Decided on February 18,1971

UNION OF INDIA Respondents


Obul Reddi, J. - (1.) In this batch of writ petitions, the constitutional validity of the notification issued by the Central Government, dated 1-3-1970, in exercise of the powers vested in it under sub-sc. (3-C) of S. 3 of the Essential Commodities (Second Amendment) Act, 1967 (Act 36 of 1967) (hereinafter referred to as the Act) fixing the ex-factory prices of "Levy sugar per quintal grade wise has been challenged. Even if the section is held to be valid, it is the petitioners case, the impugned notification dated 1-3-1970 is not valid, as the prices were fixed without regard to the factors mentioned in sub-section (3-C) of S. 3 and all the recommendations of the Tariff Commission, which the Central Government accepted in fixing the prices, are wholly unrelated to the cost of production and are not in conformity with the requirements of Cls. (a), (b), (c) and (d) of sub-section (3-C) of S. 3 of the Act.
(2.) To determine the validity or otherwise of the impugned notification fixing the ex-factory prices of sugar, it is necessary to state the gist of the averments as appear from the affidavits filled in support of the writ petitions. There are 19 sugar factories in Andhra Pradesh and they are all members of the South Indian Sugar Mills Association, the first petitioner in W. P. No. 3709, of 1970. Some of the sugar factories have been established in the co-operative sector and the rest in the private sector. It is the common case of all the sugar factories that sugar industry is an agro-based seasonal industry and the working results of the industry depend very must upon the variety of factors including climatic conditions. If the percentage of recovery of sugar from the cane is high, the cost of production will be less; but, if the recovery is low, then the manufacturing cost will be higher. The cost of production is also dependent upon the duration of the crushing season which varies from factory to factory having regarded to the availability of cane in each factory area. Neither the percentage of recovery nor the price of sugarcane nor the manufacturing cost remains constant, as they are variable, depending upon several factors. The factories, during the years 1967-68, 1968-69, purchased sugarcane at the rates of Rs. 100/- and 110/- per metric tonne which is higher than the minimum sugarcane price fixed by the Government under the Control Order. There was further rise in the manufacturing cost of sugar by reason of the revision of the wages effected consequent on the recommendations of the Second Wage Board. The Governments while fixing the ex-factory prices, has not borne in mind that the prices fixed should secure a reasonable return on the capital employed in the business and the factors that were taken into consideration by the Government on the recommendations of the Tariff Commission are de hors the statutory requirements of Section 3 (3-C). The Central Government divided the entire country into five sugar zones in accordance with the recommendations made by the Sen Enquiry Commission, which was set up in August, 1964. The Government fixed ex-factory price to sugar for the years 1965-66 to 1968-69 on the basis of the cost schedule prepared by that Commissioner. Two of the sugar factories in Nizamabad District were included in Zone, I, comprising of Gujarat, Maharashtra, North Mysore and North Andhra Pradesh. The remaining 17 factories in the State were included in Zone II comprising of Orissa, rest of Andhra Pradesh South Mysore, Madras, Pondicherry and Kerala. The prices per quintal of sugar of Grade D-29 in Zone II it was Rs. 161-14. The price fixed for the sugar produced in 1968-69 season for the various factories in the State was on the basis of the price fixed for each of the five zones. The price fixed for the subsequent years 1969-70, 1970-71 and 1971-72 under the impugned notification is on the basis of the Tariff Commissions report, which divided the entire country into fifteen zones bringing into one zone. This division of the country into fifteen zones for fixation of sugar price is not made on any rational basis relevant to the economics of sugar production and further it resulted in fixing a higher price to States like Tamilnadu. Mysore, which were originally in Zone II, along with seventeen of the factories in the rest of Andhra Pradesh and the lower price now fixed for the factories in Andhra Pradesh has resulted in these factories being discriminated against.
(3.) In this batch of writ petitions, it would be sufficient if we refer to the appointment of Sugar Enquiry Commission in August, 1964, which was asked to make a comprehensive enquiry into the various aspects of sugar industry including the economics of sugar production and cost structure and the appointment of Tariff Commission in 1968, which was against asked to examine the cost structure of sugar and the preparation of new cost schedules to fix the fair prices payable to the sugar industry. The Sugar Enquiry Commission, also known as Sen Commission, as it was headed by Dr. S. R. Sen, after an elaborate enquiry, thought fit to divide the country into five zones and fix prices for each of the zones having regard to the variations in the duration of the crushing season in each area, percentage of recovery of sugar from cane, cost of cane in each area, and the cost of production. The Government introduced partial decontrol of sugar in 1967-68. Partial control was exercised on the price of sugar by fixing what is called "levy price of sugar" for the five zones. By this partial control 70% of the sugar produced by each factory could only be sold at the price determined by the Central Government as specified in the notification for that year. There was dissatisfaction in the sugar industry over the cost schedules prepared by the Sen. Commission. The data collected by the Commission for the year 1963-64, it was complained by the industry, had become out of date. The sugar industry asked for re-examination of the cost schedules. The Tariff Commission was, therefore, requested to go into the question of cost schedule so that the industry may have a fair return for the capital employed. Among the other points which it was asked to enquire into were whether the classification of factories into zones should remain as they were in accordance with the recommendations of the Sugar Enquiry Commission and if not, on what other considerations should the division of factories be into zones. Accordingly, the Tariff Commission made an elaborate enquiry going into every aspect of the sugar industry and made its recommendations and submitted a report. These recommendations were accepted by the Central Government resulting in increasing in number of price zones from five to fifteen in order to eliminate inter se anomalies in the cost structure. The cost schedules prepared by the Tariff Commission for fixing levy prices of sugar for three years, 1969-70, 1970-71 and 1971-72, were also accepted. As regards the reasonable return on the capital employed in the business, the Tariff Commission recommended Rs. 10.50 per quintal of sugar, which, it considered, would be fair and reasonable. This margin or return of Rs. 10.50 is to cover interest on capital, profit, taxation and the like.;

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