Full Judgment Text
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CASE NO.:
Appeal (civil) 6202 of 2000
PETITIONER:
M/s. Udaipur Phosphates Fertilizers Ltd
RESPONDENT:
Union of India & Anr
DATE OF JUDGMENT: 31/01/2007
BENCH:
S. B. Sinha & Markandey Katju
JUDGMENT:
J U D G M E N T
MARKANDEY KATJU, J.
This appeal has been filed against the impugned judgment of the
Delhi High Court dated 6.9.1999 in L.P.A. No. 375 of 1999 by which
the judgment of the learned Single Judge of the High Court dated
26.5.1999 dismissing the writ petition was upheld.
Heard learned counsel for the parties and perused the record.
The appellant is a company registered under the Indian
Companies Act and is engaged in the manufacture of fertilizers and
chemicals. One of the products it produces is Single Super Phosphate
(SSP).
Till 1976, the manufacture and sale of SSP was not controlled by
the Government. However, from 1976 to 1982, the manufacture of
SSP was subjected to a system of uniform subsidy whereby each
manufacturer was given a uniform rate of subsidy.
In the year 1982, the Government of India brought SSP under a
formal price control known as the Retention Price and Subsidy Scheme
(hereinafter referred to as RPS) for regulating the price and sale of SSP.
The scheme had been introduced on the basis of a detailed study and
recommendation of an Inter-Ministerial Working Group appointed by
the Government. Under the RPS, the manufacturers were obliged to
sell their fertilizers at a subsidized price fixed by the Government,
which was below the cost of production. The respondent No. 2
calculated the cost of production of each unit on the basis of certain
factors such as capacity, location, age of the plant, etc. and added a
certain amount of notional profit, and the result was called the retention
price. The difference between the retention price and the selling price
as fixed by the Government was calculated and paid to the
manufacturers as subsidy. Thus, while price of the fertilizers for the
consumers, namely, the farmers was subsidized by the Government, the
manufacturers were given an amount which was calculated by the
FICC on the basis of normative cost of production of the unit which
was to be calculated on the assumption that the unit performed
efficiently at 90% capacity utilization.
On 15.1.1986, the Department of Industrial Development,
Ministry of Industries issued Press Note No. 1 whereby the capacity
indicated in the industrial license could be re-considered with reference
to the highest production achieved during any of the previous 5 years
plus 1/3rd thereof, provided that was within the licensed capacity plus
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25%. Thereafter, the Department of Industrial Development, Ministry
of Industry issued Press Note No. 9 (1988 series) on 6.4.1988 w.e.f.
1.4.1988 which provided a scheme for re-endorsement of higher
capacity of the fertilizer units. Under the said scheme, the unit could
apply for re-endorsement of an enhanced capacity on the basis of the
best production actually achieved in any financial year between
1.4.1988 and 31.3.1990.
In accordance with the abovementioned Press Note of 1988, the
appellant vide application dated 8.8.1988 applied to the Ministry of
Industries for re-endorsement of the capacity of the appellant unit on
the basis of the actual production between 1.4.1988 and 31.3.1990.
Thereafter, the respondents asked for several verifications which
were provided by the appellant. However, it is alleged that despite
repeated follow-ups, after the various verifications, respondent No. 1
issued letter of approval only on 31.3.1993, i.e. three years after the
appellant had applied for re-endorsement, stating that they were
recognizing the appellant’s enhanced capacity of 74,089 MT from the
earlier capacity of 66,000 MT with retrospective effect from 1.4.1990.
It was further informed that respondent No. 1 was tentatively
recovering an amount of Rs. 26.55 lakhs by downward revision of the
ex-works price of the appellant from 1.4.1990.
The appellant’s grievance is that the Government has
retrospectively re-endorsed the capacity of the appellant and reduced
the price payable to the appellant with retrospective effect, which
effectively denied the appellant from taking advantage of the re-
endorsed capacity. The appellant filed the abovementioned Special
Leave Petition challenging the order dated 6.9.1999 passed by the High
Court of Delhi whereby the learned Division Bench dismissed LPA No.
375/1999 on the ground that when the appellant had applied for re-
endorsement of the capacity, in view of the fact that the appellant had
already achieved the maximum production, thereby fulfilling the
condition of Press Not No. 9 (1988 series), then the re-endorsement
was bound to automatically take place. Further, merely because it took
some time for inspection by the respondents, it did not mean that the re-
endorsement was not automatic.
Press Note No. 9 has been quoted in detail in the impugned
judgment and hence we are not quoting it again here.
In pursuance of this Press Note the appellant made an application
for re-endorsing the capacity on the basis of actual manufacture during
1st April 1988 and 31st March 1990. The 1st respondent accorded
approval of re-endorsement by letter dated 31st March 1993. The said
letter also indicated that in view of the higher capacity the fixed
charges had been re-calculated from 1st April 1990. The letter stated
that on the basis of re-calculation there would be a recovery of
approximately Rs. 26.55 lakhs. A writ petition was filed challenging
the re-calculation of the fixed charges and the recovery of approximate
Rs. 26.55 lakhs.
The learned Single Judge of the High Court dismissed the writ
petition on the ground that once an application was made under Press
No. 9, the re-endorsement was merely a formality in view of the fact
that the appellant had already achieved the maximum production. The
learned Judge held that as the appellant had already produced more, re-
fixation of the fixed cost was bound to take place. The learned Judge
held that the fixed cost was bound to come down. The learned Judge
also held that the subsidy has been correctly worked out on the basis of
actual manufacture as undertaken by the appellant.
The learned Single Judge in his judgment has observed that the
facts as stated in the application of the appellant dated 8.8.1990 for re-
endorsement of its capacity would substantiate the stand of the
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respondents that the appellant-unit had already achieved maximum
production and only needed ex-post facto approval in compliance to the
Press Note dated April 6, 1988. It was also observed that it was clear
that the appellant produced more and it could not be said that no
opportunity to actually manufacturing in excess of the endorsed
capacity was provided. The sanction of the respondents vide
communication dated March 31, 1993 is in the nature of ex-post facto
approval and cannot be held to be discriminatory as the fixed cost
obviously will come down while manufacturing more and subsidy had
been correctly working out on that basis.
In appeal, the Division Bench observed that if the appellant
fulfilled the condition of Press No. 9 then the re-endorsement was
bound to take place automatically. Merely because the respondent
would have to make an inspection that there was no additional
investment in the plant, machinery and equipment exceeding 10% of
the book value, and such inspection takes some time, does not mean
that the re-endorsement was not automatic.
We agree with the view taken by the learned Single Judge and the
Division Bench that once the appellant’s case falls within the criteria
laid down in Press Note 9 then the re-endorsement takes place
automatically. Once such re-endorsement takes place on the basis of
actual manufacture the fixed cost is bound to be revised and hence the
subsidy is bound to be reduced.
The Press Note No. 9 at paragraph 2f clearly indicates that this
scheme is in addition and not a substitution for the facilities already
available under any existing scheme. Hence, the grievance of the
appellant that from the date of application for re-endorsement i.e.
8.8.1990 till 31.3.1993, when the re-endorsement was granted, the
benefit of subsidy was not given is wholly untenable on account of the
fact that the appellant overdrew the subsidies on account of the
enhanced capacity which was on its own showing an admitted fact.
The appellant was duly informed that their capacity has been
enhanced with retrospective effect from 1.4.1990 onwards to 74,089
MT (which was the production achieved by them during 1989-90). It
is evident that the appellant produced more, and the appellant cannot
say that no opportunity to actually manufacture in excess of the
endorsed capacity was provided to them. The communication dated
31.3.1993 has to be deemed to be an ex-post facto approval of the
maximum production already achieved by the appellant. The benefits
in terms of the said scheme have already been availed of and drawn by
the appellant company, and in fact some amount has been found to be
overdrawn.
In view of the above, we find no merit in this appeal. The appeal
is accordingly dismissed. No costs.