In  the  result, Civil Appeal No. 183 of 1959  is  dismissed with costs of the first respondent, and Civil Appeal No. 184 of  1959  is  allowed with costs to be  paid  by  the  first respondent. C.   A. 183 of 1959 dismissed. C.   A. 184 of 1.959 allowed. 455

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12