Excise refund and cotton yarn exemption: multiple fold yarn stayed exempt, and unlawful recovery was outside the limitation bar.

Multiple fold cotton yarn was treated as yarn, not as "cotton twist", so it remained within the exemption notifications applicable to cotton yarn in hanks. A refund suit for excise duty collected without authority of law was held not to be barred by section 40(2) of the Central Excises and Salt Act, 1944, because an unlawful levy is not an act done under the Act for limitation purposes. Pendente lite interest was also allowed on the refunded amount where the tax had remained with the defendant during the suit and no reason had been given for refusing interest.

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Issues: (i) Whether multiple fold cotton yarn fell within the taxable expression "cotton twist" or was covered by "yarn" and therefore entitled to the exemption notifications. (ii) Whether the suit for refund of excise duty was barred by limitation under section 40(2) of the Central Excises and Salt Act, 1944. (iii) Whether the plaintiff was entitled to pendente lite interest on the refunded amount.

Issue (i): Whether multiple fold cotton yarn fell within the taxable expression "cotton twist" or was covered by "yarn" and therefore entitled to the exemption notifications.

Analysis: The expression "cotton twist" was treated as referring to an earlier stage in the textile process, before cotton assumes the character of yarn. Multiple fold yarn remained yarn notwithstanding the number of single yarns twisted together. The language of the exemption notifications also showed that multiple fold yarn was treated as part of the broader class of cotton yarn, with the exclusionary wording confirming that such yarn was within the exempted category when issued in hanks.

Conclusion: Multiple fold cotton yarn was held to be yarn and not "cotton twist". The levy was not sustainable against the assessee, and the exemption was upheld.

Issue (ii): Whether the suit for refund of excise duty was barred by limitation under section 40(2) of the Central Excises and Salt Act, 1944.

Analysis: The limitation clause was construed as applying only to acts done or ordered to be done under the Act. A levy or recovery without authority of law was treated as ultra vires and outside that phrase. Since tax can be recovered only by authority of law, an illegal collection could not be characterised as an act done under the Act for purposes of the six-month bar.

Conclusion: The suit was held not to be barred by limitation and was maintainable.

Issue (iii): Whether the plaintiff was entitled to pendente lite interest on the refunded amount.

Analysis: The trial court had refused interest without giving reasons. The amount had remained with the defendant during the pendency of the suit after wrongful recovery, and the refusal to award interest for that period was found to be unjustified on the facts.

Conclusion: Pendente lite interest at 6% per annum was awarded in favour of the assessee for the period from institution of the suit until decree.

Final Conclusion: The appeal failed on the merits, while the cross-objection succeeded only to the limited extent of pendente lite interest, leaving the refund decree otherwise intact.

Ratio Decidendi: A tax recovery made without authority of law is ultra vires and cannot be treated as an act done under the Act for the purpose of a statutory limitation bar; a textile commodity that remains yarn in substance cannot be reclassified merely because it is twisted or folded.

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