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TMI Blog1993 (9) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... it may direct from time to time. Under the said Levy Order, the Central Government issues release orders to the producers or manufacturers against which the manufacturers supply sugar. The Central Government is required to pay the price. Such a price is determined in accordance with Section 3(3C) of the Act. Altogether 5 orders were issued. For the year 1975-76 the following three orders were issued: 1. GSR 571(E)/Ess.Com/Sugar dated 29.11.75 2. GSR 67(E)/Ess. Com/Sugar dated 9.2.76 3. GSR 67(E)/Ess. Com/Sugar dated 3.8.76 For the year 1977-78 the following two orders were issued: 1. GSR 76(E)/Ess. Com/Sugar dated 22.12.1977 2. GSR 154(E)/Ess. Com/Sugar dated 1.3.78 5. The attack against all these notifications by the manufacturers of the sugar in the writ petitions before the Karnataka High Court was that in price fixation the Central Government had not taken into consideration the relevant criteria laid down under Section 3(3C) of the Act. 6. The Central Government opposed the stand and urged that the relevant considerations were borne in mind. 7. The learned Single Judge struck down all the determinations on the ground of non-application of mind. Aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Sugar Control Order of 1955. The words used thereunder were with due regard to . The factors mentioned in Clause 5 of the said Sugar Control Order are substantially the same as under Section 3(3C) of the Act. The latter ruling construed the word having regard to as factors mentioned in Section 3(3C) as essential in price determination. 13. The further submission of the learned Counsel is when Section 3(3C) of the Act says determination it cannot be a purported determination. It signifies an effective expression of opinion which ends a controversy or dispute by some authority to whom it is submitted under a valid law for disposal. Thus, it is submitted that the observations in Shri Sitaram Sugar Company Limited v. Union of India are not a fetter, they are not words of limitation but of general guidance to make an estimate requires fresh consideration. 14. It is further urged that in the instant cases, it cannot be said there is a valid determination because the levy price for one year cannot be the levy price for the subsequent years as indeed the minimum cane price for one year is not the same for the subsequent years. Similarly, the notification of uniform increase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recommendations of Bhargava Commission. 17. Mr. B.R.L. Iyengar, learned Counsel appearing for the sugar manufacturers of the State of Karnataka states that till the departure in the Notification dated 11.7.1975, the itemisation and the factors of the format for arriving at the levy price were those repeatedly laid down by the Tariff Commission. The incidence of additional cane price over and above the statutorily notified minimum price and the estimated average realisation on the sale of levy free sugar was at ₹ 317.65 for internal consumption and for exports. The result of inclusion of these items which were not of the standard formula till then adopted by the Tariff Commission, whether so intended or not, bring about as far as the Southern and other Zones are concerned, the reduction of the price from ₹ 171. 52 to ₹ 139.72. It is this drastic reduction which is complained of in these cases. 18. As can been seen from Bhargava Commission, the object was to reward efficient factories which pay a fair price to the cane growers but not to give such a benefit to an inefficient sugar factory. In the case of Panipat Sugar Mills (supra) which has not been corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been the position of Section 3(3C) as construed by this Court in Panipat case (supra) the same has been deliberately departed from by the government by introducing Clause 5A. As a result, the additional realisation on free sale sugar cannot be taken into account as a neutralising factor under Clause (d) partially or fully. The contention that Clause 5A has no relevance for determination of price under Section 3(3C) is untenable. 22. Mr. Raja Ram Agarwal, learned Counsel appearing for the sugar factories of East Uttar Pradesh, in addition to filing the necessary data in detail showing the break-up levy prices, urges that according to the Bhargava Commission Enquiry Report which acceptance is borne out by introduction of Clause 5A, the balance of 50 per cent from excess realisation was left with the industry for certain specific purposes and not for depressing the levy sugar price. Therefore, if the free sale realisation is excluded the loss would be even more. The fixation of levy price for East Zone of Uttar Pradesh is totally arbitrary and requires to be re-considered. 23. Mr. S.S. Khanduja learned Counsel adopts the arguments of Mr. Raja Ram Agarwal and prays for re-determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixed the levy sugar price at ₹ 163.79 for 1977- 78. These notifications per se are not in conformity with the factors mentioned in Clauses (a) to (d) of Section 3(3C). Then again, where the Government is required to revise the price with reference to each zone a uniform increase of ₹ 18.03 per quintal over the price fixed under the Notification dated 22nd November, 1979 for all the zones, is not contemplated at all. 28. The realisation from free sale sugar to depress the levy sugar price is illegal. That is against the report of the Tariff Commission and also disregards Clause 5A which is based on Bhargava Commission Report accepted by the Government. The respondent has recommended that the excess realisation from sale should be shared by the factories on 50:50 basis with the cane growers and necessary steps were being taken from the ensuing sugar season. The loss sustained by sugar factory on its export quota is not taken into consideration. This is also bad in law. 29. Even assuming that the extra realisation from free sugar could be used for decreasing the amount of return which may be provided under Clause (d) the sugar factories would at least be entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri, learned Counsel appearing for the cooperative society situated in Saurashtra region submits that Panipat and Anakapalle rulings (supra) upheld price determination by Government of India since such determination was based on the recommendations of the Tariff Commission fixing the prices for different zones by adopting the method of working out the weighted averages. Such a method of price fixation would not now be relevant particularly when a better method of pricing of sugar by an expert body such as Bureau of Industrial Costs and Pricing is available. 35. Though in Sita Ram case (supra) the Court refused to reopen the earlier decisions it was on the ground that no material was brought to the notice of the Court to establish that the Central Government had not applied its mind to the price fixation. However, that decision does lay down that the price fixation could be challenged on the ground of unreasonableness or arbitrariness. In so far as the entire State of Gujarat was placed in a zone along with Maharashtra and Goa without regard to the relevant conditions of yield recovery and availability of sugarcane as they materially differ, the price fixation must be held to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderlying Article 31(2) of the Constitution. Essential commodities Act is not made under Entry 42 of List III of Seventh Schedule but under Entry 33 of List III. In any event Article 31 stands deleted by virtue of Constitution (44 Amendment) Act, 1978. Therefore, to hold that Sub-section (3C) is only for partial control of sugar is incorrect. This finding overlooks that Sub-section (3C) refers to Sub-section 2(f) under which an order can be made both for partial or complete control. 39. The finding that Section 3(3C) did not enable the Government to effect price control of sugar but will merely enable it to fix levy price of sugar is incorrect. The Judgment of the Karnataka High Court rendered by a learned Single Judge holding that Clause 5A supersedes Section 3(3C) is apposite to the ruling of this Court in Panipat case (supra). He would commend for our acceptance the view taken by the Allahabad High Court. 40. In opposing the stand of Mr. Nariman, learned Counsel, it is urged that Clause 5A of Sugarcane Control Order provides of payment of additional can price. Such payment would arise only in case of surplus from sales of both levy and free sugar after adjustment of the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of sugar. That would be sufficient compliance with law as laid down in Panipat case (supra). Under Clause 5A of the Sugarcane Control Order sugar producer is required to pay to the sugarcane growers in addition to the minimum sugarcane price fixed under Clause 3(a), an additional price if found due in accordance with Second Schedule to that order. This surplus is calculated in terms of Bhargava Commission formula. The obligation to pay the cane growers arises only if the statutory minimum can price plus the surplus exceeds the actual can price already paid to the grower. Therefore, only to the extent of excess the payment is required to be made. 47. For sugar year 1978-79 the minimum notified prices of sugarcane have been considerably increased. Therefore, the appellants cannot have any valid complaint. The general trend of argument that the actual cane prices were not taken in Maharashtra for fixation of price for 1978-79 and 1979-80 is untenable. The Government has not discriminated against Maharashtra. Minimum cane prices had been adopted in all zones for price determination in these two years. Free sale prices were adopted where estimates based on data given by the sugar f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith reference to Karnataka also. Thus it is prayed that the appeals filed by the Union of India may be allowed and those of the manufacturer may be dismissed. 51. In reply to these contentions Mr. P.H. Parekh, learned Counsel would urge that the Government should have fixed the prices with reference to the actuals of the previous year which had not been done. If that had been done the levy prices would have been higher even under the methodology under challenges. The assumed free market prices taken for calculation when actuals were available would make the whole exercise ex facie arbitrary. The importance of this glaring and patent error would be apparent from the fact that roughly every rupee of free sale realisation which is assumed as higher would lead to a reduced levy price to the extent of 50 paise per quintal. 52. The Union of India has not substantiated why there is mechanical repetition of the levy prices fixed for earlier season. 53. Ever with regard to Clause 5(a) the contention of the Government of India cannot be accepted. In the Second Schedule of Sugarcane Control Order which contains factor 2 in the denominator representing the fraction 1/2 (50 per cent) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion would naturally, arise what is the price to be paid for that commodity? 58. Section 3(3C) provides for the ascertainment of such a price. This has been so held in Union of India v. Cyanamid India Ltd. . 59. This is how with reference to sugar - it has been declared as an essential commodity - the price fixation under Section 3(3C) comes into play. The said section provides: In calculating the amount to be paid for the commodity required to be sold, regard is to be had to the following : (a) the minimum price, if any, fixed for sugarcane by the Central Government under this section: (b) the manufacturing cost of sugar; (c) the duty or tax, if any paid or payable thereon; and (d) the securing of a reasonable return on the capital employed in the business of manufacturing sugar. 60. It is further prescribed that different prices may be determined, from time to time, for different years for different factories or for different kinds of sugar. 61. With reference to price fixation following principles emerge from three important decisions: (1) Panipat Sugar Mills v. Union of India . (2) Anakapalle Cooperative Society v. Union of India [1973] 2 SCR 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cls. (a), (b), (c) and (d). The same is reiterated in Sita Ram's case (supra) at pages 931- 32: The price of sugar must be determined by the Central Government having regard to the factors mentioned in Clauses (a) to (d) of Sub-section (3-C). This is done with reference to the industry as a whole and not with reference to any individual seller. In contradistinction to the price of Sugar , the amount is calculated with reference to the particular seller. The Central Government is authorised to determine different prices for different areas or for different factories or for different kinds of sugar. (b) A fair price has to be determined. For this purpose, the realisation from sale of free sugar can be taken into consideration in fixing the rate of return. In the case of Panipat (supra) at page 872 it was observed thus: The fair price, therefore, has to be determined on the minimum price of cane fixed by Government, the manufacturing cost on the basis of zonal cost-scheduleds, 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider to be relevant and has come a conclusion, which any reasonable person, placed in the position of the Government, would have come to.... (e) Price fixation is in the nature of a legislative action, even though it may be based on an objective criteria, It is nevertheless imperative that the action of the authority should be inspired by reason. The individual order s calculating the amounts payable to individual producers are in the nature of administrative orders founded on the mechanics of price fixation. In Sita Ram's case (supra) at page 943 it was held: The individual orders, calculation the amounts payable to the individual producers, being administrative orders founded on the mechanics of price fixation, they must be left to the better instructed judgment of the executive, and in regard to them the principle of audi alteram partem is not applicable. All that is required is reasonableness and fair play which are in essence emanations form the doctrine of natural justice as explained by this Court in A.K. Kraipak and Ors. etc. v. Union of India and Ors. .... (f) The price fixation on zonal basis taking into account the average zonal cost is valid. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposition to this, the Government would urge that there is a valid determination of the price and not a mere purported determination. The Government did have regard to Clauses (a) to (d) of Section 3(3C) and fixed the price for levy sugar taking into account the actual cane price paid and the excess realisation from free market sales which are relevant criteria. 65. It cannot be gainsaid that for fixing the price under Section 3(3C) the Government must have regard to the four factors mentioned under Section 3(3C) of the Act. Those factors are : (1) Minimum price of Sugarcane; (2) manufacturing costs; (3) taxes and duties; and (4) reasonable return on the capital employed. 66. In Sita Ram's case (supra) this Court has categorically laid down that the price fixation is a legislative function. If that be so, what is permissible for the Court to examine whether regard has been had to these four factors and any other relevant factor. For the 1974-75 season the price determination was fixed under the following orders: 1. Price Determination Order No. GSR 670 (E)/Ess. Com/Sugar dated 28.11.74. 2. Price Determination Order No. GSR 403 (E)/Ess/Sugar dated 11.7.75. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in respect of the zones of Uttar Pradesh, North Bihar, Maharashtra, Goa, Karnataka, Andhra Pradesh and Tamil Nadu. 69. Since these aspects have been borne in mind we are unable to hold that the notional figures had been adopted. For 1975-76 season there are three notifications: 1. Levy Sugar Price notified vide the Government of India Gazette Notification No. GSR-571/(E)/Ess.Com/Sugar dated 29.11.75. 2. Levy Sugar Price notified vide the Government of India Gazette Notification No. GSR-67/E/Ess.Com/Sugar dated 9.2.76. 3. Levy Sugar Price notified vide the Government of India Gazette Notification No. GSR-748/(E)/Ess./Com/Sugar dated 3.8.76. 70. Pending the finalisation of the levy sugar prices for 1975-76 sugar season, for which a detailed exercise involving estimates of the availability of cane, sugar production, duration of the crushing season, recovery, percentage etc. had to be undertaken by the Government, the prices applicable for 1974-75 season w.e.f. 12.7.75 were refortified for 1975-76 sugar season, as an interim measure. This was done in view of the overriding need to release sugar stocks out of 1975-76 production for meeting requirements of the public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other alternative but to repeat 1975-76 prices for 1976-77 sugar season. 1977-78 Season: For the abovesaid season there are two orders: (1) Price Determination Order No. GSR767(E)/Ess.Com/Sugar dated 22.12.77. (2) Price Determination Order No. GSR355(E)/Ess.Com/Sugar dated 1.3.78. 74. At the beginning of season the Government repeated the prices for 1976-77 season on 22.12.77, which was an interim only. Many factors such as estimates of quantity of sugarcane crushable by sugar factories, anticipated recovery and duration, estimates of sugar production had to be called for from the factories for assessing likely working conditions that would prevail in 1977-78 season to enable determination of the levy sugar prices. This was likely to take quite some time. Since the old price had been continuing for long time, with the available records the Government estimated all-India average ex-factory price and this was found to be ₹ 18.03 more than the average all-India levy sugar prices, as was announced on 22.1.77. Thus increase was uniformly added to prices of all the zones earlier notified on 22.12.77 and the new prices that were thus arrived at, were notified on 1.3.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cane growers as additional cane prices. Thus, the farmers get profits in the form of additional cane price and this fluctuates widely from factory to factory. In view of this it can be categorically stated that actual cane prices are not available in Maharashtra, particularly for cooperative as it is of a profit sharing nature (excess over the initial ex-field advance). 78. Therefore, it is not correct on the part of the appellants to contend that notional prices were taken into consideration without regard to the actualities. Even otherwise, as stated above, if regard has been had to this factor that would be sufficient in law. We may add that this Court cannot determine the price by redoing that exercise. 79. With this, we move to the next contention. Mr. Nariman, learned Counsel urges that whatever might have been the position when Panipat case decided, namely, before 1.10.74, after that date regard must be had to Clause 5A of the Sugarcane Control Order, 1966 After incorporation of the said clause the government could not, in law, proceed to determine the levy price by mopping off 100 per cent of the excess realisation on sale of free sugar. In the Notifications issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: Clause 5A of the Sugarcane (Control) Order, 1966 provides for payment additional cane price only in case of surplus, arising, if any, from sales of both levy and free sugar after adjustment of the unit cost of production ('L' factor in the formula specified in the Second Schedule of the order). The surplus may or may not arise in the cases of all sugar factories or during all season. It is by no means a mandatory payment like minimum bonus. It is also wrong to suppose that only surplus from realisations of free sale sugar are to be taken into account under Clause 5A. The 'A' factor figuring in the formula refers to the sales value of the entire production and not merely that of the free sale quantities of production. The recommendations of the Bhargava Commission was made specifically with'a view to ensure that a part of the surplus is passed on to the cane growers. The sugar factories would in any case retain the entire surplus for a statutory provision like Clause 5 A. The determination of surplus is done after taking into account the sales value of entire sugar production and not confined to free sale production as per the formula in the Secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not to only levy sugar as such or to levy sugar. In dealing with extra realisation from free market sales Bhargava Commission observed as follows: 2.14 The primary objective of the scheme is to provide incentives to cane growers to enter into agreements with factories for supply of cane and to fulfil their contracts. The scheme envisages various incentives including provision of credit facilities and supply of inputs by factories and cane growers' societies. However, the most important incentive is payment of an additional price to those cane growers who enter into agreement for supply of cane and fulfil them. It is proposed to find money for payment of the additional price out of extra sales realisations of sugar factories. In years of de-control or partial control ordinarily factories obtain prices for their sugar over and above the prices for their sugar over and above the prices to which they are entitled according to the Tariff Commission Schedules. The Scheme envisages sharing these extra sales realisations between factory and cane growers. In paragraph 2.15 the details of the scheme were given as follows: SUGARCANE SUPPLIES STABILISATION SCHEME. 2.15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice fixed under Clause 3, pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to this Order. (2) The Central Government or the State Government, as the case may be, may authorise any person or authority, as it thinks fit, or the purpose of determining the additional price payable by a producer of sugar under Sub-clause (1) and the person or authority, as the case may be, who determines the additional price, shall intimate the same in writing to the producer of sugar and the sugarcane grower connected with the supply of sugarcane to such producer of sugar. (3) (a) Any producer of sugar or sugarcane grower, who is aggrieved by any decision of the person or authority, referred to in Sub-clause (2), may, within thirty days from the date of communication of such decision under that Sub-clause appeal to the Central Government or the State Government, as the case may be: Provided that the Central Government or the State Government, as the case may be, may if it is satisfied that the appellant had sufficient cause for not preferring the appeal within the aforesaid period of thirty days, admit the appeal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in quintals of sugarcane purchased by the producer of sugar during the sugar year. 7. The amounts 'R' and 'L' referred to in items 2 and 3 shall be computed as under :- (i) the actual amount realised during the sugar year; and (ii) the estimate value of the unsold stocks of sugar held at the end of 30th September calculated in regard to free sugar stock at the average rate of sales made during the fortnight 16th to 30th September and at the notified levy prices Prices as applicable to levy stocks as on 30th September. Explanation: In this Schedule 'Sugar' means any form of sugar containing more than ninety per cent sucrose. 84. It is true that Clause 5A deals with additional price payable to the sugarcane grower. However, if the recommendations made by the Bhargava Commission and the method of computation are taken into consideration it will be clear the producer of sugar will be entitled to retain an amount equivalent to the amount paid to the cane grower under Clause 5A. That amount cannot be taken into consideration for determination of the price of levy sugar. This will be evident from paragraphs 2.17, 2.20, 2.21 and 2.39 of Chapter II of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice and the actual subsequent realisations from the stocks which remain unsold on 30th September. This difficulty has been overcome by the provisions for the difference being carried forward to the next year for adjustment in the sugar sales realisations. 2.39. After considering all these facts we have decided that the extra realisations on the sale of sugar be divided between the growers and the industry in the ratio of 50:50. A provision of this effect has been made in Clause (9) of the Scheme. It should be mentioned that after deducting the tax obligations to be borne by the industry, the actual accruals will be in the proportion of 70 to the cane growers and 30 to the industry. This share of cane growers approximates the share of the cost of cane in the cost of sugar. 85. For the regular production of sugar there must be regular supply of sugarcane. 86. On this aspect of the matter, Justice E.S. Venkataramiah (as he then was) observed in Writ Petition No. 432 etc. filed in the High Court of Karnataka as follows: It is well-known that the availability of sugarcane for manufacturing sugar depends on several factors such as the probable price which the sugarcane can f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government in determining the price of levy sugar under the 1975 order would have to be treated as faulty. No part of the extra realisation can be taken into consideration while determining the price of levy sugar. It is no doubt true that in Panipat's case the Supreme Court having regard to the law as it stood then observed that it would be open to the Central Government to take into consideration the extra realisation of a producer by the sale of levy sugar also while determining the price that has to he determined under Clause 3(3C). I am of the view that the above view of the Supreme Court stands superseded by Clause 5A of the Sugarcane (Control) Order which was introduced subsequently. It is the duty of the Court to give effect to Clause 5A of the Sugarcane (Control) Order without being influenced by any observations made by the Supreme Court earlier when a similar clause was not in force. The case put forward on behalf of the Central Government that even after the promulgation of Clause 5A it would be open to the Central Government to take into consideration the extra realisation for the purpose of determining the price of levy sugar under Clause 3(3C), would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued before the new pricing policy was introduced. We hereby direct The Union of India to amend the notifications taking into account the liability of the manufacturers under Clause 5A of the Sugarcane (Control) Order as regards cane price and refix the price of levy sugar having regard to the factors mentioned in Section 3(3C) of the Act. The Government will have time to issue the amended notifications as directed above till 31st of December, 1993. 90. Though normally we would have quashed the notifications mere quashing of the notifications would lead to nebulous situation during the interregnum till the refixation of price we are obliged to give the above direction. In this connection we may usefully quote the following passage occurring at page 294 of Judicial Remedies in Public Law by Clive Lewis: The courts now recognise that the impact on the administration is relevant in the exercise of their remedial jurisdiction. Quashing decisions may impose heavy administrative burdens on the administration, divert resources towards re-opening decision, and lead to increased and unbudgeted expenditure. Earlier cases took the robust line that the law had to be observed, and the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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