ivil Appeal No 539 of 1976
From the Judgment and Order dated 2681975 of the Gujarat High Court in Spl
Civil Application No 1627 of 1972
Soli J Sorabjee Attorney General A Subba Rao CVS Rao P Parmeswaran and Ms Nisha Bache for the Appellants
SK Dhingra for the Respondents
The Judgment of the Court was delivered by RM SAHAI J
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 Excise and Salt Act allowing exemption to all sorts of papers by any factory commencing produc tion to refer not to the production of excisable goods paper in general failing under Item 17 but to pro duction 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
Ms Arvind Boards  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 661 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 wheth er the company would be entitled to exemption under notifi cation No 16365 both in respect of the production at tributable 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 notifica tion in respect of the production attributable to the en larged capacity namely the third machine only
Consequent ly the claim of the petitioners for exemption on capacity as it existed in 1967 was not accepted
The order was main tained in appeal as well
The Appellate Collector held I do not agree with the appellant s contention that the Assistant Collector erred in holding that any factory which commenced production related to any factory manufacturing paper falling under Item 17 of the said schedule irrespec tive of the varieties manufactured thereof
The exemption contained in the aforesaid Notification No 16365 as amend ed is in respect of the goods
Said exemption is conditional ie it is applicable to paper produced in a factory which commenced production on or after a specific date
Therefore the condition is that the factory must have commenced pro duction on or after that date and not that the production of these items must have been commenced after that date
 The High Court did not agree with the construction of the Notification made by the Collector Appeal and held That is why the whole controversy has arisen as regards these key words commencement of production
On a plain literal construction bearing in mind the context of the exemption where only certain specified categories of paper which is excisable item as specified in Column 2 had been exempted it is obvious that the commencement of production must 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 Col 2 of this notification
Any other interpretation would make the speci fication of various kinds of paper in Column 2 which alone attracted exemption redundant and would make even this condition in Cols
3 4 and 5 unworkable
 Excise duty was leviable under the Act on manufacture and clearance of paper under Item 17 of Schedule 1 to the Act
It reads as 662 MANUFACTURED GOODS CLASSIFIED CHIEFLY BY MATERIAL 17
PAPER all sorts including pasteboard millboard
straw board and cardboard in or in relation to the manu facture of which any process is ordinarily carried on with the aid of power 
XXX XXX XXX 3 Printing and writing paper packing and wrapping paper straw board and pulp board including grey board corrugated board duplex and triplex boards other sorts   35 paise per kg In 1965 the Central Government issued notification exempting papers of all sorts from so much of the excise duty levi able thereon under the said item read within notification for the time being in force issued by the Central Government in relation to the duty so leviable as is specified in the corresponding entry in Columns 3 4 5a 5b  5c of the Table as the case may be TABLE section Des Any factory Any factory Any factory commen cription which comm which comm production for the enced pro enced pro time on or after the duction duction on 1st March 1964 or before the or after the any factory existing 1st April 1st April immediately before 1961
1961 but the 1st March 1964 before the whose production 1st March capacity has been 1964
enlarged and brought into operation on or after the extent such production is attributable to the enlarge capacity
During the During During the first 12 the period months of second subsequent the com 12 mon to the first mencement mence 24 months of produc ment of of the com duction
produc mencement of produc tion
663 1 2 3 4 5a 5b 5c Entitlement of exemption depends on construction of the expression any factory commencing production used in the Table extracted above
Literally exemption is freedom from liability tax or duty
Fiscally it may assume varying shapes specially in a growing economy
For instance tax holiday to new units concessional rate of tax to goods or persons for limited period or with the specific objective etc
That is why its construction unlike charging provi sion has to be tested on different touchstone
Infact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative inten tion or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to aug ment state revenue
But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly
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 ap plicability is lifted and the subject fails in the notifica tion then full play should be given to it and it calls for a wider and liberal construction
Therefore the first exer cise 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
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 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 constured 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 produc ing packing and wrapping paper whether existing or commenc ing 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 words goods 
But what was lost sight of that the words commenc ing  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 664 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
achiev ing maximum after 1964 could not be covered in the clause as the production cannot be held to be due to enlarged capaci ty
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 commenc ing 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 1864
Any other construc tion shall result in discrimination
A factory like respond ent 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
Hansraj Goverdhan vs
HH Dave Asstt
Collector Central Excise  Customs Surat and Others relied on behalf of respondent demonstrates mis conception about interpreting an exemption provision
It was a case where goods of third persons were manufactured by cooperative society
But once initial hurdle was crossed and it was held that goods had been produced by cooperative society it was found squarely covered in the notification and the Court extended it to goods manufactured by third persons and repelled the submission that object of granting exemption was to encourage formation of cooperative societies and it should be confined to goods manufactured by its members and not others
Similarly in Commissioner of Income Tax vs Madho Prasad  the provision 665 allowing exemption to such part of the income in respect of which the said tax is payable
under the head property  as is equal to the amount of rent payable for a year  was construed liberally and it was held that the expression equal to the amount of rent payable for a year  did not warrant the inference that the benefit of exemption  could be claimed only once  because the amount of rent which was sought to be deducted in more than one years was found squarely to fall in Item 36 of notification
It was again a case of interpreting an exemption notification at later stage
Recently in Tata Oil Mills Co Ltd vs Collector of Central Excise   exemption was to soap made from indigenous rice bran oil as against edible oil
The assessee was engaged in manufacture of soap from rice bran fatty acid which was extracted from rice bran oil in assesses factory
It was found rice bran oil as such could not be used unless it was converted into fatty acid
Therefore the assessee was covered in the notification
Once the ambiguity or about manufacture of soap from rice bran fatty acid was removed the Bench proceeded to construe the word indigenous in the notification liberally
In Collector of Central Excise vs Parle Exports P Ltd AIR 1989 644 this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base or Limca base or Thums Up base were covered in the expression food products and food preparations used in item No 68 of First Schedule of Central Excise and Salt Act and held that it should not be in consonance with spirit and the reason of law to give exemption for non alchoholic beverage basis under the notification in question  Rationale or Ratio is same
Do not extend or widen the ambit at stage of applicability
But once that hurdle is crossed construe it liberally
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
The order of the High Court is set aside and the Writ Petition is dismissed with costs
RNJ Appeal allowed


Summary:
A civil suit was flied by the appellant herein against the respondent herein in the year 1973 praying for a decree for specific performance of the contract in the alternative for a decree for a total sum of Rs 16000 including the earnest money of Rs5000 on averments inter alia that she had entered into an agreement dated 16971 with the Re spondent for the purchase of a property with 2 Kohlus of 20 HP electric Motor etc installed therein and jointly owned by the Respondent with her step mother in law Smt
Lajwanti for a consideration of Rs50000 that in case Smt
Lajwanti did not join in the execution of the sale deed the Respondent would sell her half share of the property for half the sale price that pursuant to this agreement the Respondent handed over to the Plaintiff appel lant possession of her share of the property but later as arbitration proceedings were going on between the Respondent and her co sharer Smt
Lajwanti the Respondent took back the said agreement styled as receipt and thereafter ille gally took possession of the property from the appellant and declined to execute the sale deed in terms of the agreement
The Respondent contested the suit on the pleas that she never intended to sell the suit property to the Plaintiff that the agreement was a mere paper transaction brought into being for putting pressure on her co sharer that the agree ment being not scribed on a proper stamped paper was inad missible in evidence that the agreement related only to the moveable property that no advance money was paid as alleged and lastly that pursuant to the compromise between the parties dated 9172 350 the agreement dated 16971 stood destroyed
The trial Court disallowed the agreement Exhibit PW I IA which constituted the foundation of the claim as inad missible in evidence and dismissed the suit
The High Court on revision allowed the revision peti tion of the appellant with the direction to the trial court to impound the document in accordance with law and then proceed with the case
Respondent s Petition for special leave against that order was dismissed by this Court
Consequent to these orders of the Supreme Court and the High Court the Trial Court tried the suit afresh and passed a decree for specific performance which was affirmed by the Additional District Judge on appeal
However on second appeal the High Court held that there was no valid and enforceable contract as evidenced by Exhibit PW
IIA and thus instead of the decree for specific performance granted a decree for Rs5000 only by way of refund of the earnest money
Hence this appeal by special leave by the Plaintiff
Dismissing the appeal and upholding the finding of the High Court this Court HELD The specific performance of a contract is the actual execution of the contract according to its stipula tions and terms and the courts direct the party in default to do the very thing which he contracted to do
The stipula tions and terms of the contract have therefore to be certain and the parties must have been consensus ad idem
The burden of showing the stipulations and terms of the contract and that the minds were ad idem is of Course on the plaintiff
If the stipulations and terms are uncertain and the parties are not ad idem there can be no specific performance for there was no contract at all
362D E Where there are negotiations the Court has to determine at what point if at all the parties have reached agree ment
Negotiations thereafter would also be material if the agreement is rescinded
In the instant case the defence of there having not been a contract for lack of consensus ad idem was available to the defendant
363F 364B The jurisdiction of the Court in specific performance is discretionary
When a promise is made in an alternative form and one 351 alternative is impossible to perform the question whether the promiser  is bound to perform the other or is altogether excused depends on the intention of the parties to he ascer tained from the nature and terms of the contract and the circumstances of the particular case
362F The expression otherwise pay back the advance and compensation in the same amount  is capable of being inter preted as payment of the amount as alternative to perform ance
Of course the amount advanced and the compensation was stipulated to he the same amount
That however would not effect the real character of the promise
361G