# THE PANIPAT CO-OPERATIVE SUGAR MILLS v. THE UNION OF INDIA

- **Citation:** [1973] 2 S.C.R. 860
- **Court:** Supreme Court of India
- **Decided:** 1972-11-06
- **Case number:** Civil Appeals Nos. 1357 to J 359 of 1972
- **Bench:** J.M. Shelat, A. N. Grover, K. K. Mathew, A. K. Mukherjea, Y. V. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-panipat-co-operative-sugar-mills-v-the-union-of-india-5911
- **Pages:** 22

## Headnote

Essential Commodities Act (10 of 1955); s.3 (3C)cls. (a) to (d)--
Scope of.
From 1958 and even earlier,. ex-factory prices of sugar were worked
out or. the basis of cost-schedules prepared by expert bodies appointed
for !hot purpose.
The prices in the cost schedules were
prepared in
respect of the entire production of sugar and not in relation only to that
part of it which was required to be sold to government (referred to as
levy sugar), although, partial control in one form or another was in vogue.
Such cost-schedules were prepared on the basis of average duration and
recovery i the minimum price of cane, the
average
cost of production
in the various zones. taxes and a fair return on the capital ,emplOyed in
the industry.
In 1967, the Central Government was confronted with the
two problems : (a) the deterioration in the sugar indu•try, and (b) the
conflicting interests of the manufactureri the consumer and the
cane
grower.
Accordingly Government announced its policy of partial cootrol
under which 60% of the output of sugar would be acquired
and the
balance of 40%would be left for free sale.
To implement this policy
sub-s.3 (3C) was enacted in the Essential Commodities Act. 1955. Under
the sub-section there must be an order under s. 3(2) (f)
whereby a
producer is required to sell sugar to the Gov-ernment.
There shall then
be paid to the producer an amount there or, that is, for such stock of
sugar as is required 1'~ be sold; and such amount shall be calculated with
refrence to such price of sugar as the Central Government may, by order
determine, having regard to the four factors set out in els. (a), (b), (c)
and (d) of s. 3(3C).
Clause (a) provides for the minimum price, if
a:iv, fixed for sugar cane by the Central Government.under s.. 3; Cl. (b)
refers to the manufacturing cost of sugar, Cl. (c) to the duty or tax, i'f
any or payable thereon: and
Cl. (d)
to the
securing
of
a
reasonable
return
on
the
capital
employed
in
the
business
of manufacturing sugar.
The words 'notwithstanding anything contained
in sub-s.(3) suggests that the nmount payable to the person required to
sell the stock of sugar would be with refe:ence t'O the price fixed under
sub-s (3C). (865 E: 868 F-H; 870 D-G; 874B]
In pursuance of the power reserved to it under s.3(2).(f) and s.3(3C)
the Central Government required sugar factories, including the appellantccmpanies to sell to it 60% of their production during 1970-71 at prices
fixed by it under the Sugar (Price Determination) Order, 1971.
The
prices \\'ere fixed on the principles laid down by the Tariff Commission
and othc: expert bodies.
The appellants filed writ petitions in the High
Court for quashing the Order and for refixation of the ex-factory pric,e
for 1970-71 in respect of the sugar required to be sold to the Government
under s.3(2) (f). The High Court dismissed the
writ
petitions. In
appeal to this Court it w<is contended by the appellants that sub-section
(3C), and its cl. (d) must be construed to be de•lin~ with levy sugar
only, that a reasonable return under cl. (d) should be assured unitwise,
and that the profit on the free sale of sugar should not be taken into
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PANJPAT SUGAR MILLS V. UNION
861
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account in considering whether a reasonable return has been allowed on
the capital employed.
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Dismissing the appeal,
HELD : On the constru~tion of sub-s. (3C) and on the evidence produced there is no case for quashing the Sugar (Price
Determination) .
Order, nor, for refixation of the price fixed by the Goy.ernment under the
suh·section. [881 DJ
(a I The sub-section pr""' ides two things, (l) the determination by the
Government of a fair price during the process of which regard shall be
hJ.d to the fOur matters set out therein, and (2) payment to the manufactur.:r. part of \\hose stock is levied, an 'amount therefor', calculated
\\:ith f'.!f~rcnce to 'such .price· as the Cen,tral Governntent may determine.
The words ·amount therefor' mean the amount to be paid t

## Text

_Characters 0–39,213 of 63,358. This is a partial read: ask again with offset=39213 for what follows._

860
THE PANIPAT CO-OPERATIVE SUGAR MILLS
A
v.
THE UNION OF INDIA
November 6, 1972
[J.M. SHELAT, A. N. GROVER, K. K. MATHEW, A. K.
MUKHERJEA AND Y. V. CHANDRACHUD, JJ.]
Essential Commodities Act (10 of 1955); s.3 (3C)cls. (a) to (d)--
Scope of.
From 1958 and even earlier,. ex-factory prices of sugar were worked
out or. the basis of cost-schedules prepared by expert bodies appointed
for !hot purpose.
The prices in the cost schedules were
prepared in
respect of the entire production of sugar and not in relation only to that
part of it which was required to be sold to government (referred to as
levy sugar), although, partial control in one form or another was in vogue.
Such cost-schedules were prepared on the basis of average duration and
recovery i the minimum price of cane, the
average
cost of production
in the various zones. taxes and a fair return on the capital ,emplOyed in
the industry.
In 1967, the Central Government was confronted with the
two problems : (a) the deterioration in the sugar indu•try, and (b) the
conflicting interests of the manufactureri the consumer and the
cane
grower.
Accordingly Government announced its policy of partial cootrol
under which 60% of the output of sugar would be acquired
and the
balance of 40%would be left for free sale.
To implement this policy
sub-s.3 (3C) was enacted in the Essential Commodities Act. 1955. Under
the sub-section there must be an order under s. 3(2) (f)
whereby a
producer is required to sell sugar to the Gov-ernment.
There shall then
be paid to the producer an amount there or, that is, for such stock of
sugar as is required 1'~ be sold; and such amount shall be calculated with
refrence to such price of sugar as the Central Government may, by order
determine, having regard to the four factors set out in els. (a), (b), (c)
and (d) of s. 3(3C).
Clause (a) provides for the minimum price, if
a:iv, fixed for sugar cane by the Central Government.under s.. 3; Cl. (b)
refers to the manufacturing cost of sugar, Cl. (c) to the duty or tax, i'f
any or payable thereon: and
Cl. (d)
to the
securing
of
a
reasonable
return
on
the
capital
employed
in
the
business
of manufacturing sugar.
The words 'notwithstanding anything contained
in sub-s.(3) suggests that the nmount payable to the person required to
sell the stock of sugar would be with refe:ence t'O the price fixed under
sub-s (3C). (865 E: 868 F-H; 870 D-G; 874B]
In pursuance of the power reserved to it under s.3(2).(f) and s.3(3C)
the Central Government required sugar factories, including the appellantccmpanies to sell to it 60% of their production during 1970-71 at prices
fixed by it under the Sugar (Price Determination) Order, 1971.
The
prices \\'ere fixed on the principles laid down by the Tariff Commission
and othc: expert bodies.
The appellants filed writ petitions in the High
Court for quashing the Order and for refixation of the ex-factory pric,e
for 1970-71 in respect of the sugar required to be sold to the Government
under s.3(2) (f). The High Court dismissed the
writ
petitions. In
appeal to this Court it w<is contended by the appellants that sub-section
(3C), and its cl. (d) must be construed to be de•lin~ with levy sugar
only, that a reasonable return under cl. (d) should be assured unitwise,
and that the profit on the free sale of sugar should not be taken into
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PANJPAT SUGAR MILLS V. UNION
861
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account in considering whether a reasonable return has been allowed on
the capital employed.
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Dismissing the appeal,
HELD : On the constru~tion of sub-s. (3C) and on the evidence produced there is no case for quashing the Sugar (Price
Determination) .
Order, nor, for refixation of the price fixed by the Goy.ernment under the
suh·section. [881 DJ
(a I The sub-section pr""' ides two things, (l) the determination by the
Government of a fair price during the process of which regard shall be
hJ.d to the fOur matters set out therein, and (2) payment to the manufactur.:r. part of \\hose stock is levied, an 'amount therefor', calculated
\\:ith f'.!f~rcnce to 'such .price· as the Cen,tral Governntent may determine.
The words ·amount therefor' mean the amount to be paid to the manufacturer in respect of such quantity of stock as is required lo be sold
under an order made with referenco to sub-s. (2)(f). That amou~t is
th~rcforc referable to the stock of sugar specified in such order. that is
to say. the le\ y sugar.
The
\\'Ord~ ·such price of sugar' relate to the
price "hich the Central guvernment has to determine having re[!9rd to
els. (al, (b), (c) and (d). Though the payment would of course be
for the stock required to be sold to Government, there is nothing in sub-s.
( 3C) to suggest that the price to be determined is to be with
respect
to that part of the stock of a particular manufacturer \\'hich is required
to he sold to the Gowrnment. [871 A-E]
(b) A fair price for sugar had to be such trtat would harmonise and
satisfv at least to a reasonable extent all the conflicting interests. It could
not n1ean the actu;.1l cost and return of every individual unit because. (i)
it would be impracticable and (ii) because it would he rewarding
the
inefficient and the uneconomic.
The basis of a fair price would be cost
scheJules v,:orked out \Vith respect to a reasonable. efficient and economic
r·opresentative cross-section of the industry.
A claim that such a. price
had to be determined unitwbe and a reasonable return is to be ensured
to e"ch unit or tlrat such a price with such a return should only be· in
respect of that part of its stock required to be sold under sub-s. 3(2) (f)
would be inconsistent with the concept of partial control, the background
in which it was evolved, and the objects which it attempted to secure. Su·:h
•a policy meant determination of a fair price on the basis of which a producer would be paid for part of stock required to be sold to Government.
The fair price would have to be determined having regard to the four
factors set out in the sub·section. Though factors (a) and (cl would
be static. ractor (b) would largely depend on variables. such as duration
and recovery. the prices of fuel. labour etc. differing from zone to zone
or even \l.'ithin the same zone, necessitating the averaging and costing of
a representative cross-section of units.
Therefore. fair price could only
mean securing a reasonable req.1fn to the industry as a whole and not
to each unit. or in respect of only the stock required to be sold compulsorily to the Governme.'ll.
[873 H; 874 G·H; 875 A·F]
(c) This does not however mean that Government can fix anv arbitrary price, or on extraneous considerations. or a price which does n9t
secure a reasonable return on the capital employed in the industry. Such
a fixation would evoke a chalknge, both on the grounds of its being inconsist~nt with the guidelines built in· the sub-section and its being:
·in
contravention of Arts. 19(1 )(f) and
(g)
and
31
of the Constitution.
[875 F·H]
'862
SUPREME COURT REPORTS
(1973) 2 s.c.11..
[On the materials placed before it the Court found that the price fixed
A
with respect to the appellants ensured a reasonable return on the C"apital
employed and that there was no necessity for its refixatioo.]
CIVIL APPELLATE JURISDICTION :
Civil Appeals Nos. 1357
to J 359 of 1972.
Appeals by certificate from the judgment and order dated
January 10, 1972 of Delhi High Court at New Delhi in Civil
Writ Petition~ Nos. 405, 381 and 486 of 1971.
H. L. Sibal and Bishamber Lal, for the appellants
(in all
the appeals).
B
L. N. Sinha, Solicitor-General of India,
G. L. Sanghi and
S. 1'. Nayar· for the respondent.
C
The Judgment of the Court was delivered by
SHELAT, J. These thre.: appeals, by certificate, arise out of
three writ petitions filed in he High Court of Delhi for quashing
the Sugar (Price Det·~nnination) Order, 1971 made under
s.
3(3C) of the fasential Commodities Act, 10 of 1955, and for a
direction requiring the Central Government to rcfix the ex-factory
price for 1970-71 in respect of sugar required to be sold to Gov-
·ernrnent under s. 3(2) (f) of the Act.
The High Court dismis9~d
the writ peti.tions and hence these appeals.
The appellants are three public limited companies having factories in Haryana State where they carry on the business of manufacturing and selling sugar, an essential commodity within the
meaning of tlv~ Act.
The Act empowers the Central Government to control the production and distribution inter a/ia of sugar
with the object of maintaining its supply and its equitable distribntion.
Under ~cc. 3, the Central Government has been authorised to
require a manufacturer of sugar to sell to it or to a State Government or any other authorised person either the whole of his stock
or part of it at a fair price fixed by it.
In pur.suance of power
reserved to it under s. 3(2) (f) ands. 3(3C), the Ccntrnl Government required the s4gar factories, including
the
app~llant
companies 10 sell to it 60% of their production during the year
1970-71 at prices fixed by it, the price fixed for the factories in
Haryana zone under the impugned order being Rs. 124.63 per
auin~.,!.
The principal questions arise in these appeals : (I) what is
the trne interpretation of s. 3(3C), and (2) whether the price of
Rs. 124.63 was in accordance with the provisicns of s. 3(3C)?
Before we proceed to consider these questions it would. we
think, be better to set out briefly the history of control over sugar
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PANIPAT SUGAR Mil.LS v. UNION (Shelat, ].)
863
production and its distribution and the method followed in the
fixation by Government of the fair, or what has for brevity's sake
been named, the levy price of sugar.
·
The concept oi statutory control over sugarcane is as old
as 1934 when the Central Sugar Cane Act, 1934 was enacted.
Under that Act and orders passed thereunder Government used
to fix the minimum price for cane.
Since 1950 and later on
under the Sugarcane (Control) Order,
1955, such minimum
price for cane nsed to be fixed having regard to (a) the cost of
production of cane, (b) the return to the itrowers from alternative
crops, and ( c) fair price o~ sugar to the consumer.
So far as supar is concerned, statutory control over it was first
imposed in 1942 under the Sugar and Sugar Products Control
Order, 1942. The Sugar Controller thereun<l~r regulated
production, distribution and prices of sugar.
From May 1, 1942,
no sugar factory was permitted to effect sales except to authorised
persons.
This position continued until December 8, 1947 when
sugar was decontrolled.
In 1949, statutory control was once
more imirised under which ex-factory price of Rs.
76.35 per
quintal for D-24 grade was fixed, as during that year sugar production declined.
There was also a substantial diversion of cane
to gur and khandsari industry.
Contrnl over sugar was relaxed
in 1950 in that production- over 90% of the total production of
each fact-o;-y was allowed free sale.
This policy was subsequently
modified and 953 of the average production of each factory during the two preceding years was fixed as basic quota and half of
the production in excess of that quota was allowed free sale, while
the oth~r half together with the basic quota was reserved for sale
at controlled prices.
Since conditions appeared to improve, control was taken off in 1952-1953, except that a small pqrtion of
production was reserved for sale at controlled prices. · But as
prices spiralled, Government in April 1954 requisitioned
25%
of the stock for distribution on a tender basis.
During 1954-55
to 1956-57 no controlled prices were fixed.
By 1.958 the prices
began to soar and the Government once more decided to impose
control.
During 1958 Government requested the Tariff Commission to
examine the cost structure of sugar and fair price which should be
paid to the sugar industry. Such an exercise was not new, for,
as early as 1947, and in 1951 and 1955 these questions had been
gone through, in 1947 by one Dr. Srivastava, and in later years
by expert committees appointed by Government.
These
committees worked ont cost schedules and fair price to ~ paid to the
industry but on an All-India basis. 'These cost-schedules were
not fair as they did not take into account disparities existing from
864
SUPREME COURT REPORTS
[1973] 2 s.c.R.
region to region in the matter of price of cane, percentage ·of
recovery and duration of the crushing season.
The Tariff Commission in 1959 did away with the all-India
cost-schedule and instead constructed four zonal cost schedules
having regard to their respective duration and recovery percentage on. which a fair price could be fixed.
Government then
requisitioned the stock of sugar and distributed sugar at fixed
prices.
In September 1961, the Government removed
control
as the situation had improved.
But the next two years witnessed
a substantial fall in production and rise in prices.
Government
then passed the Sugar (Control) Order, 1963 under which it
fixed ex-factory prices for different regions and regulated distribution according to quotas fixed for each State.
Government in
the meantime h:id worked out cost-schedules for as many as
22
zones, according to which, it fixed ex-factory prices ranging from
Rs. 116 to Rs. 125 per quintal.
. Qn August 3. 1964, Government appointed the Sugar Enquiry
Commission.
The Commission in its
Report
deprecated
the
Government's practice of incro~asing the number of zones to 20
and more and recommended only five zones.
The Commission
worked out the cost-schedules for these five zones on the basis of
duration and recovery percentage in each of the zones and on the
basis of minimum cane price, cess or tax, commission of co-operative societies, transport charges, driage and other expense', packing, grade differential and selling
expenses.
Tlie Commission
r~commended that while working out the ex-factory
prices fo1
each year on the basis of these cost-schedules Government should
make adjustments whenever any escalation took place in cost elements such .as wages, taxes, packing charges. etc.
On the question of return, the Commission observed as follows :
"The Tariff Commission, in its last inquiry (1958)
recomemnded a return at 12 per cent on capital employed.
Jn doing so, it took into consideration factors
such as the dependence of the industry on an agricultural raw material. the supply of which is affected by
several jrnponderables, e.g., weather and
pests
and
diseases.
A number of factories located in f.1,:~1.irable
regions have made ample profits.
In fact, the SJnole
factories earned as much as 15.69 per cent in 196364-Sizeable expansions in capacity have taken place.
The Commission is satisfied that the rate of return of 12
per cent is not unreasonable and should encourage expansion of the industry. .The Commission is aware that
the rate of return indicated will not be realised by each
individual unit in each zone.
Majority of·the units in
a zone, however, should be able to earn this return it
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PANIPAT SUGAR MILLS V. UNION (She/at, J.)
865
they maintain a reasonable degree of efficiency.
The
method adopted and followed by the Commission in
assessing the working capital is th~ same as was adopted by the Tariff Commission in its 1959 Inquiry."
There were two criteria for fixation of ex-factory prices; ( 1)
estimated cost of production detem1ined according to the costschedulcs prepared by the Tariff Commission in 1959 and adjusted from time to time to provide for increa&~ in any of the elements
of costs, and (2) average of prices at which sugar was sold in an
area during two to three months immediately before April l,
i963.
From 1964-.65 to 1966-67 Government fixed ex-factory
prices on the basis of the cost-schedules work>~ out by the Sugar
Enquiry Commission.
But the year 1966-67 turned out to be the
worst year in the decade owing to draught.
Production of cane
fell by 22% and that of sugar by 403 as compared to 1965-66.
It was kit that the outlook for 1967-68 would be gloomier still as
a further fall in the area under cane plantation would be by
about 11 %.
'
To avoid such a prospect some steps had to be taken providing
incentives for maximising sugar production and increasing the
compctitiveness of sugar factories. vis-a-vis gur and khandsari
factories in se£uring cane by offering prices h;igher than the floor
prices.
Accordingly, Government announced in August
1967
its policy of partial control under which 603 of the output of
sugar would be acquired and the balance of 40% would be left
for free sale.
To implement this policy, Government secured the
passage of sub-s. 3C in s. 3 of the Act 1hrough Parliament. Having
done that. it fixed the ex-factory prices on Dectmber 8,
1967
which as finalised in May 1968 vari·~d from Rs. 145 'to Rs. 169.50
per Quintal.
These were fixed on the principles laid down by the
Tariff Commission and the Sugar Enquiry Commission earlier.
l'iz., on the basis of (a)· floor price of cane fixed by Government.
(b) cess or tax payable thereon, ( c)
the manufacturing cost,
and ( d) a reasonable· return on capital employed.
Since the cost-schedules worked out by the Sugar Enquiry
Commiss,ion had by now become obsolete, Government in 1968
reQuest>~ the Tariff Commission to construct fresh cost schedules.
The Commission selected 68 out of 200 working units in the
industry for a. detailed cost study.
For the rest, it sent out elaborate cost forms for submitting the requisite data pertaining to
1966-67.
For Haryana. out of the three units, one was selected
for the detailed cost study.
The Commission first worked out actual cost of production
state-wise, by taking into accoum a number of units in each
Stare, their installed average crushing capacity, the cane actually
crushed per day, and the average yield of sugar. In this way the
866
SUPREME COURT REPORTS
[1973] 2 S.C.R.
ex-faC'lory cost per quintal of sugar came to Rs.
104.43, This
figure took into account the actual price paid for cane, which was
often higher than the minimum
price fixed
by Government,
harvesting charges where incurred, transport, cess/ purchase tax,
and factory conversion charges which included salaries/wage>.
power, fuel, stores, repairs, maintenance, packing and other overheads.
These average costs represented the average
cos(s
of
sugar covering all grades.
tlut the factories in different States
had different durations depending on the availability of sugar
cane in adequate supplies and different recoveries of sugar differing from factory to factory.
A direct coinparisoil. of actual costs
between factories or States would, therefore, have· led to unrealistic results.
These differing factors had, therefore, to be reduced
to a common measure.
For these purposes the Commission took
into account five years average recovery and duration of a region
as !he base.
Having regard 10 the wide disparity in duration and recovery
of sugar, the costs were initially reduced to a standard duration
of 120 days (of 22 hours each) with a uniform recovery of I 0
per cent so as to have a comparison of costs as between units in
a zone.
Also the differential relating to different grades
of
sugar produced by the units was adjusted and. a common schedule
for D-29 grade was evolved. On this basis the conversion charges
for each
State were
w"rked out.
These
did
not
includel
transport charges on cane, selling expenses and returr.. On such
calculation, the conversion
charges
for
Haryana,
including
depreciation, at the rate permissible under the Income Tax Act
came to Rs. ! 9.58 as against the All-Ir.dia weighted average of
Rs. 25.20 per quintal.
For salaries/wages, the recommendations
of the Central Wage Board for Sugar Industry fonned the base.
For stores and repairs the cost and variations therein from Stare
to State were based on the index of wholesale figures published by
the 'Economic Adviser to the Ministry of Industrial Development
and Company Affairs.
For future an incidence of increase of
3% per annum was taken into account, i.e., for the years 196869 to 1970-71. The minimum bonus at the statutorily payable
and managerial expenses were included in the costs of conversion;
so also the transport charges from the factories to railway stations
and the loading and unloading charges.
For this. the base was
the actual charges in 1966-67 which came to 15 paise
per
quintal for most of the States.
For rehabilitation, the
Commission suggested Rs. 2 per quintal.
Owing to the wide ranging differences in the capital costs of
various units as also differences from State to State. the Commission did not think it realistic to recommend return worked
out according to the conventional method.
A calculation of
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PANIPAT SUGAll MILLS V. UNION (She/at, !.)
867
return of a unifonn percentage on the basis of such widely varying capital costs from unit to unit and State to· State would tend
to vary the portion of the return margin substantially and confer
an unwarranted benefit on the low cost units. At the s;une time,
a reasonable return was indispensable if expansion was to be
encouraged and fresh capital investment in the industry attracted,
which according to the Reserve Bank's industry-wise study,
showed the lowest profit percentage in sugar industry of all other
industries.
The Commission, therefore,
suggi:sted. a uniform
amount per quintal as a margin to be added to the other costs in
arriving at the fair price of sugar.
The Commission for the
reasons aforesaid was of the view that an amount of Rs. l 0.50
would be a fair return which would be equivalent to 12.53 on
the zonal averages of capital employed. According to Appendix
37 to the report, the average return at
12.5%
on
capital
employed on the units in Haryana worked out at Rs. 10.40 per
quintal to be added to the fair price worked 0ut for that region.
By adopting the standardised figure of Rs. 10.50 per quintal
the range of variations from region to region was expected to
be narrowed down from Rs. 11.88 in the case of South Bihar
to Rs. 16.94 in die case of Orissa, Kerala, Assam and West
Bengal.
It is quite clear that what the Commission did was to conE · struct cost schedules and fair price of the entire production and
not merely of the levy sugar. The return and rehabilitation also
-.wre worked out on the basis of the capital employed in the
entire production and not the capital employed for the production
of levy sugar. Thus, in Table 9.6 at page 80 of i'ts report, the
Commission included Rs. 12.50 (being return and rehabilitation)
in the ex-works price of sugar.
There is nothing in that tab!.,
which would suggest that it was confined to levy sugar. Indeed
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Ch. 9 in which this table appears is headed "Cost Structure and
Price Fixation'', that is the ex-works price.
In calculating the
ex-factory price. the Commission took the minimum price of
cane fixed by Goverrunent ·and not the actual price paid by the
manufacturer as was also done by the Commission in 1959 and
by the Sugar Enquiry Commission in 1955. On this basis the
ex:fact<n1'. price for Haryana worked out to
Rs. 128.69 per
qumtal (1.e.,
cost of cane Rs.
89.73, conversion charges
Rs. 26.46, i:eturn and rehabilitation Rs. 12.50) for· the year
1966-67 on the basis of the average of the past five years' duration
and recovery. The cost of cane would of course depend on the
minimum price fixed for each year by Government. The figure
of Rs. 69.73 was the minimum price fixed
for 1966-67. It
also did not indlude the co-operative society's commission, if
any, the purchase tax or cess and the margin for cane driage.
4-L521Sup.Cl/73
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[J 973] 2 S.C.R.
These were ·~xpected to be worked out by the authority fixing
the fair price for each zone for a particular Y.ear.
The cost schedule for conversion in the light o[ duration and
recovery for each zone was made up of expenses classified as
constants, variables, semi-variables and
fixed
expenses.
For
Haryana, it worked out to Rs. 26.46 per quintal on the basis of
avera,!l,e dur~tion of 125 days (of 22 hours) and 8.70 recovery.
The cost schedule made up of the aforesaid expenses did not include (i) price of cane, (ii) commission to cooperative society,
if any, (iii) purchase tax or cess and (iv) driage of cane, as these
would be taken into account while fixing the minimum cane price.
The constants comprise packing and grade differentials which
would be static.
The variables comprise seasonal expenses. i.e ..
other than those incurred nonnally when crushing does not take
pl~.ce, i;uch as. wages of seasonal recruits excluding allowances for
retainers, relevant parts of stores, repairs, transport on cane, shift
depreciation, overheads and credit for recoveries.
Semi-variables
would comprise power and fuel and retainer allowances which
won1d vary with duration and recovery.
Fixed charges . would
be expenses other than those covered by the three aforesaid expenses and which are of a fixed nature irresp·~ctive of duration and
recovery.
The sum total of these classified expenses would make up the
conversion costs.
To these and the minimum price of cane
would be .added Rs. 2 for rehabilitation and Rs. 10.50 as return on
capital employed and excise duty.
The Government did
not
accept the recommendation as to rehabilitation and defe1Ted its
decision thereon for reasons stated in its resolution dated February
20, 1970, by which it accepted the other recommendations as also
the cost-schedules worked out by the Conmtission, the number of
zones, return of a fixed sum of"Rs. 10.50, etc.
The history of control over sugar set out above shows that
right from 1958 and even earlier, ex-factory prices of sugar were
worked out on the basis of cost-schedules prepared by expert
bodies appointed for that purpose, that such prices and costschedules were prepared in respect of the entire production and
not in relation only to that part of it which was required to be
sold to G:overnment, although partial con'trol in one form or the
other was in vogue for some periods before 1967, that such costschedu1es were prepared on the basisjof average duration and
recovery, the minimum price of cane; the averaged co~,t of production i11 the various zones, taxes, and lastly. a rnturn on the
capital employed, which as· stated above was fixed at the static
figure of Rs. 10.50 per quintal, that being the amount considered
a fair return on capital employed in tho~ industry.
Both the Central Government and Parliament were aware of the methods
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PANIPAT SUGAR MILLS v. UNION (Shelat, l.)
869
fol10wed by these expert bodies in framing cost-schedules on-the
basis of which ex-factory prices were fixed, the problems which
the Government was faced with in securing adequate supply of
sugar and its equitable distribution at reasonable price to remedy
which sub-s. 3C was enacted.
It is in the light of this background that the provisions of that sub-section can be properly
understood.
The Act, as its long title suggests, was enacted to provide for
the control of production, supply and distribution of, and trade
and commerce in, certain commodities, sugar being one of such
commodities.
Sec. 3 empowers the Central Gov~rnmcut, if it is
of opinion that it is necessary or expedient to do so for maintaining or increasing supplies of any essential commodity or for
securing their equitable distribution and availability at fair prices,
to provide by an order for regulating or prohibiting production,
supply and distribution thereof.
Under its sub-section ( 2)
cl.
(f), such an order may require any person holding in stock any
essential commodity to sell the whole or a specified part of it to
the Central or a State Government or an authorised person and in
such circumstances as may be specified therein.
Sub-s. 3 requires
that where any person sells any essential commodity in compliance
with an order made under sub-s. 2 cl. (f), there shall be paid to
him the price the]1:for (a) where the price can, consistently with
the controlled price, if any, fixed under this section, be agreed
upon, the a,greed price; (b) where no such agreement can be
reached, the price calculated with reference to the controlled price,
if any, or ( c) where neither cl. (a), nor cl. (b) applies, the price
calculated at the market pric.e prevailing in the locality at .the date
of sale. Payment at market price would have to be made ooder
this sub-sectiQn only when there is no agreed or controlled price.
Sub-secs. 3A and 3B then make provisions with reeard to sale of
foodstuffs and foodgrains.
Under sub-sec.
3A,
the
Central
Government' js empowered, if it is of opinion that it is necessary
so to do for controllin.g the rise i!l prices or preventing the hoarding of any foodstuff in any locality, to direct by a notification that
not_withstanding anything contained in sub-sec. ( 3), the price at
which the foodstuff shall be sold in the localtiy in compliance with
an order made under sub-sec. 2(f) shall be regulated in accordence with the provisions of this sub-section.
Where after the
issue of a notification under this sub-section, any
person sells
foodstuff of the kind and in the locality specified the~in, in compliance with an order made with reference to sub-sec. 2 cl. (f),
there shal.l be pai.d to the ~eller as the price therefor,
(a) the
ag;eed pnce consis.tently With the controlled price, if any; (b) the
pnce calculated with reference to the controlled price, if any,
where no such agreement can be reached, or ( c) where neither
cl. (a), nor cl. (b) applies, the price calculated with reference to
870
SUPREME COURT REPORTS
[1973) 2 S.C;R.
the average market rate as provided therein.
Under sub-sec. 3B,
where a person is required to sell any foodgrains, edible oilseeds
or edi~le oils to the Central or a State Goverlllllent, or to a person
a.uthonsed in that behalf, and no notification in respect of such
foodgrains; oilseeds or oils bas been issued under sub-sec. 3A or
is_ in force, there shall be paid as the price for such foodgrains,.
oilseeds or oils, (i) the contro!led price, if any, or (ii) where no
such price is iPced the j)rice prevailing or_ likely to prevail during
the post-harvest penod m the area to which the order applies.
B-:>th under sub-sec. 3A and 3B, the question of market price can
only arise where there is no controlled or fixed price or price
agreed consi;r~ntly with the controiled price, if any.
Each of
these .mb-secfrms makes a separate provision for tlie price at
which 1he commodities therein dealt with is to be paid.
Sub-sec. 3C, with which we are presently concerned, was _inserted in sec. 3 by sec. 3 of Act 36 of 1967. 1:he si:b-secuon
lays down two conditions which must exiJt O.:fore 11 applies.
The
first is thllt there must be an order made with reference •to subsec. 2 cl. (f), and the second is that there is no notification .under
siab-sec. 3A or if any such notification has b.een issued it is no
longer in force owing to efflux of time.
Next, the
words "notwithstanding anything contained in sub-section" suggest that the
amount payable to the person required to sell his stock of ;;ugar
would be with reference to the price fixed under the sub-section
and not the ai:rced price or the market price in the absence of any
controlled price under sub-sec. 3A. The sub-section then lays
down two things; firstly, that where a producer i& P~quired by an
order with reference to sub-sec. Z(f:• to sell any kind of sugar,
there shall be paid to that producer an amount therefor, that is for
such stock of sugar as is required to be sold, and secondly, that
such amount shall be calculated with reference to such price of
sugar as the Central Governnfcnt may, by order, cktermine; having regard to th·~ four factors set out in els. (a), (b), (c) and (d).
Unlike the preceding three sub-sections under which the amount
payable is either the agreed price, or the controlled price, or
where neither of .these prices is applicable at the market or average market price, the amount in respect of sugar ruquired to be
sold is to be calculated at the price detem1ined by the Central
Government.
The last words of the sub-section empower the
Central Government to determine price either from time to time
or for different areas, which means that it may determine zonal or
regional prices, or for different factories, i.e., unit-wise,
or for
different kinds of grades of sugar.
The two concepts, viz., the amount payable to the producer
and the price to be determined by Government are distinct and
much of the confusion in interpreting the sub-section would be
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PANJPAT SUGAR MILLS' v. UNION (She/at, J.)
871
dispelled if they were seen distinctly.
The words "amount therefor" mean the amount to be paid to the manufacturer in respect
of such quantity of his stock as is required to be sold under an
order made with reference to sub-sec. 2(f). That amount is,
therefore, referable to the stock of sugar specified in such order,
that is to say, the levy sugar.
The words "such price of sugar'',
relate to the price which the Central Government has to determine having regard to els. (a), (b), (c) and (d). The price to
be so determined is not relatable or confined to the stock required
to be sold, for the words are "such price of sugar" and not "the
price for such sugar".
This construction is fortified by the penultimate part of the sub-section which authorises the Central Government to determine zonal or unit-wise prices or prices for different kinds of sugar.
The price to be detern1ined by the Central
Government is to be tlie rate at which the amount payable to the
producer of such of his stock as is required to be ~old is to be calculated.
There is thus a clear distinction between the amount
payable to the producer whose stock is either wholiy or in part
required to be sold under an order made under sub·sec. 2 ( f), and
the price of sugar to be dett;rmined by the Government having
regard to the minimum price of cane fixed by it, the manufacturing cost of sugar, tlie duty and tax paid or payable thereon and
securing a reasonabile return on the capital employed in the business of manufacturing sugar.
In order to appreciate the meaning of els. (a), (b), (c) and
( d), it must be remembeP.!d that ever since control ('Ill sugar was
imposed Government had set up expert committees to work out
cost-sch~ules and fair prices. Starting in the beginning with an
All-India cost-schedule worked out on the basis of the total production of sugar, the factories were later groupd together into
rones or regions and different cost-schedules for different zones or
regions were constructed on the basis of which fair prices were
worked out at which sugar was distributed and sold.
The Tariff
Colll!1lission in 1958 and the Sugar Enquiry Commission in 1965
had worked out the zonal cost-schedules on the basfa of averaged
recovery and duration, the minimum and not the actual price of
cane, the averaged coriversion costs and recommended a reasonable return on the capital employed by the industry in the business of manufacturing sugar.
This experience was
before the
legislature at the time when sub-sec. 3C was inserted in the Act.
The legislature therefore incorporated the same formula in
the
new sub-section as the basis for working out the price.
The purItOSe behind enacting the new sub-section was three-fold. to pro-
\ide an incentive to increase production of sugar, encourage expansion of the industry, to devise a means by which the cane producer could get a share in the profits of the industry through prices
872
SUPREME COURT REPORTS
[1973] 2 S.C.R.
for his cane hi,gher than the minimum price fixed and secure to
the consumer distribu'tion of at-least a reasonabb quantity of sugar
at a fair price.
Whether these objectivr-s have, throilgh the working of the new sub-section, been realised or not is
a different
matter.
But there can be no doub't that these were Lhe objectives
for which the sub-section was passed.
The i1w~nt\ve to
secure
increased prpduction and expansion of the industry was to leave
a certain portion of the stock free for sale in the open market, the
assumption iie.i.ng that the industry would get a bet<er price in
such market than the price det·~rmined under the formula incorporated in sub-section 3C.
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-schedules, the tax or duty applica!:ile in
the zones and must be so structured as to leave in the ultimate
result to the industry a reasonable return on the .;;;pita! employed
by it in the business of manufacturing sugar.
It is dear from the
reports of the Tariff Commission that a reasonabie return recommended by that body at a fixed amount of Rs. 10.50 per quintal
which work•w out in 1966-67 at 12.5 % per annum was not in
respect of levy sugar only but on the whole, so that even if such
a return was not obtainable on l~vy sugar but ·w·a; obtainable on
the whole, it would meet the requirement of cl.
(d). In this
conclusion we derive a two-fold support, firstly, from the language
used in cl. ( d) itself, viz., a reasonable return on the
capital
employed in the business of manufacturing su,;.ir,
which must
mean the business as a whole and not the business of manufacturing levy sugar only, and secondly, from the fact of the Commission having all along used the same phraseology while recommending Rs. 10.50 p~r quintal as an addition by way of a reasonable
return on the capital employed in the industry.
The cost-schedules prepared by these bodies were for determining a fair price
in relation to the entire sugar produced by the industry and the
return which should be granted to it on tl!e capital employed in
the industry and not with respect to· that stock only required to
be sold under sub-sec. 2(f). This is clear from ihe heading of
Ch. 9 of the '.fariff Commission's report, 1969, "Cost Structure
and Price Fixation".
Counsel for the appellants and for the
several
interven.~rs,
however, contended (1) that since sub-sec. 3C was enacted after
the policy of partial control leaving a part of the stock for free
market was decided upon, the sub-section must b~ held to deal
with levy sugar only, and (2) that the languag~ o1 the sub-section
as also of its els. (a), (b) and (c) shows that it dealt with and
was concerned with levy sugar only and that therefore cl.
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PANIPAT SUGAR MILLS v. UNION (She/at, I.)
must also be construed to be dealing with levy sugar.
It was
urged that besides 1he necessity ?f giving t~ ,cl. . ( d) the SaJ11;e
meaning as one would have to give to els. (a J, \ b) and ( c). 1f
cl. (d) were to be construed to mean return on the whole of the
capital employed, there would ensue a contrad1ctL•ry and even an
anomalous result.
For purposes of cl. ( ~.), one would have to
take the floor price of cane fi.-;ed by q<>vemment, ~ut for cl. ( d),
the actual price of cane paid by a umt would have to be taken
into account for purposes of arriving at a figure
which would
leave a reasonable return to the producer, part of \1hose stock
is required to be sold. Counsel also urged that if cl.