2006 (2) TMI 631 - SC - Indian Laws

Whether the scheme of subsidies (known as the Retention Price Scheme ) granted by the Respondent-Union of India (hereinafter the Government ) to fertilizer manufacturers, could be retrospectively modified to the detriment of these manufacturers?

Summary

Issues Involved:
1. Retrospective modification of the Retention Price Scheme.
2. Nature and statutory status of the Retention Price Scheme.
3. Legality of retrospective application of pricing norms.
4. Alleged assured returns of 12% post-tax.
5. Reasonableness and legitimacy of retrospective changes under Article 14 of the Constitution.

Issue-wise Detailed Analysis:

1. Retrospective Modification of the Retention Price Scheme:
The primary issue was whether the Government could retrospectively modify the Retention Price Scheme to the detriment of fertilizer manufacturers. The court held that the Retention Price Scheme inherently included an element of retrospectivity, as evidenced by the historical practice of fixing and applying retention prices ex post facto from the beginning of pricing periods. The court found that the manufacturers had voluntarily agreed to this scheme, including its retrospective application.

2. Nature and Statutory Status of the Retention Price Scheme:
The appellants argued that the Retention Price Scheme was a statutory scheme under the Essential Commodities Act (EC Act) and the Fertilizer (Control) Order. The court rejected this argument, concluding that the scheme was an administrative order without statutory flavor. The EC Act and the Fertilizer (Control) Order only allowed the Government to fix maximum retail prices but did not mandate subsidies. The court cited the judgment in Neyveli Lignite Corporation Ltd. v. Commercial Tax Officer, reinforcing that the scheme was an administrative decision.

3. Legality of Retrospective Application of Pricing Norms:
The appellants contended that while subsidies could be retrospectively adjusted, the pricing norms could not. The court disagreed, stating that the undertaking signed by the manufacturers included compliance with all decisions regarding retention price determination. The court emphasized that the scheme always included a retrospective element, and the Government's power to revise pricing norms retrospectively was inherent in the agreement.

4. Alleged Assured Returns of 12% Post-tax:
The appellants claimed that the Government had promised assured returns of 12% post-tax, which had not been fulfilled. The court found no evidence of such a binding promise. The scheme was based on a voluntary agreement, and the manufacturers had agreed to abide by the Government's decisions. The court noted that the issue involved too many disputed facts to be resolved in a writ proceeding and rejected the appellants' contention.

5. Reasonableness and Legitimacy of Retrospective Changes under Article 14:
The appellants argued that the retrospective changes were arbitrary, unreasonable, and violated Article 14 of the Constitution. The court found no merit in this argument, noting that the appellants were involved in the deliberations and had not objected to the process. The court reiterated that Article 14 does not require judicial review of economic policies' merits or correctness unless there is extreme arbitrariness or mala fides, which was not present in this case. The court also dismissed the relevance of cited cases on tax exemptions and industrial rebates, as the Retention Price Scheme was a consensual arrangement.

Additional Case Reference:
The court noted that a similar challenge by another manufacturer, Nagarjuna Fertilizers, had been dismissed by the Supreme Court. Although the present case was considered independently, the court found the facts indistinguishable and arrived at the same conclusion.

Final Findings:
The court dismissed the appeals, finding against the appellants on all points. The Retention Price Scheme was upheld as an administrative scheme with inherent retrospective application, and the Government's actions were deemed neither arbitrary nor unreasonable. The appeals were dismissed with no order as to costs.