1. The petitioners in this case, the Ishwari Khetan Sugar Mills, Private Limited, carry on tbusiness of manufacture and sale of sugar. They have applied under Article 226 of the Constitution for a writ or order for quashing the directions issued by the Directorate of Sugar, Ministry of Food, Government of India, requiring them to deliver their stocks of reprocessed sugar in the year 1967-68 at the rates fixed by the Central Government for delivery of sugar produced in the season 1966-67 and for prohibiting the respondents from compelling them to reprocess the 3,000 bags of damaged sugar lying with them and to permit the same being sold in free market. The petition was admitted to be heard by a Division Bench but in view of the important question involved, it was referred to a Full Bench for decision and that is how the case is now before us.
2. The occasion for filing this petition arose because of an accidental fire that took place on May 30, 1967, during the sugar season of the year 1966-67 in the petitioner's godown No. 3 involving 14,659 bags of manufactured sugar, out of whih 1,144 bags were completely lost and the remaining 13,515 were damaged either by fire or fire-fighting operations. As sugar at that time was a controlled commodity and could not be sold without permit the petitioners approached the appropriate authorities in the Sugar Directorate with a request to issue permits to release the damaged stocks for salein the market. This request was, however, refused by the Directorate because the damaged sugar did not conform to the prescribed Indian Sugar Standard (ISS) of D-29 Grade of Sugar, which alone could be released for human consumption. They advised the petitioners to reprocess it and to intimate the quantity of white sugar obtained after reprocessing, duly certified by Central Excise Inspector oftheir factory, to enable the Directorate to consider its release. The petitioners, in consequence, started reprocessing but by the end of 1966-67 season, out of the damaged 13,515 bags, they could with difficulty and after incurring heavy costs reprocess 10,515 bags only 3,000 bags still remained with them in the unprocessed form.
3. In January, 1968, the Government by letter No 4-2-(13)/66-SCII January 20, 1968 (Annexure B) informed the petitioners that the reprocessed sugar would be treated as 'levy sugar' and reiterated that it was not possible to release the damaged sugar for sale in free market. The words 'Levy sugar' represented the 60 per cent of total production of sugar of the year 1967-68, which, under a revised policy for this season, the Government had decided to take over to be released under permits issued by them at controlled prices. By another letter dated January 30, 1968 (Annexure C) the petitioners were further informed that the reprocessed sugar had to be delivered by them at rates applicable for deliveries of sugar produced in 1966-67, as fixed by the Central Government by order dated November 16, 1967, issued by them in exercise of powers conferred by sub-section (3-C) of Section 3 of the Essential Commodities Act, 1955. This order fixed the ex-factory price of sugar at Rs. 139.07 p. per quintal for the sugar produced in 1966-67.
4. Before the letter dated Jabuary 30, 1968 (Annexure C) was issued, the Government had already fixed the price at which sugar produced in 1967-68 was to be released at Rs. 158.00 per quintal by Notification dated December 8, 1967 (Annexure M). By letter dated February 20, 1968 (Annexure E), the petitioners were directed to deliver 9 quintals out of the reprocessed sugar against gate sale release orders issued by the directorate at the price fixed for the sugar produced in 1966-67. The petitioners protested that this direction was wholly unjust and illegal. They maintained that having regard to the heavy costs incurred by them in the reprocessing of this sugar and the fact that the sugar was actually reprocessed and so produced in the year 1967-68,it was neither just nor legal to ask them to deliver it at the price fixed for the sugar produced in 1966-67, or to treat it as the production of that year. The Managing Director of the petitioner-company also met the Joint Secretary, Ministry of Food, personally who the petitioners say, gave them an impression that Government would determine a different price for this reprocessed sugar after taking into account all the relevant factors including the cost of reprocessing and the cost of sugar lost in this reprocessing.
Later, by their letter dated March 13, 1968 (Annexure E-2) the Directorate amended their letter of February 20, 1968 (Annexure E) to the extent that the nine quintals of sugar, referred therein, were allowed to be delivered from the fresh stocks of sugar produced in 1967-68 and also at the prices fixed for this year as against the previous directions to deliver it out of the reprocessed sugar and at the price fixed for 1966-67 and then by their letter dated April 19, 1968, also asked the petitioners to furnish them all details regarding the reprocessing including information as to the extra material, fuel, etc., used in the reprocessing, but did not thereafter determine any fresh rates at which this sugar was to be released. On the contrary, in exercise of powers conferred by clause (5) of Sugar (Control) Order, 1966, read with its clause 17(2), the Central Government amended a previous notification dated March 19, 1968, to specially meet the petitioner's objections, and by order dated May 20, 1961, added an Explanationn to sub-clause (iv) to clause (c) of that Notification that the damaged or defective sugar or Rori brown sugar of any previous season shallbe marked as the production of the season in which it was originally produced. This necessarily meant that the reprocessed sugar in this case had to be treated as the sugar produced in 1966-67.
Thus, in spite of representations and requests, the petitionerss maintain that the respondents have acted wrongfully and illegally in insisting to treat the reprocessed sugar as the sugar produced in 1966-67 and in refuding to determine the price at which it should be released for sale. In regard to sugar of the 3,000 bags, still lying with them in the unprocessed form they contend that the respondents have no power in law to compel them to reprocess it and they are entitled to sell the same in the free market.
5. In the affidavit, filed in opposition, the respondents have denied all the allegations of the petitioners. They maintain that the reprocessed sugar was, in fact, the prodcution of 1966-67and could not be treated as that of 1967-68 to be released at the rates for this year, nor could any special price be determined for this sugar. They further maintin that sugar tobe released for humand consumption had to conform to specified Indian Sugar Standards and the damaged sugar which was below this standard was not eligible for release.
6. In the rejoinder the contentions raised in the petition are reiterated and the plea that the petitioners are entitled in law to sell the 3,000 bags of unprocessed sugar in the market, without being reprocessed, is reaffirmed. It is also urged that the respondents have, in similar circumstances, been permitting release of damaged sugar. The case of Shankar Sungar Mills, Limited, where a similar fire had taken place, is cited as an instance. There, it is stated, the respondents released the damages sugar for sale in the market.
7. The respondents filed a reply to the rejoinder reaffirming the position taken in the counter-affidavit. In regard to release of damaged sugar, in the case of Shankar Sugar Mills, it was stated that this was a very old case relating to the season 1952-53, that the relevant papes relating to this case were not traceable and the respondents were, therefoer, unable to say if the damaged sugar was released in that case and, if so, under what circumstances.
8. The matter has been urged at length before us. The contentions raised by the leearned counsel for the petitioners are-
(1) That the reprocessed sugar should be considered by the respondents to be the sugar produced in 1067-68, and they were not justified in asking the petitioners to sell it at the price determined for the release of sugar produced in 1966-67.
(2) That, in the alternative, the Central Government, in the circumstances of this case, should determine afresh the price at which the reprocessed sugar should be released.
(3) That the respondents have no power in law to compel the petitioners to reprocess the 3,000 bags of the damaged unprocessed sugar still lying with them, which they are entitled to sell in the free market.
9. The argument of the petitioners is that the reprocessing of the sugar was not a mere sifting or separating of good sugar from bad, but it was a process of manufacture itself. The damaged sugar was melted, fresh syrup from newly crushed sugar-cane was added to it and the mixture so produced was then refined by almost the same process that was used for the manufacture of fresh sugar and the resultant reprocessed sugar, so obtained which conformed to the prescribed Indian Sugar Standard D-29 grade, fit for human consumption, was wholly different from the unprocessed damaged sugar, which served only as a raw material for its manufacture. In this process, they further contend that 5,031.7 quintals of the damaged sugar were completely lost, and out of the total quantity contained in 10,515 bags, only 5483.3 quintals of sugar could be recovered and that this whole thing resulted in the a net loss of Rs. 15,65,486/-, out of which the insurance company paid Rs. 3,55,422/- only and adding to this amount a sum of Rs. 12029/- on account of interest on the compensation received from the insurance company they still suffered a net loss of Rs. 11,97,135.33 p. They, thereforee, contend that the reprocessed sugar should have been considered to be a fresh production or manufacture and the respondents should not have treated it to be the sugar produced or manufactured in the year 1966-67 and should have allowed it to be sold at the rates determined for the sugar produced in the year 1967-68 and that, in any case, the Central Government should have detemined afresh the price at which it was to be released under sub-section (3C) of the Essential Commodities Act, 1955, as amended by Parliament by Act 36 of 1967.
10. The pleas, prima facie, appear to be plausible, but it is difficult to sustain the arguments raised when examined in the background of the relevant statutory provisions and the powers conferred by Section 3 of the Essential Commodities Act on the Central Government to regulate the production and supply of sugar for the purpose of securing its equitable distribution and availability at fair price. The purpose of this provision is to maintain the supplies of essential commodities and regulate their distribution in public interest and the object of fixation of price is to make available these supplies at fair price to the general public. It is admitted by the petitioners that sugar isan essential commodity. As such, its production and distribution can validly be regulated by the Central Government in exercise of these powers. The industry producing sugar is essentially a seasonal industry and almost the entire marketable sugar is produced by the factories manufacturing it during a particular part of the year and for the remainder of the year they remain closed. The supplies in public interest, however, have to be maintained throughout the year at fair price.
To achieve this purpose, the method adopted by the Central Government is to assess the total production of the year by all the factories and to fix a fair price after taking into account all the relevant factors, as provided by law, at which this production should be released to the trade. The stocks are then released from time to time by periodical orders to obtain equitable distribution and to avoid artificial shortages that may otherwise be created by vested interests. The release of the stocks as well as fixation of its prices are both made with reference to the seasonal cost of the production of the year. This method for achieving the purpose of the Act is perfectly legal and stricly within the powers conferred by Section 3 of the Essential Commodities Act on the Central Government. No challenge has, in fact, been laid by the petitioner in this regard. That being the position, the impugned directions requiring the petitioners to release the reprocessed sugar as the sugar produced in 1966-67 at the rates fixed for this year are perfectly legal and justified and no fault can be found with them.
11. The question, however, that calls for determination is whether, in the circumstances of this case, this reprocessed sugar can be considered to be the stocks produced in 1966-67 to justify its release as the sugar produced in that year at the rates fixed for that year. It is conceded by the petitioners that they had produced the sugar that got damaged as a result of fire in the year 1966-67. It is further in the affidavit of the respondents and not denied by the petitioners that they had also included this stock in the figures of production of that year in the statement submitted by them to the Central Government. Under these circumstances, if as a resultof the accident in the petitioner's own godown, before the stock could be released for sale, it became substandard and not marketable, and had, thereforee, to be reprocessed and was reprocessed to restore it to its original condition and to make it again the D-29 grade sugar, fit for human consumption, as it was when produced, it would harldy be proper to say that it is a fresh production. The intervening fire was simply a hazard of the tradeand not a part of the normal process for manufactue of sugar. The reprocessing had to be resorted to only to remove the defects that were caused by the accident and not to manufacture the sugar that was being refined toremove the impurities. The stocks remained to be the stocks produced in 1966-67 and declared to be so by the petitioners themselves.
12. Relying on the observations of Das Gupta, J., speaking for the Court in Union of India v. Delhi Cloth and General Mills Co., Ltd., : 1973ECR56(SC) , the learned counsel contended that the reprocessing of sugar by the petitioners was in fact a fresh manufactue as held in this case, because by this reprocessing they had brought into existence a new substance. The observations in para 14 of this judgment, on which reliance is placed, were made in a wholly different background. The question before the Court in that case was as to the legality of imposition of excise duty to what the taxing authorities called the manufacture of refined oil from raw oil. This will have no application in the facts of the present case. Here what we have to see is whether in the scheme adopted by the respondents to work Section 3 of the Essential Commodities Act, the reprocessed sugar for the purposes of distribution could be called to be the sugar produced in 1966-67. This, obviously, cannot be done in this csae for the reasons, which have already been set out.
13. Placing reliance on sub-section (3-C) added by the Parliament Act of 36 of 1967, the learned counsel urged that the Central Government should have determined afresh the price of this reprocessed sugar. After sub-section (3B) of Section 3 of the Principal Act, this sub-section was added by the amending Act in the following terms:-
'(3-C). Where any producer is required by an order made with reference to claue (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 other person or class of person) 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 thereforee 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 sugar-cane or 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.
Explanationn:- For the purposes of this sub-section, 'producer' means a person carrying on the business of manufacturing sugar.'
The argument is that the reprocessed sugar is quite clearly not the same kind of sugar as the damaged sugar, which was used only as a raw material for its manufacture, and a the amended section contemplates the fixation of different prices for different kinds of sugar after taking into account the cost of its manufacture, the Central Government should have fixed a different price for this sugar. It is not possible to accept this submission. Sub-section (3-C) does not at all apply to a case like this. It talks of a different kinds of sugar and envisages the determination of its price for the purpose of securing a reasonable return on the capital employed, not in the manufacture or production of a particular lot but in the business of manufacturing sugar vide clause (d) of the sub-section. The approach is, not from the point of view of any individual consignment of sugar, but from the point of view of the industry as a whole for determining a fair price for its production of the year for purposes of the trade. It is true that this provision authorises different prices being determined from time to time and also for different areas and even for different factories, but that is intended for wholly different situations; as, for example, when there are variations in prices of sugarcane from area to area or the manufacturing cost of different factories, situated in different zones, is different or there are such like other causes relating to the business of manufacture of sugar as a whole beyond the control of the manufacturers.
Read in the context of the purpose for which Section 3 of the Essential Commodities Act has been enacted, namely, for the purpose of regulating production and supply of an essential commodity for the purpose of securing its equitable distribution and availabilty at fair price, this provision cannot be construed to mean that the Central Government will be authorised to fix different prices for different factories only for the purpose of securing a reasonable return to an individual manufacturer, who was obliged to incur some unforeseen expenses due to an accident or some such other cause. Such an interpretation would be repugnant to the very purpose of the Act. The fact, thereforee, that the petitioners had to incur expenses due to the accident, is not at all relevant and does not entitle them to have a fresh price determined for the reprocessed sugar. Besides, in any case, the product, when first manufactured, remained sugar till after reprocessing and, thereforee, no manufacture was involved in the reprocessing, particularly when judged in the background of the legislative provisions and the policy. Nothing has been shown to the contrary suggesting that sugar was remanufactured in 1967-68.
14. The word 'kind', used in this subsection, further has reference to the various kinds of sugar mentioned in the Act itself. Clause (e) of Section 2 of Act 36 of 1967 also amended the definition of 'sugar' and defined it to mean not only sugar containing more than 90 per cent of sucrose, including sugar candy, but also khandsari sugar or bura sugar crushed sugar or any sugar in crystalline or powdered from and included in this term even the sugar in process in vacuum pan sugar factory or raw sugar produced therein. It is for these different kinds of sugar that the sub-section empowers the Central Government to fix different prices. The reprocessed sugar in this case is not a sugar of a different kind. As stated earlier, it is the same kind of D-29 grade sugar conforming to Iss standard, the price of which had already been fixed. The Central Government thereforee, were under no obligation to fix a different price for the reprocessed sugar of the petitioners in this case.
15. The learned counsel for the petitioner then aruged that his clients were forced to reprocess this sugar and this fact has a material bearing on the question in issue. This does not appear to be so for purposes of the decision of this petition, because the only reliefs claimed by the petitioners in respect of the reprocessed sugar are that the directions of the respondents to release it as the sugar produced in 1966-67 and at the price fixed for that year be quashed and that the same may be held to be the production of 1967-68 and the Government, in the alternative, be directed to fix a different price for its release having regard to the expenses incurred in its reprocessing. No claim has been made on the basis of the alleged compulsion. The question, thereforee, whether the petitioners were compelled to reprocess the damaged sugar or they to reprocess the damaged sugar or they were simply advised to do so and they accepted this advice and reprocessed the damaged stocks, is not relevant for the decision of the points involved for granting or refusing these reliefs.
16. The learned counsel for the petitioners then relied on the letter dated April 19, 1968 (Annexure U) from the Chief Director, Ministry of Food, Directorate of Sugar, requesting the petitioners to furnish information in regard to the damaged sugar along with the copies of the correspondence that the petitioners had with the Insurance Company in regard to their claim for compensation for the fire and maintained that the respondents themselves had in a way conceded the demand of the petitioners to determine fresh price of the reprocessed sugar and this information was called only for that purpose. Referring to the petitioners' letter dated May 20, 1968 (Annexure V) and the subsequent correspondence on the subject, the learned counsel complained that in spite of the required information having been supplied, the respondents failed to fix the price and on the contrary wrongfully persisted by letter dated August 9, 1968 (Annexure W) that the reprocessed sugar could only be treated as the production of 1966-67 and should be released by the petitioners at the prices fixed for that year.
In the affidavit filed in reply the respondents maintained that at no stage any assurance was given to the petitioners that the price of the reprocessed sugar would be fixed. They did not deny the correspondence relied upon by the petitioners, but maintained that the data was asked for simply to enable the Government to carefully examine the matter before giving a final reply and that after receipt of the full details. It was considered that there was no case for determination of any fresh price and that the reprocessed sugar could not but be treated as the sugar produced in the year 1966-67. In view of what has been said above, the Government were under no obligation to determine the price of the reprocessed sugar and the mere asking of the data in regard to the damaged sugar cannot be taken to have the price of the reprocessed sugar determined by the Central Government. The suggestion, thereforee, that this correspondence indicates that the respondents had conceded the right of the petitioners to have the price of the reprocessed sugar determined, is not correct.
17. The learned counsel for the petitioners then referred to the notification dated May 20, 1961, issued by the Central Gvoernment in exercise of their powers conferred by clause (7) of the Sugar (Control) Order, 1955 (Annexure Q) providing, amongst others, that all sugar manufactured by vacuum pan process shall be sold by the producer packed in new Twill jute bags of the dimensions given therein and that each bag shall bear on it, amongst others, the marking of the season of production of the sugar contained in it. Referring to the subsequent Notification dated July 31, 1962 (Annexure R) amending the previous notification dated May 20, 1961, the learned counsel pointed out that sub-clause (iv) of clause (c) of the previous notification, which provided that the season of production of the sugar shall be mentioned on the bag, was amended in the latter notification to provide that the bag shall contain the year in which the sugar was packed. He, thereforee, maintained that what was necessary and relevant for the purpose of sale of sugar, according to the relevant statutory orders in force at the time, was not the year of its production but the year of its packing.
By later notification dated March 19, 1968 (Annexure F), the Central Government, however, in exercise of powers conferred by clause (5) of the Sugar, (Control) Order read with clause (17), sub-clause (2) of that Order, added an Explanationn after sub-clause (iv) to clause (c) to the notification dated May 20, 1961, which provided that sugar obtained from the reprocessing of damaged sugar or defective sugar or rori or brown sugar of any previous season, was to be marked as produced. The learned counsel conended that this was wholly illegal and unwarranted and that no such deeming provision could be statutorily introduced having regard to the fact that the criterion for determinign the year or season of production had already been directed by notification dated July 31, 1962 (Annexure R) to be the year in which sugar was packed and this notification thereforee, could not apply to the reprocessed sugar.
It was further maintained that the sugar in question had been reprocessed before March 17, 1968 while this notification was issued thereafter and was not retrospective and, thereforee, had no application to the present cse.
18. The notifications dated July 31, 1962 (Annexure R) as well as notification dated March 19, 1968 (Annexure F) referred only to the labelling of the bags and it is not quite correct to say that they would have any bearing on the year of production for purposes of determination of its price. It is, however, not necessary to deal with that argument further in regard to the nature of the sugar reprocessed in this case. Independently of the notification dated March 19, 1968, this sugar cannot be considered to be a different kind of sugar and is essentially and basically the production of 1966-67, the price for which had already been determined.
19. Now taking up the third contention, it is clear that the case of the petitioners in regard to 3,000 bags of the damaged sugar stands on a different footing. By letter, dated June 11, 1968 (Annexure V2) they wrote to the Chief Director, Directorate of Sugar and Vanaspati, that in spite of efforts they have not been able to reprocess these remaining 3,000 bags and that they may be allowed to be disposed of in whatever way the Directorate may deem proper and a reasonable price may be fixed for the same; pointing out specifically that it was not advisable or proper to keep this sugar for the next season for purposes of being reprocessed and that it was likely to deteriorate still further during the rainy season. To this the respondents sent a reply by letter dated August 9, 1968 (Annexure W) simply advising them to reprocess this sugar in the next season 1968 and 69 and intimate the white sugar recovered from it to enable the Directorate to consider its release.
20. This damaged sugar according to the averment made in para 5 of the rejoinder and the particulars of the reprocessed sugar sent to the respondent vide Annexure V, dated May 20, 1968, contained 97.8, per cent sucrose. Sugar as defined by Section 2(3) of Act No. 36 of 1967 means any form of sugar containing more than 90 per cent sucrose and includes even sugar in process in vacuum pan sugar factory or raw sugar produced. According to this definition, if the damaged sugar contained 97.8 per cent of sucrose, it would prima facie be sugar subject to the control of the Central Government under the Essential Commodities Act and the Sugar Control Order and as such, the petitioners could not dispose it of without the necessary permission. The defense of the respondents, however, for their insisting on the petitioners to reprocess this sugar, as pleaded in para 6 of the reply to the rejoinder, is that under conditoins that prevailed in 1966-67 when there was a complete control on distribution of sugar, all sugar produced in that year had to be allotted to the State Governments or their nominees at notified prices and these prices were fixed in respect of sugar conforming to Indian Sugar Standard grades only, and as the damaged sugar was below the Iss grade, for which no price was or could be fixed, this sugar couldnot be allotted to the State Governments for distribution for domestic consumption and hence was not released.
21. No provision of the Essential Commodities Act or the Sugar Control order or any other law empowering the respondents to compel the petitioners to reprocess the sugar below the Iss standard has been brought to our notice. If the sugar produced is sugar within the meaning of Essential Commodities Act, it is open to the Central Government to determine its price and to direct its release and to deal with it in all respects in accordance with the provisions of this Act. A different price can also be fixed with respect to it. In fact the respondents themselves have prodcued (Annexure RRI), copy of a notification dated December 8, 1967 where the Central Government fixed prices of various grades of sugar higher or lower than Iss B-29 grade. If the remaining 3,000 bags, thereforee, contain sugar within the meaning of the Essential Commodities Act, it is imperative for the respondents to deal with it in accordance with this Act and the Sugar Control Order or other relevant provisions.
22. In this view of the matter, we direct that the sugar in the damaged 3,000 bags may be got tested and examined by the respondents to ascertain the exact position and its sucrose contents. If it is found to be sugar subject to the control and distribution in accordance with the provisions of this Act, the respondents should issue suitable orders in accordance with law to enable the petitioners to dispose of this stock .
23. Having regard to the fact tht this stock has already been lying for a long time, we also direct that the respondents shall take the necessary steps and issue the proper directions latest within four weeks of this order.
24. This writ is, thereforee, partly accepted in the above terms. In the circumstances of the case, however, parties are left to bear their own costs.
25. Writ partly allowed.