1990 (4) TMI 55 - SC - Central Excise

Notification read as whole: new factories from 1 March 1964 get full exemption; existing factories get exemption for added capacity

UNION OF INDIA Versus WOOD PAPERS LTD.

The SC allowed the appeal, holding the notification must be read as a whole: factories commencing production on or after 1 March 1964 are entitled to full ... Exemption for paper production - phrase 'commencement of production' in the notification - 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' - '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'. HELD THAT:- 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 31st March, 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 1st March, 1964. To the former to the extent of enlarged capacity and to latter to full extent. The ambiguity arose because of absence of words `new' before `factory' or goods after the word `production' in the first clause. To harmonise it the High Court added the word `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. Truly speaking, liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. Therefore, the first exercise that has to be undertaken is if the production of packing and wrapping material in the factory as it existed prior to 1964 is covered in the notification. 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 1st March 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 1st 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. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit. In the result this appeal succeeds and is allowed. Issues: Interpretation of Notification No. 163 of 1965 under Central Excises and Salt Act regarding exemption for paper production.Analysis:1. The appeal challenged the High Court of Gujarat's construction of Notification No. 163 of 1965 under the Central Excises and Salt Act. The main issue was whether the exemption for paper production referred to the production of excisable goods in general or specifically to the exempted categories of paper listed in the notification. The Collector of Central Excise argued that the factory must have commenced production on or after a specific date, while the High Court disagreed with this interpretation.2. The case involved a company established in 1942 that expanded its activities in 1965 to manufacture duplex board and packing and wrapping paper. The company sought exemption under the notification for its production attributable to both its installed capacity in 1967 and its expanded capacity. The Appellate Collector held that the exemption applied to paper produced in a factory that commenced production on or after a specific date, leading to the denial of the petitioners' claim for exemption on their capacity as it existed in 1967.3. The High Court's interpretation focused on the key phrase 'commencement of production' in the notification. The Court emphasized that the exemption was intended for specific categories of paper listed in the notification, not for all types of paper falling under Item 17. The Court analyzed the exemption provision in two parts, clarifying that it applied to factories commencing production after 31st March 1964 and to existing factories to the extent of their enlarged capacity. The Court highlighted the need to read the notification as a whole to avoid ambiguity.4. The judgment referenced previous cases to illustrate the principles of interpreting exemption provisions liberally once the subject falls within the notification. The Court emphasized the need to avoid discriminatory or inequitable results in interpreting such provisions. The judgment highlighted the importance of harmonizing the language of the notification to ensure a fair and consistent application of the exemption.5. Ultimately, the Supreme Court allowed the appeal, setting aside the High Court's order and dismissing the Writ Petition with costs. The judgment clarified the interpretation of the notification, emphasizing the need to consider the specific categories of paper mentioned in the exemption provision for a factory to be entitled to the exemption benefits.