Full Judgment Text
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PETITIONER:
THE PANIPAT CO-OPERATIVE SUGAR MILLS
Vs.
RESPONDENT:
THE UNION OF INDIA
DATE OF JUDGMENT06/11/1972
BENCH:
SHELAT, J.M.
BENCH:
SHELAT, J.M.
GROVER, A.N.
MATHEW, KUTTYIL KURIEN
MUKHERJEA, B.K.
CHANDRACHUD, Y.V.
CITATION:
1973 AIR 537 1973 SCR (1) 860
1973 SCC (1) 129
CITATOR INFO :
F 1973 SC 734 (3,22)
D 1974 SC 366 (62)
RF 1975 SC 460 (13,15)
RF 1978 SC1296 (33,64)
RF 1983 SC1019 (34)
R 1987 SC1802 (9)
F 1987 SC2351 (9,12)
RF 1990 SC 334 (103)
1990 SC1277 (5,6,12,13,14,23,26,30,40,42,4
RF 1990 SC1851 (55)
R 1991 SC 724 (13)
ACT:
Essential Commodities Act (10 of 1955), s-3 (3C) cls. (a) to
(d)-Scope of.
HEADNOTE:
From 1958 and even earlier, ex-factory prices of sugar were
worked out on the basis of cost-schedules prepared by expert
bodies appointed for that purpose. The prices in the cost
schedules were prepared in respect of the entire production
of sugar and not in relation only to that part of it which
was required to be sold to government (referred to as levy
sugar), although, partial control in one form or another was
in vogue. Such cost-schedules were prepared on the basis of
average duration and recovery, the minimum price of cane,
the average cost of production in the various zones, taxes
and a fair return on the capital employed in the industry.
In 1967, the Central Government was confronted with the two
problems : (a) the deterioration in the sugar industry, and
(b) the conflicting interests of the manufacturer, the
consumer and the cane grower. Accordingly Government
announced its policy of partial control under which 60% of
the output of sugar would be acquired and the balance of
40%would be left for free sale. To implement this policy
sub-s.3 (3C) was enacted in the Essential Commodities Act,
1955. Under the sub-section there must be an order under s.
3(2) (f) whereby a producer is required to sell sugar to the
Government. There shall then be paid to the producer an
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amount there or, that is, for such stock of sugar as is
required to be sold; and such amount shall be calculated
with reference to such price of sugar as the Central
Government may, by order determine, having regard to the
four factors set out in cls. (a), (b), (c) and (d) of s.
3(3C). Clause (a) provides for the minimum price, if any,
fixed for sugar cane by the Central Government under s. 3;
Cl. (b) refers to the manufacturing cost of sugar, Cf. (c)
to the duty or tax, if any or payable thereon; and Cl. (d)
to the securing of a reasonable return on the capital
employed in the business of manufacturing sugar. The words
’notwithstanding anything contained in sub-s.(3) suggests
that the amount payable to the person required to sell the
stock of sugar would be with reference to the price fixed
under sub-s (3C). [865 E; 868 F-H; 870 D-G; 874B]
In pursuance of the power reserved to it under s.3(2)(f) and
s.3(3C) the Central Government required sugar factories,
including the appellant companies to sell to it 60% of their
production during 1970-71 at prices fixed by it under the
Sugar (Price Determination) Order, 1971. The prices were
fixed on the principles laid down by the Tariff Commission
and other expert bodies. The appellants filed writ
petitions in the High Court for quashing the Order and for
refixation of the ex-factory price for 1970-71 in respect of
the sugar required to be sold to the Government under
s.3(2)(f). The High Court dismissed the writ petitions. In
appeal to this Court it was contended by the appellants that
sub-section (3C), and its cl. (d) must be construed to be
dealing with levy sugar only, that a reasonable return under
cl. (d) should be assured unitwise, and that the profit on
the free sale of sugar should not be taken into
861
account in considering whether a reasonable return has been
allowed on the capital employed.
Dismissing the appeal,
HELD : On the construction of sub-s. (3C) and on the
evidence produced there is no case for quashing the Sugar
(Price Determination) Order, nor, for refixation of the
price fixed by the Government under the sub-section. [881 D]
(a) The sub-section provides two things, (1) the
determination by the Government of a fair price during the
process of which regard shall be had to the four matters set
out therein, and (2) payment to the manufacturer, part of
whose stock is levied, an ’amount therefor’, calculated with
reference to ’such price’ as the Central Government may
determine. The words ’amount therefor’ mean the amount to
be paid to the manufacturer in respect of such quantity of
stock as is required to be sold Linder an order made with
reference to sub-s. (2) (f). That amount is therefore
referable to the stock of sugar specified in such order,
that is to say, the levy sugar. The words ’such price of
sugar’ relate to the price which the Central government has
to determine having regard to cls. (a), (b), (c) and (d).
Though the payment would of course be for the- stock
required to be sold to Government, there is nothing in sub-
s. (3C) to suggest that the price to be determined is to be
with respect to that part of the stock of a particular
manufacturer which is required to be sold to the Government.
[871.A-E]
(b) A fair price for sugar had to be such that would
harmonise and satisfy at least to a reasonable extent all
the conflicting interests. It could not mean the actual
cost and return of every individual unit because, (i) it
would be impracticable and (ii) because it would be
rewarding the inefficient and the uneconomic. The basis of
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a fair price would be cost schedules worked out with respect
to a reasonable, efficient and economic representative
cross-section of the industry. A claim that such a price
had to be determined unitwise and a reasonable return is to
be ensured to each unit or that such a price with such a
return should only be in respect of that part of its stock
required to be sold under sub-s. 3(2)(f) would be
inconsistent with the concept of partial control, the
background in which it was evolved, and the objects which it
attempted to secure. Such a policy meant determination of a
fair price on the basis of which a producer would be paid
for part of stock required to be sold to Government. The
fair price would have to be determined having regard to the
four factors set out in the subsection. Though factors (a)
and (c) would be static, factor (b) would largely depend on
variables, such as duration and recovery. the prices of
fuel, labour etc. differing from zone to zone or even within
the same zone, necessitating the averaging and costing of ,a
representative cross-section of units. Therefore, fair
price could only mean securing a reasonable return to the
industry as a whole and not to each unit, or in respect of
only the stock required to be sold compulsorily to the
Government. [873 H; 874 G-H; 875 A-F]
(c) This does not however mean that Government can fix any
arbitrary price, or on extraneous considerations, or a price
which does not secure a reasonable return on the capital
employed in the industry. Such a fixation would evoke a
challenge, both on the grounds of its being inconsistent
with the guidelines built in the subsection and its being in
contravention of Arts. 19(1)(f) and (g) and 31 of the
Constitution. [875 F-H]
862
[on the materials placed before it the Court found that the
price fixed with respect to the appellants ensured a
reasonable return on the capital employed and that there was
no necessity for its refixation.]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1357 to
1359 of 1972.
Appeals by certificate from the judgment and order dated
January 10, 1972 of Delhi High Court at New Delhi in Civil
Writ petitions Nos. 405, 381 and 486 of 1971.
H. L. Sibal and Bishamber Lal, for the appellants (in all
the appeals).
L. N. Sinha, Solicitor-General of India, G. L. Sanghi and
S. P. Nayar, for the respondent.
The Judgment of the Court was delivered by
SHELAT, J. These three appeals, by certificate, arise out of
three writ petitions filed in he High Court of Delhi for
quashing the Sugar (Price Determination) Order, 1971 made
under s. 3(3C) of the Essential Commodities Act, 10 of 1955,
and for a direction requiring the Central Government to
refix the ex-factory price for 1970-71 in respect of sugar
required to be sold to Government under s. 3 (2) (f) of the
Act. The High Court dismissed the writ petitions and hence
these appeals.
The appellants are three public limited companies having
factories in Haryana State where they carry on the business
of manufacturing and selling sugar, an essential commodity
within the meaning of the Act. The Act empowers the Central
Government to control the production and distribution inter
alia of sugar with the object of maintaining its supply and
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its equitable distribution.
Under sec. 3, the Central Government has been authorised to
require a manufacturer of sugar to sell to it or to a State
Government or any other authorised person either the whole
of his stock or part of it at a fair price fixed by it. In
pursuance of power reserved to it under s. 3 (2) (f) and s.
3 (3C), the Central Government required the sugar factories,
including the appellant companies to sell to it 60% of their
production during the year 1970-71 at prices fixed by it,
the price fixed for the factories in Haryana zone under the
impugned order being Rs. 124.63 per quintal.
The principal questions arise in these appeals : (1) what is
the true interpretation of S. 3(3C), and (2) whether the
price of Rs. 124.63 was in accordance with the provisions of
s. 3(3C) ?
Before we proceed to consider these questions it would, we
think, be better to set out briefly the history of control
over sugar
863
production and its distribution and the method followed in
the fixation by Government of the fair, or what has for
brevity’s sake been named, the levy price of sugar.
The concept of statutory control over sugarcane is as old as
1934 when the Central Sugar Cane Act, 1934 was enacted,
Under that Act and orders passed thereunder Government used
to fix the minimum price for cane. Since 1950 and later on
under the Sugarcane (Control) Order, 1955, such minimum
price for cane used to be fixed having regard to (a) the
cost of production of cane, (b) the return to the growers
from alternative crops, and (c) fair price of sugar to the
consumer.
So far as sugar is concerned, statutory control over it was
first imposed in 1942 under the Sugar and Sugar Products
Control Order, 1942. The Sugar Controller thereunder
regulated production, distribution and prices of sugar.
From May 1, 1942, no sugar factory was permitted to effect
sales except to authorised persons. This position continued
until December 8, 1947 when sugar was decontrolled. In
1949, statutory control was once more imposed under which
ex-factory price of Rs. 76.35 per quintal for D-24 grade was
fixed, as during that year sugar production declined. There
was also a substantial diversion of cane to gur and
khandsari industry. Control over sugar was relaxed in 1950
in that production over 90% of the total production of each
factory was allowed free sale. This policy was subsequently
modified and 95% of the average production of each factory
during the two preceding years was fixed as basic quota and
half of the production in excess of that quota was allowed
free sale, while the other half together with the basic
quota was reserved for sale at controlled prices.- Since
conditions appeared to improve, control was taken off in
1952-1953, except that a small portion of production was
reserved for sale at controlled prices. But as prices
spiraled, Government in April 1954 requisitioned 25% of the
stock for distribution on a tender basis. During 1954-55 to
1956-57 no controlled prices were fixed. By 1958 the prices
began to soar and the Government once more decided to impose
control.
During, 1958 Government requested the Tariff Commission to
examine the cost structure of sugar and fair price which
should be paid to the sugar industry. Such an exercise was
not new, for, as early as 1947, and in 1951 and 1955 these
questions had been gone through, in 1947 by one Dr.
Srivastava, and in later years by expert committees
appointed by Government. These committees worked out cost
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schedules and fair price to be paid to the industry but on
an All-India basis. These cost-schedules were not fair as
they did not take into account disparities existing from
864
region to region in :the matter of price of cane, percentage
of recovery and duration of the crushing season.
The Tariff Commission in 1959 did away with the all-India
cost-schedule and instead constructed four zonal cost
schedules having regard to their respective duration and
recovery percentage on which a fair price could be fixed.
Government then requisitioned the stock of sugar, and
distributed sugar at fixed. prices. In September 1961, the
Government ff.-moved control as the situation had improved.
But the next two years witnessed a substantial fall in
production and rise in prices. Government then passed the
Sugar (Control) Order, 1963 under which it fixed ex-factory
prices for different regions and regulated distribution
according to quotas fixed for each State. Government in the
meantime had worked out cost-schedules for as many as 22
zones, according to which, it fixed ex-factory prices
ranging from Rs. 116 to Rs. 125 per quintal.
On August 3, 1964, Government appointed the Sugar Enquiry
Commission. The Commission in its Report deprecated the
Government’s practice of increasing the number of zones to
20 and more and recommended only five zones. The Commission
worked out the cost-schedules for these five zones on the
basis of duration and recovery percentage in each of the
zones and on the basis of minimum cane price, cess or tax,
commission of co-operative societies, transport charges,
driage and other expenses, packing, grade differential and.
selling expenses. The Commission recommended that while
working out the ex-factory prices for each year on the basis
of these cost-schedules Government should make adjustments
whenever any escalation took place in cost elements such as
wages, taxes, packing charges, etc. On the question of
return, the Commission observed as follows :
"The Tariff Commission, in its last inquiry
(1958) recommended a return at 12 per cent on
capital employed. In doing so, it took into
consideration factors such as the dependence
of the industry on an agricultural raw
material, the supply of which is aff
ected by
several imponderables, e.g., weather and pests
and diseases. A number of factories located
in favorable regions have made ample profits.
In fact, the sample factories earned as much
as 15.69 per cent in 1963-64-Sizeable
expansions in capacity have taken place. The
Commission is satisfied that the rate of
return of 12 per cent is not unreasonable and
should encourage expansion of the industry.
The Commission is aware that the rate of
return indicated will not be realised by each
individual unit in each zone. Majority of the
units in a zone, however, should be able to
earn this return if
865
they maintain a reasonable degree of
efficiency. The method adopted and followed
by the Commission in assessing the working
capital is the same as was adopted by the
Tariff Commission in its 1959 Inquiry."
There were two criteria for fixation of ex-factory prices;
(1) estimated cost of production determined according to the
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cost schedules prepared by the Tariff Commission in 1959 and
adjusted from time to time to provide for increase in any of
the elements of costs, and (2)average of prices at which
sugar was sold in an area during two to three months
immediately before April 1, 1963. From 1964-65 to 1966-67
Government fixed ex-factory prices on the basis of the cost-
schedules worked out by the Sugar Enquiry Commission. But
the year 1966-67 turned out to be- the worst year in the
decade owing to draught. Production of cane fell by 22% and
that of sugar by 40 % as compared to 1965-66. It was felt
that the outlook for 1967-68 would be gloomier still as a
further fall in the area under cane plantation would be by
about 11 %.
To avoid such a prospect some steps had to be taken
providing incentives for maximising sugar production and
increasing the competitiveness of sugar factories, vis-a-vis
gur and khandsari factories in securing cane by offering
prices higher than the, floor prices.. Accordingly,
Government announced in August 1967 its policy of partial
control under which 60% of the output of sugar would be
acquired and the balance of 40% would be left for free
sale. To, implement this policy, Government secured the
passage of sub-s. 3 C in s. 3 of the Act through Parliament.
Having done that, it fixed the ex-factory prices on
December 8,1967 which as finalised in May 1968 varied from
Rs. 145 to Rs.169.50 per quintal. These were fixed on the
principles laid down by the Tariff Commission and the Sugar
Enquiry Commission earlier, viz., on, the basis of (a) floor
price of cane fixed by Government, (b) cess or tax payable
thereon, (c) the manufacturing cost, and (d) a
reasonable return on capital employed. Since the cost-
schedules worked out by the Sugar Enquiry Commission had by
now become obsolete,, Government in 1968 requested the
Tariff Commission to construct fresh cost schedules. The
Commission selected 68 out of 200 working units in the
industry for a. detailed cost study. For the rest, it sent
out elaborate cost forms for submitting the, requisite data
pertaining to 1966-67. For Haryana, out of the three units,
one was selected for the detailed cost Study.
The Commission first worked out actual cost of production
state-wise, by taking into account a number of units in each
State, their installed average crushing capacity, the cane
actually crushed per day, and the average yield of sugar.
In this way the
866
ex-factory cost per quintal of sugar came to Rs. 104.43.
This figure took into account the actual price paid for
cane, which was often higher than the minimum price fixed by
Government, harvesting charges where incurred,. transport,
cess/purchase tax, and factory conversion charges which
included salaries/wages, power, fuel, stores, repairs,
maintenance, packing and other overheads. These average
costs represented the average costs of sugar covering all
grades. But the factories in different States had different
durations depending on the availability of sugar cane in
adequate supplies and different recoveries of sugar differ-
ing from factory to factory. A direct comparison of actual
costs between factories or States would, therefore, have led
to unrealistic results. These differing factors had,
therefore, to be reduced to a common measure. For these
purposes the Commission took into account five years average
recovery and duration of a region as the base.
Having regard to the wide disparity in duration and recovery
of sugar, the costs were initially reduced to a standard
duration of 120 days (of 22 hours each) with a uniform
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recovery of 10 per cent so as to have a comparison of costs
as between units in a zone. Also the differential relating
to different grades of sugar produced by the units was
adjusted and a common schedule for D-29 grade was evolved.
On this basis the conversion charges for each State were
worked out. These did not include, transport charges on
cane, selling expenses and return. On such calculation, the
conversion charges for Haryana, including depreciation, at
the rate permissible under the Income Tax Act came to Rs.
19-58 as against the All-India weighted average of Rs. 25.20
per quintal. For salaries/’wages, the recommendations of
the Central Wage Board for Sugar Industry formed the base.
For stores and repairs the cost and variations therein from
State to State were based on the index of wholesale figures
published by the Economic Adviser to the Ministry of
Industrial Development and Company Affairs. For future an
incidence of increase of 3% per annum was taken into
account, i.e., for the years 1968-69 to 1970-71. The
minimum bonus at the statutorily payable and managerial
expenses were included in the costs of conversion; so also
the transport charges from the factories to railway stations
and the loading and unloading charges. For this, the base
was the actual charges in 1966-67 which came to 15 paise per
quintal for most of the States. For rehabilitation, the
Commission suggested Rs. 2 per quintal.
Owing to the wide ranging differences in the capital costs
of various units as also differences from State to State,
the Commission did not think it realistic to recommend
return worked out according to the conventional method. A
calculation of
867
return of a uniform percentage on the basis of such widely
varying capital costs from unit to unit and State to State
would tend to vary the portion of the return margin
substantially and confer an unwarranted benefit on the low
cost units. At the same time, a reasonable return was
indispensable if expansion was to be encouraged and fresh
capital investment in the industry attracted, which
according to the Reserve Bank’s industry-wise study, showed
the lowest profit percentage in sugar industry of all other
industries. The Commission, therefore, suggested a uniform
amount per quintal as a margin to be added to the other
costs in arriving at the fair price of sugar. The
Commission for the reasons aforesaid was of the view that
’an amount of Rs. 10.50 would be a fair return which would
be equivalent to 12.5 % on the zonal averages of capital
employed. According to Appendix 37 to the report, the
average return at 12.5% on capital employed on the units in
Haryana worked out at Rs. 10.40 per quintal to be added to
the fair price worked out for that region. By adopting the
standardised figure of Rs. 10.50 per quintal the range of
variations from region to region was expected to be narrowed
down from Rs. 11.88 in the case of South Bihar to Rs. 16.94
in the case of Orissa, Kerala, Assam and West Bengal.
It is quite clear that what the Commission did was to con-
struct cost schedules and fair price of the entire
production and not merely of the levy sugar. The return and
rehabilitation also were worked out on the basis of the
capital employed in the entire production and not the
capital employed for the production of levy sugar. Thus, in
Table 9.6 at page 80 of its report, the Commission included
Rs. 12.50 (being return and rehabilitation) in the ex-works
price of sugar. There is nothing in that table which would
suggest that it was confined to levy sugar. Indeed Ch. 9 in
which this table appears is headed "Cost Structure and Price
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Fixation", that is the ex-works price In calculating the ex-
factory price, the Commission took the minimum price of cane
fixed by Government and not the actual price paid by the
manufacturer as was, also done by the Commission in 1959 and
by the Sugar Enquiry Commission in 1955. On this basis, the
ex-factory price for Haryana worked out to Rs. 128.69 per
quintal (i.e., cost of cane Rs. 89.73, conversion charges
Rs. 26.46, return and rehabilitation Rs. 12.50) for’ the
year 1966-67 on the basis of the average of the past five
years’ duration and recovery. The cost of cane would of
course depend on the minimum price fixed for each year by
Government. The figure of Rs. 69.73 was the minimum price
fixed for 1966-67. It also did not include the co-operative
society’s commission, if any, the purchase tax or cess and
the margin’ for cane driage.
4--L521Sup.CI/73
868
These were expected to be worked out by the authority fixing
the fair price for each zone for a particular year.
The cost schedule for conversion in the light of duration
and recovery for each zone was made up of expenses
classified as constants, variables, semi-variables and fixed
expenses. For Haryana, it worked out to Rs. 26.46 per
quintal on the basis of average duration of 125 days (of 22
hours) and 8.70 recovery. The cost schedule made up of the
aforesaid expenses did not include (i) price of cane, (ii)
commission to cooperative society, if any, (iii) purchase
tax or cess and (iv) driage of cane, as these would be taken
into account while fixing the minimum cane price. The
constants comprise packing and grade differentials which
would be static. The variables comprise seasonalexpenses,
i.e.other than those incurred normally when crushingdoes
not take place, such as wages of seasonal recruits excluding
allowances for retainers, relevant parts of stores, repairs,
transporton cane, shift depreciation, overheads and credit
for recoveries.Semi-variables would comprise power and
fuel and retainer allowances which would vary with duration
and recovery. Fixed charges would be expenses other than
those covered by the three aforesaid expenses and which are
of a fixed nature irrespective of duration and recovery.
The sum total of these classified expenses would make up the
conversion costs. To these and the minimum price of cane
would be added Rs. 2 for rehabilitation and Rs. 10.50 as
return on capital employed and excise duty. The Government
did not accept the recommendation as to rehabilitation and
deferred its decision thereon for reasons stated in its
resolution dated February 20, 1970, by which it accepted the
other recommendations as also the cost-schedules worked out
by the Commission, the number of zones, return of a fixed
sum of Rs. 10.50, etc.
The history of control over sugar set out above shows that
right from 1958 and even earlier, ex-factory prices of sugar
were worked out on the basis of cost-schedules prepared by
expert bodies appointed for that purpose, that such prices
and cost schedules were prepared in respect of the entire
production and not in relation only to that part of it which
was required to be sold to Government, although partial
control in one form or the other was in vogue for some
periods before 1967, that such cost schedules were prepared
on the basis of average duration and recovery,, the minimum
price of cane, the averaged cost of production in the
various zones, taxes, and lastly, a return on the capital
employed, which as stated above was fixed at the static
figure of Rs. 10.50 per quintal, that being the amount
considered a fair return on capital employed in the
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industry. Both the Central Government and Parliament were
aware of the methods
869
followed by these expert bodies in framing cost-schedules on
the basis of which ex-factory prices were fixed, the
problems which the Government was faced with in securing
adequate supply of sugar and its equitable distribution at
reasonable price to remedy which sub-s. 3C was enacted. It
is in the light of this background that the provisions of
that sub-section can be properly understood.
The Act, as its long title suggests, was enacted to provide
for the control of production, supply and distribution of,
and trade and commerce in, certain commodities, sugar being
one of such commodities. Sec. 3 empowers the Central
Government, if it is of opinion that it is necessary or
expedient to do so for maintaining or increasing supplies of
any essential commodity or for securing their equitable
distribution and availability at fair prices, to provide by
an order for regulating or prohibiting production, supply
and distribution thereof. Under its sub-section (2) cl.
(f), such an order in may require any person holding in
stock any essential commodity to sell the whole or a
specified part of it to the Central or a State Government or
an authorised person and in such circumstances as may be
specified therein. Sub-s. 3 requires that where any person
sells any essential commodity in compliance with an order
made under sub-s. 2 cl. (f), there shall be paid to him the
price therefore (a) where the price can, consistently with
the controlled price, if any, fixed under this section, be
agreed upon, the a agreed price; (b) where no such agreement
can be reached, the price calculated with reference to the
controlled price, if any, or (c) where neither cl. (a), nor
cl. (b) applies, the price calculated at the market price
prevailing in the locality at the date of sale. Payment at
market price would have to be made under this sub-section
only when there is no agreed or controlled price. Sub-secs.
3A and 3B then make provisions with regard to sale of
foodstuffs and food-grains. Under sub-sec. 3A, the Central
Government is empowered, if it is of opinion that it is
necessary so to do for controlling the rise in prices or
preventing the hoarding of any foodstuff in any locality, to
direct by a notification that notwithstanding anything
contained in sub-se-,. (3), the price at which the foodstuff
shall be sold in the locality in compliance with an order
made under sub-sec. 2(f) shall be regulated in accordance
with the provisions of this sub-section. When after the
issue of a notification under this subsection, any person
sells foodstuff of the kind and in the locality specified
therein, in compliance with an order made with reference to
sub-sec. 2 cl. (f), there shall be paid to the seller as the
price therefore (a) the agreed price consistently with the
controlled price, if any, (b) the price calculated with
reference to the controlled price, if any, where no such
agreement can be reached, or (c) where neither cl. (a), nor
cl. (b) applies, the price calculated with reference to
870
the average market rate as provided therein. Under sub-sec.
3B, where a person is required to sell any food-grains,
edible oilseeds, or edible oils to the Central or a State
Government, or to a person authorised in that behalf, and no
notification in respect of such food-grains, oilseeds or
oils has been issued under sub-sec. 3A or is in force, there
shall be paid as the price for such food-grains, oilseeds or
oils, (i) the controlled price, if any, or (ii) where no
such price is fixed the price prevailing or likely to
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prevail during the postharvest period in the area to which
the order applies. Both under sub-sec. 3A and 3B, the
question of market price can only arise where there is no
controlled or fixed price or price agreed consistently with
the controlled price, if any. Each of these sub-sections
makes a separate provision for tile price at which the
commodities therein dealt with is to be paid.
Sub-sec. 3C, with which we are presently concerned was in-
serted in sec. 3 by sec. 3 of Act 36 of 1967. The sub-
section lays down two conditions which must exist before it
applies. The first is that there must be an order made with
reference to subsec. 2 cl. (f), and the second is that there
is no notification under sub-sec. 3A or if any such
notification has been issued it is no longer in force owing
to efflux of time. Next, the words "notwithstanding
anything contained in. sub-section" suggest that the amount
payable to the person required to sell his stock of sugar
would be with reference to the price fixed under the
subsection and not the agreed price or the market price in
the absence of any controlled price under sub-sec. 3A. The
sub-section then lays down two things; firstly, that where a
producer is required by an order with reference to sub-sec.
2(f) to sell any kind of sugar, there shall be paid to that
producer an amount therefore, that is for such stock of
sugar as is required to be sold, and secondly, that such
amount shall be calculated with reference to such price of
sugar as the Central Government may, by order, determine,
having regard to the four factors set out in cls. (a), (b),
(c) and (d) Unlike the preceding three subsections under
which tile amount payable is either the agreed price, or the
controlled price, or where, neither of these prices is
applicable at the market or average market price, the amount
in respect of sugar required to be sold is to be calculated
at the price determined by the Central Government. The last
words of the sub-section empower the Central Government to
determine price either from time to time or for different
areas, which means that it may determine zonal or regional
prices, or for different factories, i.e., unit-wise, or for
different kinds of grades of sugar.
The two concepts, viz., the amount payable to the producer
and the price to be determined by Government are distinct
and much of the confusion in interpreting the sub-section
would be
871
dispelled if they were seen distinctly. The words "amount
therefore" mean the amount to be paid to the manufacturer in
respect of such quantity of his stock as is required to be
sold under an order made with reference to sub-sec. 2(f).
That amount is, therefore, referable to the stock of sugar
specified in such order, that is to say, the levy sugar.
The words "such price of sugar", relate to the price which
the Central Government has to determine having regard to
cls. (a), (b), (c) and (d). The price to be so determined
is not relatable or confined to the stock required to be
sold, for the words are "such price of sugar" and not "the
price for such sugar". This construction is fortified by
the penultimate part of The sub-section which authorises the
Central Government to determine zonal or unit-wise prices or
prices for different kinds of sugar. The price to be
determined by the Central Government is to be the rate at
which the amount payable to the producer of such of his
stock as is :required to be sold is to be calculated. There
is thus a clear distinction between the amount payable to
the producer whose stock is either wholly or in part
required to be sold under an order made under sub.-sec.
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2(f), and the price of sugar to be determined by the
Government having regard to the minimum price of cane fixed
by it, the manufacturing cost of sugar, the duty and tax
paid or payable thereon and securing a reasonable return on
the capital employed in the business of manufacturing sugar.
In order to appreciate the meaning of cls. (a), (b), (c) and
(d), it must be remembered that ever since control on sugar
was imposed, Government had set up expert committees to work
out cost-schedules and fair prices. Starting in the
beginning with an All-India cost-schedule worked out on the
basis of the total production of sugar, the factories were
later grouped together into zones or regions and different
cost-schedules for different zones or regions were
constructed on the basis of which fair prices were worked
out at which sugar was distributed and sold. The Tariff
Commission in 1958 and the Sugar Enquiry Commission in 1965
had worked out the zonal cost-schedules on the basis of
averaged recovery and duration, the minimum and not the
actual price of cane, the averaged conversion costs and
recommended a reasonable return on the capital employed by
the industry in the business of manufacturing sugar. This
experience was before the legislature at the time when sub-
sec. 3C was inserted in the Act. The legislature therefore
incorporated the same formula in the new sub-section as the
basis for working out the price. The purpose behind
enacting the new sub-section was three-fold, to provide an
incentive to increase production of sugar, encourage ex-
pansion of the industry, to devise a means by which the cane
producer could get a share in the profits of the industry
through prices
872
for his cane higher than the minimum price fixed and secure
to the consumer distribution of at least a reasonable
quantity of sugar at a fair price.-’ Whether these
objectives have, through, the working of the new sub-
section, been realised or not is a different, matter. But
there can be no doubt that these were the objectives, for
which the sub-section was passed. The incentive to secure,
increased production and expansion of the industry was to
leave a certain portion of the stock free for sale in the
open market, the assumption being that the industry would
get a better price in such market than the price determined
under the formula incorporated in sub-section 3C.
The fair price, therefore, has to be determined on the mini-
mum price of cane fixed by Government, the manufacturing
cost. on the basis of zonal cost-schedules, the tax or duty
applicable in the zones and must be so structured as to
leave in the ultimate result to the industry a reasonable
return on the capital employed by it in the business of
manufacturing sugar. It is clear from the reports of the
Tariff Commission that a reasonable return recommended by
that body at a fixed amount of Rs. 10.50’per quintal which
worked out in 1966-67 at 12.5% per annum was not in respect
of levy sugar only but on the whole, so that even if such a
return was not obtainable on levy sugar but was obtainable
on the whole, it would meet The requirement of cl. (d). In,
this conclusion we derive a two-fold support, firstly, from
the language used in cl. (d) itself, viz., a reasonable
return on the capital employed in the business of
manufacturing sugar, which must mean the business as a whole
and not the business of manufacturing levy sugar only, and
secondly, from the fact of the Commission having all along
used the, same phraseology while recommending Rs. 10.50 per
quintal as an addition by way of a reasonable return on the
capital employed in the industry. The cost-schedules
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prepared by these bodies were for determining a fair price
in relation to the entire sugar produced by the industry and
the return which should be granted to it on the capital
employed in the industry and not with respect to that stock
only required to be sold under sub-sec. 2(f). This is clear
from the heading of Ch. 9 of the Tariff Commission’s report,
1969, "Cost. Structure and Price Fixation".
Counsel for the appellants and for the several interveners,
however, contended (1) that since sub-sec. 3C was enacted
after the policy of partial control leaving a part of the
stock for free market was decided upon, the sub-section must
be held to deal with levy sugar only, and (2) that the
language of the sub-section as also of its cls. (a), (b) and
(c) shows that it dealt with and was concerned with levy
sugar only and that therefore cl. (d)
873
must also be construed to be dealing. with levy sugar. It
was urged that besides the necessity of giving to cl. (d)
the same meaning as one would have to give to cls. (a), (b)
and (c), if cl. (d) were to be construed to mean return on
the whole of the capital employed, there would ensue a
contradictory and even an anomalous result. For purposes of
cl. (a), one would have to take the floor price of cane
fixed by Government, but for cl. (d), the actual price of
cane paid by a unit would have to be’ taken into account for
purposes of arriving at a figure which would leave a
reasonable return to the producer, part of whose stock is
required to be sold. Counsel also urged that if cl. (d)
were construed to mean reasonable return on tile production
of the entire stock and not levy sugar only, it would mean
negativing the entire scheme of partial control which was
intended to leave a reasonable return on that part of the
stock which was required thereunder to be sold irrespective
of the return obtained by sale of the rest of- his stock in
a free market. ’Therefore, it would be contrary to that
concept if the profits made in respect of free sugar were to
be taken into account as a cushion if the fair price fixed
for levy sugar was not equivalent to the actual cost of pro-
duction and were to result in a return less than the
reasonable return on that part of the stock, or even a
deficit. Such a construction would, they argued, permit the
Government to fix a price which would not leave such a
return on the ground that sale of free sugar would bring in
sufficient surplus to make up the deficit, if any, on the
levy sugar. Counsel further urged that such a construction
would also defeat the very object (if Partial control, in
that, if a reasonable return was not assured to the
manufacturer, lie was hardly likely to buy cane at a price
higher thin the minimum fixed by Government, a purpose for
which the partial control policy was evolved. To bring, in
the return on free sugar for purposes of deciding whether a
return guaranteed under cl. (d) was obtainable or not from
the price fixed by Government would also be ushering a
factor wholly extraneous to the sub-section. It would not
be, therefore, right to bring into consideration free sugar
which is not the subject-matter of sub-see. 3C.
To accept these contentions would in our view mean dis-
regarding (1) the language of the sub-section, and (2) the
entire background in which it was enacted and the mischief
it was intended- to remedy. As explained earlier, the sub-
section provides two things: (a) the determination by
Government of a fair price during the process of which
regard shall be had to the four matters set out therein, and
(b) payment to the manufacturer part of whose stock is
levied, an amount "therefore" calculated with reference to
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"such price" as the Central Government may determine.
Though the payment would of course be for
874
the stock required to be sold to Government, there is
nothing in the sub-section to suggest that the price to be
determined is to be with respect of that part of the stock
of a particular manufacturer which is required to be sold to
Government.
In deciding upon the policy of partial control and in having
it incorporated in sub-sec. 3, the Central Government was
contronted with two main problems (a) deterioration in the
sugar industry, and (b) the conflicting interests of the
manufacturer, the consumer and the cane grower. The report
of the , Sugar Enquiry Commission 1965 and that of the
Tariff Commission of 1969 highlighted the difficulties that
plagued the industry and the necessity of harmonising the
triple conflicting interests. The cane acreage was
dwindling, as the incentives for that plantation were not as
attractive as those for cereals and other agricultural pro-
ducts. Part of that production was diverted towards
production of gur and khandsari, leaving no scope for
greater production of sugar, the necessity for which was
being accentuated as the consumers’ demand was rapidly
increasing. The floor price of cane fixed by Government was
intended to protect the farmer from exploitation, but that
was found not to be an incentive enough to induce him to
increase his acreage. A device had to be found under which
a price higher than the minimum could be paid by the
manufacturer of sugar. The consumer, on the other hand, had
also to be. protected against the spiraling of sugar price
and his needs, growing as they were, had to satisfied at
some reasonable price. Both these and a larger production
of sugar would not be possible unless there was a reasonable
return which would ensure expansion, which again would not
be possible unless new machinery for such expansion was
brought in and factories, particularly in U.P. and Bihar,
were modernised and renovated. A fair price for sugar,
therefore, had to be such as would harmonise and satisfy at
least to a reasonable extent these conflicting interests.
The concept of fair price was not unknown, for, it had been
worked upon from as early a time as 1937. That concept did
not by any account mean the actual cost of production of
every individual manufacturer. It had to be arrived at by
the process of costing of a representative cross-section of
manufacturing units. The history of the industry shows that
such a process was being practiced through various formulas,
in the beginning by working out an All-India cost-schedule,
and when that was found to be unrealistic by working out
zonal cost-schedules beginning with four and by 1969 with 15
such zonal cost-schedules. A fair price would not thus mean
the actual cost and return of every individual unit,
firstly, because it would be impracticable, and secondly,
because it would be rewarding the inefficient and the
uneconomic. An extreme example of such a unit is to be
found in the compilation prepared by Dr. Singhvi where the
duration of
875
season of that unit was only seven days, and therefore, its
cost came to over Rs. 600 per quintal. If such a product
were left to the mercy of a total free market and the impact
of free competitiveness in it, such a unit would hardly
survive. The object of the policy of partial control
cannot, therefore, mean to reward such units.
The basis of a fair price would have to be built on a
reasonably efficient and economic representative cross-
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section on whose workings cost-schedules would have been
worked out and the price to be determined by Government
under sub-sec. 3C would have to be built. A claim that such
a price has to be determined unit-wise and a reasonable
return has to be ensured to each unit or that such a price
with such a return would be in respect of that part of its
stock required to be sold under sub-sec. 2(f) would appear
to be inconsistent with the concept of partial control, the
background in which it was evolved and the objects which it
attempted to secure. Such a policy meant determination of a
fair price on the basis of which a producer would be paid
for part of his stock required to be sold to Government.
Such a price would have to be determined having regard to
the four factors set out in the sub-section. Though factors
(a) and (c) would be static, factor (b) would largely depend
on variables, such as duration and recovery, the prices of
fuel, labour etc. differing from zone to zone and sometimes
within the zone, necessitating averaging and costing by
selecting a representative cross-section of units for that
purpose and arriving at a cost-schedule which would do
justice to the weak and the strong alike. If this be the
true meaning of cl. (b), it must mean securing a reasonable
return to the industry and not to each unit, irrespective of
whether it is economic or reasonably efficient or not, or
only in respect of its stock required to be compulsorily
sold to Government. A unit-wise fixation of price as
suggested by counsel, and payment on the basis of a price so
worked out would mean perpetuating inefficiency and
mismanagement, and depriving the partial control policy of
the incentives for economy and efficiency inherent in it.
We are, therefore, satisfied both on the language of the
sub-section, the background in which it was enacted and the
mischief the legislature sought to remedy through its
working that the true, construction is that a fair price has
to be determined in respect of the entire produce, ensuring
to the industry a reasonable return on the capital employed
in the .business of manufacturing sugar. But this does not
mean that Government can fix any arbitrary price, or a price
fixed on extraneous considerations or such that it does not
secure a reasonable return on the capital employed in the
industry. Such a fixation would at once evoke a challenge,
both on the ground of its being inconsistent with the
guidelines built in the sub-section and its being in
contravention of Arts. 19(1)(f) and (g), and 31.
876
The constitutionality of the sub-section not being under
challenge. in these appeals, the only question left for
consideration is whether the price fixed under the impugned
order, i.e., Rs. 124.63, is in consonance with s. 3(3C)?
The ex-works price worked out in the Tariff Commission Re-
port, 1969 for Haryana zone for the next three years, i.e.,
1969-70 to 1971-72, based on the average recovery and
average duration of the past five years (1963-64 to 1967-
68), i.e., 8.70% and 125 days, was Rs. 128.69 per quintal.
That figure was made up of the following :
1. Wages and salaries Rs. 11.70: (2)
stores, fuel and power Rs. 8.49: (3) repairs
and maintenance Rs. 2.63: (4) packing charges
Rs. 2.57: (5) overheads Rs. 0.75: (6) cane
centre and cane .development Rs. 1.36: (7)
depreciation (Income Tax Act rates) Rs. 3.60:
(8) transport of cane Rs. 1.53: (9)
less--Credits Rs. 0.75: (10) grade
differential Rs.1.07: (11) return and
rehabilitation Rs. 12.50: (12) selling
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expenses Rs. 0.15: (13) bonus Rs. 0.60-Total
conversion charges Rs. 38.96: (14) cane and
related costs Rs. 89.73: (15) ex-works price
Rs. 128.69.
The figure of Rs. 89.73 arrived at on the basis of driage
being Rs. 9.86and average recovery of 8.70% was worked out
as follows :
(1) Minimum price of cane fixed by
Government Rs. 7.37: (2) Co-operative
society’s commission Rs. 0.13 and (3)
Cess/purchase tax Rs. 0.24, Total Rs. 7.74=Rs.
89.73 per quintal sugar, (vide Table 9.6 and
Appendices 35 and 36 at pages 89 and 212-214;
Report 1969).
The ex-works price of Rs. 128.69 included Rs. 2 per quintal
for rehabilitation. That amount was not included by
Government when it fixed the price of Rs. 124.63 on January
8, 1971 as the Government, while accepting the cost-
schedules and other recommendations of the Tariff
Commission, had deferred its decision on rehabilitation
pending consultation with the concerned interests. (Vide
Government Resolution, Ministry of Food and Agriculture,
dated February 20, 1970). Deducting Rs. 2 from the ex-works
price worked out by the Commission, the Commission’s ex-
works price would be Rs. 126.69 on the basis of 8.70% and
125 days" as average recovery and duration.
It would appear that barring the statement in the impugned
order that Government had fixed the price at Rs. 124.63, the
Government had not disclosed even in its return how it had
worked out that price. At the instance of the appellants,
the High
877
Court, therefore, by its order dated September 14, 1971
called upon the Government to show the basis on which it had
fixed the, price. The Government thereupon filed an
additional affidavit of the Deputy Secretary to the Ministry
of Agriculture dated September 14, 1971 according to which
on the available data before it the price would come to Rs.
126.93. This figure took note of the, increase in the
purchase tax by Haryana Government from 24 to 50 paise per
quintal of cane. That was how the Government mentioned Rs.
8.003 as the price of cane per quintal instead of Rs. 7.37
which was the floor price fixed by Government for the year.
Government also added Rs. 1.05 being the estimated impact of
increase in wages recommended by the Second Central Wage
Board, the added depreciation allowed through changes, in
the Income Tax Act and increased cost in packing materials,
the total of all the three having been worked out at Rs.
2.81 per: quintal of sugar. According to this affidavit,
when Government was considering the fixation of price for
1970-71, it had before it the actuals as to recovery and
duration for 1969-70 as also the. estimates supplied by the
factories for 1970-71. From these, the Government came to
the conclusion that there would not be any material
difference in recovery and duration between the two years
and that was why it decided to continue the ex-factory price
for 1969-70 for the year 1970-71 also. The incidence of
purchase tax for 1970-71 was placed at Rs. 2.06, higher than
during the preceding year, because for 1969-70 it was from
April 1, 1969, while in 1970-71 it was for the whole year.
The estimates for recovery and duration for 1970-71 were on
the actual recovery and duration for the preceding year
which came to 8.76% and 187 days, as against the estimates
given for that year by the factories, viz., 9.04% and 157
days. These were accepted for 1970-71 as, the only actuals
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available to the Government on January 8, 1971 were in
respect of the month of November 1970, which obviously were
too meagre for acceptance for the whole year.
Annexures It and III to this affidavit show that as against
the levy price of Rs. 124.63 fixed by Government, free sugar
was sold during 1969-70 at prices ranging from Rs. 126.21 to
Rs. 138.01, exclusive of excise duty, and from October 1970
to May 25, 1971 when sugar was totally decontrolled at rates
ranging from Rs. 132.30 to Rs. 151.38. It is undisputed that
during the period of six weeks when the stay order granted
by the High Court operated the appellants sold sugar at
about Rs. 150.
These figures were not accepted by the appellants, for,
according to them, they sold free sugar during January 1971
to May 24, 1971 at prices ranging from Rs. 135.19 to Rs.
160.47, the average rate being Rs. 139.70 less Rs.1.07
differential-Rs. 138.63. As against the levy price worked
out by Government at Rs. 126.93,
878
the appellants’ case was that on the actuals worked out for
the year 1970-71, the price would be Rs. 129.42, thus
causing to them a loss of Rs. 5.20 per quintal on levy
sugar. The difference between the price calculated by the
appellants and that calculated by the Government (Rs.
126.93) arises because of certain disparities in their
respective figures, as also the percentage in recovery and
duration. To the figure of Rs. 129.42, the appellants add
additional cost of interest, increase in freightage by road
and rail during the year, deterioration in quality, thus
bringing the cost to Rs. 138.93. The loss on this
calculation, according to them, would come to Rs. 3 lacs and
odd on levy sugar which totaled 65,741 quintals.
On Government’s calculations based on the returns filed by
the appellants, the Haryana factories realised Rs. 126.50
per quintal on levy sugar taking into account the different
grades produced by them and Rs. 139.70 per quintal on free
sugar upto May 25, 1971 when sugar was decontrolled. If
levy sugar alone were to be taken into consideration, the
loan per quintal of levy sugar would be the difference
between Rs. 124.63 and Rs. 129.42, i.e., Rs. 6.20, and
nearly double if the additional costs claimed by the
appellants were to be admissible, which would raise their
cost of production to Rs. 133.98. This calculation is of
course on the basis that the return of Rs. 10.50 per quintal
was altogether met, in the sense that-it was not expected to
absorb items such as interest and the profits on free sugar
were not to be taken into consideration for ascertaining
whether a reasonable return on the ,capital employed was
actually obtained or not by the industry.
The High Court, no doubt, did not hold the price of Rs.
124.63 as realistic and in view of the changes which had
taken place during the year added in all Rs. 3.22, that is,
Rs.1.16 increase in wages, Rs. 56 additional depreciation
and Rs.1.20 as additional packing charges, totaling Rs. 2.92
and presumably Rs. 0.30 for increase in purchase tax.
Adding Rs. 3.28 to the Government price, the High Court
worked out the fair price at Rs. 127.85 instead of Rs.
124.63. We need not examine the correctness or otherwise of
this addition as the Solicitor General told us that he did
not ,challenge the correctness of this addition. On the
basis of Rs127.85 being the correct price, the appellants
would lose Rs. 3.22 per quintal on levy sugar, if the price
realised on levy sugar alone were to be taken into
consideration. The Solicitor General also conceded that
purchase tax on cane in Haryana was increased during the
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year 1970-71 from 24 paise to 50 paise per quintal with
effect from April 1, 1970 and that increase according to
para 1 1 of the return, dated May 1971 was not taken into
account as the Government was of the opinion that the price
of 1969-70, which was adopted for 1970-71, contained
sufficient cushion to
879
absorb the impact of this increase. This opinion was based
on the fact that the working results for the year 1969-70
turned out to be actually very much better than estimated.
Counsel for the appellants, however, expressed his
dissatisfaction with the increase by the High Court of Rs.
3.22 only on the ground that the High Court did not take
cognizance of three items, viz., increase in purchase tax,
increase in the rate of interest and increase in road and
rail freightage. As already stated, the increase so in
purchase tax appears to be included in Rs. 3.22, granted by
the High Court for otherwise the three increases stated in
the judgment, viz., increase in wages, increase in
depreciation and increase in packing charges, would make the
total of Rs. 2.22 only.
The largest addition in the price claimed by the appellants
was Rs. 2.29 per quintal by way of additional interest. The
basis for the claim was that owing to the production of
sugar in 1969-70 being the all time highest, there were
larger stocks lying unreleased with the factories both in
the case of levy as well as free sugar, with the result that
the factories had to bear additional interest on the working
capital involved in such unreleased stocks. The usual
period of six months for the release of stock on the basis
of which the return on capital at the static figure of Rs.
10.50 a quintal had actually become unrealistic. The
result, therefore, was that the factories could not expect
to get the said return on the capital employed.
Since the question was an important one we called upon the
Government to disclose the correspondence, if any, which it
had in this connection with the Tariff Commission.
Thereupon the Government produced the relevant
correspondence. It appears from that correspondence that on
March 26, 1970 the Indian Sugar Mills Association had made a
representation for addition in the return of Rs. 10.50 on
the ground that the 1969-70 year’s production had come to 42
lac tonnes, an all time record and in addition thereto there
was already at hand a large stock lying undisposed of
resulting in the component of working capital being very
much higher than that calculated by the Tariff Commission
while fixing Rs. 10.60 as the return. On June 5, 1970, the
Government referred this representation to the Commission.
By its letter dated July 29, 1970, the Commission
recommended that the question of accumulation of stocks as
represented by the association required sympathetic
consideration and suggested an increase in lieu of interest
at 9% on the additional working capital represented by the
accumulated stock.
In considering this claim however two facts need to be borne
in mind. The production in 1970-71 was not as high as that
in
880
1969-70 and in fact had considerably declined. So far as
the ,Haryana factories were concerned, none of them had
purchased cane at a price higher than the minimum fixed by
Government, although the assumption behind the policy of
partial control leaving 40% of the stock for free market and
the unconventional method ,of granting a fixed return of Rs.
10.50 was that these two factors would enable the
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manufacturer to pay a higher cane price. The figures
supplied to us by Government called out from the returns
filed by the factories would also suggest that the claim for
Rs. 2.29 per quintal was not warranted. The total
production by the Haryana factories during 1970-71 was of
the tune of 82,756 tonnes. Despatches upto May 24, 1971,
when sugar was decontrolled, of free sugar were 7,065 tonnes
at Rs. 139.70 per quintal. Despatches of levy sugar, upto
the date of the interim order of stay dated April 8, 1971
were 2,380 tonnes and from April 8, 1971 to May 24, 1971,
4,194 tonnes at Rs. 158.02 per quintal. The balance of
stock lying with the factories as on June 1, 1971 was 6911.7
tonnes. Despatches during the decontrol period, i.e., from
June 1, 1971 to December 31, 1971 were 63,023 tonnes at the
rate of Rs. 151.39 per quintal, leaving a balance in hand of
6094 tonnes. It may be mentioned that on June 30, 1972 the
stock lying on hand came to 427 tonnes. only. Since this
was the position, the claim for additional interest at Rs.
2.29 per quintal does not appear to be sustainable, nor also
the claim for deterioration of stock owing to the stock
lying stored up beyond the normal period, the loss by way of
deterioration during such period being the normal incidence
of the trade which the manufacturer must anticipate.
Regarding the claim of 63 paise owing to increase in
freightage (i.e., of 54 paise by road and 9 paise by rail),
the Tariff Commission refused to concede that claim. Even
before us there are no adequate materials to come to any
precise conclusion as to the ,extra burden which the
appellants had actually to bear, though increase in
freightage during the year is admitted.
Have the Haryana factories then not received in fact during
1970-71 the reasonable return as envisaged by sub-s. 3C?
The actual figures of the year for duration and recovery
were not in dispute. They were 162 days and 8.69%
respectively. On that basis; the cost, according to the
cost-schedule worked out for Haryana by the Commission,
would come to Rs. 126.61, including Rs.10.50. To that amout
may be added the following, even assuming that they are all
allowable : (1) increase in wages, Rs.1.05, (2) increase in
depreciation, 56 paise, (3) deterioration in quality, 19
paise, (4) insurance and godown costs, 7 paise, (5) increase
in cost of consumable stores, 19 paise, (6) increase in
881
cost of gunny bags, Re.1.20, (7) increase in freightage by
road and rail, 63 paise, (8) interest on longer storage, Rs.
2.84 and (9) selling expenses, 45 paise (total Rs. 7.18=Rs.
133.79). But for the reasons given above, items 3, 7 and 8
(total Rs. 3.66) must go and therefore the figure would come
to Rs. 130.13. As against this, the realisations for levy
and free sugar upto the date of decontrol, i.e., May 24,
1971 were as follows : 63,741 quintals at the average rate
of Rs. 124.63 and 70,650 quintals at the average rate of Rs.
136.49. The average price thus realised comes to Rs. 130.77.
There is no doubt that if the sales after May 24, 1971 which
were all in free market were to be taken into account, the
average realised would come to much more than Rs. 130.77.
There is, therefore, no doubt that taking the picture as a
whole the Haryana factories got in any event a reasonable
return on the capital employed.
On the construction of sub-section 3C adopted by us and such
of the materials produced before us, we are of the opinion
that no case for quashing the impugned order has been made
out, nor has the price fixed by Government been shown to be
inconsistent with the sub-section.
In the result the appeals fail and are dismissed. In view
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of the somewhat complicated questions as to the meaning and
interpretation of sec. 3(3C) of the Act, we direct that the
parties will bear their own costs althroughout. Liberty to
the parties to file applications for directions in respect
of the Bank Guarantees furnished by them in pursuance of
stay orders passed by this Court.
V.P.S. Appeals dismissed.
882