Case: R.C. Jal and Another Vs. Union of India

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.

Reasoning: The validity of the Ordinance came up for consideration by this Court in R. C. fall v. Union of India([1962] Supp. 3 S.C.R. 436.). 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 himThe 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 consignmentsThe 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 Jalls([1962] Supp. 3 S.C. P. 43 6.) 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 t axing 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 galls(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.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 o n 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 chargesThe 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.