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PETITIONER: TULSIPUR SUGAR CO. LTD. ETC.

       Vs.

RESPONDENT: SECRETARY TO THE GOVERNMENT OF U.P. & ORS.

DATE OF JUDGMENT02/05/1986

BENCH: MISRA, R.B. (J) BENCH: MISRA, R.B. (J) BHAGWATI, P.N. (CJ) REDDY, O. CHINNAPPA (J) KHALID, V. (J) OZA, G.L. (J)

CITATION:  1987 AIR  443            1986 SCR  (2) 942  1986 SCC  (3) 267        JT 1986   328  1986 SCALE  (1)956

ACT:      U.P. Sugarcane  (Purchase Tax) Act, 1961, s. 14 - Sugar Factories -  Grant of  remission of  purchase tax  - Whether premissible/discriminatory.       Words  and Phrases:  "encourage or regulate" - Meaning of - s.14(1)(a) U.P. Sugarcane (Purchase Tax) Act, 1961.

HEADNOTE:      Section 3(1)(a)  of the  U.P. Sugarcane  (Purchase Tax) Act, 1961  provides for imposition of tax on the purchase of sugarcane by the owners of sugar factories. Section 14(1) of the Act  empowers the State Government to grant remission in whole or  in part of the tax payable in the public interest, with a  view to  (a) encourage  or regulate  the  supply  of sugarcane to,  or its  purchase by  the  factories,  or  (b) encourage the  establishment of new factories, or (c) assist factories established  after the crushing season 1957-58 and purchasing sugarcane yielding low sugar recovery.      The  Central   Government  by   a  notification   dated September 29,  1973 issued  under cl..(3)  of the  Sugarcane (Control) Order,  1966, fixed the minimum price of sugarcane for factories  situated in  eastern U.P.  at  Rs.  8.38  per quintal. To  meet the  growers demand for a higher price the Government of  U.P.  refixed the sugarcane price at Rs.12.25 per quintal  for the  sugar mills situated in the east zone. The sugar  factories not  being in  a position  to  pay  the higher price  approached the  State Government  who  by  two notifications dated January 25, 1975 issued under s.14(1)(a) of the  Act granted  remission in purchase tax to the extent of Re.  0.51 per  quintal to  twenty sugar  factories in the area for the assessment year 1973-74.      The appellants  and some  other factories  having  been denied  any   remission  in  purchase  tax,  challenged  the notifications by  filing petitions  under Art.  226  of  the Constitution which were dismissed by the High Court. 943      In these appeals by special leave, it was contended for the appellants  that the  State Government  in  refusing  to

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extend the  remission to  the appellants  had  discriminated against them  by singling  them out for treating differently as the  encouragement and  regulation contemplated by cl.(a) of s.14(1)  of the Act was necessary to all the factories in the eastern  zone and  not to  a fortunate few, and that the impugned notifications  suffered from the vice of Art. 14 of the  Constitution   in  as   much  as   the  Government  had discriminated between  the factories  falling  in  the  same group as  those which had a recovery of 8.5 or less had been granted remission,  while the  appellants who  were also  in similar position had been left out.      Dismissing the appeals, the Court, ^      HELD: 1.  Article 14  of the Constitution forbids class legislation  but   permits  reasonable  classification.  It, however, must  fulfil the  twin requirements: (1) it must be founded on  an intelligible  differentia which distinguishes persons or things that are grouped together from others left out of  the group, and (2) that the intelligible differentia must have a relationship to the object sought to be achieved by the statute. [950 C-D]      2. Section  14(1) of  the Act  confers a  discretionary power on  the State Government. It has been left entirely to the State to decide whether any particular factory should be granted remission  or not,  guided by the purpose set out in the relevant  clause. Neither  in cl.  (a) nor  in any other clause of  s. 14(1)  there is  anything to indicate that the State Government must grant remission to all sugar factories for encouraging  or regulating the supply of sugarcane. [948 E-F]      3. The  three clauses  of sub-s. (1) of s.14 of the Act have different  object and  purpose. The purpose of granting the power  of remission  under cl.  (a) is encouragement and regulation of  the supply of sugarcane, the object of cl.(b) is to encourage the establishment of new factories, and that of cl.(c)  is to  assist  factories  established  after  the crushing season 1957-58 and purchasing sugarcane yielding low recovery  factory situated in one area or falling in one category may be in need of remission, while those which were not either 944 situated in  that area  or did not fall in that category may not need  it. Though  the power conferred by cl.(a) is to be exercised for  the purpose of encouraging and regulating the supply of  sugarcane, in  exercising this  power  the  State Government may  legitimately take the view that this purpose necessitates the  grant  of  remission  only  to  the  sugar factories  purchasing   sugarcane  yielding   low  recovery. [948 C-E]      4. The  word ’encourage’  in cl.(a) of s.14(1) suggests that the  State Government is required to exercise the power where it  feels that the sugar factory requires the help for the purpose  of making  purchases  of  sugarcane.  The  word ’regulate’ contemplates that the said power can be exercised with a  view  to  take  measures  to  promote  the  sale  of sugarcane. If  the power  conferred by cl.(a) of s.14(1) has been exercised for the purpose of granting remission to only those  sugar  factories  which  purchase  sugarcane  of  low recovery, there is nothing wrong in so doing. [949 D-E]      5. In  the instant  case by granting the remission only to sugar factories purchasing sugarcane of low recovery, the State  Government   has  not   violated  Art.   14  of   the Constitution.  Nor   was  there  any  contravention  of  the provisions of  cl.(a) of s.14(1). Such a question would have arisen if  the grant  of remission  were founded on a ground

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extraneous to the provisions of s. 14(1). [949 A-B]      6. The  immediate factor  affecting the  economy is the recovery of  sugar from  sugarcane and  the sugar content in the cane  produced goes  a long way to determine the cost of sugar. Thus,  the  sugar  factories  which  were  purchasing sugarcane yielding  low recovery  are distinguishable  as  a class separately  from those  which did  not fall  in it and there was  a reasonable  basis to classify those left out of that group. [950 F-G]      Anant Mills Co. Ltd. v. State of Gujarat & Ors., [1975] 3 S.C.R. 220, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1774 of 1980 etc.      From the  Judgment and  Order dated  28. 7. 1978 of the Allahabad High Court in Civil Misc. Writ No. 495 of 1975. 945      B.R.L. Iyenger,  Yogeshwar  Prasad,  S.P.  Gupta,  V.P. Sachthey, K.K.  Venugopal, O.P. Rana, Dr. Y.S. Chitale, K.G. Bhagat, F.S.  Nariman,  Soli  J.  Sorabjee,  H.K.  Puri,  G. Gopalakrishnan, Khaitan  & Co.,  A. Subba  Rao, Naunit  Lal, K.M.K. Nair, J.B.D. & Co., P.R. Ramasesh, Bishambar Lal, G. Subramanium,  Ms.   S.  Dikshit,  Ms.  A.  Subhashini,  K.R. Nambiar, R.N.  Poddar, B.M. Nagaria, Mrs. Rani Chhabra, R.B. Datar,  P.H.   Parekh,  K.R.  Nagaraja,  B.D.  Sharma,  V.J. Francis, S. Markendaya, R.N. Sachthey, R. Ramachandran, S.S. Khanduja, Manoj  Swarup &  Co., P.K.  Pillai,  Baggar,  K.L. Mehta, Swarup John & Co., G.S. Ramarao, C.V. Subba Rao, S.K. Gupta, G.S.  Chatterjee, Probir  Mittra, Mrs.  J. Wad,  S.K. Gambhir, Pramod  Dayal, R.K.  Jain,  S.R.  Srivastava,  K.K. Mohan,   Dhantaraj,D.K.    Agarwal,   S.K.    Gupta,    Raju Ramachandran, Ravindra  Bana,Vinoo Bhagat,  K.K. Jain,  A.D. Sanger, Girish  Chandra, C.K.  Sucharita, T.C.  Sharma, Mrs. Kitty Kumaramangalam.  A.V. Rangam,  R.V.  Ratnam  and  D.M. Popat for the appearing parties.      The Judgment of the Court was delivered by D      R.B. MISRA,  J. The  present group  of appeals directed against the  judgment of  the High  Court of  Judicature  at Allahabad dated  July 28,  1978 raises  a common question of law. These  appeals arise out of petitions under Article 226 of the  Constitution challenging the two Notifications dated January 25,  1975  issued  under  section  14  of  the  U.P. Sugarcane (Purchase  Tax) Act, 1961 (hereinafter referred to as the  Act  for  short).  The  petitioners  also  sought  a Mandamus directing  the State  Government to grant remission in purchase  tax of  0.51 paise per quintal to all the Sugar factories situated  in the  State of  U.P. As the pattern of facts is  similar in  all the  cases, we  would refer to the facts of  Civil Appeal  arising out of Writ Petition No. 409 of 1975  filed by  M/s. Shri  Sitaram Sugar Company Limited, Bhailtapur, District  Deoris, against  the  State  of  Uttar Pradesh  and   others  to   bring  out   the  question   for consideration in these appeals.      The petitioner  is a  Public Limited Company and owns a sugar factory  in Deoria known as Shri Sitaram Sugar Company Limited, Bhailtapur,  U.P. The  Sugar Factory  is engaged in the manufacture of sugar by Vacuum Pan Process. It purchases sugarcane from  the reserved  area allocated to Lt under the provisions of  U.P. (Regulation of Supply and Purchase) Act, 1953 and Sugarcane Control Order. 1966 946      By a Notification dated September 29, 1973 issued under

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clause 3  of the  Sugarcane (Control)  Order, 1966,  Central Government fixed  the price  of sugarcane  for the factories situated in  Uttar Pradesh.  The minimum price fixed by this Notification for  the area in which the petitioner’s factory was situated was Rs. 8.38 per quintal. The cane growers felt agitated as  according to them, the price fixed was much too low.  They,  therefore,  made  representation  to  the  U.P. Government and  as a  result  thereof  the  U.P.  Government intervened in  the matter  and fixed  sugarcane price at Rs. 12.25 per  quintal for  the Sugar Mills situated in the East Zone. According  to the petitioner, however, the price fixed was  exorbitant  and  as  the  petitioner  and  other  sugar factories were  likely to  suffer enormous  loses, the Sugar Factories approached  the State  of U.P.  and brought to its notice that  they were  not in  a position to pay the higher sugarcane price.  The stand  of the appellant-petitioner and others is  that the  Chief Minister  was satisfied  with the demand made  by the sugar factories and he assured them that the State  Government would  grant remission in purchase tax to all  the factories  situated  in  the  East  Zone.  By  a Notification issued  under section  14(1) of  the  Act,  the State Government  granted remission  to the  extent of  0.51 paise per  quintal to  18 Sugar  Factories mentioned  in the area. By  another Notification  of the  same date,  two more factories were  granted the  remission. As the remission was not granted  to the  appellant-petitioner and  to some other factories similarly  situated, they  filed  petitions  under Article 226  of the  Constitution challenging  the aforesaid Notification issued by the State Government.      The State of U.P. resisted the petitions and denied the allegation of  promissory estoppel and discrimination set up in  the  writ  petition.  The  High  Court  dismissed  those petitions by the impugned judgment. They have now approached this Court  by special  leave and raised the same contention before this  Court as  was raised  by them  before the  High Court.       In  order to  appreciate the  points involved  in  the case, it  would be appropriate at this stage to refer to the relevant provisions  of the  Act. Section  3 of the Act lays down that  there shall  be levied  a tax  on the purchase of sugarcane by  the owner  of (a)  a factory  at the  rate  of twenty five  paise per maund of sugarcane; and (b) a unit at the rate of fifty 947 paise per  quintal. Section 3-A(l) provides that no owner of a factory  shall remove,  or cause  to be  removed any sugar produced in  the factory either for consumption or for sale, or for manufacture of. any other commodity in or outside the factory, until he has paid the tax levied under section 3, a sum specified under sub-section (2), sub-section (3) or sub- section (4).  The next  relevant section  with which  we are directly concerned  is section  14. It confers powers on the State Government  to grant  remission. As  the  decision  of these appeals  hinges upon  the  interpretation  of  section 14(1), it  would be  advisable to  read the section in full. Section 14(1) reads :           "Section 14(1).  The State  Government,  on  being           satisfied that  it is  necessary so  to do  in the           public interest, with a view to -           (a) encourage  or regulate the supply of sugarcane           to, or its purchase by factories ; or D           (b) encourage the establishment of new factories ;           or           (c)  assist   factories  established   after   the           crushing season  1957-58 and  purchasing sugarcane

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         yielding low sugar recovery,           May by  notification in  the  Gazette,  remit,  in           whole or  in part, the tax payable under this Act,           in any  assessment year,  by  every  such  factory           falling under  Clause (a)  or Clause (b) or Clause           (c)."      In the  instant case,  the Notification  remitting  the purchase tax  was issued  by the  State Government  on being satisfied so  to do  in the  public interest  with a view to encourage and  regulate the  supply of  sugarcane to, or its purchase by  the factories  in the  State of  Uttar  Pradesh during 1973-74 assessment year.      Dr. Chitale,  appearing for  the  appellants  with  his usual candour  and fairness,  gave up the plea of promissory estoppel and confined his argument to discrimination made by the State  Government in  granting remission  of tax to some factories and 948 not to  the appellants.  According to  him the encouragement and regulation  as contemplated  by clause  (a)  of  section 14(1) of  the Act  was necessary to all the factories in the eastern zone  and not  only to a fortunate few. But the U.P. Government has  refused  to  extend  the  remission  to  the appellant  illegally   when  clause  (a)  of  section  14(1) contemplates giving  benefit to  all the factories and there was no  justification for  singling out  the appellants  For treating them differently.      The power  conferred by  clause (a) of section 14(1) of the Act,  the counsel  contends, could  not be  confined  to Factories  purchasing   sugarcane  yielding   low   recovery inasmuch as  this was a consideration foreign to the purpose contemplated by clause (a) of section 14(1) of the Act.      The three  clauses of  sub-section (1) of section 14 of the Act  have different  object and  purpose. The purpose of granting  the   power  of  remission  under  clause  (a)  is "encouragement and  regulation" of  the supply of sugarcane, the object  of clause  (b) is to encourage the establishment of new  factories, and  that of  clause  (c)  is  to  assist factories established  after the crushing season 1957-58 and purchasing sugarcane  yielding low  recovery. Section  14(1) confers a  discretionary  power  on  the  State  Government. Reading section 14 as a whole, it cannot be said that it was obligatory on  the part  of the  State to grant exemption or remission to all the factories. The discretion has been left to the  State Government  to decide  whether any  particular factory should  be granted  remission or  not guided  by the purpose set  out in  the relevant  clause. Neither in clause (a) nor  in any  other clause  of section  14(1) of the Act, there is anything to indicate that the State Government must grant remission  to all  sugar Factories  for encouraging or regulating the supply of sugarcane.      The reason  is  obvious.  It  may  be  that  a  factory situated in  one area  or falling In one category is in need of this  remission while those which are not either situated in that  area or  do not  fall In that category may not need it. It  is true that the power conferred by clause (a) is to be exercised  For the  purpose of encouraging and regulating the supply  of sugarcane  but in  exercising this power, the State Government  may legitimately  take the  view that this purpose necessitates  the grant  of remission  only  to  the sugar factories purchasing 949 sugarcane yielding  low recovery.  By granting the remission only  to   sugar  factories   purchasing  sugarcane  of  low recovery, the  State  Government  in  our  opinion  has  not

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violated Article  14 of  the Constitution.  Nor Is there any contravention of the provisions of clause (a) of section 14. The question  of contravention  would arise  if the grant of remission  were  founded  on  a  ground  extraneous  to  the provisions of  section 14.  The Notifications  issued by the State Government clearly show that the remission was granted with the  sole object  of  encouraging  and  regulating  the supply of  sugarcane to these factories. The exercise of the power by  the State  Government was  in accordance  with the provisions of  clause (a), sub-section (1) of section 14 and that by  granting the  remission to a few sugar factories it did not  frustrate the  purpose of  the aforesaid provision. The  use  of  expression  "encourage  or  regulate"  clearly indicates that the factories which really need encouragement or regulation  should get the benefit of the remission under clause (a)  of sub-section  (1)  of  section  14.  The  word "encourage" suggests  that the  State Government is required to exercise  the power where it feels that the sugar factory requires the  help for  the purpose  of making  purchases of sugarcane. Similarly,  the word  "regulate" also  shows that the said power can be exercised with a view to take measures to promote  the sale of sugarcane. If the power conferred by clause (a)  of  sub-section  (1)  of  section  14  has  been exercised for  the purpose  of granting  remission  to  only those  sugar  factories  which  purchase  sugarcane  of  low recovery, there is nothing wrong in so doing.      It was next contended by Dr. Chitale that the factories which had  recovery of  8.5 or  less had  been  granted  the remission. Some  of the  appellants  were  also  in  similar position and  they have  been refused  unjustifiably and the State Government  had discriminated  between  the  factories falling in  the same  group and thus the Notification issued on January  25, 1975 suffered from the vice of Article 14 of the Constitution  on that account also. This argument losses sight of  the other clauses of the section, viz, clauses (b) and (c)  of  sub-section  (1)  of  section  14.  Clause  (b) provides for  encouraging the establishment of new factories and  clause   (c)  contemplates   assistance  to   factories established after  crushing season  1957-58  and  purchasing sugarcane  yielding   low  sugar   recovery.  If  the  State Government had chosen to give 950 remission to  these factories because they fall under clause (c), some  argument could  have been  advanced  against  the validity of  the Notification  on that  basis. Under  clause (c), remission  is granted by way of support or aid to newly established factories  to lesson the cost so that they could profitably compete in the market. The remission under clause (c) has to be confined to new factories which is a different category of  sugar factories.  The considerations needed for exercising the  power under  clause (c)  are different  from those under  clause (a)  or (b). Considered from this aspect there is no discrimination at all.        Article   14  of   the  Constitution   forbids  class legislation  but   permits  reasonable   classification.  It however must  fulfil the  twin requirements:  (1) it must be founded on  an intelligible  differentia which distinguishes persons or things that are grouped together from others left out of  the group, and (2) that the intelligible differentia must have a relationship to the object sought to be achieved by the  Statute. If  authority be  needed, we  may refer  to Anant Mills  Co. Ltd.  v. State  of Gujarat & Ors., [1975] 3 S.C.R. 220.      The remission  was granted  only to the factories where the recovery  from the  sugarcane  was  low  to  enable  the

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factories to  make  timely  payments  towards  the  cost  of sugarcane and  non-payment of  the cane prices affecting the supply of  cane to  factories. It was in these circumstances that the Government granted remission to the factories which needed the help.      The immediate  factor  affecting  the  economy  is  the recovery of  sugar from  sugarcane and  the sugar content in the cane  produced goes  a long way to determine the cost of sugar.  Thus  the  sugar  factories  which  were  purchasing sugarcane yielding  low recovery  are distinguishable  as  a class separately  from those  which did  not fall  in it and there was  a reasonable  basis to classify those left out of that group.      For the  foregoing discussion,  the appeals  must fail. must are  accordingly dismissed. In the circumstances of the case, however, the parties shall bear their own costs.      All matters  pending  in  this  Court  challenging  the constitutional  validity  of  the  two  Notifications  dated January 25,  1975, will  stand disposed  of in terms of this judgment. P.S.S.                                    Appeals dismissed. 951