Full Judgment Text
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PETITIONER:
UNION OF INDIA AND ORS.
Vs.
RESPONDENT:
SURYA PHOSPHATE LIMITED AND ANR.
DATE OF JUDGMENT12/08/1992
BENCH:
SAWANT, P.B.
BENCH:
SAWANT, P.B.
KULDIP SINGH (J)
CITATION:
1993 AIR 1620 1992 SCR (3) 817
1992 SCC (4) 1 JT 1992 (4) 481
1992 SCALE (2)159
ACT:
Administrative Law :
Price control-Fertilizer-Single Super Phosphate-
Government’s circular dated 19.6.1982-Interpretation of-New
scheme for payment of differential rate of subsidy in place
of uniform subsidy-Whether to be on the basis of actual cost
shown by manufacturers-Normative method adopted by
Government for working out the cost of different components-
Validity of.
HEADNOTE:
Single Super Phosphate (SSP) a fertilizer, was brought
under Retention Price Control with effect from 23.5.1982.
The Fertilizer Industry Coordination Committee (FICC) issued
a scheme of subsidy in order to boost up the consumption of
phospatic fertilizer. The benefit of the said subsidy was
passed on to the farmers by lowering the price. However,
prior to 23.5.1982 there was no uniformity in the price of
SSP and it varied from manufacturer to manufacturer and from
zone to zone. The Government therefore changed the formula
on the recommendation of a Working Group which examined and
reviewed the subsidy on SSP. According to the revised
formula variable costs would be determined and fixed costs
suggested by the Group would be added to arrive at the ex-
factory price. Consequently, Government sent a Circular
letter dated 19.6.1982, to all manufacturers of SSP.
The Respondent-company has been manufacturing SSP since
28.11.84 long after the new formula for subsidy came into
force. It had no captive plant and had to procure the raw
material viz. Sulphuric Acid from the market at a higher
price. Though the Respondent-company’s unit did not incur
any capital cost on setting up a matching Sulphuric Acid
Plant, notional cost on setting up such a plant to match the
requirement of installed capacity of SSP was provided for,
while working out the convention cost. Subsidy was
accordingly worked out and paid to the Respondent-company.
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Not satisfied with the method of calculating subsidy,
and insisting that the Government was obliged to take into
consideration the landed costs of Sulphuric Acid at its
factory, the Respondent-company filed a Writ Petition before
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the High Court. It was held by the High Court that the
Government was bound to calculate subsidy payable to the
company taking into consideration its ex-factory price.
Being aggrieved against the said order, Government preferred
the present appeal.
Allowing the appeal, this Court
HELD : 1. The Circular letter issued by Government on
19th June, 1982 made no representation other than conveying
to each of the manufacturing units that a scheme for payment
of differential rate of subsidy in place of the earlier
uniform flat subsidy was being introduced. What that
differential rate of subsidy would be, would depend upon the
ex-factory price worked out by the FICC separately for each
manufacturing unit. The method by which the ex-factory
price was to be worked out for each of the manufacturing
units was not indicated in the Circular letter. That was to
be on the basis of the recommendation of the Working Group
as accepted by the Government. In fact, the new method of
payment of subsidy was based on the said recommendation
which also included the formula to work out the ex-factory
price. [824D,E]
2. It was implicit in the said Circular letter that the
ex-factory price would be worked out by the FICC on certain
basis. It is incorrect to say that in the absence of a
method for working out the ex-factory price indicated in the
said Circular letter, it should be presumed that what was
represented to the manufacturing units was that they would
be paid subsidy on the basis of the actual costs shown by
them. [824-H, 825-A,B]
3. Understandably, the method adopted by the FICC for
working out the ex-factory price was on a normative basis as
recommended by the Working Group and accepted by the
Government. That was as it should be. In the absence of
such norms for working out the costs of different
components, there would virtually be chaos and
arbitratiness, as also misfeasance at both ends. [825-C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No.585 of
1992.
From the Judgment and Order dated 25.6.1991 of the
Patna High Court in Civil Writ Jurisdiction Case No. 92 of
1990 (R).
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G.Ramaswamy, Attorney General, V.C. Mahajan, Hemant
Sharma, Mrs. Indra Sawhney, Sudhir Walia, C.V. Subba Rao and
Ms. Sushma Suri Advs. for the Appellant.
Ashok Bhan, Harish Salve, Yunus Malik, L.R. Singh, ND.
B. Raju, Vikas Singh and Gopal Singh for the Respondents.
The Judgment of the Court was delivered by
SAWANT, J. The question involved in the present appeal
is of the interpretation of Circular letter dated 19th June,
1982 issued by the Fertilizer Industry Coordination
Committee, Government of India [Department of Chemicals &
Fertilizers] [‘FICC’] to all manufacturers of Single Super
Phosphate. Did the Circular letter represent to the
manufacturers that they would be paid differential rate of
subsidy based on the actual ex-factory price of each of the
manufacturing units or did it inform them that the subsidy
would be based on the ex-factory price of each of the units
which would be worked out by the FICC? To appreciate the
controversy, it is necessary to have a glimpse of the
relevant facts.
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Single Super Phosphate [‘SSP’] is a low nutrient
phosphatic fertilizer. Its two major ingredients are Rock
Phosphate and Sulphur. The consumption norms of the two
items for manufacturing one metric tonnes of SSP are 0.57
M.T. of Rock Phosphate and 0.125 M.T. of Sulphur.
SSP was brought under Retention Price Control w.e.f.
23rd May, 1982. There are a number of units manufacturing
SSP in the small and medium sectors.
In order to boost up the consumption of phosphatic
fertilizer, FICC had in March, 1976 issued a scheme of flat
subsidy of Rs. 1250 per tonne of p-205 [equivalent of Rs.
200 per tonne of SSP]. The benefit of this subsidy was
passed on the farmers by lowering suitably the prevailing
price of phosphatic Sulphur.
2. Before 23rd may, 1982, viz., the date on which the
SSP was brought under the Retention Price Control, every
manufacturer of SSP, irrespective of the cost of
manufacture used to get the same subsidy at the above
rate. However, different retail prices were fixed for
different manufacturers and
820
for different marketing zones of the same manufacturer.
The retail prices were fixed from time to time by the
Fertilizers Association of India in accordance with the
formula laid down by the Ministry of Agriculture in May
1966. Under this formula the ex-factory price for each
manufacturing unit was fixed taking into account the
prescribed fixed charges and variations in the price of raw
materials and bags as compared to the costs of these
materials provided for in the original formula. The result
was that there was no uniformity in the price of SSP.
3. The Working Group on Review of Subsidy on SSP
examined all these aspects and gave a report in 1980. The
Group recommended that the scheme of flat subsidy at the
above rate be replaced by a scheme of differential level of
subsidy for each manufacturer depending on the ex-factory
price and other expenses incurred by each manufacturer as
fixed according to the formula/guidelines recommended by the
Working Group. The Group came to the conclusion that a
system of Retention Price of SSP similar to the one existing
for Nitrogenous and Complex Fertilizers was not expedient.
While variable costs, which constituted about 80 percent of
the total cost of SSP, were susceptible of determination on
a normative approach and without difficulty, the detailed
costing of a fixed cost element under each unit was not a
practical proposition. This was so mainly because of the
existence of a large number of units manufacturing SSP which
were also multi-product/multi-activity units. The Group,
therefore, suggested a formula for determining the variable
costs to which were to be added the fixed costs suggested by
the Group in order to arrive at the ex-factory price of each
manufacturing unit.
4. This recommendation of the Group was broadly
accepted by the Government and SSP was brought under
Statutory Price Control w.e.f. 23rd May, 1982. While
accepting the recommendation of the Group, however, the
Government made some changes in it. It is not necessary to
refer to them here. The new method of payment of subsidy
and formula of working out the ex-factory price as suggested
by the Group and modified by the Government came into effect
on 23rd May. 1982.
5. Pursuant to the introduction of the new method of
payment of the subsidy the circular letter in question,
viz., that of 19th June, 1982 was addressed by the
Government to all manufacturers of SSP. It is necessary to
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quote the circular letter verbatim:
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"To
All manufacturers of Single Super Phosphate.
Sub :-Single Super Phosphate--Retention Ex-
factory Price in respect of .....
Dear Sir,
Consequent upon issue of Government of India,
Ministry of Agriculture, Deptt. of Agriculture &
Cooperation, telegram No. 1-9/82-F.A. (CP) dated
22nd May, 1982 fixing a uniform retail price of
Single Super Phosphate with effect from 23rd May,
1982, it has become necessary to replace the scheme
for payment of uniform flat subsidy of Rs. 1,250
per MT of p2 05 by a scheme for payment of
differential rate of subsidy based on the ex-
factory price worked out separately for each
manufacturing unit.
2. To enable this office to work out the ex-
factory price in respect of SSP manufactured in
your unit, information in the enclosed proformae
may please be furnished to this office urgently,
latest by 15th July, 1982. The information should
be furnished separately for the periods 1.10.81 to
31.12.81 and 1.1.82 to 31.3.82 only certified by a
Chartered Accountant or your Statutory Auditors."
6. Along with the Circular letter, as stated in its
body, pro formae were circulated for collecting information
of various elements contributing to the variable and fixed
costs.
7. After the then existing units submitted the relevant
information and taking into consideration their
representations, the variable costs were determined with
reference to the expenses for each factory on the average of
three months preceding the last quarter. The costs were
calculated with reference to the details furnished by each
unit in the detailed proformae for variable input costs. To
this cost was added the fixed costs to arrive at the ex-
factory price of each individual unit. The extracts of the
relevant minutes of the meetings of the FICC held on 16th
October, 1982 and 17th February, 1983 which are annexed as
Annexure ‘C’ to the present petition, show the details of
the manner in which the ex-factory price was worked out for
the product.
822
8. The respondent-company commenced its production of
SSP for the first time on 28th November, 1984, i.e., long
after the replaced subsidy as suggested and worked out by
the new formula came into force. The installed capacity of
the unit as declared by the Company was 120 tonnes per day
or 39,800 M.T. per annum. As the respondent-company had no
captive plant for manufacturing Sulphuric Acid, the notional
cost of a matching 43 tonnes per day Sulphuric Acid captive
plant based on the actual cost of the standard plant for
1984 was taken at Rs. 99.81 lakhs for the purposes of
computation of fixed charges applicable to the unit. It may
be stated here that admittedly those manufacturing units
which had a captive Sulphuric Acid plant could produce
Sulphuric Acid at lesser cost and others had to procure it
at a higher price from market. In order to equalise the
cost of production of SSP of both types of units this method
of taking the notional cost had to be adopted as approved by
the FICC. Thus, it would be seen that though the
respondent-Company’s unit did not incur any capital cost on
setting up a matching Sulphuric Acid plant, the notional
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cost of a Sulphuric Acid plant to match the requirement of
installed capacity of SSP was provided for while working out
the conversion cost in the case of respondent-Company’s
unit. Based on this notional costs which formed part of the
capital employed, normative working capital, the share
capital and borrowings, etc. were also worked out and their
fixed charges were accordingly determined. There is no
dispute that subsidy worked out by the above methodology was
paid to the respondent-Company as it was paid to other units
manufacturing SSP.
9. The respondent-Company, however, was not satisfied
with the method of calculating the subsidy and insisted that
while working out the subsidy the Government was obliged to
take into consideration the landed costs of Sulphuric Acid
at its factory as revealed in the cost data submitted by it.
It worked out the subsidy on the said basis at Rs.
1,12,58,449 as arrears of subsidy from the date it commenced
production and filed a writ petition before the High Court
for recovery of the said amount. The respondent-Company
also prayed for injunction to restrain the Government from
paying the ex-factory price of SSP manufactured by it except
on the basis of its actual cost of production including the
actual landed cost of Sulphuric Acid at the factory.
10. By the impugned judgment, the Patna High Court held
that in view of the fact that the respondent-Company
purchased Sulphuric Acid
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from open market and transported it to its factory, the
Government was bound to calculate the subsidy payable to the
Company taking into consideration its ex-factory price of
SSP. It is this decision of the High Court which is under
challenge before us.
11. Shri Sen, the learned counsel appearing for the
respondent-Company contended that the language of the
Circular letter dated 19th June, 1982 [reproduced here in
above] is very clear. By this Circular letter, the FICC had
in terms promised every manufacturer of SSP a differential
rate of subsidy based on the ex-factory price worked out for
each of the SSP manufacturing units. Hence, the Government
was obliged to pay the entire difference between the retail
price of SSP fixed by the Government [which was lower than
the cost of production of SSP] and the actual ex-factory
price of SSP of each of the manufacturing units. Hence,
uged Shri Sen, the High Court was right in directing the
Government to calculate the subsidy payable to the
respondent-Company as per the interpretation of the Circular
letter by the Company and also to pay the arrears in
question. He also contended that that is the only
interpretation possible of the said Circular letter.
12. There is no dispute that what holds the field for
the payment of the subsidy is the Circular letter of 19th
June, 1982. The controversy relates to its interpretation.
Taking into consideration the entire history of the subsidy
as we have narrated above, the recommendation of the Working
Group, its acceptance by the Government and the issuance of
the Circular letter to implement the recommendation and the
subsequent minutes of the meetings of the FICC held on
16th October, 1982 and 17th February, 1983 and the method
for working out the ex-factory price detailed therein, we
are of the view that the contention advanced by Shri Sen is
not correct. Viewed in its proper context, there is no
doubt that the Circular letter in question has only
intimated to the manufacturers that consequent upon the
fixing of the retail price of SSP w.e.f. 23rd May, 1982, it
had become necessary to replace the old scheme of the
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payment of uniform flat subsidy, by a new scheme. The new
scheme was for payment of differential rate of subsidy.
That rate of subsidy was to be based on the ex-factory price
which had to be worked out separately for each manufacturing
unit. In order to work out the ex-factory price of each
unit, it was necessary to have information from each to the
units on items detailed in the pro formae. The information
called for was for two different quarters preceding the
quarter
824
beginning from April, 1982 since the uniform retail price of
SSP had come into effect from 23rd May, 1982. This
quarterly information was to be certified either by the
Chartered Accountant of the unit concerned or by the
statutory auditors. The quarterly information was required
because the variable costs were to be determined with
reference to the expenses for each factory on the average of
three months preceding the last quarter. In para 2 of the
Circular letter it was clearly stated that the information
in question was required "to enable this office to work out
the ex-factory price in respect of SSP manufactured in your
unit". This was a clear indication that it was the FICC
which was going to work out the ex-factory price. If the
subsidy was to be based only on the ex-factory price to be
stated by the manufacturing unit, there was no question of
working it out by the FICC office.
13. It would thus be seen that the Circular letter made
no representation other than conveying to each of the
manufacturing units that a scheme for payment of
differential rate of subsidy in place of the earlier uniform
flat subsidy was being introduced. What that differential
rate of subsidy would be would depend upon the ex-factory
price worked out by the FICC separately for each
manufacturing unit. The method by which the ex-factory
price was to be worked out for each of the manufacturing
units was not indicated in the Circular letter. That was to
be on the basis of the recommendation of the Group as
accepted by the Government. In fact, the new method of
payment of subsidy was based on the said recommendation
which also included the formula to work out the ex-factory
price.
14. Shri Sen attacked the recommendation of the Group
and the method adopted by the FICC to work out the ex-
factory price and the subsidy, on the ground that they were
not made known to the manufacturing units. They were,
according to him, kept confidential by the Government and
all that was held out was the promise contained in the
Circular letter of 19th June 1982 which, according to him,
was for payment of subsidy to each unit on the basis of its
actual costs. It is not necessary for us to go into the
question as to whether the method/formula adopted by the
FICC should have been made known to the manufacturers or
not. Suffice it to point out that the Circular letter in
question had not indicated any particular method of working
out the ex-factory price. It was implicit in the said
Circular letter that the ex-factory price would be worked
out
825
by the FICC on certain basis. It is incorrect to say that in
the absence of a method for working out the ex-factory price
indicated in the said Circular letter it should be presumed
that what was represented to the manufacturing units was
that they would be paid subsidy on the basis of the actual
costs shown by them.
15. Understandably, the method adopted by the FICC for
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working out the ex-factory price was on a normative basis as
recommended by the Group and accepted by the Government.
That was as it should be. In the absence of norms for
working out the costs of different components, there would
virtually be a chaos and arbitratiness. To give only one
instance: if a manufacturing unit were to consume more Rock
Phosphate and Sulphur or Sulphuric Acid than the consumption
norm, its cost of production of SSP would be higher than the
cost of production of the standard SSP. It cannot be argued
that in spite of it, the manufacturing unit should be paid
the differential rate of subsidy on the basis of the
unwarranted cost. One can multiply such instances with
reference to each of the other elements of cost of producing
SSP. In the absence of norms, there would be a good deal of
scope for arbitrariness and misfeasance at both ends. We
are, therefore, of the view that the contention urged by
Shri Sen cannot be accepted.
16. For the reasons stated above, the interpretation
placed by the High Court on the Circular letter of 19th
June, 1982 cannot be accepted. Consequently, the
conclusion arrived by it is erroneous. Hence we allow the
appeal and set aside the impugned decision.
The respondent-Company will bear the cost of the
appeal.
G.N. Appeal allowed.
826