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
562 Jagdish Swarup Solicitor General of India section 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    3A 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 4The 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 31 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 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 vs Union of India1
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 JanuaryFebruary 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 vs Taylor and Anr2
In Taylor s2 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 s2 case is that India being a foreign Government could not sue tile liquidator 1 1962 Supp 3 SCR 436
2  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 s1 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 s2 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 s2 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
1 1955 A C 491 2 1962 Supp 3 SC 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


Summary:
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 31 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
HELDIn R C Jall vs Union of India 1962 Supp 3 SCR 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 vs Taylor 1955 AC 491  distinguished