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PETITIONER: R.   C. JAL & ANR.

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT23/02/1972

BENCH:

ACT: Coal Production Fund Ordinance (39 of 1944)--Coal despatched from  colliery  in British India to  consignee  in  Princely State--Liability of consignee to pay the cess.

HEADNOTE: Coal was despatched from colleiries within British India  in December  1946  and  January  and  February  1947,  to   the appellant  in Indore.  The respondent filed a suit  in  1953 for  recovery of coal production cess levied under the  Coal Production  Fund  Ordinance, 1944, and r. 3(1) of  the  Coal Production Fund Rules, 1944. On  the  question whether the Ordinance had  no  territorial operation to reach the appellant, because, he was a resident of a Princely State at the time of dispatch of the coal. HELD:In  R. C. Jall v. Union of India, [1962]  Supp.  3 S.C.R. 436,. it was held that the cess was an excise duty on the manufacture or production of coal and that the method of collection did not affect the essence of the duty.  The coal production cess was on the production of coal and was levied on  coal  dispatched  from collieries in  the  then  British India,  that is, the taxable event happened within the  then British  India.   Under  the  Rules,  the  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 appellant was the consignee and the freight charges were to be collected from him at the destination, namely, Indore. The  cess thus became a part of the freight for purposes  of collection but in essence remained a tax on goods.  Once the duty  attaches to the goods they became impressed  with  the liability and the consignee was liable to pay.  The suit was filed in 1953 when Indore was within India and the right  of the  Union to claim, as well the liability of the  appellant to  pay, the cess, was valid and subsisting.  It was  not  a case of the Union seeing or enforcing any revenure law in  a foreign  court.   Therefore,  the Union was  entitled  to  a decree against the appellant. [565D-H; 566B-D] Govt.  of India, Ministry of Finance v. Taylor, [1955]  A.C. 491; 27 I.T.R. 356, distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1920 of 1968. Appeal from the judgment and decree dated April 15, 1968  of the  Madhya Pradesh High Court in Letters Patent Appeal  No. 21 of 1962. M.   C. Chagla, A. K. Verma, B. Datta, J. B.  Dadachanji, O. C. Mathur and Ravinder Narain, for the appellants.

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562 Jagdish Swarup, Solicitor General of India, S. N. Prasad and B.   D. Sharma, for the respondent. The Judgment of the Court was delivered by 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 Judge 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 dispatched 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  Ordinance of  1944.   It  extended to the whole of  the  then  British India.   Section 2 of the Ordinance provided inter  alia  as 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 collected as a  cess               for  the  purposes of this Ordinance,  on  all coal  and coke dispatched 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               notification  in the official Gazette,  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  addition  to any other duty of  excise  or               customs for the time being leviable under  any               other law.               563               (4)The.,  duties  imposed by  this  section               shall,  subject to and in accordance 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 manner  in which the duties imposed by this Ordinance  shall be  collected, the persons 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  realizations 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(1)  was  as

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follows               "Recovery  of  excise duty : (1) The  duty  of               excise imposed  under  sub-section  (1)   of               section  2 of the Ordinance on coal  and  coke               shall, when such coal or coke is dispatched by               rail  from  collieries  or  coke  plants,   be               collected  by the Railway  Administrations  by               means of a surcharge on freight, and such duty               of excise shall be recovered               (a)   from   the  consignee  if  the   freight               charges  are being prepaid at the  destination               of the consignment;               (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 1944 was repealed by  the Coal  Production  Fund  (Repealing)  Ordinance,  1947.   The Repealing  Ordinance  of 1947 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 railway 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 dispatched in the  months of 564 December,  1946, January 1947 and February, 1947 from  three different   collieries   at   Mohuda,   Unwia   and   Burhar respectively in the then British India to the, appellant the consignee  at Indore.  Each consignment was under a  railway invoice and a railway receipt.  Freight was payable on  each consignment.  Coal production 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  therefore  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  aforesaid surcharge on the three several consignments. The  validity of the Ordinance came up for consideration  by this Court in R. C. fall v. Union of India(1).  In that case suit  was filed in the year 1953 at Chhindwara for  recovery of  coal  cess on 3 consignments, of  coal  despatched  from collieries  in  the  then British India  in  the  months  of January/February,  1947  to the consignee at  Indore.   This Court held that coal cess was levied and collected with  the authority  of  law.  This Court however did not  decide  two contentions  sought to be raised in that case.   These  were 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  on  behalf  of the appellant  contended  that  the, appellant was at the material time a resident of Indore  and was  therefore  not  bound by the revenue law  of  the  then British  India  and  no suit could be  filed  for  enforcing recovery  of revenue dues against the  appellant.   Reliance was placed in support of the contention on the decision  of the  House  of  Lords in Government of  India,  Ministry  of

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Finance  v.  Taylor  and Anr.(2). In  Taylor’s(2)  case  the Government  of  India  sought- to  prove  in  the  voluntary liquidation  of a company registered in the  United  Kingdom but  trading  in India for a sum due in  respect  of  Indian income-tax  including capital gains tax, which arose on  the sale of the company’s undertaking in India.  It was held  by the majority opinion that although under section 302 of  the English  Companies  Act, 1948 a liquidator was  required  to provide in the liquidation 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 unanimous opinion was that the revenue claims would  not be enforceable in relation to assets in England.  The  ratio of  the decision in Taylor’s(2) case is that India  being  a foreign Government could not sue tile liquidator (1) [1962] Supp. 3 S.C.R. 436. (2) [1955] A.C. 491; 27 I.T.R. 356. 565 taylor  in England for income tax levied and declared to  be payable  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(1)  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 coal was  despatched  from  the collieries within the then British India.  The appellant was the consignee.  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 Jall’s(2) case and Subba Rao, J. speaking  for  the Court  said  at  page 451 of the Report :  "Excise  duty  is primarily  a duty on the production or manufacture of  goods produced  or  manufactured  within the country.   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 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...............  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 tax and the person on whom it is  imposed". The  ruling in gall’s(2) case establishes two  propositions. First,  that  the  cess  is a duty  on  the  manufacture  or production  of coal and secondly, the method  of  collection does not affect the essence of the excise duty.

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(1) [1955] A-C 491      (2) [1962] Supp. 3 S.C. P. 43 6. 566 The   transaction  of  sale  is  a   composite   transaction consisting of agreement of sale, passing of title,  delivery of  goods  and  payment  of  price  and  costs  charges   of transportation.   The cess formed surcharge on the  freight. The  appellant being the consignee 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 became 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.   The collection 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 Union was therefore entitled to  a  decree against the appellant. Counsel on behalf of the appellant sought 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  additional 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 affirmed.  The appeal is dismissed with costs. V.P.S.                       Appeal dismissed, 567