Case: Union Of India And Ors Vs. M/S. Wood Papers Ltd. And Anr

2. M/s. 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 strawboards an millboards. 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 :-"I do not agree with the appellants 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 irrespective of the varieties manufactured thereof. The exemption contained in the aforesaid Notification No. 163/65 as amended is in respect of the goods. Said exemption is conditional i.e. 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 production 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 has 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 specification 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 under :-  "MANUFACTURED GOODS CLASSIFIED CHIEFLY BY MATERIAL"  17. Paper, all sorts (including pasteboard, millboard, strawboard and cardboard), in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power(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."

Reasoning:
6. Hansraj Goverdhan v. H. H. Dave, Asstt. Collector, Central Excise & Customs, Surat ( 1969 (2) SCR 252relied on behalf of respondent demonstrates mis-conception about interpreting and 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 has 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 v. Madho Prasad ( 1976 (4) SCC 92  the provision 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 year was found squarely to fall in Item 30 of notification. It was again a case of interpreting an exemption notification at later stage. Recently in Tata Oil Mills Co. Ltd. v. Collector of Central Excise ( 1989 (4) SCC 541 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 assessees 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 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 v. Parle exports (P) Ltd. ( 1989 (1) SCC 345  this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base of Limca base or Thumps Up base were covered in the expression food products and food preparations used in Items No. 68 of First Schedule of Central Excuse and Salt Act and held that it should not be in consonance with spirit and the reason of law to give exemption for non-alcoholic 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