TMI Blog1971 (11) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... we shall indicate at a later stage what, in our opinion, is the best and the simplest method of providing for escalation and deescalation. We are satisfied, however, that a provision should be made and ought to have been made by the Commission in this behalf. According to the principles discussed or to be discussed in the matter of fixing of a fair price the main objective is to protect the interest of the consumer while at the same time provide a reasonable margin of profit to the producer. The general approach has to be to determine the ex-works cost and then to arrive at the fair price after examining other claims of the industry and providing a reasonable return. We, therefore, find no such principle which has been demonstrated to be wrong in the report of the Commission so far as the fixation of the return is concerned. We are, therefore satisfied that the capacity for production of Hindustan Motors should have been assessed at the figure given by the technical team, namely, 30,000 cars and 5,000 trucks per year. Import licenses, which were granted have also not been shown to have been given on the basis of the figures of production determined by the Commission. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 14,325.00 STANDARD HERALD 4 Door Rs. 14,003.00 These prices were inclusive of dealer's commission but did not include the excise duties, Central Sales tax and local taxes, if any, and transport charges. The manufacturers or dealers were prohibited from selling or offering for sale or otherwise transferring or disposing of the motor cars for a price exceeding the price given in the Order. The order was made after taking into consideration the recommendations of the Tariff Commission to whom the question of determination of a fair price of motor cars had been referred by the Central Government under clause (d) of s. 12 of the Tariff Commission Act 1951. On May 5, 1970 after hearing the, petitions for some days this Court recommended to the Government to appoint a Commission for the purpose of suggesting a fair price for the three cars by taking into consideration all relevant matters. On May consisting of Shri Sarjoo Prasad a retired Judge of the Patna High Court as Chairman, Shri R. K. Khanna Chartered Accountant and Brig. V. Minhas Director of Inspection (Vehicles), Department of Defence Production as Members. By a notification dated June 5, 1970 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered that a rigid system of price control was not likely to have a healthy effect on the development of the industry. The interest of the consumers could be properly protected if investigations were held after certain intervals in order to see that excessive prices were not actually charged although the manufacturers were left free to charge prices at their discretion. The Government took a decision to enforce an "informal price control" on automobiles which was accepted by the manufacturers. The manufacturer was free to revise the price from time to time according to the variation in the cost but had to give a month's notice of any variation to the Government so that if the change proposed was prima facie unreasonable the Government could intervene. The net dealer's price was not to exceed the ex-works cost by more than 10%. Within a few years of the imposition of the informal price control the situation in the country changed owing to the scarcity of foreign exchange. The Government had to curtail foreign exchange allocation for the import of automobile components with the result that only three out of the then existing six models of passenger cars were left in regular production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in quality of cars which were being manufactured by the, three petitioners. The procedure followed by the Commission may be briefly noticed. It invited by means of a detailed questionnaire full information from the car manufacturers, dealers, consumers and others interested in the inquiry. It appointed a team of Cost Accountants and another team of technical experts besides a Chartered Accountant. These teams studied and collected data from each of the three manufacturing units and examined their manufacturing processes. The cost structure and activities of some of the ancillary producers and dealers of automobiles were also studied apart from visits to the manufacturing units. The Commission examined witnesses who were produced by the Union of India, the consumers, the dealers and the manufacturers. We may next refer to the principles and methods of costing which were followed by the Commission. The cost of a commodity consists of these elements : direct material, direct wages, services, depreciation and manufacturing, administrative and selling overheads. In case of an automobile a large number of components which undergo different manufacturing processes have also to be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost incurred in the factory of the manufacturer including all materials, parts and components. 'Return' means the total return to the manufacturer on the capital employed. 'Ex-factory Price' consists of the ex-works cost plus the return. 'Retail Price' would be the price arrived at by adding the dealer's commission or what is called 'markup'. The consumer has further to pay excise duty, surcharge and sales tax. Counsel for all the parties and the learned Attorney General are agreed that irrespective of the technical or leGal points that may be involved we should base our judgment on examination of correct and rational principles and should direct deviation from the report of the Commission which was an expert body presided over by a former judge of a High Court only when it is, shown that there has been a departure from established principles or the conclusions of the Commission are shown to be demonstrably wrong or erroneous. The following table will illustrate the price of Fiat car in Bombay based on July 1970 figure payable by a consumer as also the comparison with the prices contended for by Premier Automobiles and the government. Description As recom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The following main points have been raised by Mr. N. A. Palkhivala and have been adopted by the counsel for the other petitioners. The figures etc. as given by the Commission have not been disputed. 1. The Commission has taken the production capacity at an excessive figure and has thus artificially reduced the cost. 2. Cost and expenses on account of warranty and statutory bonus have been wrongly excluded from the ex-works cost. 3. In fixing the cost for September 1969 even the actual admitted cost found by the Commission has not been taken into account and the price has been fixed on the historical cost. In fixing the price for July 1970 the projected and estimated cost for the future has been ignored. 4. No provision has been made for an escalation clause in order to ensure that the prices fixed will ensure for a reasonable period of time. 5. The return which has been allowed is wholly inadequate on the admitted and proved facts. 6. Depreciation of plant and machinery has been allowed on the basis of original cost whereas it should have been allowed on the replacement value or on the peculiar facts of the case. We propose to deal with the first point relating to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, of the Motor Car Quality Inquiry Committee (known as the Pande Committee), made a recommendation that the warranty should be made uniform for all the three motor cars and no cost of replacement including incidentals should be passed on to the customer. This Committee was appointed by a resolution of the Government of India dated February 12, 1968 in exercise of the powers conferred by s. 15 of the Act. Pursuant to the recommendation of this Committee an order was promulgated by the Central Government in March 1968 under S. 16 of the Act which was to the following effect "The warranty with which cars are sold shall be, uniformly valid for aperiod of, 12, months or, a distance covered. of 16,000 kms., whichever occurs earlier. All defects, due to faulty manufacture of workmanship shall be rectified and defective parts replaced during this period without passing any part of the burden including incident charges to the customer". The effect of the above direction cannot be ignored although it may not be conclusive in the matter of fixing a fair price. We find the statement of the Commission unexceptionable that if the warranty is to be made out of the profits every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hindustan Motors have made a settlement with the workmen regarding the payment of bonus for the years 196970, 1970-71. In the year 1969-70 the amount payable to the workmen under that settlement comes: to 8 % of the wages and salaries and for the year 1970-71 it works out to 9%.The bonus, it has been pointed out, in the present context is an integral part of the wage structure and must be treated as part of the cost of production. Reliance has been placed on the working of the Commission's Cost Accounting Team itself according to which bonus was included as item no. 7 in the various items which made up the ex-works cost. In the study prepared in collaboration with the Institute of Chartered Accountants of India called "Price Fixation In Indian Industry" it is stated that bonus to employees is in practice regarded both by them and by the Adjudicating Tribunal as additional emoluments legitimately forming part of the wage structure. According to the Government in the past bonus was never Allowed as a part of the cost of manufacture. In the previous Tariff Commission Report on the Fair Selling Price of Automobiles 1968, bonus was included in the return. The Tariff Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich minimum bonus can be paid, the same shall be carried forward for being set off in the succeeding year according to the fourth schedule. Section 10 of the Bonus Act at first sight may appear to be a provision for granting additional wage to employees but that section is an integral part of a scheme for payment of bonus at rates which do not widely fluctuate from year to year. This Act has thus provided that bonus in a given year shall not exceed one-fifth and shall not be less than 1/25th of the total earning of an employee. It has been ensured that the excess share shall be carried forward to the next year and that the amount paid by way of minimum bonus not absorbed by the available profits shall be carried to the next year and shall be set off against the profits of the succeeding year. The object of the Bonus Act is to make an equitable distribution of the surplus profits of the establishment with a view to maintain peace and harmony between the three agencies, (capital management and labour) which contribute to the earning of profits (See Jalan Trading Co. (P) Ltd. v. Mill Mazdoor Union([1967] 1 S.C.R. 15). The Commission came to the correct conclusion that bonus is connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months. A comparison of the prices fixed for September 1969 and July 1970 further reveal how steeply the prices rose during the short period of nine months. According to Mr. Palkhivala price fixation of the cars will be wholly futile unless there is a provision for escalation which means that the prices should be increased or decreased periodically according to the rise or decrease in the cost as also the various other factors which enter into price fixation. For instance, in the Tariff Commission report 1965 on the revision of ceiling price of alcohol it has been observed that future estimates of costs of receified spirit has been prepared for a period of the next three years on the basis of the actual cost. In the Tariff Commission report on the fair selling price on Antimony provision was stated to have been made for enhancement in respect of wages and salary as also for anticipated increase in Dearness Allowance. Similar provision for escalation was made in the Tariff Commission report 1966 on the price structure of catgut ball bearing and several other industries. There are a number of increases, according to the manufacturer,,;, over which they have absolutely no control. Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erves. Unless reserves are created and the financial position of the company improves it may not be possible for it to get any further loans because up till now it has been carrying on its business mainly on the borrowings. The return leaves no margin for wiping out the depreciation which comes to Rs. 750.74 lakhs according to income tax rates and Rs. 583.64 lakhs according to book depreciation. The Commission has not taken into consideration any provision for a cushion for the proposed increase in the rate of minimum bonus for which a persistent dialogue is going on all the time between the trade unions and the government. This will leave no return on the equity capital and would result in the company getting a net dealer price which would be less than its actual cost of production. Since the Premier Automobiles will have to pay the warranty charges there will be an additional liability of Rs. 120/per car on account of labour charges which when taken out of the return will reduce it substantially. The calculation made, according to the company on the figures worked out by the Commission, was that the surplus left will provide a dividend of approximately 7% on the equity capital. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents and spare parts. All these involve large outlay of foreign exchange and the object must be to conserve the same in the interest of the country; (c) necessity of efficiency and economy in the production and control over prices in that behalf; (d) necessity of improvement of the quality of product and of services to the consumers. According to the informal price control the factory price charged to the dealers could not exceed the ex-works cost by more than 10%. This necessarily included all the items which are to be found as constituting the return in the report of the Commission. Our attention has been drawn to reports of various Commissions according to which there were defects in production and there was neglect of economy and efficiency. The accounts were also not being maintained by all the manufacturers on a proper basis from which costs could be worked out satisfactorily. A large number of unskilled workers were being employed. The Tariff Commission in its report of 1968 in respect of fair selling price of automobiles considered that a return of 12% of the capital employed would be reasonable and fair. The Commission was of the view that profit margin to be allowed to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he three companies may not be uniformally 10% and may be considerably less in the case of Premier Automobiles but it is not possible to make any distinction or discrimination between the three manufacturers. We do not consider that a separate rate of return should be fixed when dealing with the automobile car industry as a whole. At first sight it may appear that a return of 16% on the capital employed is a very large return but as we have pointed out, this return includes numerous items which reduce the ultimate return to the equity shareholder to a percentage which, even according to the Commission, on an average cannot exceed 10%. Learned counsel appearing for the car manufacturers have vehemently pressed for exclusion of warranty and bonus charges from the return and for their inclusion in the ex-works cost. It was ultimately stated at the bar that if that was done the return as fixed by the Commission would be acceptable. We are, however, unable to accede to this submission. We have given our careful thought to the principles which the Commission has followed in fixing the return and in our judgment the return granted is a reasonable one keeping in view the entire circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of machinery and plant. That Commission, therefore, generally did not favour deviating from the practice adopted by the. income tax authorities in calculation of depreciation. The Commission was of the view that depreciation on account of the use of the assets in any undertaking is quite distinct and separate from rehabilitation replacement. The whole question, according to the Commission, has to be determined with reference to the context or the purpose for which the deprecation is being computed. For working out the fair price of the car the expenses incurred by the manufacturers in producing their products have to be taken into account and therefore only the actual cost and not the estimated replacement cost can be considered. The Commission was not satisfied that on account of rise in the prices of assets the manufacturers would not be in a position to replace the plant and machinery with funds available to them. The Commission said "if the manufacturers were to keep apart not only the amount of depreciation but also the development rebate and other reserves to which they are entitled under the various tax and other laws and invest them separately or even in their business t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the economic conditions prevailing, there is no justification. Under s. 16 the Central Government on completion of investigation under s. 15 can issue such directions to the industrial undertakings as may be appropriate in the circumstances. Clause (a) of sub-s. (1) relates to directions which can be issued for regulating the production of any article or class of articles by the industrial undertaking and fixing the standard of production. According to Mr. Palkhivala if the Central Government was of the view that there has been substantial fall in the volume of production investigation could be caused to be made under s. 15 and directions could be issued under s. 16. Section 18G confers power in the matter of control, supply, distribution, fair price etc. of articles relatable to any scheduled industry. Under sub-s. (2) a notified order may provide for controlling the price at which any such article or class thereof may be bought or sold. While fixing a fair price under S. 18G no question can arise about the optimum or achievable capacity of production which would be relevant only for the purpose of ss. 15 and 16 of the Act. A lot of emphasis has been placed on the different object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing unit, the quality of its product and the maintenance of proper standards at various levels of production are all relevant factors for the determination of the price. Capacity utilisation, however, has to be on the basis of what can be reasonably achieved keeping in view always the practical side. it is common ground that the achievable capacity for production will be an important factor in the matter of fixation of fair price. The larger the production the less the cost and vice versa. We shall, therefore, have to determine whether the conclusions of the Commission with regard to the capacity of the three manufacturing units for production are based on a correct appraisal of material facts and principles. As regards the Premier Automobiles the Commission has assumed, erroneously, accordingly to Mr. Palkhivala, an achievable capacity for production of 13,300 cars per year in September 1969 and 14,000 cars in July 1970. It is claimed that the cost has been reduced by the above process by Rs. 301/per car for July 1970. On behalf of the Premier Automobiles it had been urged before the Commission that its average level of production per year was 12,000 cars and 5,000 comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral, Transport Department, was informed that it was proposed to raise the production of cars to 1,000 per month from February 1967. The import licenses are admittedly granted on the basis of the recommendation made by the Development Wing of the aforesaid department. The recommendation by the Development Wing was that the license should be granted for production of a minimum of 4,500 cars in six months. On July 14, 1967 an application was submitted for grant of certain components for production of 18,000 cars. This was for the second half year 1966-67. It has been submitted and that explanation in the circumstances appears to be correct that the Italian collaborators had offered a special credit and in order to avail of that credit licence for import had been sought for 18,000 cars. But it was stated in the application that production was being planned at 1,000 cars per month. This application was granted. During the first half of April 1968 to March 1969 an application was made on July 23, 1968. It was confined only to those components and raw materials which were not covered by the components imported for 18,000 cars under the special credit scheme. The production, it was stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed by the Car Prices Commission had come to the conclusion that the company had an annual potential capacity to manufacture 12,300 cars and 5,000 commercial vehicles. As we have already held that the Premier Automobiles were not in a position to manufacture more than 12,000 cars owing to the grant of import licence being confined to that figure we do not consider that it would be fair to take the capacity for production for the purpose of working out the ex-works cost in September 1969 at a figure higher than 12,000 cars per year. The next question is the capacity for the production for computing the ex-works cost in July 1970. According to the technical team the achievable capacity was 12,300 cars per year. But as pointed out by the Commission the latest figures given by the company in October 1970 were for production of 7,000 cars in six months and these figures were accepted as correct by the Development Wing and licence for components was admittedly granted on that basis. The license for steel has still not been issued and we are informed that it is likely to be issued very shortly. These figures were furnished by the company at a time when hearing of the proceedings before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was declared illegal, followed by a tool-down strike in February 1970. The factory had to be closed down on May 22, 1970. It was reopened on February 22, 1971. When the factory was closed a committee which we have already called the Verghese Committee was appointed under s. 15 of the Act for investigation. It submitted its report on October 16, 1970. It made a full investigation and also looked into the complaint that the associated concerns of this company which were producing the components had been shown undue favour at the expense of the parent firm. According to the Verghese Committee the transactions with the subsidiaries appeared to be in the normal course of business and the allegation of unfairness was not justified. The Verghese Committee while considering the question of viability of the company had made a detailed examination of the capacity and had held that the maximum capacity of the plant was for production of 3,000 Herald cars apart from 1,000 trucks based on six days working week. The technical committee of the Commission found that based on a six day working week of two shifts of 8 hours each the capacity of the factory at the present level of indigenisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical team made the assessment the factory was closed and all the relevant data were not available. There is an obvious error in the working out of the figures by the Commission. It is not disputed that a five day working week meant 45 hours at the rate of 9 hours per day; whereas six day working week meant 48 hours per week at the rate of 8 hours a day. The increase would be of 3 hours only during the week. It has not been demonstrated how this would justify the conclusion of the Commission. The Verghese Committee in its report was of the view that with a 48 hours week, the capacity of the heat treatment shops would go upto 3200 cars and 1062 trucks. But the Press Shop with a limited capacity of 3000 cars and 1000 trucks would still be a limiting factor. If some of the pressed components were farmed out to the ancillaries an extra capacity of 200 cars could be realised in the press shop. But as Standard 20 trucks are not being manufactured in U.K. the imported components would have to be progressively indigenised. This is what the Verghese Committee finally concluded: "On an overall assessment we felt it safe to estimate the installed capacity of the factory at 3000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment, namely N. T. Gopala Iyengar and B. S. V. Rao, Development Officer had also visited the plant of Hindustan Motors from time to time between February 1969 and January 1970 and during this period various data were furnished by the Hindustan Motors relating to its capacity which were contained in a "Brown Folder". From the information given to these experts the manufacturing capacity came to 38,400 cars per year. The letters and applications which were written in the matter of licenses also unmistakably pointed to the conclusion that the achievable capacity was not less than 30,000 cars. The technical team had made an assessment on the spot and according to it the existing capacity was 30,000 cars and 5,000 commercial vehicles after providing some balancing equipment worth about Rs. 74 lakhs. The Commission was of the view that the data regarding the standard timing furnished to technical team was different from that provided to the experts, namely, Messrs. Iyengar and Rao. The Commission felt it was safer to rely on the manufacturer's own statement made from time to time. It was considered fair and equitable to fix the production capacity at 30,000 cars per annum and that of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rucks could be diverted for car production. (d) by acquiring certain machine tools and jigs (of the value of 81 lakhs) and by working the third shift for a few operations the production could be increased to 30,000 cars and 5,000 trucks per year. The technical team had proceeded on the basis of the independent physical checking and verification in all respects. It has been stated and that statement has not been challenged that the technical team stayed in the company's plant for a little over two months. With regard to the Standard timing required for various parts which were directly relevant to the question of capacity the technical team is stated to have made actual test checks and their findings are to be found in its report. We are unable to concur in the reasoning or the approach of the Commission in the matter of assessing capacity. We have already observed that much reliance cannot be placed on any figures supplied for applications for the import licence or mentioned in letters to the government for the purpose of obtaining additional facilities because the estimates which are given are likely to be inflated. We see no reason or justification for rejecting the opinion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had stated in his deposition that the figure of 4149 tons might include locally purchased imported steel and this had to be checked up. On checking it found that the said quantity included 1954 tons of imported steel purchased locally. A statement showing reconciliation of figures is said to have been submitted by the company to the Commission as also the original documents relating to imported steel purchased locally. It is submitted that the Commission's conclusions taking 20% as utilisation of local steel merely on the basis that this is utilised in the case of Fiat cars is arbitrary. The Commission has pointed out that Hindustan Motors had neither kept any regular day to day record of issue of its raw material nor had any quality wise record in this regard been kept. In fact steel, both imported as well as locally purchased, had been put under one category and consumption had been shown on the standard adopted by the company. In view of the fact that the company had not kept any regular record of data it was not possible to determine accurately the use of locally purchased and imported steel separately. In these circumstances we do not consider that the conclusion arrived at by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the automobile account as the trading accounts covered other activities also. In certain cases, however, where analysis was made it appeared that no one had suffered any loss. The Commission has observed that spare parts are not stocked in adequate quantities in various places by the dealers with the result that the customers have sometimes to wait for long period for replacement. The Pande Committee in 1967 had deprecated the fall in the standard of after-sale service. The Tariff Commission in its third Report published in 1968 did not accept the dealers' claim for an upward revision of profit margin. The Commission felt that the workshops of the dealers of Fiat cars, namely, one in South (Sundaram Motors P. Ltd.), one in Bombay (Bombay Cycle and Motor Agency Ltd.) and another in Delhi (Prem Nath Motors) had well equipped workshops with requisite type of plant and machinery but there was nothing to indicate that they were suffering any loss. The evidence of Sagar Suri the Managing Director of Delhi Automobiles (P) Ltd., was not accepted. The Commission considered the desirability of classifying dealers in 2 or 3 categories according to the standard of equipment and service facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 commercial vehicles (b) Standard Motors July 1970- 3,400 cars. 1,000 commercial vehicles. (c) Hindustan Motors July 1970- 30,000 cars 5,000 commercial vehicles (2) Cost and expenses on account of warranty and bonus have been rightly included in the return and could not be included in the ex-works cost. (3) In fixing the cost for September 1969 which will now be relevant only in the case of Premier Automobiles the same basis should have been adopted as for July 1970. In other words the actual cost and not the historical cost should have been taken into account. It was, however, unnecessary to take the projected and estimated cost for the future. (4) A provision should be made for an escalation clause. The lines on which such a clause should be formulated will be indicated hereafter. (5) The return which has been allowed is adequate on the facts proved before the Commission. (6) Depreciation on account of plant and machinery has been allowed on correct basis but for the purpose of allocation the capacities indicated above will be taken into account. As regards the individual points raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... government within a fortnight after the announcement of this judgment to enable it to promulgate a fresh Order under s. 18G of the Act refixing the prices of all the three cars in accordance with the recommendations of the Commission as modified by this Court. The Order should indicate that the prices as fixed are liable to be increased , or decreased in accordance with the provision relating to escalation and de-escalation contained in our judgment. The goverment will take the cost as in July 1970 as the base and will take into account all increases and decreases since July 1970 upto the date, of the judgment in the ex-works cost and the three outgoings from the return mentioned above. Learned Attorney General on behalf of the Central Government has agreed to this course. It may be added that while furnishing the relevant information and data to the government the car manufacturers will give copies of the relevant purchase contracts including the escalation clause,if any. The car manufacturers have given an undertaking that during the period of two months from the date of the announcement of this judgment they shall continue to charge the interim prices which were fixed by our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ex-works cost for September 1969 of Standard Herald to be Rs. 13.236/-. Adding a return of Rs. 1,274/to that amount, the ex-factory price of the Standard Herald was found to be Rs. 14,510/-. For July 1970, the Commission worked out the ex-works cost of Standard Herald to be Rs. 13,989/-. Adding a return of Rs. 1,231/to the above amount, the ex-factory price of Standard Herald for July 1970 was found by the Commission to be Rs. 15,220/-. Rs. 860/were added on account of dealer's commission to the prices found for September 1969 and July 1970. Fair selling price of the Standard Herald for September 1969 was found by the Commission to be Rs. 15,373/and for July 1970 to be Rs. 16,080/-. In working out the above prices for September 1969 and July 1970, the Commission took the production for September 1969 to be 3,400 cars and 1,000 commercial vehicles and for July 1970 to be 4,000 cars and 1,000 commercial vehicles. So far as the price fixed for September 1969 is concerned, the matter is now purely academic, as the Standard Herald cars after September 1969 till April 1971 were sold at the prices fixed in the Government notification and no bonds were got executed from the purchasers o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it is related to output. The cost of producing a motor car depends on whether the manufacturer is turning out 50, 100, 500 cars per week. The term "cost" is ambiguous since it has several different meanings. For a given output it may be total cost, whereas for one unit of output-a single motor car, for example-it is clearly average cost that is being considered. If a firm is already producing 500 motor cars per week and it decides to increase its weekly output to 501, the cost of producing one more motor car per week will probably be much less than the average cost, though in other ,cases it might be more than the average cost. It is also manifest that the capacity which has to be taken into account is the achievable capacity of a plant run in a reasonably efficient manner. Concerted effort has to be made to attain a high level of production for two obvious reasons : (1) supply of new cars falls considerably short of the demand and the intending purchasers have to be kept on the waiting list for inordinate length of time and (ii) increased production would bring down the exworks costs of the car. Although it would not be practicable and realistic to insist upon the highest or abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hop was a limiting factor. It may be noted that the petitioner-company was previously working for 5 days in a week. In the course of the arguments before the Commission, the counsel for the petitioner-company stated that it could achieve a capacity of 3,400 cars and 1,000 commercial vehicles on a six day working week provided some components were transferred from one unit to the other and the petitioner company was allowed an additional tooling cost of Rs. 2.5 lakhs. As against the above, the case set up on behalf of the respondent before the Commission was that the capacity of the petitioner company should be fixed at a level of 4,000 to 5,000 cars and 1,000 to 1,500 commercial trucks. The Commission took into account the statements made by the petitioner-company in its various communications and applications to the Government regarding its manufacturing capacity. It was observed that the decision of the petitioner-company to work for 6 days in a week would result in increased production. The Commission also expressed the view that in the factory of the petitioner-company, there was scope for increasing productivity to the extent of 5%. The Commission accordingly concluded : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erification could be made by the Technical Team nor could it make a systematic study and it had to content itself with the material supplied by the petitioner-company. It, therefore, cannot be said that any satisfactory technical assessment regarding the production capacity of the petitioner-factory was made by the Technical Team. In the circumstances, there was nothing wrong in the approach of the Commission which included a chartered accountant and an automobile engineer in relying upon its own assessment rather than that of the Technical Team. The other assessment of the manufacturing capacity of the petitioner-company upon which reliance has been placed on its behalf is that made by the Varghese Committee. The said Committee in its Report observed as under "The plant capacity as a whole could be balanced for a production of 3,200 Heralds and 1,000 Standard 20 trucks. Standard 20 trucks is not being manufactured in U.K. now and therefore the imported components will have to be progressively indigenised. The Management felt that some capacity should be earmarked for this purpose. On an overall assessment of all these factors, we felt it safe to estimate the installed capacity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The Report of the Tariff Commission shows that in arriving at the above figures, it got the matter adjudged by its Cost Accounts Officer and held discussions with the individual units and with the Directorate General of Technical Development. The Tariff Commission also took into account the information conveyed to it at the public inquiry. The above estimate of the production capacity of the petitioner company made by the Tariff Commission as a result of inquiry and discussions with the Accounts Officer and technical officials, in my opinion, has a direct bearing on the case and would go to show that the conclusion of the Inquiry Commission that the petitioner-company's production capacity was 4,000 cars and 1,000 commercial vehicles was by no means vitiated by an excessive estimate. Nothing on the record has been pointed out to indicate that there would be a fall in production capacity of the petitioner-company because of the manufacture of four door car as against the previous two door car. There are a number of communications and applications addressed by the petitioner-company which also go to show that the estimate formed by the Commission regarding the production capacit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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