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PETITIONER: UNION OF INDIA AND ORS.

       Vs.

RESPONDENT: SURYA PHOSPHATE LIMITED AND ANR.

DATE OF JUDGMENT12/08/1992

BENCH: SAWANT, P.B. BENCH: SAWANT, P.B. KULDIP SINGH (J)

CITATION:  1993 AIR 1620            1992 SCR  (3) 817  1992 SCC  (4)   1        JT 1992 (4)   481  1992 SCALE  (2)159

ACT:      Administrative Law :      Price   control-Fertilizer-Single   Super    Phosphate- Government’s circular dated 19.6.1982-Interpretation  of-New scheme for payment of differential rate of subsidy in  place of uniform subsidy-Whether to be on the basis of actual cost shown   by   manufacturers-Normative   method   adopted   by Government for working out the cost of different components- Validity of.

HEADNOTE:      Single Super Phosphate (SSP) a fertilizer, was  brought under  Retention Price Control with effect  from  23.5.1982. The Fertilizer Industry Coordination Committee (FICC) issued a scheme of subsidy in order to boost up the consumption  of phospatic  fertilizer.  The benefit of the said subsidy  was passed  on to the farmers by lowering the  price.   However, prior  to 23.5.1982 there was no uniformity in the price  of SSP and it varied from manufacturer to manufacturer and from zone to zone.  The Government therefore changed the  formula on the recommendation of a Working Group which examined  and reviewed  the  subsidy  on SSP.  According  to  the  revised formula  variable costs would be determined and fixed  costs suggested  by the Group would be added to arrive at the  ex- factory  price.   Consequently, Government sent  a  Circular letter dated 19.6.1982, to all manufacturers of SSP.      The Respondent-company has been manufacturing SSP since 28.11.84  long after the new formula for subsidy  came  into force.   It had no captive plant and had to procure the  raw material   viz. Sulphuric Acid from the market at  a  higher price.   Though the Respondent-company’s unit did not  incur any  capital  cost on setting up a matching  Sulphuric  Acid Plant, notional cost on setting up such a plant to match the requirement  of installed capacity of SSP was provided  for, while   working  out  the  convention  cost.   Subsidy   was accordingly worked out and paid to the Respondent-company.                                                        818      Not  satisfied with the method of calculating  subsidy, and  insisting that the Government was obliged to take  into consideration  the  landed costs of Sulphuric  Acid  at  its factory, the Respondent-company filed a Writ Petition before

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the  High  Court.  It was held by the High  Court  that  the Government  was  bound to calculate subsidy payable  to  the company  taking  into consideration  its  ex-factory  price. Being aggrieved against the said order, Government preferred the present appeal.      Allowing the appeal, this Court      HELD  : 1. The Circular letter issued by Government  on 19th June, 1982  made no representation other than conveying to each of the manufacturing units that a scheme for payment of  differential  rate of subsidy in place  of  the  earlier uniform  flat  subsidy  was  being  introduced.  What   that differential rate of subsidy would be, would depend upon the ex-factory price worked out by the FICC separately for  each manufacturing  unit.   The method by  which  the  ex-factory price  was  to be worked out for each of  the  manufacturing units was not indicated in the Circular letter.  That was to be  on the basis of the recommendation of the Working  Group as  accepted by the Government.  In fact, the new method  of payment  of  subsidy was based on  the  said  recommendation which  also included the formula to work out the  ex-factory price.  [824D,E]      2. It was implicit in the said Circular letter that the ex-factory price would be worked out by the FICC on  certain basis.   It  is incorrect to say that in the  absence  of  a method for working out the ex-factory price indicated in the said  Circular letter, it should be presumed that  what  was represented  to the manufacturing units was that they  would be paid subsidy on the  basis of the  actual costs shown  by them.  [824-H, 825-A,B]      3. Understandably, the  method adopted by the FICC  for working out the ex-factory price was on a normative basis as recommended  by  the  Working  Group  and  accepted  by  the Government.   That was as it should be.  In the  absence  of such   norms  for  working  out  the  costs   of   different components,    there   would   virtually   be   chaos    and arbitratiness, as also misfeasance at both ends.  [825-C]

JUDGMENT:      CIVIL  APPELLATE JURISDICTION: Civil Appeal  No.585  of 1992.      From  the  Judgment and Order dated  25.6.1991  of  the Patna  High Court in Civil Writ Jurisdiction Case No. 92  of 1990 (R).                                                        819      G.Ramaswamy,  Attorney  General, V.C.  Mahajan,  Hemant Sharma, Mrs. Indra Sawhney, Sudhir Walia, C.V. Subba Rao and Ms. Sushma Suri Advs. for the Appellant.      Ashok Bhan, Harish Salve, Yunus Malik, L.R. Singh,  ND. B. Raju, Vikas Singh and Gopal Singh for the Respondents.      The Judgment of the Court was delivered by      SAWANT, J. The question involved in the present  appeal is of the interpretation of Circular letter dated 19th June, 1982   issued  by  the  Fertilizer   Industry   Coordination Committee,  Government of India [Department of  Chemicals  & Fertilizers]  [‘FICC’] to all manufacturers of Single  Super Phosphate.   Did  the  Circular  letter  represent  to   the manufacturers  that they would be paid differential rate  of subsidy based on the actual ex-factory price of each of  the manufacturing  units or did it inform them that the  subsidy would be based on the ex-factory price of each of the  units which  would  be worked out by the FICC? To  appreciate  the controversy,  it  is  necessary to have  a  glimpse  of  the relevant facts.

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    Single  Super  Phosphate  [‘SSP’]  is  a  low  nutrient phosphatic  fertilizer.  Its two major ingredients are  Rock Phosphate  and  Sulphur.  The consumption norms of  the  two items  for manufacturing one metric tonnes of SSP  are  0.57 M.T. of Rock Phosphate and 0.125 M.T. of Sulphur.      SSP  was brought under Retention Price  Control  w.e.f. 23rd  May, 1982.  There are a number of units  manufacturing SSP in the small and medium sectors.      In  order  to boost up the  consumption  of  phosphatic fertilizer, FICC had in March, 1976 issued a scheme of  flat subsidy  of Rs. 1250 per tonne of p-205 [equivalent  of  Rs. 200  per  tonne  of SSP]. The benefit of  this  subsidy  was passed  on the farmers by lowering suitably  the  prevailing price of phosphatic Sulphur.      2.  Before 23rd may, 1982, viz., the date on which  the SSP  was  brought under the Retention Price  Control,  every manufacturer   of   SSP,  irrespective  of   the   cost   of manufacture    used  to get the same subsidy  at  the  above rate.  However,  different  retail  prices  were  fixed  for different manufacturers and                                                        820 for  different  marketing zones of  the  same  manufacturer. The  retail  prices  were fixed from time  to  time  by  the Fertilizers  Association  of India in  accordance  with  the formula  laid  down by the Ministry of  Agriculture  in  May 1966.   Under  this formula the ex-factory  price  for  each manufacturing  unit  was  fixed  taking  into  account   the prescribed fixed charges and variations in the price of  raw materials  and  bags  as  compared to  the  costs  of  these materials provided for in the original formula.  The  result was that there was no uniformity in the price of SSP.      3.  The  Working  Group on Review  of  Subsidy  on  SSP examined  all these aspects and gave a report in 1980.   The Group  recommended  that the scheme of flat subsidy  at  the above rate be replaced by a scheme of differential level  of subsidy  for each manufacturer depending on  the  ex-factory price  and other expenses incurred by each  manufacturer  as fixed according to the formula/guidelines recommended by the Working  Group.   The Group came to the  conclusion  that  a system of Retention Price of SSP similar to the one existing for  Nitrogenous and Complex Fertilizers was not  expedient. While variable costs, which constituted about 80 percent  of the total cost of SSP, were susceptible of determination  on a  normative approach and without difficulty,  the  detailed costing  of a fixed cost element under each unit was  not  a practical  proposition.  This was so mainly because  of  the existence of a large number of units manufacturing SSP which were  also multi-product/multi-activity units.   The  Group, therefore, suggested a formula for determining the  variable costs to which were to be added the fixed costs suggested by the Group in order to arrive at the ex-factory price of each manufacturing unit.      4.  This  recommendation  of  the  Group  was   broadly accepted  by  the  Government  and  SSP  was  brought  under Statutory  Price  Control  w.e.f.  23rd  May,  1982.   While accepting  the  recommendation of the  Group,  however,  the Government made some changes in it.  It is not necessary  to refer  to them here.  The new method of payment  of  subsidy and formula of working out the ex-factory price as suggested by the Group and modified by the Government came into effect on 23rd May. 1982.      5.  Pursuant to the introduction of the new  method  of payment  of  the subsidy the circular  letter  in  question, viz.,  that  of  19th  June,  1982  was  addressed  by   the Government to all manufacturers of SSP.  It is necessary  to

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quote the circular letter verbatim:                                                        821          "To                All manufacturers of Single Super Phosphate.               Sub :-Single Super  Phosphate--Retention  Ex-                      factory Price in respect of .....          Dear Sir,               Consequent upon issue of Government of  India,          Ministry  of Agriculture, Deptt. of  Agriculture  &          Cooperation,  telegram No. 1-9/82-F.A.  (CP)  dated          22nd  May,  1982 fixing a uniform retail  price  of          Single  Super Phosphate with effect from 23rd  May,          1982, it has become necessary to replace the scheme          for  payment of uniform flat subsidy of  Rs.  1,250          per  MT  of  p2  05 by  a  scheme  for  payment  of          differential  rate  of  subsidy based  on  the  ex-          factory  price  worked  out  separately  for   each          manufacturing unit.             2.  To  enable this office to work out  the  ex-          factory  price  in respect of SSP  manufactured  in          your  unit, information in the  enclosed  proformae          may  please be furnished to this  office  urgently,          latest by 15th July, 1982.  The information  should          be furnished separately for the periods 1.10.81  to          31.12.81 and 1.1.82 to 31.3.82 only certified by  a          Chartered Accountant or your Statutory Auditors."      6.  Along  with the Circular letter, as stated  in  its body, pro formae were circulated for collecting  information of  various elements contributing to the variable and  fixed costs.      7. After the then existing units submitted the relevant information    and   taking   into    consideration    their representations,  the  variable costs were  determined  with reference to the expenses for each factory on the average of three  months  preceding the last quarter.  The  costs  were calculated  with reference to the details furnished by  each unit in the detailed proformae  for variable input costs. To this  cost  was added the fixed costs to arrive at  the  ex- factory price of each individual unit.  The extracts of  the relevant  minutes of the meetings of the FICC held  on  16th October,  1982 and 17th February, 1983 which are annexed  as Annexure  ‘C’ to the present petition, show the  details  of the manner in which the ex-factory price was worked out  for the product.                                                        822      8.  The respondent-company commenced its production  of SSP  for the first time on 28th November, 1984,  i.e.,  long after  the replaced subsidy as suggested and worked  out  by the new formula came into force.  The installed capacity  of the  unit as declared by the Company was 120 tonnes per  day or 39,800 M.T. per annum.  As the respondent-company had  no captive plant for manufacturing Sulphuric Acid, the notional cost of a matching 43 tonnes per day Sulphuric Acid  captive plant  based on the  actual cost of the standard  plant  for 1984  was  taken  at Rs. 99.81 lakhs  for  the  purposes  of computation of fixed charges applicable to the unit.  It may be  stated  here that admittedly those  manufacturing  units which  had  a  captive Sulphuric Acid  plant  could  produce Sulphuric  Acid at lesser cost and others had to procure  it at  a  higher price from market.  In order to  equalise  the cost of production of SSP of both types of units this method of taking the notional cost had to be adopted as approved by the   FICC.   Thus,  it  would  be  seen  that  though   the respondent-Company’s unit did not incur any capital cost  on setting  up  a matching Sulphuric Acid plant,  the  notional

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cost  of a Sulphuric Acid plant to match the requirement  of installed capacity of SSP was provided for while working out the  conversion  cost in the  case  of  respondent-Company’s unit.  Based on this notional costs which formed part of the capital  employed,  normative  working  capital,  the  share capital and borrowings, etc. were also worked out and  their fixed  charges  were accordingly determined.   There  is  no dispute that subsidy worked out by the above methodology was paid to the respondent-Company as it was paid to other units manufacturing SSP.      9.  The respondent-Company, however, was not  satisfied with the method of calculating the subsidy and insisted that while working out the subsidy the Government was obliged  to take  into consideration the landed costs of Sulphuric  Acid at its factory as revealed in the cost data submitted by it. It  worked  out  the  subsidy  on  the  said  basis  at  Rs. 1,12,58,449 as arrears of subsidy from the date it commenced production  and filed a writ petition before the High  Court for  recovery  of the said amount.   The  respondent-Company also  prayed for injunction to restrain the Government  from paying the ex-factory price of SSP manufactured by it except on the basis of its actual cost of production including  the actual landed cost of Sulphuric Acid at the factory.      10. By the impugned judgment, the Patna High Court held that  in  view  of  the  fact  that  the  respondent-Company purchased Sulphuric Acid                                                        823 from  open  market and transported it to  its  factory,  the Government was bound to calculate the subsidy payable to the Company  taking into consideration its ex-factory  price  of SSP.   It is this decision of the High Court which is  under challenge before us.      11.  Shri  Sen, the learned counsel appearing  for  the respondent-Company  contended  that  the  language  of   the Circular  letter dated 19th June, 1982 [reproduced  here  in above] is very clear.  By this Circular letter, the FICC had in  terms promised every manufacturer of SSP a  differential rate of subsidy based on the ex-factory price worked out for each of the SSP manufacturing units.  Hence, the  Government was obliged to pay the entire difference between the  retail price  of SSP fixed by the Government [which was lower  than the  cost  of production of SSP] and the  actual  ex-factory price  of  SSP of each of the manufacturing  units.   Hence, uged  Shri  Sen, the High Court was right in  directing  the Government   to  calculate  the  subsidy  payable   to   the respondent-Company as per the interpretation of the Circular letter  by  the  Company  and also to  pay  the  arrears  in question.    He  also  contended  that  that  is  the   only interpretation possible of the said Circular letter.      12.  There is no dispute that what holds the field  for the  payment of the subsidy is the Circular letter  of  19th June, 1982.  The controversy relates to its  interpretation. Taking into consideration the entire history of the  subsidy as we have narrated above, the recommendation of the Working Group, its acceptance by the Government and the issuance  of the Circular letter to implement the recommendation and  the subsequent  minutes  of  the meetings of the  FICC  held  on 16th  October, 1982 and 17th February, 1983 and  the  method for  working out the ex-factory price detailed  therein,  we are of the view that the contention advanced by Shri Sen  is not  correct.   Viewed in its proper context,  there  is  no doubt  that  the  Circular  letter  in  question  has   only intimated  to  the manufacturers that  consequent  upon  the fixing of the retail price  of SSP w.e.f. 23rd May, 1982, it had  become  necessary  to replace the  old  scheme  of  the

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payment  of uniform flat subsidy, by a new scheme.  The  new scheme  was  for payment of differential  rate  of  subsidy. That rate of subsidy was to be based on the ex-factory price which had to be worked out separately for each manufacturing unit.   In  order to work out the ex-factory price  of  each unit, it was necessary to have information from each to  the units on items detailed in the pro formae.  The  information called  for  was for two different  quarters  preceding  the quarter                                                        824 beginning from April, 1982 since the uniform retail price of SSP  had  come  into  effect  from  23rd  May,  1982.   This quarterly  information  was to be certified  either  by  the Chartered  Accountant  of  the  unit  concerned  or  by  the statutory auditors.  The quarterly information was  required because  the  variable  costs were  to  be  determined  with reference to the expenses for each factory on the average of three  months preceding the last quarter.  In para 2 of  the Circular  letter it was clearly stated that the  information in question was required "to enable this office to work  out the ex-factory price in respect of SSP manufactured in  your unit".   This  was a clear indication that it was  the  FICC which  was going to work out the ex-factory price.   If  the subsidy  was to be based only on the ex-factory price to  be stated  by the manufacturing unit, there was no question  of working it out by the FICC office.      13. It would thus be seen that the Circular letter made no  representation  other  than conveying  to  each  of  the manufacturing   units   that  a  scheme   for   payment   of differential rate of subsidy in place of the earlier uniform flat  subsidy was being introduced.  What that  differential rate  of subsidy  would be would depend upon the  ex-factory price   worked   out  by  the  FICC  separately   for   each manufacturing  unit.   The method by  which  the  ex-factory price  was  to be worked out for each of  the  manufacturing units was not indicated in the Circular letter.  That was to be  on  the  basis of the recommendation  of  the  Group  as accepted  by  the Government.  In fact, the  new  method  of payment  of  subsidy was based on  the  said  recommendation which  also included the formula to work out the  ex-factory price.      14. Shri Sen attacked the recommendation  of the  Group and  the  method  adopted by the FICC to work  out  the  ex- factory price and the subsidy, on the ground that they  were not  made  known  to the manufacturing  units.   They  were, according  to him, kept confidential by the  Government  and all  that  was  held out was the promise  contained  in  the Circular  letter of 19th June 1982 which, according to  him, was for payment of subsidy to each unit on the basis of  its actual  costs.   It is not necessary for us to go  into  the question  as  to whether the method/formula adopted  by  the FICC  should  have been made known to the  manufacturers  or not.   Suffice it to point out that the Circular  letter  in question had not indicated any particular method of  working out  the  ex-factory  price.  It was implicit  in  the  said Circular  letter that the ex-factory price would  be  worked out                                                        825 by the FICC on certain basis. It is incorrect to say that in the absence of a method for working out the ex-factory price indicated in the said Circular letter it should be  presumed that  what  was represented to the manufacturing  units  was that  they would be paid subsidy on the basis of the  actual costs shown by them.      15. Understandably, the method adopted by the FICC  for

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working out the ex-factory price was on a normative basis as recommended  by  the Group and accepted by  the  Government. That  was  as  it should be.  In the absence  of  norms  for working  out the costs of different components, there  would virtually  be a chaos and arbitratiness.  To give  only  one instance: if a manufacturing unit were to consume more  Rock Phosphate and Sulphur or Sulphuric Acid than the consumption norm, its cost of production of SSP would be higher than the cost of production of the standard SSP.  It cannot be argued that  in spite of it, the manufacturing unit should be  paid the  differential  rate  of  subsidy on  the  basis  of  the unwarranted  cost.   One can multiply  such  instances  with reference to each of the other elements of cost of producing SSP.  In the absence of norms, there would be a good deal of scope  for  arbitrariness and misfeasance at both  ends.  We are,  therefore,  of the view that the contention  urged  by Shri Sen cannot be accepted.      16.  For the reasons stated above,  the  interpretation placed  by  the High Court on the Circular  letter  of  19th June,   1982   cannot  be   accepted.    Consequently,   the conclusion  arrived by it is erroneous.  Hence we allow  the appeal and set aside the impugned decision.      The  respondent-Company  will  bear  the  cost  of  the appeal. G.N.                                         Appeal allowed.                                                        826