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CASE NO.: Appeal (civil)  6202 of 2000

PETITIONER: M/s. Udaipur Phosphates Fertilizers Ltd

RESPONDENT: Union of India & Anr

DATE OF JUDGMENT: 31/01/2007

BENCH: S. B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T

MARKANDEY KATJU, J.

       This appeal has been filed against the impugned judgment of the  Delhi High Court dated 6.9.1999 in L.P.A. No. 375 of 1999 by which  the judgment of the learned Single Judge of the High Court dated  26.5.1999 dismissing the writ petition was upheld.

Heard learned counsel for the parties and perused the record.

The appellant is a company registered under the Indian  Companies Act and is engaged in the manufacture of fertilizers and  chemicals.  One of the products it produces is Single Super Phosphate  (SSP).

Till 1976, the manufacture and sale of SSP was not controlled by  the Government.  However, from 1976 to 1982, the manufacture of  SSP was subjected to a system of uniform subsidy whereby each  manufacturer was given a uniform rate of subsidy.   

In the year 1982, the Government of India brought SSP under a  formal price control known as the Retention Price and Subsidy Scheme  (hereinafter referred to as RPS) for regulating the price and sale of SSP.   The scheme had been introduced on the basis of a detailed study and  recommendation of an Inter-Ministerial Working Group appointed by  the Government.  Under the RPS, the manufacturers were obliged to  sell their fertilizers at a subsidized price fixed by the Government,  which was below the cost of production.  The respondent No. 2  calculated the cost of production of each unit on the basis of certain  factors such as capacity, location, age of the plant, etc. and added a  certain amount of notional profit, and the result was called the retention  price.  The difference between the retention price and the selling price  as fixed by the Government was calculated and paid to the  manufacturers as subsidy.  Thus, while price of the fertilizers for the  consumers, namely, the farmers was subsidized by the Government, the  manufacturers were given an amount which was calculated by the  FICC on the basis of normative cost of production of the unit which  was to be calculated on the assumption that the unit performed  efficiently at 90% capacity utilization.

       On 15.1.1986, the Department of Industrial Development,  Ministry of Industries issued Press Note No. 1 whereby the capacity  indicated in the industrial license could be re-considered with reference  to the highest production achieved during any of the previous 5 years  plus 1/3rd thereof, provided that was within the licensed capacity plus

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25%.  Thereafter, the Department of Industrial Development, Ministry  of Industry issued Press Note No. 9 (1988 series) on 6.4.1988 w.e.f.  1.4.1988 which provided a scheme for re-endorsement of higher  capacity of the fertilizer units.  Under the said scheme, the unit could  apply for re-endorsement of an enhanced capacity on the basis of the  best production actually achieved in any financial year between  1.4.1988 and 31.3.1990.

In accordance with the abovementioned Press Note of 1988, the  appellant vide application dated 8.8.1988 applied to the Ministry of  Industries for re-endorsement of the capacity of the appellant unit on  the basis of the actual production between 1.4.1988 and 31.3.1990.

Thereafter, the respondents asked for several verifications which  were provided by the appellant.  However, it is alleged that despite  repeated follow-ups, after the various verifications, respondent No. 1  issued letter of approval only on 31.3.1993, i.e. three years after the  appellant had applied for re-endorsement, stating that they were  recognizing the appellant’s enhanced capacity of 74,089 MT from the  earlier capacity of 66,000 MT with retrospective effect from 1.4.1990.   It was further informed that respondent No. 1 was tentatively  recovering an amount of Rs. 26.55 lakhs by downward revision of the  ex-works price of the appellant from 1.4.1990. The appellant’s grievance is that the Government has  retrospectively re-endorsed the capacity of the appellant and reduced  the price payable to the appellant with retrospective effect, which  effectively denied the appellant from taking advantage of the re- endorsed capacity.  The appellant filed the abovementioned Special  Leave Petition challenging the order dated 6.9.1999 passed by the High  Court of Delhi whereby the learned Division Bench dismissed LPA No.  375/1999 on the ground that when the appellant had applied for re- endorsement of the capacity, in view of the fact that the appellant had  already achieved the maximum production, thereby fulfilling the  condition of Press Not No. 9 (1988 series), then the re-endorsement  was bound to automatically take place.  Further, merely because it took  some time for inspection by the respondents, it did not mean that the re- endorsement was not automatic.

Press Note No. 9 has been quoted in detail in the impugned  judgment and hence we are not quoting it again here.

In pursuance of this Press Note the appellant made an application  for re-endorsing the capacity on the basis of actual manufacture  during  1st April 1988 and 31st March 1990.  The 1st respondent accorded  approval of re-endorsement by letter dated 31st March 1993.  The said  letter also indicated that in view of the higher capacity the fixed  charges had been re-calculated from 1st April 1990.  The letter stated  that on the basis of re-calculation there would be a recovery of  approximately Rs. 26.55 lakhs.  A writ petition was filed challenging  the re-calculation of the fixed charges and the recovery of approximate  Rs. 26.55 lakhs.

       The learned Single Judge of the High Court dismissed the writ  petition on the ground that once an application was made under Press  No. 9, the re-endorsement was  merely a formality in view of the fact  that the appellant had already achieved the maximum production.  The  learned Judge held that as the appellant had already produced more, re- fixation of the fixed cost was bound to take place.  The learned Judge  held that the fixed cost was bound to come down.  The learned Judge  also held that the subsidy has been correctly worked out on the basis of  actual manufacture as undertaken by the appellant.

       The learned Single Judge in his judgment has observed that the  facts as stated in the application of the appellant dated 8.8.1990 for re- endorsement of its capacity would substantiate the stand of the

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respondents that the appellant-unit had already achieved maximum  production and only needed ex-post facto approval in compliance to the  Press Note dated April 6, 1988.  It was also observed that it was clear  that the appellant produced more and it could not be said that no  opportunity to actually manufacturing in excess of the endorsed  capacity was provided.   The sanction of the respondents vide  communication dated March 31, 1993 is in the nature of ex-post facto  approval and cannot be held to be discriminatory as the fixed cost  obviously will come down while manufacturing more and subsidy had  been correctly working out on that basis.   

In appeal, the Division Bench observed that if the appellant  fulfilled the condition of Press No. 9 then the re-endorsement was  bound to take place automatically.  Merely  because the respondent  would have to make an inspection that there was no additional  investment in the plant, machinery and equipment exceeding 10% of  the book value, and such inspection takes some time, does not mean  that the re-endorsement was not automatic.

We agree with the view taken by the learned Single Judge and the  Division Bench  that once the appellant’s case falls within the criteria  laid down in Press Note 9 then the re-endorsement takes place  automatically.  Once such re-endorsement takes place on the basis of  actual manufacture the fixed cost is bound to be revised and hence the  subsidy is bound to be reduced.

The Press Note No. 9 at paragraph 2f clearly indicates that this  scheme is in addition and not a substitution for the facilities already  available under any existing scheme.  Hence, the grievance of the  appellant that from the date of application for re-endorsement i.e.  8.8.1990 till 31.3.1993, when the re-endorsement was granted, the  benefit of subsidy was not given is wholly untenable on account of the  fact that the appellant overdrew the subsidies on account of the  enhanced capacity which was on its own showing an admitted fact. The appellant was duly informed that their capacity has been  enhanced with retrospective effect from 1.4.1990 onwards to 74,089  MT (which was the production achieved by them during 1989-90).   It  is evident that the appellant produced more, and the appellant cannot  say that no opportunity to actually manufacture in excess of the  endorsed capacity was provided to them.  The communication dated  31.3.1993 has to be deemed to be an ex-post facto approval of the  maximum production already achieved by the appellant.  The benefits  in terms of the said scheme have already been availed of and drawn by  the appellant company, and in fact some amount has been found to be  overdrawn.

In view of the above, we find no merit in this appeal.  The appeal  is accordingly dismissed.  No costs.