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PETITIONER: CANNANORE SPINNING AND WEAVING MILLS LTD.

       Vs.

RESPONDENT: COLLECTOR OF CUSTOMS AND CENTRAL EXCISECOCHIN AND ORS.

DATE OF JUDGMENT: 15/10/1969

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C.

CITATION:  1970 AIR 1950            1970 SCR  (2) 830  1969 SCC  (3) 112  CITATOR INFO :  RF         1971 SC1705  (4)  RF         1972 SC1804  (2,5)  R          1990 SC1579  (43)

ACT: Central  Excise & Salt Act,  1944--Excise  duty-Notification exempting  cotton  yarn of particular count cleared  out  in ’hanks’-Explanation added with retrospective effect defining ’hank’ to mean any coil of cotton yarn less than 768  metres length-Whether   ’hank’   used  in  the   technical   sense- Retrospective notification, validity of.

HEADNOTE: The appellant was   manufacturing  cotton  yarn  of  varying counts  ranging from 20 to 32. In June, 1962 the  government issued a notification which exempted from payment of  excise duty  cotton  yarn  of 17 counts or more but  less  than  35 counts, if cleared out of the factory in ’hanks’. In view of the  notification  the appellant objected to the  demand  of excise duty in respect of the single yarn produced by it and cleared out of the factory in coils during the period August 1962   to  November  1962.   During  the  pendency  of   the proceedings,  in February 1963, by another  notification  an explanation  was  added to the effect that the  term  ’hank’ meant ’hank’ "which does not contain more than 768  metres of  yarn  in plain (straight) reel".  The  notification  was given retrospective effect.  After unsuccessfully contesting the  demand in departmental proceedings the appellant  moved the High Court to quash the demand.  The High Court accepted the  contention of the department that the word  ’hank’  has been used in the relevant notifications to convey a  special meaning  i.e.  a circular loop or coil of  cotton  yarn  840 yards (768 metres) in length and held that the appellant was not   entitled   to  the  exemption  granted   under   those notifications because, the, length of the cotton yarn in the ’hanks’   cleared  out  of  the  appellant’s   factory   was admittedly Much more than 850 yards.  Allowing the appeal to this Court, HELD  :  The  explanation given in  the  notification  dated February 1963 does not accord with the meaning given to  the word ’hank’ in commercial circles.  Any coil of cotton  yarn

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less   than   768  metres  in  length  according   to   that notification  has  also to be considered as a  ’hank’.   But according  to  the technical meaning acquired  by  the  word ’hank’ in commercial circles. the length of’ the cotton yarn in the reel should be neither more nor less than 768  metres (840 yards).  This notification makes it clear that when the government  issued the notification dated June, 1962 it  in- tended to give the word ’hank’ the meaning ’a coil of  yarn’ and nothing more.  Further, if the word ’hank’ had been used in the way it was understood in commercial circles there was no  point in giving retrospective effect to the  explanation added by notification dated February 1963. [833 F-H ] (ii) The rule-making authority had not been vested with  the power under    the Central Excise and Salt Act to make rules with  retrospective  effect.  Therefore,  the  retrospective effect  purported to be given to the explanation was  beyond the powers of the rule making authority. [834 D]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No,  2346  of 1966, 831 Appeal  by special leave from the judgment and  order  dated November  22, 1965 of the Kerala High Court in  Writ  Appeal No. 158 of 1965. M.   C.  Chagla,  Sardar Bahadur, Yougindra  Khushalani  and Vishnu    B. Saharya, for the appellant. V.   A.  Seyid Muhammad, B. Dutta and S. P. Nayar,  for  the respondents. The Judgment of the Court was delivered by Hegde.  J. The only question for decision in this appeal  by Special  Leave is whether the coils of cotton  yarn  cleared out of the appellant’s factory during the period from  17-8- 1962  to 14-11-1962 are exempt from excise duty in  view  of Exts.   P.  2 and P. 3 which exempt from payment  of  excise duty  cotton  yarn  of 17 counts or more but  less  than  35 counts, if cleared out of factory in ’hanks’. The  appellant is a company engaged in the  manufacture  and sale of cotton yarn.  It has been manufacturing cotton  yarn of  varying  counts  ranging  from  20  to  32.   Under  the provisions of the Central Excises and Salt Act, 1944, cotton yarn is liable to excise duty at the rate prescribed in  the Sch. to the said Act.  By s. 13(1) of the Finance Act,  1961 (Act XIV of 1961) all cotton yarns less than 35 counts  were subject  to excise duty at the rate of 10 Np. per Kg.   This provision  took effect from 1-3-1961; but the Government  by its notification dated 24-4-1962 under rule 8 of the Central Excise  Rules  1944  granted exemption to  the  cotton  yarn falling  under item 18A of the 1st Sch. to the Act  from  so much  of the duty leviable thereon as was in excess  of  the duty  specified  in the corresponding entry  in  column  (3) thereof.  In view of this notification, the appellant became liable  to pay duty at the rate of 3.5 per paise per Kg.  on cotton  yarn produced by it and cleared, out of the  factory in  ’hanks’.   On  13-6-1962 yet  another  notification  was issued  by the Government under rule 8(1) (Exh.  P-2)  under which  single  cotton yarn between 17 to 35  counts  whether grey or bleached and grey multiple, fold yarn cleared out of the factory in hanks were totally exempt from the payment of duty  w.e.f. July 24, 1962.  In view of  this  notification, the  appellant  did  not pay any excise  duty  on  the  yarn produced  by  it  and cleared out of the  factory  in  coils during the period from 17-8-1962 to 14-11-1962.

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The   appellant’s   factory  was  inspected   by   the   Dy. Superintendent  of  Central  Excise  Cannanore  sometime  in November,  1962.  He wrote to the appellant on November  14, 1962 as follows               "On  a verification at your mill  premises  it               was noticed that the single yarn produced  are               double the length of a               832               standard hank of 840 yards.  As the  exemption               of duty on yam applies only to standard  hanks               of  840  yards  in length,  the  double  hanks               produced  by  you  will not  be  eligible  for               exemption". In  reply  to that letters, the appellant informed  the  Dy. Superintendent,  Central Excise that it may be supplied  any notification  defining  ’hanks’.   Thereafter  as  per   his communication   dated   January   1,   1963,   the    Deputy Superintendent called upon the appellant to pay a sum of Rs. 46,647.85  np. as excise duty in respect of the single  yarn produced  by it and cleared out of the factory in coils.   A further communication was sent to the appellant by the  same Dy.  Superintendent in respect of the same demand on January 2,  1963.   The  appellant objected to the  demand  but  the appellant’s   objections   were  rejected  by   the   Asstt. Collector  on  April  14, 1963.   Thereafter  the  appellant unsuccessfully appealed to the Collector of Central  Excise. During  the pendency of the proceedings, the  Government  of India by its notification dated February 16, 1963 issued  in exercise  of  its  powers under rule 8  (1  ),  amended  its earlier  notification  of September 15, 1962 by  adding  one more Explanation to that notification to the effect that for the  purpose  of  that notification the  term  ’hank’  means ’hank’ "which does not contain more than 768 metres of  yarn in  plain  (straight) reel".  It further  stated  that  that notification  shall be deemed to have taken effect from  the 17th  day  of August, 1962.  As per its  notification  dated September  28,  1963  a further amendment was  made  to  the notification  issued on September 21, 1963.  That  amendment reads :- "Notwithstanding anything contained in explanation 1 and  2, the  term ’hanks’ shall mean from 1st day of October,  1963, hanks which do not contain more than 1000 metres of yarn  in plain (straight) reel". In  the notifications issued under rule 8(1) either on  June 13,  1962 or on September 15, 1962 (Exh.  P-2 and P-3),  the word ’hank’ was not defined.  One of the dictionary  meaning given  to the word ’hank’ is ’circular loop or  coil’.   The stand  taken by the department is that the word  ’hank’  had acquired  a  special meaning in commercial  circles  i.e.  a circular loop or coil of cotton yarn 850 yards in length and we  must give that meaning to the word ’hank’ in Exts.   P-2 and P-3. After  unsuccessfully  contesting the demands  made  by  the department in departmental proceedings, the appellant  moved the High Court of Kerala under Art. 226 of the  Constitution to  quash the demand referred to earlier.  Both  the  single judge as well 833 as  the  appellate  bench of that High  Court  rejected  the prayer  of  the appellant, accepting the contention  of  the department  that  the word ’hank’ in Exh.  P-2 and  P-3  has been used to convey a special meaning, i.e. a circular  loop or  coil  of  cotton yarn 850 yards  in  length;  Hence  the appellant  was not entitled to the exemption  granted  under those  notifications.  In support of their  conclusion  that

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the word ’hank’ has acquired a precise technical meaning  in commercial  circles,  the learned judges of the  High  Court referred  to  the  definition given to the  word  ’hank’  in Murray’s  New  English Dictionary,  "Mercury  Dictionary  of Textile  Terms", "American Cotton Hank Book" and to some  of the   Government  publications.   Thereupon  the   appellant brought this appeal. It may be taken that the word ’hank’ has acquired a  techni- cal meaning in commercial circles and in the absence of  any evidence  to  show  contrary intention on the  part  of  the authorities  who issued Exts.  P-2 and 3 we should have  had no difficulty in accepting the contention of the department. Admittedly  the  length  of the cotton yam  in  the  ’hanks’ cleared  out of the appellant’s factory was much  more  than 840  yards.   Hence those ’hanks’ cannot  be  considered  as ’hanks’  as understood in commercial circles.  But then  did the authorities who issued Exts.  P-2 and P-3 intend to  use the  word ’hank’ as understood in commercial circles or  did they use the word in accordance with the dictionary  meaning ?  We have definite and positive evidence on record to  show that the authorities who issued those notifications did  not use  the  word ’hank’ as understood in  commercial  circles. Otherwise  the  notification  issued by  the  Government  on February  16, 1963 becomes meaningless.   That  notification not only explains the term ’hank’ as meaning a ’hank’  which does  not  contain  more than 768 metres of  yarn  in  plain (straight)  reel,  it  goes further and  provides  that  the notification should be deemed to have taken effect from  the 17th  day of October, 1962.  First the explanation given  in the  notification does not accord with the meaning given  to the  word  ’hank’ in commercial circles.  It says  that  the word  ’hank’ means a coil of cotton yarn not more  than  768 metres  (840 yards) in length and not of 768 metres  length. Any  coil  of  cotton yarn less than 768  metres  in  length according  to  that notification has to be considered  as  a ’hank’.  But according to the technical meaning acquired  by the  word  ’hank’ in commercial circles, the length  of  the cotton yarn in the reel should be neither more nor less than 768  metres (840 yards).  This notification makes  it  clear that when the Government issued the notification Exh.   P-2, it  intended to give the word ’hank’ the meaning "a coil  of yam"  and nothing more.  Secondly if in Exh.  P-2, the  word ’hank’  has  been  used  in the  way  it  is  understood  in commercial circles there was no point in 834 giving retrospective effect to the explanation added to Exh. P-2  by the notification dated February 16, 1963.  The  rule making  authority’s intention is made further clear  by  the Government’s  notification  dated September 28,  1963  which explains  the word hank to mean a circular coil  which  does not  contain  more  than  1000  metres  of  yarn  in   plain (straight)  reel.   It  is  true  that  it  was  within  the competence  of the rule making authority to define the  word ’hank’  as  it  though best.  The,  real  question  for  our decision  is whether it did use that word ’hank’  to  convey any technical meaning when it issued notification Exts.  P-2 and P-3.  For the reasons mentioned, above we are unable  to agree  with the department that in those notifications,  the word ’hank’ had been used in a technical sense. By  Seiyed Muhammad, learned Counsel for the department  did not support the impugned demand on the basis of the  retros- pective   effect  purported  to  have  been  given  to   the explanation  referred to earlier by the  notification  dated February  16,  1963 (Exh.  P-12) for obvious  reasons.   The rule  making  authority had not been vested with  the  power

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under  the  Central Excise and Salt Act to make  rules  with retrospective  effect.  Therefore the  retrospective  effect purported to be given under Exh.  P-12 was beyond the powers of the rule making authority. For  the reasons mentioned above, we allow this  appeal  and quash the impugned demand-.  The respondents shall pay  the costs of the appellant both in this Court as well as in  the High Court. R.K.P.S. Appeal allowed 835