1. Two points have been urged in support of this appeal by the defendant Union of India against the judgment and decree by the District Judge, Pali dated 27.1.1966 by which the learned Judge decreed the plaintiffrespondent's suit for Rs. 36,215.40 paisa against the appellant by way of refund of excise duty paid by the plaintiff to the defendant appellant on account of manufacture of yarn for the period commencing from 1.3.1961 It has been submitted in the first instance that the yarn on which the duty has been realised is taxable as "Cotton Twist" and the second point urged is that the suit is barred by limitation. For the decision of these two points we may narrate the facts in brief giving rise to this litigation.
2. Item No. 18A was inserted in the First Schedule, Central Excise and Salt Act, 1944 by Section 13(j) of the Finance Act, 1961 which read with Section 3 of the Central Excise and Salt Act, 1944 introduced Excise Duty on the manufacture of cotton yarn with effect from 13, 1961. Icem No. 18 A reads as follows:
18A. COTTON TWIST, YARN AND THREAD, ALL SORTS, in or relation to the manufacture of which any process is ordinarily carried on with the aid of power:
On the same day i.e. 1.3.1961 the Central Government, in exercise of the powers conferred under Rule 8(1) of the Central Execise Rules, 1944 issued Notification No. 48 of 1961. dated 1.3.1961 exempting cotton yarn of count exceeding 10 but not exceeding 40, if issued out of the factory in hanks from the whole of the excise duty leviable thereon. A copy of the said Notification has been placed on the record and marked Ex. 1. Another Notification dated 18.3.1961 was issued by the Central Government in supersession of its earlier Notification dated 1.3.1961 (Ex 1) by which it exempted cotton yarn of count not exceeding forty, if issued out of the factory in hanka from the whole of the excise duty leviable thereon. This Notification has been marked Ex. 2. By a further Notification dated 1.7.1961 (marked Ex. 3) the Central Government exempted cotton yarn:
(I) Other than multiple fold yarn, whether bleached or not, and (II) Multiple fold yarn, if unbleached, of count not exceeding forty, falling under Item NO. 18A of Act, 1944 (1 of 1944), if issued out of the factory in hanks, from the whole of the excise duty leviable thereon.
Notification Ex. 3 of course has no application to the present case, but we have reproduced it as it may be of some assistance in appreciating the point in dispute between the parties.
3. The only evidence placed on the record in connection with this contention is the statement of PW 2 Bhawani Shanker From the side of the defendant reliance has been placed on the statement of DW 1 Trilokinath. The court below has decided the point in favour of the plaintiff and held that the goods in question fell within the ambit of the term 'yarn' and not 'Cotton Twist'.
4. Learned Counsel for the appellant has submitted that a multiple fold yarn is a "cotton twist", and for the purposes of the levy of Excise Duty it must be treated as 'Cotton Twist" and not yarn In support of his contention he has relied upon certain definitions given in The "Mercury" Dictionary of Textile Terms-compiled by the Staff of "Textile Mercury" and published by Textile Mercury Limited, Manchester, England. At page 505 of this book '"TWIST" has been defined as under:
"TWIST"--Warp yarn. The number of turns per inch in yarn. The direction of twist may be either S or Z.
On the basis of this definition it is contended that a multiple fold cotton yarn constituted by a number of turns per inch in yarn is a cotton twist. We may observe straight away that there is no such term as "COTTON TWIST" contained in this Dictionary. However, reference may usefully be made to the following terms contained therein as they appear to have some bearing on the point at issue COTTON--The most important of all vegetable fibres.
YARN--A continuous strand of twisted fibres, whether animal, mineral vegetable or synthetic, for use in weaving and knitting.
FOLDED YARN--Another term for doubled yarns. Yarns may be folded to increase strength, to produce special twist effects or to produce grandrelle effects.
THREAD--A fine or slender cord made of two or more yarns or filaments twisted together and used for sewing pieces of material together.
WARP--The lengthways threads of a cloth.
PICK--A thread of weft placed between the warp threads in one passage of the loom shuttle through the shed.
COUNT--The number of yarns is termed the "count". The cotton system is based on 840 yards to the hank, and the number of hanks that weigh 1 lb. (7.000 grains) equals the count.
5. There is no dispute between the parties that the yarn under consideration is multiple fold yarn. It is used for manufacturing cloth and therefore it includes both yarn placed between the lengthways yarn of the cloth. It is, however, contended that since it is of cotton and is constituted by a number of turns per inch in yarn it is 'Cotton Twist'. Here it may be relevant to point out that in the first instance there is a basic single yarn and when two single yarns are twisted theg become a double-fold yarn. When more than two single yarns are twisted then they constitute a multiple-fold yarn. So far there is no dispute between the parties. However, the argument on behalf of the appellant is that the word ''cotton" his not been used before the term "yarn" in Item 18A and therefore here the yarn referred to is yarn not of cotton but of other sorts e.g. silk, woollen, synthetic etc. According to the learned Counsel for the appellant, therefore, a cotton yarn must come under the head "Cotton Twist". In order to lend support to his argument the learned Counsel has pressed into service the definition of the word "twist" as given in the Dictionary referred to above. In this connection we wish to paint out that the' word "twist" as mentioned at page 505 of the Dictionary is a technical term used in the Textile Terminology and refers to that type of yarn which is used lengthways for the manufacture of cloth. It would not be correct to say on the basis of this definition that because yarn is prepared by a continuous strand of twist fibers of cotton and therefore it is a "Cotton Twist". Yarn having multiple folds does not cease to be yarn If a basic single yarn is called a yarn & a double yarn is also admittedly a yarn then we fail to understand how a multiple fold yarn would cease to be a yarn and should be considered as "Cotton Twist". In our opinion, therefore, a multiple fold yarn of cotton is a 'yarn'. The other argument that 'yarn' occurring in this item refers to yarn other than cotton yarn is to be stated only to be rejected. Cotton yarn is sought to be brought to tax under this very item and we fail to see how it serves the interests of the appellant to say that cotton yarn is Dot included in Item 18A.
6. The conclusion to which we have come on the basis of the Definitions referred to above is also supported by the statement of PW 2 Bhawani Shanker, a Textile Expert examined by the plaintiff. He has stated that he passed Licentiate Textile Manufacture Examination from the Victoria Jubilee Textile Institute in the year 1920 & has worked as a Spinning Superintendent in highly reputed and big Mills in Bombay for a long period upto 1957 and has thereafter set up private practice as a Textile Consultant. He has alto stated that he used to draw salary at Rs. 4000/- per month in 1957 when he gave up the job the took to private practice as a Consultant He goes on to state that he has been a Member of the Advisory Board of the Textile School of Mafatlal Gagal Bhai Group and that he was a Member of the Indian Standard Institute (Textile Section) Delhi upto 1957. No cross-examination has been directed to this witness so as to question his special knowledge and competence to depose on the subject. He has stated that a single yarn is produced from raw cotton fibres, twisted together, and made into strand. He has further stated that when a number of single yarns are folded together it becomes a multiple-fold yarn. Such multiple fold yarn is nevertheless a yarn. As regards the term 'twist' he has stated that twist means a number of turns put in for the manufacture of a single yarn and that twisted and multiple fold yarn are not one and the same thing. He goes on to state that there is no such commodity as "twist" in textiles nor he has come across any such commodity known as "twist" in textile literature. When asked as to what is "cotton twist", he has stated that when cotton is twisted it becomes a 'roving' (PUNIYA) (as it is colloquially called). He has also stated that roving cotton is not yarn, but it is a process preparatory to yarn. We may point out here that inspite of cur best efforts we were not able to lay our hands on the definition of the term 'cotton twist'. Of course the term 'roving' does occur at page 431 of the Mercury Dictionary, and it has been defined as, The product of the roving frame. An attenuated strand of fibers from which yarn is spun In the OXFORD ENGLISH DICTIONARY--Vol. XI, under the Heading "Twist" it is mentioned inter alia as follows:
1805 East Rep. V. 175. The Battiers received orders from abroad for cotton twist.
In no other standard dictionary reference has been made to any such term as "Cotton-Twist". However, it appears that cotton before it takes the shape of yarn goes through some process and during that process it may be called 'Cotton Twist' and that it is a stage from which yarn is spun. But the moment the cotton takes the shape of a yarn by a process of continuous strand of twisted fibres it ceases to be a 'Cotton Twist' We are thus inclined to accept the statement of P.W. 2 Bhawani Shanker. Unfortunately the appellant defendant has not produced any expert to rebut the testimony of P W.2 Bhawani Shanker. As we have already stated above the defendant has examined D.W. 1 Triloki Nath. He is an Inspector of General Excise Department and has at no time acquired any special knowledge regarding Textiles. He has stated that when two or more than two yarns are twisted together, then it becomes a 'Cotton Twist' or 'multiple fold yarn'. We are constrained to say that no assistance, whatsoever can be derived from the statement of this witness.
7. The interpretation which we have put on the two terms, namely "Cotton Twist" and 'multiple fold yarn' is further reinforced by the language of the Notification Ex. 3. It exempts cotton yarn other than multiple fold yarn whether bleached or not and also multiple yarn, if unbleached. Thus according to the language of this Notification multiple fold yarn is a species in the general category of cotton yarn. In other words multiple fold yarn is included in the term 'cotton yarn' and that is why the expression used is cotton yarn other than multiple fold yarn.
8. The matter can be looked at, yet, from another point of view. Assuming without accepting that multiple fold yarn though a yarn can still fall within the ambit of the term "Cotton Twist" then since yarn of a particular type with which we are concerned is exempted under the Notifications Ex. 1 and Ex. 2, it cannot be brought to tax even if by any stretch of imagination it can fall within the definition of the term "Cotton Twist" which is taxable. In other words if an item comes under the category of exemoted articles then exemption must be granted even though by a certain stretch of imagination it may fall under dutiable articles also. In this view of the matter also the exemption upheld by the court below is correct. We may state here that it is conceded by the learned Counsel for the appellant that if it is held that the multiple fold yarn is a 'yarn' and not a 'Cotton Twist' then the exemption upheld by the lower court cannot be called in to question.
9. This brings us to the second contention of the learned Counsel, namely that the suit is barred by limitation, under Section 40(2) of the Central Excise and Salt Act, 1944. The admitted position is that if the period of limitation for a suit like the present is held to be six months then it is admittedly barred by time and if it is held that Section 40(2) has no application then the suit it admittedly within time. It is therefore, not necessary to go into the details regarding the date of the filation of the suit. The suit is also admittedly for the return or refund of duty alleged to have bean illegally recovered. Now in order to appreciate the contention raised on behalf of the plaintiff we may reproduce Section 40 of the said Act:
40. Bar of suits and limitation of suits and other legal proceedings:
(1) No suit shall lie against the Central Government or against any officer of the Government in respect of any order passed in good faith or any act in good faith done or ordered to be done under this Act.
(2) No suit, prosecution, or other legal proceeding shall be instituted for any thing done or ordered to be done under this Act after the expiration of six months from the accrual of the cause of action or from the date of the act or order complained of
10. The dispute between the parties centres round the interpretation of the words anything done or ordered to be done under this Act". Learned Counsel for the appellant has urged that the recovery of the impugned tax is some thing which has been done or ordered to be done under this Act, whereas the argument of the learned Counsel for the respondent is that a tax illegally recovered cannot be said to be any thing done or ordered to be done under the Act because the recovery is without jurisdiction. The position taken by the learned Counsel for the respondent is supported by the view taken in Municipal Board, Bhilwara v. Bhura Lal and Anr. ILR (XIV) Raj 847, Union of India v. Ayed Ram , Union of India v. Ramaiah , The Provincial Government of Madras v. J.S. Basappa , and B. Poornaish v. Union of India . On the other hand, the learned Counsel for the appellant while conceding frankly that though the view propounded by the respondant is supported by the decisions in Municipal Board, Bhilwara v. Bhuralal and Anr. ILR (XIV) Raj 847 and Union of India v. Ayed Ram , yet the view taken by the Supreme Court in Public Prosecutor, Madras v. R. Raju suggests that a case for refund of tax illegally recovered as in the present case would fall under Section 40(2) of the Act.
11. We have carefully gone through the judgment of their Lordships of the Supreme Court in Public Prosecutor, Madras v. Ayed Ram . On the point which is under consideration before us all that their Lordships have observed is that:
Sub-section (2) of Section 40 does not introduce the test of good faith in relation to act done. Good faith is one of the aspects in Section 40(1).
These observations were made in connection with the contention of the appellant before their Lordships that the words "any thing done or ordered to be done" in this section would not mean anything done in violation of the provisions of the Act. It was also said that any thing done would not include a malicious act or an act done in bad faith. We are quite clear in our minds that their Lordships have not laid down any where expressly or even by implication that any levy or tax recovered under the Act would be an act done under the Act. All that their Lordships observed was that the test of good faith has not been introduced in Sub-section (2) of Section 40 which is only one of the aspects in Section 40(1). In the case on hand there is no question of good faith involved and the only point is whether an illegal levy purporting to be under an Act is an act done under the Act. In our opinion, it is not so.
12. In Municipal Board, Bhilwara v. Bhuralal and Anr. ILR (XIV) Raj 847. I was observed that the expression "anything done or purporting to be done under this Act" clearly includes not only acts which are done in compliance with the Act but also those which may not have been done in strict legal conformity with the provisions of the Act, but about which, despite that failing, it could be reasonably said that the acts were intended or sought to be done under the Act". It has been further pointed out that 'the distinction is between lawful acts and irregular acts on the one hand and illegal or ultra vires on the other'. In the conclusion it was pointed out that "the notifications in question on which the defendant relies furnish no legal warrant whatever to it to levy octroi on these goods". In other words the imposition was held to be wholly ultravires, and illegal and consequently it was held that the act of the defendant could possibly fall within the scope of the expression "for anything done or purporting to be done under this Act.
13. In Union of India v. Aayed Ram it was held that the officers of the Central Excise Department in selling the confiscated tobacco was ultra vires and such action cannot be said to be any thing done or ordered to be done under the Act.
14. In B. Poornaish v. Union of India it was observed that the question of collection of illegal taxes or orders imposing a tax, duty or penalty are not dealt with by Sub-section (1) of Section 40. It is interesting to note that the words "any thing done or ordered to be done under the Act" occur in Section 40(1) also. Since the question of illegal taxes is not dealt with by the said provision, it cannot also be said to be dealt with by the provisions of of Sub-section (2) because the same words namely "any thing done or ordered to be done under the Act "occur in both the Sub-sections.
15. In Provincial Government of Madras v. J.S. Basappa it was held that the period of limitation prescribed under Section 18 of the Madras General Sales Tax Act (9 of 1939), does not apply to a suit by an assessee for refund of tax on the ground that it has been illegally recovered from him. It is well settled that no tax can be levied or collected except by authority of law (vide Article 205 of the Constitution of India). If any tax has been recovered without authority of law then merely because the authority recovering the tax has relied on a certain provision of law which does not warrant the recovery of such tax, the recovery cannot be said to be under the Act. The act of recovery must be construed as an act ultravires the authority and completely without jurisdiction, and consequently such a recovery of illegal impost which is outside the scope of the Act cannot be said to be "any thing done under the Act." No authority taking a contrary view has been placed before us by the learned Counsel for the appellant. We have, therefore, no hesitation in coming to the conclusion that the suit has been rightly held to be within limitation by the court below as it does not fall under Section 40(2) of the Central Excise and Salt Act, 1944.
16. No other point was argued on behalf of the appellant.
17. The respondent, has filed cross-objection for award of interest pendente lite and future interest. It is urged that the lower court has assigned no reasons for not awarding interest from the date of the suit till the date of realisation of the amount. This is correct. Even though the lower court had discretion in the matter, it cannot be said to have exercised it judiciously when it has given no reasons in support of its finding. So far as interest after the date of the decree is concerned admittedly no stay of execution of the decree was ordered by this Court and it has not been shown to us that any obstruction was placed by the defendant in execution of the decree and realisation of the amount. We are also told that the decretal amount has been realised in full. We, therefore, do not see any ground for awarding interest after the date of the decree by the trial court.
18. The question of interest pendente lite, however, stands on a different footing. The suit was instituted on 20-9-1963 and was decreed on 27-1-1966. Since we have come to the conclusion that the suit amount was illegally recovered and the plaintiff was deprived of interest on this amount during the period the suit remained pending on account of opposition by the defendant, we do not see any reason why the plaintiff should be deprived of interest pendente lite. In fact the learned Counsel for the appellant was not able to resist this prayer on any ground except that the discretion exercised by the trial Court should not be interfered with. As we have already stated above, no reasons whatsoever have been assigned by the lower court for disallowing interest pendente lite and the discretion arbitrarily exercised cannot bind the appellate court. We are, therefore, of opinion that the plaintiff-respondent is entitled to get interest pendente lite on the suit amount from 20-9-1963 to 27-1-1966 at the rate of 6 per annum.
19. The result is that we dismiss the appeal with costs. We partly allow the cross-objection to the extent mentioned above with costs proportionate to the success of the cross objection.