R. C. Jal & ANR Vs. Union of India
 INSC 60 (23 February 1972)
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.
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, 
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,
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,  A.C.
491; 27 I.T.R. 356, distinguished.
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
M. C. Chagla, A. K. Verma, B. Datta, J. B.
Dadachanji, O. C. Mathur and Ravinder Narain, for the appellants.
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 upholding 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
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 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
(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
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. 2812-0 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 Finance v. Taylor and Anr.(2). In
Taylor's(2) case the Government of India soughtto 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)  Supp. 3 S.C.R. 436.
(2)  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
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.
(1)  A-C 491 (2)  Supp. 3 S.C. P.
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
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 additional 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.