R. C. Jall v. Union of India

Judgment

8, S. Jfunno 1..~l 8. 8. Rajk.,.., Slid. J, IY~2 Fth1uary 21. as property. The High Court was therefore, in our judgment, in error in holding that the right dccla· rc<l in favour of Khilonahai was not possessed by her, nor are we able to agree with the submission of the learned ·counsel for Raj Kumar th·1t it was not property within the meaning of s. 14 of the Act. On that view of the case, by virtue of ss. 15 and l6 of the Act, the interest deolared in favour of Khilonabai devolved upon her sons Munnalal and Ra.mchand to the exclusion of her grandson Rajkumar. The decree passed hy the High Cuurt is therefore modifie<l in this respect and the decree passed by the trial Court restored. Having regard to the p11rtial success of the parties, there will be no order as to costs in this appeal and in the High Court. Appeal partl,y allowed. R. C. JALL UNION OF INDIA (B. P. SI:SIIA, c. J., K. SUBBA RAO, N. RAJAGO· PALA AYYA~GAH, J. R. '.\TuDHOLKAR and T. L. VENKATARAMA AIYAR, JJ.)

Railu•a.y -- ,'\1litfo1 recorer.rJ of CP&.r1-limitation-Jlaint .. n.inrzbilit11 -- Co11signee ~f !iable--l1ulirtn Limitation Act, mos (LY of 1908), Art.;, 149, no;;o -- Con•litution of l11dia, Arts 265, .)72 - Ordinance Yo. 39 or 1944 -- Ordinance 6 of 1947, .•.. 1-•;oal Production Fund Ritl,., /!144, rr.6, .1, 3(a), 3(b) -Supreme Court Rule.•, 19W, as amended, 0. XI' lll, r.2. 3 S.d.R. The appellant, Amalgamated Coalfields, despatched by rail three consignments of coal to appellant R. C. Jail from Junner-Deo to Indore. The appellant R. C. Jail took delivery of the coal after paying the freight, but by mistake the ccss 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 said 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 that 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 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, Secre,tary of State for India v. GuruProshad Dhur, (1893) I.L.R. 20 Cal 51; Inderchand v. Secretary of St,atefor India (194l) 9 I.T.R. 673 and Government of India v. Taylor, (1955) 27 l.T.R. 356, held inapplicable, The repealing Ordinance, being a temporary one, expir· ed 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 R. c. Jail Union of IntlU. R.C. Jail llnion of India 4S8 SUPHEME COURT REPORTS [1962] SUPP. the country. Sulijcct ahvays to the legislath·e cornpctencc of the taxi11g 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 Out only relates to the n1achincry of collection for administrative convenience, \vhethcr in a particular case the tax ceases to be in essence an excise duty and the rational connection bet\\'Ccn the duty and the person on \vhom it is imposed ceased to exist is to be decided on a fair construction of the provisions of a particular act. In re th' Cenlm/ Proi·i>!ce.1· and IJerar Acl. No. XIV of 1938, (1939) F.C.R. 18, The Pro1:ince of Afodra" v. Boddu Paidanna and Sons, ( 1942) F.C.R. 90 •nd Goi:ernor General in Council v. Province of Madra~, ( 1945)

L:R. 72 I. A. 91 applied. In vir:\v of!'. 3 of the repcali11g 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 applic•tion and the only rules applicable was r. 3 (b). Ruic 6 does not say that if the consignee docs not pay the consignor is liable to pay and it d·oes 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 statement of case cannot ordinarily be allowed to be urged at the time of hearing of the appeal. CrvIL APPELi.AT~; .Jumsu1C'rION: Civil Appeals Nos. 183, 184 of 1959. Appeals from the judgment and decree dated September 5, 1954, of the .llaclhya Pradesh High Court in M.C. Case ~o. 214 of 1!154. A. V. Visu-anatha Sa,stri and J.B. Dadachanji for the app<ellant (in C. A. No. 183 of 1959) and respondent No. 2 (in C. A. No. 184 of 1959). B. Se:n and .J. N. Shroff for the appellant (in C.A. Xo.

184 of 1959) and Respondent No. (In C. A No. 183 of 1959). C. K. Daphtary, Solicitor·Gtneral of India. Y. Kumar and[>. D. Mown for respondent No.I. (in both the appeals). 3 S.d.R. 1962. February 27. 'Ihe Judgment of the Court was delivered by SUllBA 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, owlng and representing the Central and Western Railways Administrations, New Delhi; against tlie 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 dutv 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 l, 1947 and February 7/9, 1947, the second defendant, namely the Amalgamated Coalfields, 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 R.C. Ja •l Union of India Subba Rao J. 1116% 11.C .• Jail Um.on o/ /nJ,a Subba Rao J. SlJPRE;\lE COURT REPORTS [Hl6:!]

SUPP. s. 55( 5) of the Indiau Hail ways Act the H.ailway Administration can rcco\'er tho freight or any balance thereof left umecuverc<l by way of 8Uit. Ou April 15, HJ53, the L:nion of Iudia, rcprcscntiJJg the Central and We~tem Hail'ways A<lministratiunB, filed Civil Suit No. UG of l!J53 in the Court ufthc Civil Ju<lgc, II Ciaos, at Chhindwam, for the recovery of the said ccso. The High Court w ith<lrcw the case and took it on its owu file for trial ou the ground that important-qu cstions of m t{)r prctation of the Government of India Act, l!i35, and the Comtitution were involved, an<l it was numbered us Civil Suit :\ o. I of HJ5i. The dcfeudants i11ter alia pleaded that the levy was illegal and the suit was bar· red by limitation. The High Court held that the suit was within time unclt r Art. U!J of the Limitation ~.\ct and that the Jefendants were liable to pay the cess and decreed the suit. The first defendant filed Civil Appeal Xu.

183 of HJ5!J and the second defendant filed Civil App<;al ~o.184 of l!J59 against the said decree. At the outset we may take up two 0f the pointll, which were not mentioned iu the statement of case, raised by Mr. Viswanatha Sastri, foamed counsel for the appellant in Civil Appeal No. I 8il of l!J59. The sai<I points are : (I) Coal ceas is a foe and not a tax or duty and(~) the first defcnda11t i.e., the consignco, was a non-resident and, therefore, the Ordinance uot having extra-territorial operation could not reach him. '.l'heso two cont.,ntious do not find place in the statement of case U8 they should. llndcr Order X \:III r. :! of the Supreme Court ltules, each party shall lodge his case within the time prcscri bed 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 1et out the propositions of law to be urged in 3 s.c.H.. 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 to 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 samt. 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 tlwroughly, 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 are no exceptional circumstances in this case for us to depart from that saluta1·y 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, 194 7, February 8, 1\)47, 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, 1962, R. C. Jall Union of lndi J S ubba Bao J , lHJ R. 0. J•/l Union •!India S.hb• Rao J. 442 SUPHEME COURT REPoRTS [1962)

SUPP. read with Art. t)O, of the Limitation Act. 'fhe said Artioles rrad : Period Time from which Description of suit of Iimiperiod Logins to tation. run. 149. Any suit by or on behalf of the Central Government or any 8tate Government oxcopt a suit before the Supreme Court in the exorcise of ita original jurisdic-- tion. 50. For the hire of animals, vehicles, boats or house-hold furniture. Sixty When tho period yearn of limitation would begin to run under this Act against like suit by a private person. Three Whon the hire yoars becomes payable. 120. Suit for which no Six period of limitation years is provided else- When the right to sue accrues. where in this schedule. The High Court held that the suit was of the character of a suit contemplated by Art. 50 and therefore the Contra) Government could file the suit within 60 years from the date the freight beoa.me payable. Mr. Sastri contend~ that a private person cannot file a suit like the suit filed by tho Central Government to recover a statutory ces3 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 tho right to sue accrues.

The argument of the learned counsel appears to be plausible, but, in our view, has no merits. It 3 s.c.R. 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 priv11.te 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 artfole of the Limitation Act applicable to suoh 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 ccss 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 i11 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 conteµtion, namely, Kirpa Sanker v. Janki Prasad ('), S'ecretary of State for India v. Guru Prasad Dhur ('), 1 nderchand v. Secretary of State for I ndW,(') and Go'OON!- ment of India v. Taylm (')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.

(I) A.I.R. 1942 Pat. 87. (2) (1893) I.L.R. 20 Cal. 51. (3) (1941) 9 I.T.R. 673. (4) (1955) 27 I.T.R. 356. R.0. J•ll Union of.fndia Subha Rao J. R.r:. Jall v •• l}nfou of lr.diu S ubha Rao -J. 4-44 We, therefore, hold that the snit waR clearly well within time and was not barred by limitation. The nt'xt cont0ntion raises the question of validity of the levy. The argum~·nt of the learned counsel nmy be summarized thus: Ordinance 3D of l9i4 was a temporary Ordinanco, .'\nd that it was repcn,Jed by Ordinance 6 of 1947; that the saving clause in the latter Ordinance applying s.

6 of the General Clauses Aet to the repealed Orclinauce fell with the oxpiry of the repealing Ordinance on January I, 194i, with the result that there was no la.w· when the Constitution came into force so as to be continued under Art. :n~ thereof and, therefore, the duty, if any. pa.ya.hie under Ordinance 39 of 1944 could neither be levied nor r<>CO"l"ered after the Constitution came into force, as thero was no longer any authority of law to suatain the said tax within th1' meaning of Art, 265 of the Constitution. To a11preciato the contention it would be necessary to read the ma.teiial parts of the relevant provisions. Ordinance 39 of 1944 Section 2. Imposition and Collection of excise and Customs duties.- ( I)

With effect from such date as 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 nnd coke despatched from collieries in British India a duty of excise a.t Buch rate, not excoeding one rupee a.nd four annas per ton, as may from time to timo be fixed by the Central Govornment by notification in the Official Gazette. 'l'he Repe,aliny Ordinance. Ordinance 6 of 1947. Section 2. Tho Coal Production l•'und Ordinanoe, 1944, shall be repealed, and for the avoidance of doubts it is hereby declared that the provisions of Section 6 of tbe General Clauses Act, 1897 (X of 1807) shall apply in respect of such repeal. General Clauses Act, 1897 (X of 1897). Section 6.

Where this Act, or any Central Act or 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:- x x x x x x affect any right privilege, obligation or liability acq~ired, accrued or incurred under any enactment so repealed. x x x x x (e) affect any ............ leg~l 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 enforeed ......... 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 Orilinance made and promulgated by the Gov<'rnOr·General ......... Constitution of India Article 372. { i)

N otwitbstanding the repeal by this Constitution of the enactments referred to in article :{95 but subject to the other provisions of tbis Constitut,ion, all thn laws in force in the territory of India immediatelr btifore the cmnmence~ent of thia, R. C. Jail Union of /11di1 Suhba Rno J, 19"2 R.C. Jall Union of India Subha Rao J. 446 SUPREME COUR'."i: .REPORTS [1962). SUPJ:>. Constitution shall continue in force therein until altered or repealed or amended by a competent Legislaturn or other competent authority. On August 26, 1944, the Governor-Gener.'>! of In<lia, in exel'ciso of tho powers vestPd in him urnkr s. 72 of the ~inth Schedule to the Government of Indi11. Act, 1935, r<~ad with India & Burma (Emergency Provisions) Act, 1940 promulgated •.he Coal Produc. tion Fund Ordinance 1944 (39 of 1944) to constitute a fund for tho financing of activities for the improvement of production, marketing and distribution :if coal and coke. This Court in !Jri 1swj Moo/ji v. The State of Romhay(1) held that the deletion of the words "for the space of not moro than bix months from its promulgation" from H i~ of th" !lth Schedule of the Governm•mt of fndia Act, 193:>, bys.

I (3) of The India and Burma (Emerg•·ncy Provisions) Act, 1940, had tho effoc·t of equating Ordi· nances which were promulgated between .June 27, 1940, and April I, 1946, with Acts passccl by t.he Indian Legislature without any limitation of time as regards their c!uration, and therefore continuing in forec until they wore repealed. It followH from thi;i decision that the Ordinance promulgated on August 26, 1944. was I' permanent one and would continue to be in fore till it was repealed. The second Ordinance, that itc_ repealing, Ordinance, waH promulgated on April :!6, l!l4i, and the repeal took effect from :lfay I, 1947. But in express term it declared that tho provisions of s. G of the General Clauses Act, 189i (X of l89i)

Hhall apply in respect of the repeal. 'Vithout the said cxpr<>ss provision, s.H, read with s.30, of tho General Clauses Act, might have achi<'ved the said result, but e.T ab·undanti cautela and to place the matter bcy•HHI nny controversy, s.(; of the General Clans<'S Act w1Ls expressly ma.de applicable to tho repeal. Uoder s.6 (I) [1957].S.C.R._634. 3 S.Q.R. or 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. Tl)e result was that Ordinance 39 of 1944 and the rules made thereunder must be held to continue to he in respect· of the said right and liability, accured or incurr<'d before the said Ordinance was repealed and the remedies available thereunder. But the life of the repea· ling Ordinance had expired on.November J, 1947.

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 life of the original Ordinance, which was permanent one, iu 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 aliv<', 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 e:ictent 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 then contended that the excise duty cannot legally be levied on the consignee, who had nothing to do with the manufacture or production of coal. The argument confuses the incidence of taxation with tJ>~ machinery provided for the collectjoµ tqereof. The natqre of an e:iccise d11ty J:ias beeIJ R. G. Joli Uaion of India Subba Rao J, /LC.Jail Unim of Ind/• Subb1 Rao J. considered by the Federal Court and the Privy Council. In In re lhe Central Province& und Bemr Act No. XIV of lf)38( 1), which was a spclcial reference by the Governor Genenl to the Federal Court under~. :!l:l of the Govllrnm~nt of forl.ia Act, l935. Gwyer, C.J., described "excise duty" thus: 'But its prima.ry and fundamental moaning in Engli~h is still that of a. tax on articles produced or motnufactured in the taxing country and int.ended for homo consumption."

In dealing with the contention advanced on behalf of the Government of India that an excise duty was a duty which may bu imposed on home-produced goods at any stage from production to consumption, the learned Chief Justice observed: "Thia is to confuse two things, the na. ture of excise duties and the extent of the federal legislative power to impose them." After referring to Blackstone and Stophen's Commentaries, the learned Chief .Justice proceeded to state: " ......... a brief examination of those duties shows that in practically all c~es it iq the producer or manufacturer from whom the duty is collected. But there can be no reason in theory why an excise duty shoulrl not be imposed even on the retail sale of an artiele, if the taxing Act so providP8.

Subjeet alway8 to the legislative competence of the taxing authority, a duty on homo-produced good8 will obv:ioue ly be impose<! at the stage which the a.uthoritv find to be the most C'lnvcnient and tho mc;st lucrative, wherever it may be: but that is a matter of the machin<"ry of co llcction, an< 1 does not affect the cAscntial nature of the tax. ·The ultimat,{i incidence of an exciRe duty, a typical indirect tax, must , I) [1939) f.C.R, 18, 40, 41, 107, 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." J ayaka.r, J., made the rollowing pertinent remarks :

"And this, in my opinion, is as it should be, for if the proper import of an "excise li'luty" 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 Son8( 1), 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 ~ustice 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, destroyed, or given away.

A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively .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 (IJ [1942] F.C.R. 90, 101. R. C. Jail Unian of India Sabha Rao J. B. C Jail ll.Wn aj India SujlHI RaaJ. attracts the duty, even though it may be collected later ......... ". The Judicial Committee, in Governor-Gt1wral in Cauncil v. Province of Jludms (1), approved tho views expressed by the .Fedora) Court in regard to exciile 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 Pro?/in.ces and Berar Act No. XIV of 1935 ('). Consistantly with this decision their Lordships aro of opinion that a duty of excise is primarily a cuty levied on a manufacturer or producer in respect of the commodity manufactered or produced. It is a tax on goods not on sales or the proceeds of sale of goods. Here, again, their Lordships find themsolves in complete accord with the reasoning and conolusions of the Federal Court in the Boddu Paidanna case(')." Adverting to the decision of Boddu Paidanna case(') 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 thero 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 ii) (1945) I..R.72J.A.91,J03. (2) (1939]F.C.R.IS, (3) [ 1942] F.C.R. 90, IOI, factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is 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. lt in 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 s><id tax ca.n 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 adm1nistrative 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 imposnd 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 oollected and the persons who shall be liable to pay 196• R. C. Jail Union of India Suhba Rao J, R. C. Jall Union of India Si.bba Roi J. SUPRE'.IIE COURT REPORTS [1962] SUPP. the duty.

Ruic 3 of th~· 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 arc being prepaid, at the time of consignment or from the consignee, if the freight charges are collected at the destination of .tho 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 consignee, 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 posseSBion of the consignor.

The fact that the consignee is made to pay, in the contingency contemplated by r.il(h) of the rules cannot affect the cFsence 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 Centr~l Govemment 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 thcreforn the exigihility of the tax at the destination point in tho hands of tho consignee cannot legitimately be questioned. Another facet of the contention of Mr. Sastri is that the purpose of tho Ordinance had worked itself out and, therofore, the Central Government could no longer levy or collect the tax.

The pur. pose of the Ordinance was to constituted a fund - . a s.c.a. for the financing of activities for the improvement of production, marketing and distribution of coal. Section 3 of the repealiug Ordinance provided that the unexpended balance, if any, at the cr0dit of the Coal Production Fund constituted under the afore· said Ordinance shall be applied to such purposes connected with the coal industrv, a9 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. Thero 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 grou· nd 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 decree was given against him on the basis that he was under a contractual obligation to pay the amount. Mr. Sen, 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 Co11.l Production Fund Rules, 10±4, the Railway Administration is empowered only to collect the cess by means of a surcharge on freigh L from, (a) the consignor, if the freight charges ar!" being pre-paid at the time of consignment, and ( u) 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 frei~ht charges were not pre-paid at the time of R. C. Jal/ (Jnion of lnlia Subba Rao J. 1962' R. C. :J~ll Union of1n.dia Subba Hao J. consignment, ahd therefore the only rule applicable whereunder the Railway AdministFatjon can seek to recover thecess is r.:{(b) i.e., the consignee hlj,s to pay it. ThP rule does not empower ·the Railway Administration to recover the tax, in the circumstances of the case, from the consignor.

Learned Solicitor General se'eks to sustain the decree of the High c·ourt on the basis of r:6, which reads : '.'Refunds and Rewveries :-(l) Where· the simount 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 · ~ fhe amount due, the Railway Administration shall-deal with the underoharges or overcharges, as the case may be, On the same_ principles as apply . to undercharges and OVE'rcharges in • regard to Railway freight charges." It is suggested that, under this rul\l in the case of an undercharge, the Railway Administration can collect the deficit either from the codsign.or on consigI\ee. The rule does not say that if the consignee does not pay the consignor is liablu to pay.

The rule does not purport to en!ltrge the statutory liabHity of the consignor of the consignee, as the case may ue and, therefore, it must be understood to provide only for the r.13covery of undercharges from persons statutorily liable to pay in accordance with the principles gqverning the railway freight charges. In the result; Civil Appeal No. 18.J of 1959 is dis.missed with costs of the first respondent, and Civil Appeal No. 184 of 1959 is allowed with .costs to be paid by the first respondent. . 0.A. 183 of 1959 dismissed. 0.A. 18'1of1959 allowed. 1