Skip to content


The South Indian Sugar Mills Association, Andhra Pradesh and ors. Vs. the Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petn. Nos. 1143, 1175, 1177, 1183, 1213, 1232, 1274, 1282, 1290, 1295, 1317, 1319, 1338, 1340,
Judge
Reported inAIR1972AP75
ActsEssential Commodities Act, 1955 - Sections 3 and 3(3-C); Essential Commodities Act, 1967; Constitution of India - Articles 14 and 245
AppellantThe South Indian Sugar Mills Association, Andhra Pradesh and ors.
RespondentThe Union of India and ors.
Appellant AdvocateAdvocate-General, ;A.V. Koteswara Rao, ;K. Srinivasa Murthy, ;M.K. Nambiar, Adv. for ;P. Balureddy, ;G. Venkatrama Sastry, ;B.K. Seshu, Advocate-General, ;G. Suryanarayana Murthy and ;A.V. Koteswara R
Respondent AdvocateAdvocate-General, Madras High Court and ;Central Government Standing Counsel
Excerpt:
constitution - fixation of price - sections 3 and 3 (3-c) of essential commodities act, 1955, essential commodities act, 1967 and articles 14 and 245 of constitution of india - petitioner challenged validity of prices mentioned in notification - contended that prices were fixed without regard to section 3 (3-c) - prices fixed under notification did not suffer from vice of not complying with requirements of section 3 (3-c) - held, prices validly fixed after complying with all required provision. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity.....obul reddi, j.1. in this batch of writ petitions, the constitutional validity of the notification issued by the central government, dated 1-3-1970, in exercise of the powers vested in it under sub-sc. (3-c) of s. 3 of the essential commodities (second amendment) act, 1967 (act 36 of 1967) (hereinafter referred to as the act) fixing the ex-factory prices of 'levy sugar' per quintal gradewise has been challenged. even if the section is held to be valid, it is the petitioners' case, the impugned notification dated 1-3-1970 is not valid, as the prices were fixed without regard to the factors mentioned in sub-section (3-c) of s. 3 and all the recommendations of the tariff commission, which the central government accepted in fixing the prices, are wholly unrelated to the cost of production and.....
Judgment:

Obul Reddi, J.

1. In this batch of writ petitions, the constitutional validity of the notification issued by the Central Government, dated 1-3-1970, in exercise of the powers vested in it under sub-sc. (3-C) of S. 3 of the Essential Commodities (Second Amendment) Act, 1967 (Act 36 of 1967) (hereinafter referred to as the Act) fixing the ex-factory prices of 'Levy sugar' per quintal gradewise has been challenged. Even if the section is held to be valid, it is the petitioners' case, the impugned notification dated 1-3-1970 is not valid, as the prices were fixed without regard to the factors mentioned in sub-section (3-C) of S. 3 and all the recommendations of the Tariff Commission, which the Central Government accepted in fixing the prices, are wholly unrelated to the cost of production and are not in conformity with the requirements of Cls. (a), (b), (c) and (d) of sub-section (3-C) of S. 3 of the Act.

2. To determine the validity or otherwise of the impugned notification fixing the ex-factory prices of sugar, it is necessary to state the gist of the averments as appear from the affidavits filled in support of the writ petitions. There are 19 sugar factories in Andhra Pradesh and they are all members of the South Indian Sugar Mills Association, the first petitioner in W. P. No. 3709, of 1970. Some of the sugar factories have been established in the co-operative sector and the rest in the private sector. It is the common case of all the sugar factories that sugar industry is an agro-based seasonal industry and the working results of the industry depend very must upon the variety of factors including climatic conditions. If the percentage of recovery of sugar from the cane is high, the cost of production will be less; but, if the recovery is low, then the manufacturing cost will be higher. The cost of production is also dependent upon the duration of the crushing season which varies from factory to factory having regarded to the availability of cane in each factory area. Neither the percentage of recovery nor the price of sugarcane nor the manufacturing cost remains constant, as they are variable, depending upon several factors.

The factories, during the years 1967-68, 1968-69, purchased sugarcane at the rates of Rs. 100/- and 110/- per metric tonne which is higher than the minimum sugarcane price fixed by the Government under the Control Order. There was further rise in the manufacturing cost of sugar by reason of the revision of the wages effected consequent on the recommendations of the Second Wage Board. The Government's while fixing the ex-factory prices, has not borne in mind that the prices fixed should secure a reasonable return on the capital employed in the business and the factors that were taken into consideration by the Government on the recommendations of the Tariff Commission are de hors the statutory requirements of Section 3 (3-C). The Central Government divided the entire country into five sugar zones in accordance with the recommendations made by the Sen Enquiry Commission, which was set up in August, 1964. The Government fixed ex-factory price to sugar for the years 1965-66 to 1968-69 on the basis of the cost schedule prepared by that Commissioner. Two of the sugar factories in Nizamabad District were included in Zone, I, comprising of Gujarat, Maharashtra, North Mysore and North Andhra Pradesh. The remaining 17 factories in the State were included in Zone II comprising of Orissa, rest of Andhra Pradesh South Mysore, Madras, Pondicherry and Kerala. The prices per quintal of sugar of Grade D-29 in Zone II it was Rs. 161-14. The price fixed for the sugar produced in 1968-69 season for the various factories in the State was on the basis of the price fixed for each of the five zones. The price fixed for the subsequent years 1969-70, 1970-71 and 1971-72 under the impugned notification is on the basis of the Tariff Commission's report, which divided the entire country into fifteen zones bringing into one zone. This division of the country into fifteen zones for fixation of sugar price is not made on any rational basis relevant to the economics of sugar production and further it resulted in fixing a higher price to States like Tamilnadu. Mysore, which were originally in Zone II, along with seventeen of the factories in the rest of Andhra Pradesh and the lower price now fixed for the factories in Andhra Pradesh has resulted in these factories being discriminated against.

3. In this batch of writ petitions, it would be sufficient if we refer to the appointment of Sugar Enquiry Commission in August, 1964, which was asked to make a comprehensive enquiry into the various aspects of sugar industry including the economics of sugar production and cost structure and the appointment of Tariff Commission in 1968, which was against asked to examine the cost structure of sugar and the preparation of new cost schedules to fix the fair prices payable to the sugar industry. The Sugar Enquiry Commission, also known as Sen Commission, as it was headed by Dr. S. R. Sen, after an elaborate enquiry, thought fit to divide the country into five zones and fix prices for each of the zones having regard to the variations in the duration of the crushing season in each area, percentage of recovery of sugar from cane, cost of cane in each area, and the cost of production. The Government introduced partial decontrol of sugar in 1967-68. Partial control was exercised on the price of sugar by fixing what is called 'levy price of sugar' for the five zones. By this partial control 70% of the sugar produced by each factory could only be sold at the price determined by the Central Government as specified in the notification for that year. There was dissatisfaction in the sugar industry over the cost schedules prepared by the Sen. Commission.

The data collected by the Commission for the year 1963-64, it was complained by the industry, had become out of date. The sugar industry asked for re-examination of the cost schedules. The Tariff Commission was, therefore, requested to go into the question of cost schedule so that the industry may have a fair return for the capital employed. Among the other points which it was asked to enquire into were whether the classification of factories into zones should remain as they were in accordance with the recommendations of the Sugar Enquiry Commission and if not, on what other considerations should the division of factories be into zones. Accordingly, the Tariff Commission made an elaborate enquiry going into every aspect of the sugar industry and made its recommendations and submitted a report. These recommendations were accepted by the Central Government resulting in increasing in number of price zones from five to fifteen in order to eliminate inter se anomalies in the cost structure. The cost schedules prepared by the Tariff Commission for fixing levy prices of sugar for three years, 1969-70, 1970-71 and 1971-72, were also accepted. As regards the reasonable return on the capital employed in the business, the Tariff Commission recommended Rs. 10.50 per quintal of sugar, which, it considered, would be fair and reasonable. This margin or return of Rs. 10.50 is to cover interest on capital, profit, taxation and the like.

4. It is the case of the petitioners that the statement and particulars given by them would show that the 'levy prices' of sugar fixed do not leave any margin, let alone a reasonable return as laid down in sub-section (3-C) of S. 3 and that, therefore, the levy prices fixed have absolutely no relation to the manufacturing cost of sugar which includes the price paid for sugarcane by the factories and also the higher wages to the factory Labour. skilled and unkilled, and managerial expenses, which have shot up.

5. Section 3 (3-C) of the Second Amendment Act. 1967 may now be noticed in order to determine whether the guidelines laid there were followed by the Central Government in fixing the 'levy prices' of sugar:---

'Where any producer is required by an order made with reference to C1. (f) of sub-section (2) to sell any kind of sugar (whether to the Central Government or a State Government or to an officer or agent of such Government or to any persons) and either no notification in respect of such sugar has been issued under sub-section (3-A) or any such notification. having been issued, has ceased to remain in force by efflux of time, then notwithstanding anything contained in sub-section (3) there shall be paid to that producer an amount therefor which shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to:------

(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; and different prices may be determined from time to time for different areas or for different factories or for different kinds of sugar.

Explanation:---- For the purposes of this sub-section. 'producer' means 'a person carrying on the business of manufacturing sugar.'

Clause (f) of sub-section (2) of S. 3 of the Act reads:

3 (2) 'Without prejudice to the generality of the powers conferred by subsection (1), an order made thereunder may provide---------- (1) for requiring any person holding in stock any essential commodity to sell the whole or a specified part of the stock to such person or class of persons and in such circumstances as may be specified in the order.'

We may also notice C1. (c) of sub-s. (3) of S. 3, which reads:--

3(3) 'Where any person, sells any essential commodity in compliance with an order made with reference to c1. (f) of sub-section (2), there shall be paid to him the price, therefore as hereinafter provided.

(a) xx xx xx

(b) xx xx xx

(c) where neither C1. (2) (a) nor C1. (b) applies, the price calculated at the market rate prevailing in the locality at the date of dale.

6. The arguments of the advocate-General and M. M. K. Nambiar, Mr. Venkatarama Sastry, Mr. Srinivasamurthy and Mr. Koteswara Rao, appearing for the petitioners may be summarised thus: Section 3 (3-C) introduced by Act No. 36 of 1967, is not constitutionally valid. Even assuming that it is a valid provisions. the impugned notification dated 1-3-1970 fixing the ex-factory levy prices of sugar is not only for 1969-70. but for the following two years, 1970-71 and 1971-72, also is invalid, as the prices were not determined in compliance with the conditions laid down in that section. Section 3 (3-C) does not empower the Government to purchase 'levy sugar' at a price lower than the cost of production. The cost of production varies from factory to factory and each factory must be assured of a reasonable return, which C. (d) of Section 3 (3-C) provides. Fixation of a price on an average or group basis is incompatible with what is laid down in Section 3 (3-C). The price of sugar was fixed before sugar was produced and not with reference to the cost of production of each factory, thus ignoring the manufacturing cost. The prices fixed for future on the basis of weighted average taken by the Tariff Commission can have no relation to the actual manufacturing cost in each year. Levy prices fixed for Madras and Mysore States are higher though the costs of production in those States was found to be lower and percentage of recovery of sugar from cane was higher than in Andhra Pradesh. The Second Wage Board's recommendations, which came into force on 1-11-1969, were not available when the Tariff Commission not available when the Tariff Commission estimated the cost of production and, therefore, the levy prices fixed are in disregard of the factors specified in Section 3 (3-C).

7. The scheme of the Essential Commodities Act is this:

The Act has been enacted in the interests of the general public, for the control of the production, supply and distribution of, and trade and commerce in, certain commodities. Sugar is one of the essential commodities. If the Central Government considers it necessary or expedient for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, it may, by order, provide for regulating or prohibiting the production, supply and distribution of an essential commodity. Clause (f) of subsection (2) of S. 3 empowers the Central Government to require any person holding in stock any essential commodity to sell the whole of it or a specified part of it to such person or class of persons and in such circumstances as may be specified in its order. A person, who sells the commodity, either will be paid a price mutually agreed upon or a price consistent with the control price or where there is neither a control price nor an agreed rate, at the prevailing market rate in the locality at the date of sale. It is to effectuate the policy of the Act that powers have been vested in the Central Government. Therefore, the validity of Section 3 (3-C) cannot be challenged on the ground that it suffers from the vice of excessive delegation.

All that has now to be considered is whether the impugned order is issued by the Government in accordance with the requirements of Section 3 (3-C). The power of the Government to fix the price for sugar is not in dispute; but what is in dispute is that the price so fixed by the impugned notification does not provide for a reasonable return and is, therefore, in violation of the guidelines, Section 3 (3-C) is sought to be construed by the learned Advocate-General and Mr. M. K. Nambiar in this manner.

This section lays down that the price paid to the producer shall be calculated with reference to what is stated in Cls. (a), (b), (c) and (d). It is the manufacturing cost of production of sugar of each producer that the scheme of the provision is that the contention of the learned counsel that the scheme of the provision is that the price payable shall be fixed so as to provide for a reasonable return to the producer on the amount extended in the business of producing sugar. If it bears out from the material placed before us that the price fixed provides a reasonable return, as that is mandatory, then no grievance can be made by the producers of the prices now fixed,.

The construction sought to be placed by the learned Advocate-General as also by Mr. Nambiar overlooks the fact that that part of the section which reads 'there shall be paid to that producer' has to be read n conjunction with the last limb of the section which reads 'and different prices may be determined from time to time for different areas or for different factories or for different kinds of sugar. The essence or the pith and substance of the provision is that the price fixed should be such as would ensure a reasonable return to the producer on the capital employed in producing sugar. All that the producer is entitled to ask for is payment of a price which assures him of a reasonable profit. So long as the price paid ultimately secures him a reasonable return, the fact that the country is divided into fifteen different areas or zones cannot be made a matter of complaint. the main theme of Sec. 3 (3-C) being that the price paid to the producer shall be inclusive of a reasonable profit. We are, therefore, not inclined to agree with the learned Counsel for the petitioners that the section insists upon fixation of price for each factory and that it is not permissible to fix the price on a zonal basis or before the actual cost of production is ascertained.

8. This leads us to the enquiry whether the levy prices fixed under the impugned notifications for different kinds of sugar is in accordance with the conditions laid down in Cls. (a), (b), (c) and (d). The main attack is that the price now fixed absolutely no relation at all no realities viz., the actual price paid by each factory for purchasing sugarcane, the percentage of recovery of sugar and the manufacturing cost of sugar of each of the factories. According to the learned Counsel, the prices recommended by the Tariff Commission, which were accepted by the Central Government were not formulated having regard to their requirements of Section 3 (3-C). as there is nothing to show from the report of the Tariff Commission that, while fixing the ex-factory prices of sugar, it took into consideration the factors relevant under sub-section (3-C) of S. 3. It is not necessary that the notification should disclose that, in fixing the prices, the Central Government had taken into consideration the factors referred to in S. 3 (3-C). If the price determined secures a reasonable return, then it will follow that there is compliance with all the requirements of Section 3 (3-C). The purpose of entrusting the task of examining the cost structure of the sugar industry to the tariff Commission was to fix a fair price so that the producer may have a reasonal return. It is because of the representations made by the industry that the cost schedules arrived at by the Sen Commission were not based on actuals, that the Central Government requested the Tariff Commission to re-examine the whole cost structure. So, now to contend that the Tariff Commissioner's cost schedules are not based on realities is to forget that the cost schedules prepared by it were on the basis of the accounts furnished by the representative factories, 67 in number in the country inclusive of 7 in this State and the memoranda or replies submitted by each of the factories that cared to reply or submit memoranda.

9. We may now consider whether the Tariff Commission had regard to the price paid by the factories for sugarcane. The Central Government fixed the minimum price for sugarcane for each area. The area under sugarcane cultivation in all the important States was arrived at. as may be seen from Table 3. 3 of the Report. The Commission gathered statistics relating to the cropped area and area under sugarcane in the States. It also noticed that improved varieties of sugarcane mostly developed by the Research States. The average yield of sugarcane from different regions was also noticed by it. The tropical regions continue to register yields from about 65 tones to 96 tonnes per hectare. The yield in Maharashtra was 84 tonnes per hectare was of the highest, being 91-2 tonnes per hectare, though it had gone down subsequently. The yield of sugarcane in each area depended to a large extent, on the facilities for irrigation, the proper care and management of the crop. The minimum price of sugarcane was fixed having regard to the yield, the cost of the cultivation and the profit margin for the cultivator, for the cane grower too has to be assured a reasonable return on his investment, as otherwise, he may switch over to other commercial or other crops more profitable to him.

10. The Advocate-General invited our attention to the telegrams sent by the Special Officer i.e., the Registrar by Co-operative Societies to one of the petitioners Etikoppaka Co-operative Agricultural and Industrial Society Ltd. which reads: 'State Government fixed cane price 1968-69 Season Rs. 100/- Per metric tonne.' He also invited our attention to a letter dated 20-3-1969 of the Ministry of Food, Agriculture, Community Development and Co-operation, addressed to all working sugar factories in India. This letter quotes the statement of the Minister for Food and Agriculture on the floor of the Parliament, where he agreed with the members of the House that nowhere should be cane price be paid less than Rs. 10 per quintal. He also assured the industry that it was never the intention of the Government to destroy the industry. It is to be found at a later stage that the prevailing market price of sugar, is such that the sugar factories are likely to lose heavily, certainly it will be open at that stage to find out some method by which the sugar industry can be saved.

11. By referring to the telegram and letter, the learned Advocate-General sought to establish that, when the petitioners had purchased sugarcane at a rate higher than the minimum price during the season 1968-69 and subsequently thereafter. it necessarily meant that the manufacturing cost of sugar had gone up and when the Commission had taken into consideration only the minimum price and not the actual price, it cannot be said that the fixation of the price of sugar is made having regard to the factors specified in Cls. (a) and (b).

12. That the factories purchased sugarcane at a rate higher than the minimum price is not accepted by the respondents. The Advocate General of Madras appearing for the respondents contended that no balance-sheets of any of the petitioner-sugar mills have been filed to show that they sustained losses and that, in the absence of balance-sheets, no weight should be attached to the statements, filed by them showing the costs of production; in other words, the learned Advocate-General of Madras wants us to ignore the statements completely as has been done by the Supreme Court in the case of D. S. & G. Mills, v. Union of India, : AIR1959SC626 . In that case too, the petitioners had filed along with their affidavits, a schedule giving the cost of production and according to them, the cost of production was much higher than the price fixed by the Government. The schedule filed by the petitioners were not admitted by the Government and, therefore, their Lordships had no reason to accept the ipse dixit of the contending petitioners as to the cost of production.

It is sought to be answered by the Advocate-General, Andhra Pradesh, appearing for the petitioners that there is no reason to discredit the figures supplied by the mills in the Co-operative sector which are being managed by officers appointed by the Government. The question is not whether the mills are in the co-operative sector or private sector, but how far can those figures be accepted. If the Commission's report bears out that, in recommending the fixation of sugar price, it had also borne in mind the fluctuations in the cane price, the additional payment, if any, made will not in any way affect the reasonableness, of the price fixed by the Government. The Tariff Commission issued questionnaire to all the producers in the country and also to the Producers' Association, Cane Growers' Association, Merchant's Association, Sugar Consumer's Association. Finance Corporations, Government Departments, Sugar Technologists' Association and others. In Andhra Pradesh, the questionnaire was sent to all the Sugar factories. Excepting for three producers, the rest of the producers had sent their memoranda or replies.

13. The Commission also selected for purposes of studying the cost of production seven factories in this State --- two in the co-operative sector and five in the private sector. The price fixation was made, as may be seen from Chap. 9 of the Commission's Report, after careful and analytical study of the working of the units and the cost involved in the manufacture of sugar. The factory at Amudalavalasa, one of the petitioners, 'presented abnormalities' and since its balance-sheet was also not available to the Commission, it did not take into consideration the statement presented to the Commission by it for preparation of cost schedules. The cost schedules were prepared having regard to the price paid for sugarcane and the working capacity of each factory, actual quantity of cane crushed, duration of the season, and the recovery of the yield from the cane. The information furnished by the various factories to the Commission showed that the allocation of cost under various heads was not correctly made by them. The Cost Accounts Officers of the Tariff Commission made a detailed scrutiny of the accounts in the selected units and worked out a the costs in a fair and equitable manner to enable the Commissioner to determine appropriate costs for each unit on a uniform basis for the preparation of cost schedule.

The average cost of production in each State was taken into account. The total factory costs included the actual price paid for sugarcane, which was more often in excess of the price fixed by the Government, harvesting charges wherever incurred, transport, handling and development expenses, cess, purchase tax and factory conversion charges, which include salaries, wages, power, fuel and stores, repairs and maintenance, depreciation, packing and other overheads, after adjusting for credits. IN paragraph 3.28 at Page 30 of the Report dealing with sugarcane prices, the Commission, after referring to the minimum sugarcane prices fixed by the Government, referred to the fact that in Uttar Pradesh and in many other parts of the country, the prices of sugarcane were around Rs. 10/- per quintal despite the fact that the minimum price fixed by the Government continued to be Rs. 7.37 . Therefore, it cannot be said that the Commission had not taken into consideration the actual price paid by the industry for purchasing the sugarcane. It is in order to provide incentive to produce more that the partial decontrol of sugar was effected by the Government in August, 1967. By this partial decontrol, the Government acquired from sugar factories at the fixed levy price 60 per cent. of their production and the remaining 40 per cent, was allowed to be sold by the producer in open market for which no price was fixed.

Eve for the year 1968-69 the same basis was adopted for fixing the levy price on the recommendations of the Sen Commission. The same basis, as was adopted for that year, was also adopted for the subsequent years. If the weighted average or the average of five years was adopted for fixing the price in 1969-70, it is for the reason that there are variation from State to State and season to season in the price of sugarcane, recovery of sugar from cane and duration of working of each factory. In the words of the commission at page 76 its report:

'Yet having regard to the State-to-State variations and season-to-season fluctuations, we consider that it would be more realistic to recast these schedules for price fixation purposes, taking actual five years' average recovery and duration of a region as their base. We have adopted this basis for our working.' It was sought to be contended that, in working out the cost of production, the increased wages and salaries fixed by the Second Wage Board were not taken into account. The Commission could not have possible taken into account the salaries and wages as fixed by the Second Wage Board. But we do find at pages 76 and 80 of the Report that it did take into consideration the salaries and wages including the dearness allowance. The Commissions pointed out (at page 80 of the Report)';

'For each unit in the index figure the dearness allowance has to be varied by 55 paise per worker per month for those drawing upto Rs. 100/- per month and 65 paise for those paid above this level. In 1966-67, the dearness allowance payments were made on an index figure of 174 (average of the monthly indices for 12 months ending June 1966). This index has Been brought to the current level which is 214 (average of the indices ending June 1969). The variation is thus 40 points. The impact of dearness allowance variations in bringing the costs to the current level worked out to 15.6 per cent., 17.5 per cent., 15.6 per cent., and 15.1 per cent, on the total wages for North. Central, South and Western regions respectively. The scale of retirement of personnel in the different units have been suitably adjusted in computing the additional cost under this item'. It is obvious that the Commission took into account the wage structure upto June 1969. bearing in mind the possible rise in the payment of wages. What has to be taken into account is the overall manufacturing cost of sugar of each unit and not the expenditure incurred under each of several heads that go to make up the total cost of production of sugar. If the price has been fixed having regard to the total manufacturing cost of sugar, then it cannot be said by reason of not taking into account the additional expenditure incurred as a consequence of the Second Wage Board's recommendations, there is any disregard of the requirements of C1. (b) of S. 3 (3-C) . The Commission has not only computed the conversion charges, but also estimated the future conversion charges for the next three years i.e. 1969-70 , 1970-71 and 1971-72. Depreciation was also taken into account as may be seen from its report at page 85:--- 'We have decided in favour of continuing the existing method of computing the quantum of depreciation on the basis of zonal averages of the cost units. The figure so adopted would automatically undergo an upward revision if and when the revision contemplated by the draft rules are brought into effect.'

While providing for depreciation, the Commission had in its mind that the factories required modernisation and replacement of won out plant and machinery.

14. The industry no doubt asked for profit in the order of 19.9 per cent. on the capital invested on the ground that it enabled them to get a net return of 10 per cent, after payment of taxes. After careful analysis of actual cost, the Commission came to the conclusion that Rs. 10.59 per quintal would be a fair return of profit and accordingly it made the recommendation.

15. Another contention put forth by Mr. Srinivasamurthy was that the levy price of sugar fixed for Tamil Nadu and Mysore is higher than the price fixed Andhra Pradesh, though the cost of production is less and recovery is higher there and that this has resulted in Andhra factories being discriminated against. it may be seen from the report of the Commission that there is not much difference or variation in the average yield of sugar between Tamil Nadu and Andhra Pradesh. It is not only the percentage of recovery from the cane that should be taken into consideration for fixing the sugar price, but also the duration of the season as also the wages and salaries and other overhead charges, in other words, the overall picture of the cost of production.

16. It is permissible under Section 3 (3-C) to divide the country, for purposes of fixation of price, into several zones or areas provided the price is determined having regard to the factors mentioned in Cls. (a), (b), (c) and (d) and the Central Government refrains from clear and hostile discrimination. The division into fifteen zones cannot be assailed, as is sought to be done, on the ground that it is made on linguistic basis, for Orissa, Assam, Kerala and Bengal are all put in one zones and in fact. Uttar Pradesh is divided into three zones and Bihar into two zones. The division into fifteen zones is made for purposes of homogeneity, as division into five large zones had given rise not only to complaints, but also anomalies arising out of the existence of wide disparities in the cost of production, recovery of sugar from cane and cane price. So long as the classification on zonal basis is validly made the fact that, in another area, the price fixed for levy sugar is a little higher, cannot be mad the basis of attack on the ground of discrimination. Grouping or classification of factories are wise or zonewise for purposes of fixation of sugar price is made for achieving the objects of Section 3 of the Act viz. for maintaining supplies of sugar making it available to the consumer at a fair price. All that Art. 14 forbids is class legislation and not reasonable classification or grouping. The division into fifteen areas is made on adequate and rational grounds.

17. What all Section 3 (3-C) contemplates is a reasonable return on the investment and the return shown by the Tariff Commission to the factories is Rs. 10.50 per quintal of sugar. There is bound to be some variation in the price of sugar between one area or zone and another, for the price of sugar is fixed having regard to the cost of production in each area including the recovery and duration of the season. The fact that a particular sugar factory in a particular zone purchased cane at a higher rate than the minimum price fixed by the Government is no ground for holding that a reasonable return, which Sec. 3 (3-C) insists upon, has not been provided in fixing the price.

18. We are also unable to agree with the learned Counsel that the working cost of each season should have been taken into consideration and then only the price fixed. Reasonable return to the producer is linked up with the cost of production. So long as the price fixed provides a reasonable return, it cannot be complained that the price fixed is not on the basis of the manufacturing cost of each factory for the current season.

19. In : AIR1959SC626 also, the Sugar Control Order fixing the ex-factory price per maund of sugar was challenged. That was also a case where price was fixed not on the basis of the actual cost of production of that particular year. but on the basis of the previous years' cost of production. Clause 5 of that impugned order before their Lordships also provided for certain factors to be taken into account while fixing the price, the factors being: (1) price or minimum price fixed for sugarcane: (2) manufacturing cost; (3) taxes: (4) reasonable margin of profit for producer and/or trade; and (5) any incidental charges. The same factors are again to be found in the present Section 3 (3-C) and so long as those factors were borne in mind and price was fixed having regard to those factors, there could be no complaint. The entire enquiry of the Commission was directed only to arrive at the cost of production with a view to provide a fair return and, therefore, it is futile to contend that its recommendations were not in accordance with the objects of Section 3 (3-C). Wanchoo, J. (as he then was), speaking for the Court, in the case cited supra, repelled the contention that the order gave the Government uncontrolled. unguided and unfettered power to fix prices arbitrarily.

So far as the factories of the petitioners are concerned, apart from showing a reasonable return of Rs. 10.50 per quintal of sugar, the producer is permitted to sell 40 per cent of the sugar produced in the open market for which no price has been fixed. So, when a producer speaks of a reasonable return, not only the return that it is provided by the Government white fixing the levy price, but also the possible return that he would get by sale of sugar in open market should be taken into account. In fact, the statement filed by one of the petitioners. the Palakol Co-operative Agricultural and Industrial Society Ltd., Palakol, for the year 1968-69 showing monthwise sale of sugar in the free market and levy sugar from out of the sugar production for 1968-69 disclosed that the profit on sale of sugar in open market was Rupees 49-47 P. per quintal. The balance sheets of the petitioners' factories have not been placed before us to know if really, as a result of the fixation of ex-factory price for levy sugar, they have sustained any loss. Therefore, it is not a case where, as sought to be made by Mr. Nambiar, a producer is being asked to sell at a price much lower than what it costs him. We are, therefore, satisfied that the prices fixed under the impugned notification secure a reasonable return to each producer on the capital employed by him in the business of manufacturing sugar.

20. The decision of the Allahabad High Court in Special Appeals (Unreported) Nos. 255 and 301 of 1969, D/- 2-12-1970 (Pat), preferred against the decision of a learned single Judge in W. P. No. 3275 of 1967 D./- 30-1-1969 and the decision in Civil Misc. (unreported) Writ No. 3718 of 1970, D/- 25-1-1971 (Pat) relied upon by the Counsel for the petitioners were based on the facts of those cases, where the petitioners were able to show that the prices fixed by the Government were below the cost of production. It would appear, it is for that reason that the learned Judges were of the view that the prices were not fixed having regard to the factors specified in Section 3 (3-C).

21. We must, therefore, hold that the learned Counsel appearing for the petitioners is unable to persuade us that the prices fixed under the impugned notifications suffer from the vice of not complying with the requirements of Section 3 (3-C) or offend any of the constitutional guarantees given to citizens in Part III of the Constitution.

22. The Advocate-General sought to contend that the cost of production cannot remain static for 1970-71 and 1971-72, and, therefore, the price fixed for those two years cannot be sustained. It is always open to the South Indian Sugar Mills Association, Andhra Pradesh, or to individual producers to make representations to the Central Government that the prices fixed under the impugned notifications have no relation to the cost of production for 1970-71 and that the data collected by the Tariff Commission has become out-dated. It is not as if the price fixed under the notifications holds good for ever, as the Central Government would be at liberty to revise the price having regard to the factors mentioned in Section 3 (3-C). If it is found that there has been a downward trend in the cost of production, then it will be open to the Central Government to reduce the price of sugar; but, on the other hand, if it is to be found that there has been an appreciable increase in the cost of production, to correspondingly increases the price of sugar.

23. We are, therefore, unable to find any merits in these writ Petitions and they are accordingly dismissed with costs. Advocate's fee Rs. 100/- in each.

Order accordingly.

***


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //