R. C. Jall vs Union Of India

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 183, 184 of 1959

Decision Date: 27 February, 1962

Coram: Bhuvneshwar P. Sinha, N. Rajagopala Ayyangar, J.R. Mudholkar, Subba Rao

In the case titled R. C. Jall versus Union of India, the Supreme Court of India issued its judgment on 27 February 1962. The bench that heard the matter consisted of Justice Bhuvneshwar P. Sinha, Justice N. Rajagopala Ayyangar and Justice J. R. Mudholkar. The petitioner was R. C. Jall and the respondent was the Union of India. The decision was reported in 1962 AIR 1281 and 1962 S. C. R. Supplement (3) 436, and it has been cited in many subsequent reports, including RF 1963 S. C. R. 1742, RF 1963 S. C. R. 1760, R 1964 S. C. R. 925, R 1967 S. C. R. 1512, R 1970 S. C. R. 1589, RF 1971 S. C. R. 152, R 1977 S. C. R. 1459, RF 1984 S. C. R. 420, RF 1986 S. C. R. 649, RF 1990 S. C. R. 781 and RF 1990 S. C. R. 1927. The issues involved the Railway suit for recovery of a cess, the limitation period, and the liability of the consignee, and they were governed by the Indian Limitation Act 1908 (articles 149 and 120‑50), the Constitution of India (articles 265 and 372), Ordinance No. 39 of 1944, Ordinance 6 of 1947 section 3, the Coal Production Fund Rules 1944 (rules 6, 3, 3(a), 3(b)), and the Supreme Court Rules 1950 as amended (Order XVIII rule 2).

The factual background was that the appellant Amalgamated Coalfields shipped three consignments of coal by rail from Junner‑Deo to Indore for the benefit of the petitioner R. C. Jall. The petitioner received the coal after paying the freight charges, but because of a mistake the cess that was to be charged as a surcharge was not collected at the time of delivery. On 15 April 1953 the Union of India, representing the Central and Western Railways, filed a suit before the Civil Judge at Chhindwara seeking recovery of the unpaid cess. Because the suit raised important questions of interpretation of the Government of India Act 1935 and of the Constitution, the High Court withdrew the matter to its own file for trial. The petitioner and the coalfields raised several grounds, contending that the levy was illegal and that the suit was barred by limitation. The High Court dismissed those contentions, decreed in favour of the Union of India, held that the suit was filed within the prescribed period and that the petitioners were liable to pay the cess, and the present appeals were filed against that order.

The petitioners put forward five principal arguments. First, they claimed that article 149 of the Indian Limitation Act did not apply and that the suit should instead be governed by article 120 of the same Act. Second, they argued that the tax could not be sustained under article 265 of the Constitution. Third, they maintained that an excise duty could not be imposed on the consignee. Fourth, they asserted that the purpose of the relevant Ordinance had been exhausted, so the Central Government no longer possessed authority to levy the tax. Fifth, they relied on the statutory rules, which they said made only the consignee liable for payment. The Court held that article 149, read together with article 120 of the Indian Limitation Act, was applicable to the case and that the suit was timely. The Court also examined earlier authorities, namely Kirpa Sanker v. Janki Prasad (A.I.R. 1942 Pat. 87), Secretary of State for India v. Guru Proshad Dhur (1893 1 L.R. 20 Cal 51), Inderchand v. Secretary of State for India (1941 9 I.T.R. 673) and Government of India v. Taylor (1955 27 I.T.R. 356), and held that those precedents were inapplicable. The Court further noted that the repealing Ordinance was temporary, had expired after achieving its purpose, and that its effect on past transactions continued under article 372 of the Constitution, meaning the coal cess remained a valid levy.

Because the Ordinance in question was a temporary measure, it ceased to exist after it had achieved the purpose for which it was enacted. However, the temporary Ordinance had extended the life of the original Ordinance, which was a permanent enactment. Consequently, for transactions that occurred before the temporary Ordinance expired, the termination of the temporary measure could not alter the effect of the original law insofar as the provisions that were saved continued to operate. Those saved provisions retained their force under article 372 of the Constitution, and it therefore could not be said that the levy of coal cess was imposed without a legal authority as contemplated by article 265 of the Constitution. The Court relied upon the decision in Hansraj Moolji v. State of Bombay, (1957) S.C.R. 634. The Court further explained that an excise duty is essentially a tax on the production or manufacture of goods within the country. Subject to the legislative competence of the taxing authority, such a tax may be collected at a stage that is convenient, provided that the essential character of the impost is not lost. The method of collection, the Court observed, affects only the administrative machinery and does not change the essence of the duty. Whether, in a particular case, the tax ceases to be an excise duty in substance and whether the rational connection between the duty and the person upon whom it is imposed has disappeared must be decided by a fair construction of the relevant statutory provisions. The Court cited the authorities in In re the Central Provinces and Berar Act, No. XIV of 1938, (1939) F.C.R. 18, The Province of Madras v. Boddu Paidanna and Sons, (1942) F.C.R. 90, and Governor‑General in Council v. Province of Madras, (1945) L.R. 72 1 A 91 in support of this reasoning.

In view of section 3 of the repealing Ordinance, it could not be said that the purpose of the Ordinance had been exhausted. In the present matter, rule 3(a) of the Coal Production Fund Rules 1944 was held to be inapplicable, and the only rule that applied was rule 3(b). Rule 6, the Court observed, does not provide that if the consignee fails to pay, the consignor becomes liable, and it does not seek to expand the statutory liability of either the consignor or the consignee. The Court further held that a point of law which was not raised in the statement of case cannot ordinarily be introduced for argument at the time of hearing the appeal. The judgment was delivered in a civil appellate jurisdiction concerning Civil Appeals Nos. 183 and 184 of 1959, which were appeals from the judgment and decree dated 5 September 1954 of the Madhya Pradesh High Court in MC case No. 214 of 1954. Counsel for the appellant in Civil Appeal 183 and respondent 2 in Civil Appeal 184 were A. V. Vinwnatha Sastri and J. B. Dadachanji. Counsel for the appellant in Civil Appeal 184 and respondent 1 were B. Sen and I‑N. Shroff. Counsel for respondent 1 in both appeals were C. K. Daphthary, Solicitor‑General, Y. Kumar and P. D. Menon. The judgment was pronounced on 27 February 1962, and the judgment of the Court was delivered.

By Justice Subba Rao, the two appeals on certificates were presented against the judgment and decree of the High Court of Madhya Pradesh, Jabalpur, which had been rendered in favor of the Union of India. The Union of India, representing the Central and Western Railways Administrations at Delhi, had instituted Civil Suit No 1 of 1957 against the two defendants for the recovery of a coal cess of Rs 81‑4‑0 together with costs. The essential facts were as follows. Ordinance No 39 of 1944 empowered the Central Government to levy and collect, as a cess on all coal and coke dispatched from collieries throughout British India, an excise duty not exceeding Rs 1‑4‑0 per ton. Pursuant to section 5 of that ordinance the Government framed rules, and rule 3 stipulated that the excise duty imposed on coal and coke when dispatched by rail would be collected by the Railway Administration as a surcharge on freight, with the duty to be recovered either from the consignor or the consignee as the circumstances required. On 1 January 1947, 1 February 1947 and on 7 February and 9 February 1947 the second defendant, Amalgamated Coal Fields, dispatched three separate consignments of coal by rail to the first defendant, the cargo travelling from Junner‑Deo to Indore. The freight for each consignment was stipulated to be payable at the destination station, namely Indore. The first defendant duly paid the freight charges and took delivery of the coal, but, owing to a mistake, the cess that should have been collected as a surcharge on the three consignments was not recovered from the first defendant at the time of delivery. Under section 55(5) of the Indian Railways Act the Railway Administration was authorised to recover any freight or balance remaining unrecovered by instituting a suit. Consequently, on 15 April 1953 the Union of India, on behalf of the Central and Western Railways Administrations, filed Civil Suit No 126 of 1953 before the Civil Judge, II Class at Chhindwara, seeking recovery of the outstanding cess. The High Court withdrew the suit from the lower court and entered it on its own roll for trial, observing that important questions of interpretation of the Government of India Act 1935 and the Constitution were involved; the case was thereafter numbered as Civil Brit No 1 of 1957. The defendants contended that the levy was unlawful and that the suit was statute‑ barred. The High Court held that the suit was timely filed within the period prescribed by Article 149 of the Limitation Act and that the defendants were liable to pay the cess, and it accordingly decreed in favour of the Union of India. In response, the first defendant filed Civil Appeal No 183 of 1959 and the second defendant filed Civil Appeal No 184 of 1959 against the decree. At the outset of the appellate proceedings the Court indicated that it would consider two points which had not been presented in the original statement of case.

In this appeal, the counsel for the appellant, Mr Viswanatha Sastri, introduced two matters that were not included in the formal statement of case. The first matter asserted that the coal cess should be characterized as a fee rather than as a tax or duty. The second matter maintained that the first defendant, who acted as the consignee, was a non‑resident and therefore an Ordinance that did not have extraterritorial effect could not be applied to him. The Court observed that both of these contentions ought to have been set out in the statement of case.

According to Order XVIII, rule 2 of the Supreme Court Rules, every party is required to file its statement of case within the time prescribed, and rule 3 stipulates that the statement must contain two parts. Part II, which is presently relevant, must specifically set out the legal propositions that will be urged in support of the party’s contentions. The purpose of the statement of case is not merely to inform the Court of the questions that may arise, but also to enable the opposite party to anticipate the arguments it will need to meet and to prepare its own case accordingly. The importance of completing the statement of case is further emphasized by the Schedule of Fees, which fixes a reasonable fee for junior and senior counsel for preparing such a document. The Court regretted that insufficient care had been taken in drafting the statement of case in accordance with these Rules. If the Rules are to fulfil their intended purpose, counsel must, when preparing the case, read the brief thoroughly, identify the questions that will be raised, and express those questions clearly in the statement. Any failure to perform this basic duty cannot be easily overlooked.

The Court therefore stated that, as a general practice, it will not permit counsel, at the hearing of an appeal, to raise issues that were not disclosed in the statement of case. No exceptional circumstances existed in the present matter that would justify departing from this salutary practice, and consequently the Court could not allow the appellant to raise the two questions before it. The first of those questions concerned whether the suit was barred by limitation. The coal cess was required to be collected at the time of delivery of three consignments, which occurred on 9 January 1947, 8 February 1947 and 18 February 1947 respectively. The suit was filed on 24 April 1953, more than six years after the amount became payable. It was therefore contended that the suit was barred under article 120 of the Limitation Act. The High Court, however, had held that the suit was within the limitation period by applying article 149 read with article 50 of the Limitation Act. Article 149 provides that any suit by or on behalf of the Central Government or any State Government shall begin to run from the date on which the cause of action arises, and the period of limitation for such a suit is sixty years. Article 50 deals with suits for the recovery of a statutory levy. The appellant argued that a private person could not sue in the manner the Central Government had done to recover a statutory cess, and that therefore article 149 was inapplicable and only article 120, which prescribes a six‑year period, should govern the limitation.”

The Court observed that the High Court had classified the suit as falling within the type of action described in Article 50 of the Limitation Act, and therefore concluded that the Central Government could institute the suit within sixty years from the date on which the freight became payable. Counsel for the petitioner argued that a private individual could not bring a suit of the same nature as that filed by the Central Government to recover a statutory cess, and consequently contended that Article 149 did not apply to the Government. According to that argument, the suit should be governed solely by Article 120, which provides a six‑year period of limitation measured from the date when the right to sue accrues. The Court found the argument plausible in appearance but without merit. It explained that the counsel had conflated two distinct questions: first, whether the suit was maintainable, and second, what period of limitation the Act prescribed for such a suit. The Court noted that for a suit described in Article 149, the Act expressly fixes a limitation period of sixty years, and that this period begins to run “against a like suit by a private person.” The provision does not suggest that a private party must be able to maintain the suit; rather, it assumes the suit’s maintainability and merely points to the appropriate article of the Limitation Act for the purpose of determining when the limitation period starts. The statute of limitations, the Court explained, presupposes the existence of a cause of action; it neither creates nor defines the cause. Consequently, if a private party were to sue for recovery of a statutory duty, the relevant article would not be Article 50, which deals with recovery of hire of animals, vehicles, boats or household furniture, because that article cannot logically apply to a suit for a statutory cess. No other specific article in the Limitation Act would cover such a suit, so the residual Article 120 would govern, with the limitation period commencing when the right to sue arises. When the Central Government files a suit of this character, the sixty‑year limitation period must therefore be calculated from the moment the right to sue accrues. In the present case, the Court held that the right to sue arose when the defendants refused to pay the cess upon demand. The Court further observed that the cases cited by counsel, including Kirpa Sanker v. Janki Prasad, Secretary of State for India, did not apply, because those authorities concerned suits brought by the Government to recover sums owed to it, which is the situation before this Court.

In this matter, the Court observed that the decisions in Guru Prasad Dhur Inderchand v. Secretary of State for India (3) and Government of India v. Taylor (1) were not relevant to the question before it, because neither of those cases involved a suit instituted by the Government to recover sums owed to it by the defendants. The Court cited the authorities as follows: A.I.R. 1942 Pat. 87 for the first case, (1941) 9 I.T.R. 673 for the second, (1893) I.L.R. 20 Cal. 51 for a related precedent, and (1955) 27 I.T.R. 356 for another. After considering these points, the Court concluded that the present suit had been filed within the prescribed limitation period and therefore was not barred by limitation. The next issue raised before the Court concerned the validity of the levy that formed the subject of the suit. The counsel for the respondent summarized his argument by stating that Ordinance 39 of 1944 was a temporary enactment which had been repealed by Ordinance 6 of 1947, and that the saving clause in the repealing Ordinance, which applied Section 6 of the General Clauses Act to the repealed Ordinance, ceased to have effect when the repealing Ordinance itself expired on 1 January 1947. Consequently, the counsel argued, there was no law in force at the moment the Constitution came into operation that could be continued under Article 372, and therefore any duty that might have been payable under Ordinance 39 of 1944 could neither be levied nor recovered after the Constitution became effective, because no legal authority remained to support the tax within the meaning of Article 265 of the Constitution. To understand this contention, the Court examined the relevant provisions. Ordinance 39 of 1944, Section 2, authorized the Central Government, by notification in the Official Gazette, to levy and collect a cess on all coal and coke dispatched from collieries in British India at a rate not exceeding one rupee and four annas per ton, the rate being fixed from time to time by further notification. Ordinance 6 of 1947, Section 2, declared that the Coal Production Fund Ordinance was repealed and expressly stated that the provisions of Section 6 of the General Clauses Act, 1897 (X of 1897) would apply to the repeal. Section 6 of the General Clauses Act provides that when an enactment is repealed, unless a contrary intention appears, the repeal does not affect any right, privilege, obligation, or liability that was acquired, accrued, or incurred under the repealed enactment, nor does it affect any legal proceedings or remedies relating to such rights or obligations, which may continue as if the repeal had not occurred. The Court therefore considered these statutory provisions in determining whether the levy could be sustained after the constitutional transition.

In the legislation, the term “Central Act” was defined to also cover any ordinance that had been made and promulgated by the Governor‑General, as provided by Article 372 of the Constitution of India. Notwithstanding the repeal of certain enactments by the Constitution in Article 395, and subject to the other provisions of the Constitution, all laws that were in force in the territory of India immediately before the Constitution came into effect were to continue in force until they were altered, repealed or amended by a competent legislature or other competent authority. On 26 August 1944 the Governor‑General of India, exercising the powers conferred on him by clause a. 72 of the Ninth Schedule to the Government of India Act, 1935, read out the Coal Production Fund Ordinance 1944 (Ordinance 39 of 1944) under the India & Burma (Emergency Provisions) Act, 1940. The purpose of that ordinance was to create a fund for financing activities aimed at improving the production, marketing and distribution of coal and coke. In the case of Hansrdi Moolji v. State of Bombay, the Court held that the deletion of the words “for the space of not more than six months from its promulgation” from section 72 of the Ninth Schedule, by section 1(3) of the India and Burma (Emergency Provisions) Act, 1940, meant that ordinances promulgated between 27 June 1940 and 1 April 1946 were to be treated as acts of the Indian Legislature without any time limitation on their duration, and therefore remained in force until they were expressly repealed. Consequently, the ordinance issued on 26 August 1944 was a permanent ordinance and would continue to operate until it was repealed. The repealing ordinance, identified as Ordinance 39 of 1947, was promulgated on 26 April 1947 and its repeal took effect on 1 May 1947. That repealing ordinance expressly declared that the provisions of section 6 of the General Clauses Act, 1897 (X of 1897) would apply to the repeal. Although, in the absence of that express declaration, sections 6 read together with section 30 of the General Clauses Act might have produced the same result, the express provision was included “ex abundanti cautela” to place the matter beyond any doubt. Section 6 of the General Clauses Act was therefore expressly made applicable to the repeal. Under section 6(1) of the General Clauses Act, as recorded in the 1957 Supreme Court Reporter, the repeal did not affect the railway’s right to recover freight nor the defendants’ liability to pay the freight, nor the remedy available for that right and liability. Accordingly, Ordinance 39 of 1944 and the rules made under it were held to continue to apply to the right and liability that had accrued or been incurred before the repeal, and to the remedies that were available under those provisions. However, the repealing ordinance itself was a temporary measure and its life expired on 1 November 1917.

In this case the Court considered whether the liability that arose under the original Ordinance continued to operate after that Ordinance had been repealed, as regards transactions that had occurred before the repeal. The Court observed that the repealing Ordinance was itself a temporary measure and that it ceased to exist once it had accomplished the purpose for which it was enacted. Because the temporary Ordinance had, for the purpose of preserving the effect of the earlier permanent Ordinance, continued the operation of that permanent law with respect to earlier transactions, the termination of the temporary measure could not affect the portion of the permanent Ordinance that had been saved. The Court further stated that authorities dealing with the repeal of a temporary Ordinance containing a saving clause were not applicable here, because in those situations the repealed Ordinance, to the extent it was kept alive, could not enjoy a lifespan longer than that of either the repealed or the repealing Ordinances. Consequently, the Court concluded that, to the extent saved, the repealed Ordinance retained its force under Article 372 of the Constitution until it was altered, repealed, or amended by a competent legislature. Accordingly, the Court held that it could not be said that the coal cess was levied or collected without authority of law.

The Court then turned to the contention that an excise duty could not be levied on a consignee who had no involvement in the manufacture or production of coal. The Court remarked that this argument confused the incidence of a tax with the machinery provided for its collection. The Court referred to the decision in In re the Central Provinces and Berar Act No XIV of 1938, a special reference by the Governor‑General to the Federal Court under section 213 of the Government of India Act 1935, where the learned Chief Justice, Mr Gwyer, O.J., described “excise duty” as a tax on articles produced or manufactured in the taxing country and intended for home consumption. In addressing the Government of India’s submission that an excise duty could be imposed on home‑produced goods at any stage from production to consumption, the Chief Justice observed that such a view “confuses two things: the nature of excise duties and the extent of the federal legislative power to impose them.” Citing Blackstone and Stephen’s Commentaries, the Chief Justice noted that, while in practice the duty is normally collected from the producer or manufacturer, there is no theoretical reason why an excise duty could not be imposed at the retail level if the taxing statute so provides. Subject to the legislative competence of the taxing authority, the duty may be levied at whatever stage the legislature deems most convenient and lucrative; this relates only to the method of collection and does not alter the essential character of the tax. Ultimately, the incidence of an excise duty, as a typical indirect tax, always falls on the consumer, who pays it as he consumes or expends, and it remains an excise duty—a duty on home‑produced or home‑manufactured goods—regardless of the stage at which it is collected.

The Federal Court reported in [1939] F.C.R. 18, 40, 41, 107 that the burden of an excise duty ultimately rests on the consumer, who pays the tax as the goods are consumed or expended, and that the duty remains an excise duty regardless of whether it is imposed on home‑produced or home‑manufactured articles at any point in the transaction chain. Justice Jayakar, speaking on this point, remarked that his view was that the observation was correct, because if the essential nature of an excise duty is that it is a tax on consumption, there is no reason why the State cannot exercise the authority to levy and collect that duty at any stage prior to consumption. He explained that the levy may be made from the moment the commodity is produced or manufactured until it finally reaches the consumer.

The Federal Court revisited the definition of excise duty in the case of The Province of Madras v. Boddu Paidanna, which arose under the Madras General Sales Tax Act, 1939. In that decision, the learned Chief Justice observed that, in principle, nothing prevents the Central Legislature from imposing an excise duty on a commodity as soon as the commodity comes into existence, regardless of its subsequent fate—whether it is sold, consumed, destroyed, or given away. He further explained that, although a taxing authority could theoretically impose the duty at the moment of creation, in practice the authority prefers to impose the charge at the point when the commodity leaves the factory for the first time. This preference is due to administrative convenience and because the duty is intended to be an indirect tax that the manufacturer or producer passes on to the ultimate consumer; such a pass‑through would be impossible if the commodity were, for example, destroyed inside the factory. The Chief Justice emphasized that it is the act of manufacture itself that attracts the duty, even if the collection of the duty occurs at a later stage.

Subsequently, the Judicial Committee, in Governor‑General in Council v. Province of Madras, endorsed the Federal Court’s perspective on excise duties. Lord Simonds, delivering the judgment for the Board, referred to an extensive discussion of the subject found in the Federal Court’s decision in In re the Central Provinces Berar Act No. XIV of 1935. He affirmed that, consistent with that earlier decision, a duty of excise is fundamentally a charge levied on a manufacturer or producer with respect to the commodity that has been manufactured or produced. He clarified that the excise duty is a tax on the goods themselves and not on the sale or the proceeds of the sale of those goods. Lord Simonds further expressed complete agreement with the reasoning and conclusions of the Federal Court as articulated in the Boddu Paidanna case.

Referring again to the Boddu Paidanna decision, Lord Simonds highlighted the distinction between excise tax and sales tax. He observed that the two forms of taxation differ in their point of incidence: one tax is imposed on the manufacturer in respect of his goods, while the other tax is imposed on a vendor in respect of his sales. This observation underscored the separate and distinct nature of the two taxes, despite any practical overlap that might arise from administrative practices.

In this case the Court observed that although excise tax and sales tax may, as has been pointed out, overlap in one sense, they remain separate and distinct legal impositions. The Court explained that any practical overlap results only because the taxing authority, finding it convenient, may choose to impose an excise duty at the moment the excisable article leaves the factory or workshop for the first time on the occasion of its sale. The Court stressed that such a method of collecting the tax is merely an accident of administration and does not alter the essence of excise duty, which is attracted by the manufacture itself. With great respect the Court accepted the principles laid down by the three earlier decisions concerning the levy of excise duty and the machinery for its collection. It affirmed that excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country, that it is an indirect duty which the manufacturer or producer ultimately passes on to the consumer, and that, subject to the legislative competence of the taxing authority, the tax may be levied at any convenient stage so long as its character as a duty on manufacture or production is not lost. The Court noted that the method of collection does not affect the essence of the duty but only relates to the machinery of collection for administrative 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 imposed has disappeared, is to be decided by a fair construction of the provisions of the specific Act. In the present matter a perusal of the provisions of the Ordinance demonstrated that the duty imposed is in essence an excise duty and that there is a rational connection between the tax and the person on whom it is imposed. Section 2 of Ordinance 39 of 1944 expressly characterises the tax as an excise duty on the manufacture or production of coal or coke. Section 5(2) 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 collected and the persons who shall be liable to pay the duty. Rule 3 of the Rules made by the Central Government provides for the recovery of excise duty on the coal produced; under that rule the duty is to be collected by the Railway Administration by means of a surcharge on freight and shall be recovered from the consignor, if the freight charges are prepaid at the time of consignment, or from the consignee, if the freight charges are collected at the destination of the consignment. The Court concluded that this machinery for the collection of the tax is reasonable and consistent with the indirect nature of the tax, which is ultimately borne by the consumer.

The Court observed that the system established for collecting the tax was reasonable. It noted that, because the tax was an indirect levy ultimately borne by the consumer, a logical link existed between the tax and the consignment. When the consignor paid the tax, the Court said this was the most convenient point for collection, since it was the first occasion the coal left the consignor’s possession. The Court further explained that the provision in rule 3(b) allowing the consignee to pay the tax did not alter the nature of the tax; if the consignor had prepaid freight, the amount would have been passed to the consignee, and in the present case the consignee simply made the payment directly. The Court held that the Central Government possessed the legal authority to devise an appropriate collection mechanism without disturbing the essence of the tax or disregarding the rational connection between the tax and the person liable to pay it. Consequently, the Court concluded that the collection scheme set out in the Rules satisfied the required conditions, and therefore the obligation to pay the tax at the destination in the hands of the consignee could not be lawfully challenged.

The Court then turned to the argument raised by counsel that the purpose of the Ordinance had already been fulfilled, so the Central Government could no longer levy or collect the tax. The Court explained that the Ordinance was intended to create a fund for financing activities aimed at improving the production, marketing, and distribution of coal. Section 3 of the repealing Ordinance stipulated that any unspent balance in the Coal Production Fund could be applied to purposes connected with the coal industry as directed by the Central Government. The Court noted that the validity of the Ordinance had not been contested, and therefore its purpose could not be said to be exhausted; under section 3 the Central Government remained authorized to use the fund for coal‑related purposes. As a result, the Court found no merit in that line of reasoning. Finally, the Court addressed the last contention raised by the appellant in Civil Appeal No. 184 of 1959. The High Court had held the appellant liable for the cess because he had entered into a contract with the Railway Administration for the carriage of the goods, the freight collection pertained to his goods, and he was the principal contracting party. The decree against him was based on the finding that he was contractually obligated to pay the amount. The appellant’s counsel argued that the consignments were on an FOB basis and that, under the statutory rules, only the consignee was liable, rendering the High Court’s decree erroneous. The Court acknowledged that this point had already been considered earlier in the judgment.

In this case the Court observed that under rule 3 of the Coal Production Fund Rules, 1914, the Railway Administration is authorised to collect the cess only as a surcharge on freight in two situations: (a) from the consignor when the freight charges are prepaid at the time of consignment, and (b) from the consignee when the freight charges are collected at the destination of the consignment. The Court noted that in the present facts the freight charges were not prepaid; consequently rule 3(a) did not apply. Accordingly the only provision that could be relied upon by the Railway Administration to recover the cess was rule 3(b), which imposes the liability on the consignee. The Court further held that the rule does not empower the Railway Administration to recover the tax from the consignor under the circumstances of the present case. The learned Solicitor General urged that the decree of the High Court should be sustained on the basis of rule 6, which provides: “Refunds and Recoveries:‑(1) Where the amount 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 the amount due, the Railway Administration shall deal with the under charges or overcharges, as the case may be, on the same principles as apply to undercharges and overcharges in regard to Railway freight charges.” The Court examined this submission and observed that rule 6 allows the Railway Administration to recover any deficit only from the person who is statutorily liable to pay under the freight‑charge principles. The rule does not create a new liability for the consignor if the consignee fails to pay, nor does it enlarge the statutory liability of either the consignor or the consignee beyond what is provided for in the railway freight‑charge provisions. In the result the Court dismissed Civil Appeal No. 183 of 1959 and ordered that the costs be borne by the first respondent, and it allowed Civil Appeal No. 184 of 1959 with costs to be paid by the first respondent.