JUDGMENT

R. M. 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 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 & 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:-

"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 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 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."

3. 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, mill-board, straw-board and cardboard), in or in relation to the manufacture 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 sort