- (1.) The petitioners are owners of sugar mills operating in the State of Uttar Pradesh in areas classified for the purpose of determining the price of levy sugar as West and East Zones. They challenge the validity of notifications dated 28th November, 1974 and 11th July, 1975 (Annexures 8 and 9) issued by the Central Government in exercise of its power under sub-section (3C) of S. 3 of the Essential Commodities Act, 1955 (Act No. 10 of 1955), as amended to date, (hereinafter referred to as the 'Act').1 The petitioners do not, and cannot, challenge the validity of the sub-section by reason of Art. 31 B of the Constitution of India. By the impugned orders, the Central Government fixed the prices of levy sugar for 1974-75 production. For the purpose of determining the prices, the country is divided into 16 zones, and the prices fixed for various grades of sugar in terms of S. 3 (3C) of the Act vary from zone to zone. Prices are determined with reference to the geographical-cum-economic considerations and the average cost profiles of factories located in their respective zones. Each State for this purpose constitutes a separate zone, while U.P. is divided into 3 zones and Bihar into 2 zones. The petitioners contend that these orders are ultra vires the Act and violative of their fundamental rights as the prices of levy sugar have been determined arbitrarily with reference to the average cost profiles of factories grouped together in zones without regard to their individual capacity and cost characteristics. Such prices do not reflect the actual manufacturing cost of sugar incurred by producers like the petitioners or secure to them reasonable returns on the capital employed by them. Geographical zoning, for the purpose of price fixation, they point out, is an irrational and discriminatory system of averaging wide cost disparities amongst producers of widely varying capacity. Cost of manufacture of sugar depends on a number of factors, such as recoveries from the sugarcanes, duration of the crushing season, crushing capacity of the plant, the sugarcane price paid and the capital employed in the manufacture of sugar. These factors vary from factory to factory. Fixation of the levy sugar prices on zonal basis without regard to these divergent factors and the comparative cost profiles gives the owners of bigger factories an undue advantage over producers like the petitioners whose factories are comparatively of lower crushing capacity and whose manufacturing cost is consequently higher. Clubbing of the petitioners' factories with dissimilar factories in the same zones for the purpose of price fixation is discriminatory, arbitrary and unreasonable. The petitioners point out that the system of geographical zoning for the purpose of price determination has been severely criticised by the Bureau of Industrial Costs and Prices (the "BICP") who have strongly recommended the division of the sugar industry into groups of units having similar cost characteristics with particular reference to recovery, duration, size and age of the unit and capital cost per tonne of output, and irrespective of their location.
(2.) The respondents, on the other hand, contend that the classification of sugar industry into 15 zones (now 16) was upheld by a Constitution Bench of this Court in Anakappale Co-operative Agricultural and Industrial Society Ltd. v. Union of India, (1973) 2 SCR 882: (AIR 1973 SC 734). The contention that the zonal system was discriminatory and violative of constitutional principles was pointedly urged, but cotegorically rejected by this Court. The method adopted by the Government in fixing the price of levy sugar is fully supported by the recommendations of various expert bodies. The Tariff Commission in its 1973 Report recommended division of the country into 16 zones for this purpose. The price of sugar is fixed with reference to the Cost Schedule recommended by that body. These recommendations are based on various factors such as cost and output of individual labour, cane price (accounting for about 70 per cent of the cost of sugar production), quality of sugarcane, taxes on sugarcane, cost of other material, transport charges, cost of storing the sugar produced, cane development charges and other overhead expenses, selling expenses etc. These factors are almost identical for the entire zone.
(3.) The cost of manufacturing sugar, the respondents. contend, depends not only on recovery from the sugarcane, duration of crushing season, crushing capacity of the plant, the sugarcane price paid and the capital employed, as stated by the petitioners, but also to a considerable extent on the condition of the plant and machinery, quality of management, investment policy, relations with cane growers and labour, financial reputation etc. They say : "It is evident from the Tariff Commission Report of 1959, as also the Official Directory of the Bombay Stock Exchange, that the petitioner Company has been consistently diverting huge amounts for investments running into several lakhs elsewhere instead of ploughing back the same into the petitioner's sugar industry in question. Thus, the petitioner Company has been neglecting the sugar factory and for such neglect of their own they cannot blame the Zonal system.";