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TMI Blog1972 (11) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... Act empowers the Central Government to control the production and distribution inter alia of sugar with the object of maintaining its supply and 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 production and its distribution and the method followed in the fixation by Government of the fair, or what has for brevity& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment. These committees worked out cost 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sport 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of course be for 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 prot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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, 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X
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