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PETITIONER: THE PANIPAT CO-OPERATIVE SUGAR MILLS

       Vs.

RESPONDENT: THE UNION OF INDIA

DATE OF JUDGMENT06/11/1972

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. GROVER, A.N. MATHEW, KUTTYIL KURIEN MUKHERJEA, B.K. CHANDRACHUD, Y.V.

CITATION:  1973 AIR  537            1973 SCR  (1) 860  1973 SCC  (1) 129  CITATOR INFO :  F          1973 SC 734  (3,22)  D          1974 SC 366  (62)  RF         1975 SC 460  (13,15)  RF         1978 SC1296  (33,64)  RF         1983 SC1019  (34)  R          1987 SC1802  (9)  F          1987 SC2351  (9,12)  RF         1990 SC 334  (103)             1990 SC1277  (5,6,12,13,14,23,26,30,40,42,4  RF         1990 SC1851  (55)  R          1991 SC 724  (13)

ACT: Essential Commodities Act (10 of 1955), s-3 (3C) cls. (a) to (d)-Scope of.

HEADNOTE: 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.  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, 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 industry,  and (b)  the  conflicting  interests of  the  manufacturer,  the consumer  and  the  cane  grower.   Accordingly   Government announced  its policy of partial control 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 Government.   There  shall then be paid to the  producer  an

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amount  there  or, that is, for such stock of  sugar  as  is required  to  be sold; and such amount shall  be  calculated with  reference  to  such  price of  sugar  as  the  Central Government  may,  by order determine, having regard  to  the four  factors  set out in cls. (a), (b), (c) and (d)  of  s. 3(3C).   Clause (a) provides for the minimum price, if  any, fixed  for sugar cane by the Central Government under s.  3; Cl.  (b) refers to the manufacturing cost of sugar, Cf.  (c) to  the duty or tax, if 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 amount payable to the person required to sell  the stock  of sugar would be with reference to 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 appellant companies 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  were fixed  on the principles laid down by the Tariff  Commission and   other  expert  bodies.   The  appellants  filed   writ petitions  in the High Court for quashing the Order and  for refixation of the ex-factory price 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 was contended by the appellants that sub-section  (3C), and its cl. (d) must be construed  to  be dealing 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 861 account in considering whether a reasonable return has  been allowed on the capital employed. Dismissing the appeal, HELD  :  On  the  construction 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 Government under the sub-section. [881 D] (a)  The   sub-section   provides  two   things,   (1)   the determination  by the Government of a fair price during  the process of which regard shall be had to the four matters set out  therein, and (2) payment to the manufacturer,  part  of whose stock is levied, an ’amount therefor’, calculated with reference  to  ’such price’ as the  Central  Government  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 to be sold Linder an order  made  with reference  to  sub-s.  (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 cls. (a), (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 which is required to be sold to the Government. [871.A-E] (b)  A  fair  price  for sugar had to  be  such  that  would harmonise  and satisfy at least to a reasonable  extent  all the  conflicting  interests.  It could not mean  the  actual cost  and  return of every individual unit because,  (i)  it would  be  impracticable  and  (ii)  because  it  would   be rewarding the inefficient and the uneconomic.  The basis  of

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a fair price would be cost schedules worked out with respect to  a  reasonable,  efficient  and  economic  representative cross-section  of the industry.  A claim that such  a  price had to be determined unitwise and a reasonable return is  to be  ensured  to each unit or that 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.  Such 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 subsection.  Though factors  (a) and (c) would be static, factor (b) would largely depend on variables,  such  as duration and recovery.  the  prices  of fuel, labour etc. differing from zone to zone or even within the same zone, necessitating the averaging and costing of ,a representative  cross-section  of  units.   Therefore,  fair price  could only mean securing a reasonable return  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 Government. [873 H; 874 G-H; 875 A-F] (c)  This does not however mean that Government can fix  any arbitrary price, or on extraneous considerations, or a price which  does  not secure a reasonable return on  the  capital employed  in  the industry.  Such a fixation would  evoke  a challenge,  both  on the grounds of its  being  inconsistent with the guidelines built in the subsection and its being in contravention  of  Arts.  19(1)(f) and (g)  and  31  of  the Constitution. [875 F-H] 862 [on the materials placed before it the Court found that  the price  fixed  with  respect  to  the  appellants  ensured  a reasonable return on the capital employed and that there was no necessity for its refixation.]

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1357  to 1359 of 1972. Appeals  by  certificate from the judgment and  order  dated January  10, 1972 of Delhi High Court at New Delhi in  Civil Writ petitions Nos. 405, 381 and 486 of 1971. H.   L. Sibal and Bishamber Lal, for the appellants (in  all the appeals). L.   N. Sinha, Solicitor-General of India, G. L. Sanghi  and S.   P. Nayar, for the respondent. The Judgment of the Court was delivered by SHELAT, J. These three appeals, by certificate, arise out of three  writ  petitions filed in he High Court of  Delhi  for quashing  the Sugar (Price Determination) Order,  1971  made under s. 3(3C) of the Essential Commodities Act, 10 of 1955, and  for  a direction requiring the  Central  Government  to refix  the ex-factory price for 1970-71 in respect of  sugar required to be sold to Government under s. 3 (2) (f) of  the Act.  The High Court dismissed the writ petitions 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 the Act.  The Act empowers the Central Government to control the production and distribution  inter alia of sugar with the object of maintaining its supply  and

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its equitable distribution. Under sec. 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 pursuance of power reserved to it under s. 3 (2) (f) and  s. 3 (3C), the Central Government required the sugar factories, including the appellant companies to 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 quintal. The principal questions arise in these appeals : (1) what is the  true  interpretation of S. 3(3C), and (2)  whether  the price of Rs. 124.63 was in accordance with the provisions 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 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 of 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 used to be fixed having regard to  (a)  the cost  of production of cane, (b) the return to  the  growers from  alternative crops, and (c) fair price of sugar to  the consumer. So far as sugar is concerned, statutory control over it  was first  imposed  in 1942 under the Sugar and  Sugar  Products Control  Order,  1942.   The  Sugar  Controller   thereunder 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 imposed  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.  Control over sugar was relaxed in  1950 in that production over 90% of the total production of  each factory was allowed free sale.  This policy was subsequently modified  and 95% 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 other 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 portion of  production  was reserved  for  sale  at controlled prices.   But  as  prices spiraled, 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 1958 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 out  cost

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schedules  and fair price to be 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 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 ff.-moved 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  had  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. On  August 3, 1964, Government appointed the  Sugar  Enquiry Commission.   The  Commission in its Report  deprecated  the Government’s  practice of increasing 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 expenses, packing, grade differential  and. selling  expenses.   The Commission recommended  that  while working out the ex-factory prices for 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) recommended a return at 12 per cent  on               capital  employed.  In doing so, it took  into               consideration  factors such as the  dependence               of   the  industry  on  an  agricultural   raw                             material,  the supply of which is  aff ected  by               several imponderables, e.g., weather and pests               and  diseases.  A number of factories  located               in favorable regions have made ample  profits.               In  fact, the sample factories earned as  much               as   15.69   per  cent   in   1963-64-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 if                865               they   maintain   a   reasonable   degree   of               efficiency.   The method adopted and  followed               by  the  Commission in assessing  the  working               capital  is  the 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 determined according to the

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cost schedules prepared by the Tariff Commission in 1959 and adjusted from time to time to provide for increase 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 1, 1963.  From 1964-65 to  1966-67 Government fixed ex-factory prices on the basis of the cost- schedules  worked 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 40 % as compared to 1965-66.  It was  felt 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 competitiveness of sugar factories, vis-a-vis gur  and  khandsari factories in securing cane  by  offering prices   higher  than  the,  floor   prices..   Accordingly, Government  announced in August 1967 its policy  of  partial control  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, Government  secured  the passage of sub-s. 3 C in s. 3 of the Act through Parliament. Having    done  that,  it  fixed the  ex-factory  prices  on December  8,1967 which as finalised in May 1968 varied  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, viz., 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 Commission had  by now  become  obsolete,,  Government in  1968  requested  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 account a number of units in each State,  their installed average crushing capacity, the  cane actually  crushed per day, and the average yield  of  sugar. In this way the 866 ex-factory  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/wages,  power,  fuel,  stores,   repairs, maintenance,  packing  and other overheads.   These  average costs  represented the average costs of sugar  covering  all grades.  But the factories in different States had different durations  depending  on the availability of sugar  cane  in adequate supplies and different recoveries of sugar  differ- ing from factory to factory.  A direct comparison 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 the base. Having regard to 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

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recovery of 10 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 worked  out.   These did not include, transport  charges  on cane, selling expenses and return.  On such calculation, the conversion  charges for Haryana, including depreciation,  at the  rate permissible under the Income Tax Act came to  Rs. 19-58 as against the All-India weighted average of Rs. 25.20 per  quintal.  For salaries/’wages, the  recommendations  of the  Central Wage Board for Sugar Industry formed the  base. For stores and repairs the cost and variations therein  from State 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  1968-69  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 867 return  of a uniform 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 same 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, suggested 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. 10.50 would be a fair return which  would be  equivalent  to 12.5 % 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 out 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 the case of Orissa, Kerala, Assam and West Bengal. It  is quite clear that what the Commission did was to  con- struct   cost  schedules  and  fair  price  of  the   entire production and not merely of the levy sugar.  The return and rehabilitation  also  were 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 its report, the Commission  included Rs. 12.50 (being return and rehabilitation) in the  ex-works price of sugar.  There is nothing in that table which  would suggest that it was confined to levy sugar.  Indeed Ch. 9 in which this table appears is headed "Cost Structure and Price

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Fixation", that is the ex-works price In calculating the ex- factory price, the Commission took the minimum price of cane fixed  by  Government 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-factory  price for Haryana worked out to Rs.  128.69  per quintal  (i.e., cost of cane Rs. 89.73,  conversion  charges Rs.  26.46,  return 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 include the co-operative society’s  commission, if any, the purchase tax or cess  and the margin’ for cane driage. 4--L521Sup.CI/73 868 These were expected to be worked out by the authority fixing the fair price for each zone for a particular year. The  cost schedule for conversion in the light  of  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 average duration 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 seasonalexpenses, i.e.other than those incurred normally when crushingdoes not take place, such as wages of seasonal recruits excluding allowances for retainers, relevant parts of stores, repairs, transporton cane, shift depreciation, overheads and  credit for recoveries.Semi-variables would comprise power  and fuel and retainer allowances which would 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 irrespective 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 deferred  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 Commission, 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  cost schedules 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  Government,  although  partial control  in  one  form or the other was in  vogue  for  some periods before 1967, that such cost schedules were  prepared on the basis of average duration and recovery,, the  minimum price  of  cane,  the averaged cost  of  production  in  the various  zones, taxes, and lastly, a return 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   the

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industry.   Both the Central Government and Parliament  were aware of the methods 869 followed 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 Government,  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 in 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  therefore (a) where the price can, consistently  with the  controlled price, if any, fixed under this section,  be agreed upon, the a agreed 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  price prevailing in the locality at the date of sale.  Payment  at market  price would have to be made under  this  sub-section only when there is no agreed or controlled price.  Sub-secs. 3A  and  3B  then make provisions with  regard  to  sale  of foodstuffs and food-grains.  Under sub-sec. 3A, the  Central Government  is  empowered, if it is of opinion  that  it  is necessary  so  to do for controlling the rise in  prices  or preventing the hoarding of any foodstuff in any locality, to direct  by  a  notification  that  notwithstanding  anything contained in sub-se-,. (3), the price at which the foodstuff shall  be sold in the locality in compliance with  an  order made  under sub-sec. 2(f) shall be regulated  in  accordance with  the  provisions of this sub-section.  When  after  the issue  of a notification under this subsection,  any  person sells  foodstuff of the kind and in the  locality  specified therein, in compliance with an order made with reference  to sub-sec. 2 cl. (f), there shall be paid to the seller as the price  therefore (a) the agreed price consistently with  the controlled  price,  if any, (b) the  price  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 the average market rate as provided therein.  Under sub-sec. 3B,  where  a person is required to  sell  any  food-grains, edible  oilseeds, or edible oils to the Central or  a  State Government, or to a person authorised in that behalf, and no notification  in  respect of such food-grains,  oilseeds  or oils has been issued under sub-sec. 3A or is in force, there shall be paid as the price for such food-grains, oilseeds or oils,  (i)  the controlled price, if any, or (ii)  where  no such  price  is  fixed the price  prevailing  or  likely  to

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prevail  during the postharvest period in the area to  which the  order  applies.   Both 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 consistently  with the  controlled price, if any.  Each of  these  sub-sections makes  a  separate  provision for tile price  at  which  the commodities therein dealt with is to be paid. Sub-sec.  3C, with which we are presently concerned was  in- serted  in  sec. 3 by sec. 3 of Act 36 of  1967.   The  sub- section lays down two conditions which must exist before  it applies.  The first is that there must be an order made with reference to subsec. 2 cl. (f), and the second is that there is  no  notification  under  sub-sec.  3A  or  if  any  such notification has been 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  sugar would  be  with  reference  to the  price  fixed  under  the subsection  and not the agreed 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 is required by an order with reference to  sub-sec. 2(f) to sell any kind of sugar, there shall be paid to  that producer  an  amount therefore, 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 Government may, by  order,  determine, having regard to the four factors set out in cls. (a),  (b), (c)  and  (d) Unlike the preceding three  subsections  under which tile 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 required to be sold is to be  calculated at the price determined 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 871 dispelled  if they were seen distinctly.  The words  "amount therefore" 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 cls.  (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 determined  by the Central Government is to be the  rate  at which  the  amount payable to the producer of  such  of  his stock as is :required to be sold is to be calculated.  There is  thus a clear distinction between the amount  payable  to the  producer  whose  stock  is either  wholly  or  in  part required  to  be sold under an order  made  under  sub.-sec.

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2(f),  and  the  price  of sugar to  be  determined  by  the Government having regard to the minimum price of cane  fixed by  it,  the manufacturing cost of sugar, the duty  and  tax paid or payable thereon and securing a reasonable return  on the capital employed in the business of manufacturing sugar. In order to appreciate the meaning of cls. (a), (b), (c) and (d), it must be remembered that ever since control on  sugar was imposed, Government had set up expert committees to work out  cost-schedules  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  grouped together into zones 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 Commission in 1958 and the Sugar Enquiry Commission in  1965 had  worked  out the zonal cost-schedules on  the  basis  of averaged  recovery  and duration, the minimum  and  not  the actual  price  of cane, the averaged  conversion  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  purpose  behind enacting  the new sub-section was three-fold, to provide  an incentive  to  increase production of sugar,  encourage  ex- pansion 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 for his cane higher than the minimum price fixed and  secure to  the  consumer  distribution of  at  least  a  reasonable quantity   of  sugar  at  a  fair  price.-’  Whether   these objectives  have,  through,  the working  of  the  new  sub- section,  been realised or not is a different, matter.   But there  can be no doubt that these were the  objectives,  for which the sub-section was passed.  The incentive to  secure, increased  production and expansion of the industry  was  to leave  a certain portion of the stock free for sale  in  the open  market, the assumption being that the  industry  would get a better price in such market than the price  determined under the formula incorporated in sub-section 3C. The fair price, therefore, has to be determined on the mini- mum  price  of cane fixed by Government,  the  manufacturing cost. on the basis of zonal cost-schedules, the tax or  duty applicable  in  the zones and must be so  structured  as  to leave  in the ultimate result to the industry  a  reasonable return  on  the capital employed by it in  the  business  of manufacturing  sugar.  It is clear from the reports  of  the Tariff  Commission that a reasonable return  recommended  by that  body at a fixed amount of Rs. 10.50’per quintal  which worked 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 levy sugar but was  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 sugar, 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  per quintal as an addition by way of a reasonable return on  the capital  employed  in  the  industry.   The   cost-schedules

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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  the  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 the heading of Ch. 9 of the Tariff Commission’s report, 1969, "Cost.  Structure and Price Fixation". Counsel for the appellants and for the several  interveners, 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 be  held  to  deal with levy sugar only, and  (2)  that  the language of the sub-section as also of its cls. (a), (b) and (c)  shows  that it dealt with and was concerned  with  levy sugar only and that therefore cl. (d) 873 must  also be construed to be dealing. with levy sugar.   It was  urged that besides the necessity of giving to  cl.  (d) the same meaning as one would have to give to cls. (a),  (b) and  (c), if cl. (d) were to be construed to mean return  on the  whole  of  the capital employed, there  would  ensue  a contradictory and even an anomalous result.  For purposes of cl.  (a),  one would have to take the floor  price  of  cane fixed  by Government, but for cl. (d), the actual  price  of cane paid by a unit 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 whose  stock  is required  to  be sold.  Counsel also urged that if  cl.  (d) were construed to mean reasonable return on tile  production of  the entire stock and not levy sugar only, it would  mean negativing  the entire scheme of partial control  which  was intended  to leave a reasonable return on that part  of  the stock which was required thereunder to be sold  irrespective of the return obtained by sale of the rest of- his stock  in a  free  market.  ’Therefore, it would be contrary  to  that concept if the profits made in respect of free sugar were to be  taken into account as a cushion if the fair price  fixed for levy sugar was not equivalent to the actual cost of pro- duction  and  were  to  result in a  return  less  than  the reasonable  return  on  that part of the stock,  or  even  a deficit.  Such a construction would, they argued, permit the Government  to  fix  a price which would not  leave  such  a return on the ground that sale of free sugar would bring  in sufficient  surplus to make up the deficit, if any,  on  the levy sugar.  Counsel further urged that such a  construction would  also defeat the very object (if Partial  control,  in that,  if  a  reasonable  return  was  not  assured  to  the manufacturer,  lie was hardly likely to buy cane at a  price higher  thin the minimum fixed by Government, a purpose  for which the partial control policy was evolved.  To bring,  in the return on free sugar for purposes of deciding whether  a return  guaranteed under cl. (d) was obtainable or not  from the  price  fixed  by Government would also  be  ushering  a factor  wholly extraneous to the sub-section.  It would  not be, therefore, right to bring into consideration free  sugar which is not the subject-matter of sub-see. 3C. To  accept  these contentions would in our  view  mean  dis- regarding  (1) the language of the sub-section, and (2)  the entire  background in which it was enacted and the  mischief it was intended- to remedy.  As explained earlier, the  sub- section  provides  two  things:  (a)  the  determination  by Government  of  a  fair price during the  process  of  which regard shall be had to the four matters set out therein, and (b)  payment  to  the manufacturer part of  whose  stock  is levied,  an amount "therefore" calculated with reference  to

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"such  price"  as  the  Central  Government  may  determine. Though the payment would of course be for 874 the  stock  required  to be sold  to  Government,  there  is nothing  in the sub-section to suggest that the price to  be determined  is to be with respect of that part of the  stock of a particular manufacturer which is required to be sold to Government. In deciding upon the policy of partial control and in having it  incorporated in sub-sec. 3, the Central  Government  was contronted  with two main problems (a) deterioration in  the sugar  industry,  and (b) the conflicting interests  of  the manufacturer, the consumer and the cane grower.  The  report of  the  ,  Sugar Enquiry Commission 1965 and  that  of  the Tariff Commission of 1969 highlighted the difficulties  that plagued  the industry and the necessity of  harmonising  the triple   conflicting  interests.   The  cane   acreage   was dwindling, as the incentives for that plantation were not as attractive as those for cereals and other agricultural  pro- ducts.   Part  of  that  production  was  diverted   towards production  of  gur  and khandsari,  leaving  no  scope  for greater  production  of sugar, the necessity for  which  was being  accentuated  as  the consumers’  demand  was  rapidly increasing.  The floor price of cane fixed by Government was intended  to protect the farmer from exploitation, but  that was  found  not to be an incentive enough to induce  him  to increase his acreage.  A device had to be found under  which a  price  higher  than  the minimum could  be  paid  by  the manufacturer of sugar.  The consumer, on the other hand, had also  to be. protected against the spiraling of sugar  price and  his  needs, growing as they were, had to  satisfied  at some  reasonable price.  Both these and a larger  production of sugar would not be possible unless there was a reasonable return  which would ensure expansion, which again would  not be  possible  unless new machinery for  such  expansion  was brought  in and factories, particularly in U.P.  and  Bihar, were  modernised  and renovated.  A fair  price  for  sugar, therefore, had to be such as would harmonise and satisfy  at least to a reasonable extent these conflicting interests. The concept of fair price was not unknown, for, it had  been worked upon from as early a time as 1937.  That concept  did not  by  any account mean the actual cost of  production  of every  individual manufacturer.  It had to be arrived at  by the process of costing of a representative cross-section  of manufacturing units.  The history of the industry shows that such a process was being practiced through various formulas, in the beginning by working out an All-India  cost-schedule, and  when  that was found to be unrealistic by  working  out zonal cost-schedules beginning with four and by 1969 with 15 such zonal cost-schedules.  A fair price would not thus mean the  actual  cost  and  return  of  every  individual  unit, firstly,  because it would be impracticable,  and  secondly, because  it  would  be rewarding  the  inefficient  and  the uneconomic.   An  extreme example of such a unit  is  to  be found  in the compilation prepared by Dr. Singhvi where  the duration of 875 season of that unit was only seven days, and therefore,  its cost  came to over Rs. 600 per quintal.  If such  a  product were left to the mercy of a total free market and the impact of  free  competitiveness in it, such a  unit  would  hardly survive.   The  object  of the  policy  of  partial  control cannot, therefore, mean to reward such units. The  basis  of  a fair price would have to  be  built  on  a reasonably  efficient  and  economic  representative  cross-

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section  on  whose workings cost-schedules would  have  been worked  out  and the price to be  determined  by  Government under sub-sec. 3C would have to be built.  A claim that such a  price  has to be determined unit-wise  and  a  reasonable return  has to be ensured to each unit or that such a  price with  such a return would be in respect of that part of  its stock  required to be sold under sub-sec. 2(f) would  appear to be inconsistent with the concept of partial control,  the background in which it was evolved and the objects which  it attempted to secure.  Such a policy meant determination of a fair  price on the basis of which a producer would  be  paid for  part  of his stock required to be sold  to  Government. Such  a price would have to be determined having  regard  to the four factors set out in the sub-section.  Though factors (a) and (c) would be static, factor (b) would largely depend on  variables, such as duration and recovery, the prices  of fuel, labour etc. differing from zone to zone and  sometimes within  the  zone, necessitating averaging  and  costing  by selecting  a representative cross-section of units for  that purpose  and  arriving  at a cost-schedule  which  would  do justice  to the weak and the strong alike.  If this  be  the true meaning of cl. (b), it must mean securing a  reasonable return to the industry and not to each unit, irrespective of whether  it is economic or reasonably efficient or  not,  or only  in  respect of its stock required to  be  compulsorily sold  to  Government.   A unit-wise  fixation  of  price  as suggested by counsel, and payment on the basis of a price so worked   out  would  mean  perpetuating   inefficiency   and mismanagement,  and depriving the partial control policy  of the  incentives for economy and efficiency inherent  in  it. We  are,  therefore, satisfied both on the language  of  the sub-section, the background in which it was enacted and  the mischief  the  legislature  sought  to  remedy  through  its working that the true, construction is that a fair price has to be determined in respect of the entire produce,  ensuring to the industry a reasonable return on the capital  employed in the .business of manufacturing sugar.  But this does  not mean that Government can fix any arbitrary price, or a price fixed on extraneous considerations or such that it does  not secure  a reasonable return on the capital employed  in  the industry.  Such a fixation would at once evoke a  challenge, both  on  the  ground of its  being  inconsistent  with  the guidelines  built  in  the  sub-section  and  its  being  in contravention of Arts. 19(1)(f) and (g), and 31. 876 The  constitutionality  of the sub-section not  being  under challenge.  in  these appeals, the only  question  left  for consideration is whether the price fixed under the  impugned order, i.e., Rs. 124.63, is in consonance with s. 3(3C)? The  ex-works price worked out in the Tariff Commission  Re- port, 1969 for Haryana zone for the next three years,  i.e., 1969-70  to  1971-72,  based on  the  average  recovery  and average  duration of the past five years (1963-64  to  1967- 68),  i.e., 8.70% and 125 days, was Rs. 128.69 per  quintal. That figure was made up of the following :               1.    Wages   and  salaries  Rs.  11.70:   (2)               stores,  fuel and power Rs. 8.49: (3)  repairs               and maintenance Rs. 2.63: (4) packing  charges               Rs.  2.57:  (5) overheads Rs. 0.75:  (6)  cane               centre  and  cane .development Rs.  1.36:  (7)               depreciation (Income Tax Act rates) Rs.  3.60:               (8)   transport   of  cane   Rs.   1.53:   (9)               less--Credits    Rs.    0.75:    (10)    grade               differential   Rs.1.07:   (11)   return    and               rehabilitation   Rs.   12.50:   (12)   selling

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             expenses  Rs. 0.15: (13) bonus Rs.  0.60-Total               conversion  charges Rs. 38.96: (14)  cane  and               related  costs Rs. 89.73: (15) ex-works  price               Rs. 128.69. The  figure of Rs. 89.73 arrived at on the basis  of  driage being Rs. 9.86and average recovery of 8.70% was worked  out as follows :               (1)   Minimum   price   of   cane   fixed   by               Government   Rs.   7.37:   (2)    Co-operative               society’s   commission   Rs.  0.13   and   (3)               Cess/purchase tax Rs. 0.24, Total Rs. 7.74=Rs.               89.73  per quintal sugar, (vide Table 9.6  and               Appendices 35 and 36 at pages 89 and  212-214;               Report 1969). The ex-works price of Rs. 128.69 included Rs. 2 per  quintal for  rehabilitation.   That  amount  was  not  included   by Government when it fixed the price of Rs. 124.63 on  January 8,  1971  as  the  Government,  while  accepting  the  cost- schedules   and   other  recommendations   of   the   Tariff Commission,  had  deferred its  decision  on  rehabilitation pending  consultation  with the concerned  interests.  (Vide Government  Resolution,  Ministry of Food  and  Agriculture, dated February 20, 1970).  Deducting Rs. 2 from the ex-works price  worked  out by the Commission, the  Commission’s  ex- works  price would be Rs. 126.69 on the basis of  8.70%  and 125 days" as average recovery and duration. It  would appear that barring the statement in the  impugned order that Government had fixed the price at Rs. 124.63, the Government  had not disclosed even in its return how it  had worked  out that price.  At the instance of the  appellants, the High                             877 Court,  therefore,  by its order dated  September  14,  1971 called upon the Government to show the basis on which it had fixed  the,  price.   The  Government  thereupon  filed   an additional affidavit of the Deputy Secretary to the Ministry of  Agriculture dated September 14, 1971 according to  which on the available data before it the price would come to  Rs. 126.93.  This  figure  took note of  the,  increase  in  the purchase  tax by Haryana Government from 24 to 50 paise  per quintal of cane.  That was how the Government mentioned  Rs. 8.003  as the price of cane per quintal instead of Rs.  7.37 which was the floor price fixed by Government for the  year. Government also added Rs. 1.05 being the estimated impact of increase  in  wages recommended by the Second  Central  Wage Board,  the added depreciation allowed through  changes,  in the Income Tax Act and increased cost in packing  materials, the  total  of all the three having been worked out  at  Rs. 2.81  per: quintal of sugar.  According to  this  affidavit, when  Government was considering the fixation of  price  for 1970-71,  it  had before it the actuals as to  recovery  and duration for 1969-70 as also the. estimates supplied by  the factories  for 1970-71.  From these, the Government came  to the  conclusion  that  there  would  not  be  any   material difference  in recovery and duration between the  two  years and that was why it decided to continue the ex-factory price for  1969-70  for the year 1970-71 also.  The  incidence  of purchase tax for 1970-71 was placed at Rs. 2.06, higher than during  the preceding year, because for 1969-70 it was  from April  1, 1969, while in 1970-71 it was for the whole  year. The estimates for recovery and duration for 1970-71 were  on the  actual  recovery and duration for  the  preceding  year which  came to 8.76% and 187 days, as against the  estimates given  for that year by the factories, viz., 9.04%  and  157 days.  These were accepted for 1970-71 as, the only  actuals

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available  to  the  Government on January 8,  1971  were  in respect of the month of November 1970, which obviously  were too meagre for acceptance for the whole year. Annexures It and III to this affidavit show that as  against the levy price of Rs. 124.63 fixed by Government, free sugar was sold during 1969-70 at prices ranging from Rs. 126.21 to Rs. 138.01, exclusive of excise duty, and from October  1970 to May 25, 1971 when sugar was totally decontrolled at rates ranging from Rs. 132.30 to Rs. 151.38. It is undisputed that during  the period of six weeks when the stay order  granted by  the  High Court operated the appellants  sold  sugar  at about Rs. 150. These  figures  were not accepted by  the  appellants,  for, according to them, they sold free sugar during January  1971 to  May  24, 1971 at prices ranging from Rs. 135.19  to  Rs. 160.47,  the  average  rate being Rs.  139.70  less  Rs.1.07 differential-Rs.  138.63. As against the levy  price  worked out by Government at Rs. 126.93, 878 the appellants’ case was that on the actuals worked out  for the  year  1970-71,  the price would  be  Rs.  129.42,  thus causing  to  them  a loss of Rs. 5.20 per  quintal  on  levy sugar.   The difference between the price calculated by  the appellants  and  that  calculated  by  the  Government  (Rs. 126.93)  arises  because  of certain  disparities  in  their respective  figures, as also the percentage in recovery  and duration.   To the figure of Rs. 129.42, the appellants  add additional cost of interest, increase in freightage by  road and  rail  during the year, deterioration in  quality,  thus bringing   the  cost  to  Rs.  138.93.  The  loss  on   this calculation, according to them, would come to Rs. 3 lacs and odd on levy sugar which totaled 65,741 quintals. On  Government’s calculations based on the returns filed  by the  appellants, the Haryana factories realised  Rs.  126.50 per quintal on levy sugar taking into account the  different grades  produced by them and Rs. 139.70 per quintal on  free sugar  upto  May 25, 1971 when sugar was  decontrolled.   If levy  sugar alone were to be taken into  consideration,  the loan  per  quintal  of levy sugar would  be  the  difference between  Rs.  124.63  and Rs. 129.42, i.e.,  Rs.  6.20,  and nearly  double  if  the  additional  costs  claimed  by  the appellants  were to be admissible, which would  raise  their cost  of  production to Rs. 133.98. This calculation  is  of course on the basis that the return of Rs. 10.50 per quintal was altogether met, in the sense that-it was not expected to absorb items such as interest and the profits on free  sugar were  not  to be taken into consideration  for  ascertaining whether  a  reasonable return on the ,capital  employed  was actually obtained or not by the industry. The  High  Court, no doubt, did not hold the  price  of  Rs. 124.63  as  realistic and in view of the changes  which  had taken place during the year added in all Rs. 3.22, that  is, Rs.1.16  increase in wages, Rs. 56  additional  depreciation and Rs.1.20 as additional packing charges, totaling Rs. 2.92 and  presumably  Rs.  0.30 for  increase  in  purchase  tax. Adding  Rs.  3.28 to the Government price,  the  High  Court worked  out  the  fair price at Rs. 127.85  instead  of  Rs. 124.63. We need not examine the correctness or otherwise  of this  addition as the Solicitor General told us that he  did not  ,challenge  the correctness of this addition.   On  the basis  of Rs127.85 being the correct price,  the  appellants would lose Rs. 3.22 per quintal on levy sugar, if the  price realised  on  levy  sugar  alone  were  to  be  taken   into consideration.   The Solicitor General also  conceded  that purchase  tax  on cane in Haryana was increased  during  the

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year  1970-71  from 24 paise to 50 paise  per  quintal  with effect  from  April 1, 1970 and that increase  according  to para  1 1 of the return, dated May 1971 was not  taken  into account as the Government was of the opinion that the  price of  1969-70,  which  was  adopted  for  1970-71,   contained sufficient cushion to 879 absorb the impact of this increase.  This opinion was  based on  the fact that the working results for the  year  1969-70 turned out to be actually very much better than estimated. Counsel   for   the  appellants,  however,   expressed   his dissatisfaction  with the increase by the High Court of  Rs. 3.22  only  on the ground that the High Court did  not  take cognizance  of three items, viz., increase in purchase  tax, increase  in the rate of interest and increase in  road  and rail  freightage.   As already stated, the  increase  so  in purchase tax appears to be included in Rs. 3.22, granted  by the  High Court for otherwise the three increases stated  in the   judgment,  viz.,  increase  in  wages,   increase   in depreciation and increase in packing charges, would make the total of Rs. 2.22 only. The largest addition in the price claimed by the  appellants was Rs. 2.29 per quintal by way of additional interest.  The basis  for  the claim was that owing to  the  production  of sugar  in  1969-70 being the all time  highest,  there  were larger  stocks lying unreleased with the factories  both  in the case of levy as well as free sugar, with the result that the factories had to bear additional interest on the working capital  involved  in  such unreleased  stocks.   The  usual period  of six months for the release of stock on the  basis of  which the return on capital at the static figure of  Rs. 10.50  a  quintal  had  actually  become  unrealistic.   The result,  therefore, was that the factories could not  expect to get the said return on the capital employed. Since  the question was an important one we called upon  the Government to disclose the correspondence, if any, which  it had   in  this  connection  with  the   Tariff   Commission. Thereupon    the    Government   produced    the    relevant correspondence.  It appears from that correspondence that on March 26, 1970 the Indian Sugar Mills Association had made a representation  for addition in the return of Rs.  10.50  on the ground that the 1969-70 year’s production had come to 42 lac tonnes, an all time record and in addition thereto there was  already  at  hand a large  stock  lying  undisposed  of resulting  in  the component of working capital  being  very much  higher than that calculated by the  Tariff  Commission while fixing Rs. 10.60 as the return.  On June 5, 1970,  the Government  referred this representation to the  Commission. By   its  letter  dated  July  29,  1970,   the   Commission recommended  that the question of accumulation of stocks  as represented   by   the  association   required   sympathetic consideration and suggested an increase in lieu of  interest at  9% on the additional working capital represented by  the accumulated stock. In considering this claim however two facts need to be borne in mind.  The production in 1970-71 was not as high as  that in 880 1969-70  and in fact had considerably declined.  So  far  as the  ,Haryana  factories were concerned, none  of  them  had purchased  cane at a price higher than the minimum fixed  by Government,  although  the assumption behind the  policy  of partial control leaving 40% of the stock for free market and the unconventional method ,of granting a fixed return of Rs. 10.50   was  that  these  two  factors  would   enable   the

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manufacturer  to  pay  a higher  cane  price.   The  figures supplied  to  us by Government called out from  the  returns filed by the factories would also suggest that the claim for Rs.   2.29  per  quintal  was  not  warranted.   The   total production  by the Haryana factories during 1970-71  was  of the  tune of 82,756 tonnes.  Despatches upto May  24,  1971, when sugar was decontrolled, of free sugar were 7,065 tonnes at  Rs. 139.70 per quintal.  Despatches of levy sugar,  upto the  date of the interim order of stay dated April  8,  1971 were  2,380 tonnes and from April 8, 1971 to May  24,  1971, 4,194  tonnes  at Rs. 158.02 per quintal.   The  balance  of stock lying with the factories as on June 1, 1971 was 6911.7 tonnes.  Despatches during the decontrol period, i.e.,  from June 1, 1971 to December 31, 1971 were 63,023 tonnes at  the rate of Rs. 151.39 per quintal, leaving a balance in hand of 6094 tonnes.  It may be mentioned that on June 30, 1972  the stock  lying on hand came to 427 tonnes. only.   Since  this was  the position, the claim for additional interest at  Rs. 2.29 per quintal does not appear to be sustainable, nor also the  claim  for deterioration of stock owing  to  the  stock lying stored up beyond the normal period, the loss by way of deterioration during such period being the normal  incidence of the trade which the manufacturer must anticipate. Regarding  the  claim  of  63 paise  owing  to  increase  in freightage (i.e., of 54 paise by road and 9 paise by rail), the  Tariff Commission refused to concede that claim.   Even before  us  there are no adequate materials to come  to  any precise  conclusion  as  to  the  ,extra  burden  which  the appellants   had  actually  to  bear,  though  increase   in freightage during the year is admitted. Have the Haryana factories then not received in fact  during 1970-71 the reasonable return as envisaged by sub-s. 3C? The  actual  figures of the year for duration  and  recovery were  not  in  dispute.   They  were  162  days  and   8.69% respectively.   On  that basis; the cost, according  to  the cost-schedule  worked  out for Haryana  by  the  Commission, would come to Rs. 126.61, including Rs.10.50. To that  amout may be added the following, even assuming that they are  all allowable : (1) increase in wages, Rs.1.05, (2) increase  in depreciation,  56  paise, (3) deterioration in  quality,  19 paise, (4) insurance and godown costs, 7 paise, (5) increase in cost of consumable stores, 19 paise, (6) increase in 881 cost  of gunny bags, Re.1.20, (7) increase in freightage  by road and rail, 63 paise, (8) interest on longer storage, Rs. 2.84 and (9) selling expenses, 45 paise (total Rs.  7.18=Rs. 133.79).  But for the reasons given above, items 3, 7 and  8 (total Rs. 3.66) must go and therefore the figure would come to  Rs. 130.13. As against this, the realisations  for  levy and  free  sugar upto the date of decontrol, i.e.,  May  24, 1971  were as follows : 63,741 quintals at the average  rate of Rs. 124.63 and 70,650 quintals at the average rate of Rs. 136.49. The average price thus realised comes to Rs. 130.77. There is no doubt that if the sales after May 24, 1971 which were  all in free market were to be taken into account,  the average  realised would come to much more than  Rs.  130.77. There  is, therefore, no doubt that taking the picture as  a whole  the Haryana factories got in any event  a  reasonable return on the capital employed. On the construction of sub-section 3C adopted by us and such of  the materials produced before us, we are of the  opinion that  no case for quashing the impugned order has been  made out, nor has the price fixed by Government been shown to  be inconsistent with the sub-section. In  the result the appeals fail and are dismissed.  In  view

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of the somewhat complicated questions as to the meaning  and interpretation of sec. 3(3C) of the Act, we direct that  the parties will bear their own costs althroughout.  Liberty  to the  parties to file applications for directions in  respect of  the  Bank Guarantees furnished by them in  pursuance  of stay orders passed by this Court. V.P.S.                      Appeals dismissed. 882