Case: Cannanore Spinning And Weaving Mills Ltd Vs. Collector Of Customs And Central Excisecochin And Ors

Hegde, J.1. The only question for decision in this appeal by special leave is whether the coils of cotton yarn cleared out of the appellants factory during the period from 17th August, 1962 to 14th November, 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.2. 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 section 13 (j) 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 1st March, 1961; but the Government by its notification dated 24th April, 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 paise per Kg. on cotton yarn produced by it and cleared out of the factory in hanks. On 13th June, 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 17th August, 1962 to 14th November, 1962.3. The appellants 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 standard hank of 840 yards.As the exemption of duty on yarn 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 letter, 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 Deputy Superintendent in respect of the same demand on January 2, 1963. The appellant objected to the demand but the appellants objected to the demand but the appellants objections were rejected by the Assistant 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 R. 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 explanations 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 notification issued under rule 8 (1) either on June 13, 1962 or on September 15, 1962 (Exts. P-2 and P-3), the word hank was not defined. One of the dictionary meanings 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-3.4. 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 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 Exts. 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 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 Murrays 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.5. It may be taken that the word hank has acquired a technical 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 yarn in the hanks cleared out of the appellants 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 in 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 yarn" 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 giving retrospective effect to the explanation added to Exh. P-2 by the notification dated February 16, 1963. The rule making authoritys intention is made further clear by the Governments notification dated September28, 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 thought best. The real question for our decision is whether it did use that word hank to convey any technical meaning when it issued notifications 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.6. Dr. Seiyed Muhammad, learned Counsel for the department did not support the impugned demand on the basis of the retrospective 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 under the Central Excises 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.

Decision:
1[ds]5. It may be taken that the word hank has acquired a technical 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 yarn in the hanks cleared out of the appellants 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 in 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 yarn" 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 giving retrospective effect to the explanation added to Exh. P-2 by the notification dated February 16, 1963. The rule making authoritys intention is made further clear by the Governments notification dated September28, 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 thought best. Thereal question for our decision is whether it did use that word hank to convey any technical meaning when it issued notifications 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.