UNION OF INDIA Vs. WOOD PAPERS LIMITED

JUDGEMENT

(1.) BY this appeal Union Government has challenged correctness of construction by High Court of Gujarat of notification No. 163 of 1965 issued under Rule 8 framed under Central Excises and Salt Act allowing exemption to all sorts of papers by "any factory commencing production" to refer "not to the production of excisable goods - Paper in general falling under Item 17, but to production of these specified exempted categories of paper in Column 2 of this notification" and canvasses for acceptance of the construction put on it by the Collector, Central Excise "that the factory must have commenced production on or after that date and not that the production of these items must have been commenced after the date".

(2.) M/s. Arvind Boards and Paper Products Limited, Antalia, Bilimora, Gujarat State, was established in 1942. From 1944 when it went into production till 1964 it manufactured only straw boards and mill boards. It expanded its activities in 1965 and commenced manufacture of duplex board. The packing and wrapping paper was manufactured on experimental basis in 1966 and on commercial basis after 1967. In December 1971 the company wrote a letter to the Assistant Collector of Central Excise inquiring as to whether the company would be entitled to exemption under notification No. 163 / 65 both in respect of the production attributable to its installed capacity as in 1967 as well as in respect of the production attributable to its expanded capacity. In 1972 it was informed that it would be entitled to concession under Column 5 of the Table of the notification in respect of the production attributable to the enlarged capacity, namely, the third machine; only. Consequently the claim of the petitioners for exemption on capacity as it existed in 1967 was not accepted. The order was maintained in appeal as well. The Appellate Collector held:-

(3.) FROM the table extracted above it is clear that it is in two parts and exemption is allowable in the first part to the factory commencing production on or after 31/03/1964, and in the second part to the existing factory to extent of enlarged capacity. If the first part is read in isolation it is susceptible of construction as was adopted by the High Court. But the notification has to be read in its entirety and construed as a whole. Once that is done cloud of uncertainty disappears. A close reading of both the parts together leaves no room for doubt that it was intended to be exhaustive granting exemption to all factories producing packing and wrapping paper whether existing or commencing production from 1/03/1964. To the former to the extent of enlarged capacity and to latter to full extent. The ambiguity arose because of absence of words now before 'factory' or goods after the word 'production' in the first clause. To harmonise it the High Court added the words 'goods''. But what was lost sight of that the words 'commencing' in the first part and 'existing' in the second part had to be read in juxtaposition. That is all those factories which were existing from before were entitled to exemption on production of goods to the extent of enlarged capacity. This enlargement could be as a result of installation of additional machinery. The word 'capacity' must necessarily relate to capacity of factory and not to goods. For instance a factory with capacity of say 1 lakh kg. of paper but producing only 75 thousand kg. achieving maximum after 1964 could not be covered in the clause as the production cannot be held to be due to enlarged capacity. That could be only if the capacity to produce goods increased due to installation of additional machinery. If this be true and correct, as it appears to be, then the first part presents no difficulty. The expression 'commencing production' has to be read as commencing production of goods by a factory which was not existing and has started production on or after 1/03/1964. Any other construction shall result in discrimination. A factory like respondent existing from 1942 producing straw board and mill board shall be entitled to exemption on production of wrapping and packing paper on construction of the expression 'commencing production' by the High Court even though it switched over from straw board and mill board to packing and wrapping paper after the relevant date whereas another unit existing and producing wrapping and packing paper itself from before 1 st March 1964 could not be entitled to exemption except to the extent of enlarged capacity. That is if an existing unit would have installed a new machinery it would have been entitled to exemption of production only to that extent whereas any unit producing goods other than the exempted goods would become entitled to exemption in respect of entire production. That could not have been the intention. A construction which results in inequitable results and is incongruous, has to be avoided. Therefore production of packing and wrapping paper by respondent was entitled to exemption only to the extent it was attributable to enlarged capacity and not to the existing capacity.