Delhi High Court
Parle Biscuits P.Ltd. vs Uoi & Ors. on 9 September, 2008
Author: S.Muralidhar
Bench: Chief Justice, S.Muralidhar
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ LPA 393/2007 & CM 7890/2007
PARLE BISCUITS P.LTD. ..... Appellant
Through: Mr. Valmiki Mehta, Sr. Adv. with
Mr. Asheesh Jain, Advocate
versus
UOI & ORS. ..... Respondents
Through: Mr. P.P. Malhotra, ASG with
Mr. Pushkar Sood, Mr. Varun Kathuria,
Advocates
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE DR. JUSTICE S.MURALIDHAR
1. Whether reporters of the local papers be allowed to see the judgment ? n
2. To be referred to the Reporter or not ? y
3. Whether the judgment should be reported in the Digest ? Y
4.
ORDER
% 09.09.2008
1. The present appeal arises from the judgment and order of the learned single Judge dismissing the writ petition filed by the appellant. The appellant is a leading biscuit manufacturer having manufacturing plants in different States. The appellant has set up a sugar factory at village Parsendi, UP. According to the appellant, it is not a manufacturer of sugar and the sugar factory was set up by the appellant only with a view to use the entire production captively as an input in its biscuit manufacturing units which is the main business of the appellant. The appellant sent a representation to the Chief Director (Sugar), Directorate of Sugar, Ministry of Food, Government of [LPA 393/2007] Page 1 of 15 India on 27th January, 2006 seeking two concessions, namely, that the appellant should be exempted from the operation of the Regulated Release Mechanism of the Government and that the appellant should not be subjected to statutory levy obligation of 10% in respect of the sugar manufactured by it. The first concession was sought on the ground that since the entire production was required for captive consumption for the purposes of manufacturing biscuits, the exemption ought to be granted and the appellant be allowed to use the sugar so produced by it. The second concession with regard to levy sugar was being claimed on the ground that the appellant did not fall within the ambit of the provisions of Section 3(2)(f) of the Essential Commodities Act, 1955 (hereinafter referred to as the Act) as the appellant was not producing sugar for the purposes of selling, but for captive consumption. It was additionally contended that the appellant was also covered under the Incentive Scheme, 1997 under which sugar mills were exempted from the levy obligation for a period of 5 to 8 years depending upon the location of the sugar mills. As the said representation was not decided, the appellant approached this Court by filing writ petition No. 5584/2006, wherein the statement of the learned counsel for the respondent was recorded that the representation of the appellant shall be disposed of by a speaking order within four weeks. The appellant's representation was thereafter [LPA 393/2007] Page 2 of 15 considered and rejected by the Chief Director (Sugar) vide order dated 17th August, 2006. Being aggrieved, the appellant filed the writ petition being WP(C) No. 14903/2006 which came to be dismissed by the learned single Judge by the order under appeal.
2. On the part of the appellant, the following two contentions were raised before us:
(a) The appellant cannot be subjected to the Regulated Release Mechanism in respect of the Non-Levy / Free Sale Sugar being operated by the Central Government under Section 3 (3E) of the Act since the entire quantity of sugar produced in sugar unit of the appellant is for self-consumption, being captively consumed as a raw material in the manufacturing of its main product, i.e. biscuits, and therefore the appellant cannot be termed as a "person carrying on the business of manufacturing sugar" and thus cannot be treated to be a "producer" of sugar within the meaning of the term as given in Explanation to sub-section (3E) of Section 3 of the Act as well as the Sugar Control Order, 1966.
(b) The appellant is entitled to the benefit of the Sugar Incentive Scheme, 1997 in respect of the Levy Sugar requirement under Section 3(1) read with Section 3(2)(f) of the Act and as per para 8.3 of the said Scheme, the Appellant is [LPA 393/2007] Page 3 of 15 entitled to 100% free sale quota in respect of sugar produced by its factory at Parsendi for a period of 8 years.
3. Before we deal with the contentions advanced at the bar, we may briefly refer the scheme of the Essential Commodities Act, 1955. As can be seen from the preamble of the Act, the object and intent of the Act is to secure equitable distribution and availability at fair prices of essential commodities in the interest of general public. Section 2(e) of the Act shows that sugar is an essential commodity. Section 3(1) of the Act confers powers on the Central Government to control production, supply, distribution etc. of essential commodities and reads as follows:
"3 (1) If the Central Government is of the opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, or for securing any essential commodity for the defence of India or the efficient conduct of military operations, it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein."
4. Sub-section (2) of Section 3 then says that without prejudice to the powers conferred by sub-section (1), an order made thereunder may provide for any matters enumerated in clause (a) to (j) of the said sub-section. By virtue of clause (f) of Section 3(2) an order passed under Section 3(2)(1) may provide for requiring any person holding in stock or engaged in production or in the business of buying or selling [LPA 393/2007] Page 4 of 15 of any essentially commodity, to sell the whole or a specified part of the quantity held in stock or produced or received by him and in the case of any such commodity which is likely to be produced or received by him, to sell the whole or specified part of such commodity when produced or received by him, to the Central Government or a State Government or to an officer or agent of such Government or to a Corporation owned or controlled by such Government or to such other person or class of persons as may be specified in the order.
5. Sub-section 3(E) was inserted by the amending Act 37 of 2003 with effect from 14th June, 1999 and reads as follows:
"(3E) The Central Government may, from time to time, by general or special order, direct any producer or importer or exporter or recognised dealer or any class of producers or recognised dealers, to take action regarding production, maintenance of stocks, storage, sale, grading, packing, marking, weighment, disposal, delivery and distribution of any kind of sugar in the manner specified in the direction.
Explanation: - For the purposes of sub-section (3D) and this sub-section-
(a) 'producer" means a person carrying on the business of manufacturing sugar;
(b) "recognised dealer" means a person carrying on the business of purchasing, selling or distributing sugar;
(c) "sugar" includes plantation white sugar, raw sugar and refined sugar, whether indigenously produced or imported."
6. In the light of the above statutory scheme we proceed to examine the contentions raised on behalf of the appellant. [LPA 393/2007] Page 5 of 15
7. Re Contention (a) The contention of Mr. Valmiki Mehta, learned senior counsel appearing for the appellant, is that the appellant is not a producer of sugar within the meaning of the term as given in Explanation (a) to Section 3(3E) of the Act inasmuch as the sugar manufactured by the appellant is used only for captive consumption. He therefore submitted that the appellant is not carrying a business of manufacturing sugar and thus cannot be termed as a producer of sugar within the meaning of the said term. According to him, a person can be said to be in the business of manufacturing sugar if the said person is also engaged in the activity of selling and buying of sugar and since the sugar produced by the appellant is meant only for captive consumption, the appellant cannot be said to be covered by the definition of 'producer' as given in the Explanation to Section 3(3E) of the Act. He submitted that the sugar factory of the appellant ought to be considered as a part/unit of appellant's biscuit factory. He also submitted that since the sugar produced by the appellant is being consumed for the production of the biscuit, it has no impact on the market conditions and therefore the definition of 'producer' cannot be said to have intended to cover the case of the appellant. He also submitted that sub-section 3(3E) is a distinct provision and therefore it must be interpreted independent of the general provisions contained in [LPA 393/2007] Page 6 of 15 Section 3(1). In support of his submissions he relied upon the decisions of the Supreme Court in State of Punjab v. Guno Majra Cooperative Agriculture Service Society Ltd. (2000) 9 SCC 210, State of UP v. Gulshan Sugar and Chemical Limited (1995) 4 SCC 529 and Belsund Sugar Co. Limited v. State of Bihar and Ors. (1999) 9 SCC 620.
8. In reply, Mr.P.P. Malhotra, learned Additional Solicitor General appearing on behalf of the respondent Union of India, contended that the Act confers ample power on the Central Government to issue orders regulating or prohibiting the production, supply and distribution thereof and trade and commerce in any essential commodity for the objectives of maintaining or increasing supplies of such commodities or for securing its equitable distribution and availability at fair prices or for the purposes of defence of India or efficient conduct of military operations. He submitted that, from time to time, in exercise of this power, the Central Government has been issuing sugar control orders. He submitted that the Government has power to issue orders / directions in respect of essential commodities, including sugar to ensure that the market operates in a manner which is in the best public interest. It is for this reason that the Central Government has been given the power to regulate the market in various ways, including the requirement of producers to maintain stocks, the requirement to [LPA 393/2007] Page 7 of 15 requisition supplies for the purposes of the PDS, the requirement to release certain quantities for free-sale in the open market etc. He submitted that the release orders are issued under Section 3(3E) of the Act and an All India record of all the factories/manufacturing units is maintained by the Central Government. He submitted that the Central Government had the power to control the amount of sugar that was to be made available through the two channels, i.e. under the PDS through Fair Price Shops (FPS) at a regulated price or in the open market through the regulation of the Regulated Release Mechanism. He submitted that the Central Government could compel producers to sell and dispose off stocks of sugar to regulate the prices of the same in the open market. So, the argument that the appellant does not intend to sell the sugar produced by it in the open market is of no consequence. According to him, the appellant can be compelled to release the stocks of sugar held by it in the open market if the exigencies of the situation require so, as to maintain prices of sugar at a desired level.
9. The short question that falls for our consideration is whether the appellant is right in contending that it is not a producer of sugar within the meaning of sub-section (3E) of Section 3 of the Act. The provisions of sub-section 3(3E) confer power on the Central Government to issue, from time to time, general or special order directing any producer or [LPA 393/2007] Page 8 of 15 importer or exporter or recognized dealer or any class of producers or recognized dealers, to take action regarding production, maintenance of stocks, storage, sale, grading, packing, marking etc. Explanation to sub-section(3E) defines a producer "to mean a person carrying on the business of manufacturing sugar". There is no dispute that the appellant carries on the activity of manufacturing sugar in its factory at Parsendi. The argument of Mr.Mehta, however, is that since this sugar is used only for its factory consumption it cannot be said to be in the business of manufacture of sugar. According to him the main activity of the appellant is manufacturing biscuits and not manufacturing sugar. We find ourselves unable to agree with Mr.Mehta. We shall also presently show that the various decisions relied upon by him are not applicable to the facts of the present case. In our opinion, the appellant is clearly covered by the provisions of Explanation (a) to Section 3 (3E) because the appellant is carrying on the business of manufacturing sugar. The expression 'business' connotes a commercial enterprise carried on for profit; a particular occupation or employment habitually engaged in for livelihood or gain (See Black's Law Dictionary, 8th Edn., Pg.211). Both the units of the appellant, i.e. its unit for manufacturing sugar as well as biscuits unit, are part of its business activity. In the circumstances, therefore, it is impossible to accept the plea of the learned counsel that the appellant is not carrying on the business of [LPA 393/2007] Page 9 of 15 manufacturing sugar. This being the case, the appellant cannot escape its obligation under the Monthly Release Order issued in exercise of power granted to the Central Government by virtue of Section 3(3E) of the Act.
10. The argument of Mr.Mehta that because of the appellant produces sugar only for its captive consumption, it does not affect the market at all is also not well founded. In this context, the learned single Judge has pointed out as follows:
"In a competitive market, it is the supply and demand factors alone which determine the market price. In India, a hybrid system is followed insofar as sugar is concerned. 10% of the sugar that is produced is reserved for distribution through Fair Price Shops under the PDS. The said sugar, which is known as levy sugar is sold at regulated prices. The balance part of the sugar market in India is unregulated in one sense though regulated in another. It is unregulated insofar as the price is concerned. However, it is regulated because the Central Government regulates the quantity of sugar that is released in the open market. While levy sugar regulation is price-driven, non-levy sugar regulation is supply-driven. In this context, if the petitioner's case is examined, it will be seen that by the petitioner producing sugar for its captive consumption, the petitioner would reduce the demand for sugar for its captive consumption, it would have had to purchase the same from the market. A reduction in demand would necessarily mean a lowering of the price of sugar. The object, as indicated in the Statement of Objects and Reasons of the 2003 Amendment is to maintain prices. In a free market system, prices can be depressed either by increasing the supply or by lowering the demand."
11. It is therefore clearly seen that the power to issue direction under Section 3(3E) is not hedged by the fact that the person engaged in the [LPA 393/2007] Page 10 of 15 business of manufacturing sugar is using it only for its captive consumption.
12. Mr.Mehta relied upon the decision of the Supreme Court in State of Punjab v. Guno Majra Cooperative Agriculture Service Society Ltd. (supra). That was a case where the question was whether an agriculture service society was a "dealer" within the meaning of clause 2(f) of the Fertilizer (Control) Order, 1985. In the Control Order, the term 'dealer' was defined to mean a person carrying on the business of selling fertilizers, whether wholesale or retail (or industrial use), and includes a manufacturer and a pool-handling agency carrying on such business and the agents of such person, manufacturer or pool-handling agency. The Court noted that the respondent society was a service society and it has got its own bye-laws. The members of the society were agriculturists, who required manure, fertilizers and implements for cultivation. The object for which the society was formed was to render service to its members for carrying out agricultural activities. One of the objects of the society was to make arrangement for supply of agricultural requirements for its members as well as to supply manure, fertilizers, improved seeds, insecticides and other production requisites with a view to promote increased agricultural production. Another object of the society was to give loans and also to give manure, fertilizers and improved seeds to its members on credit on "no [LPA 393/2007] Page 11 of 15 profit no loss" basis. Under the bye-laws, it was not permissible for the society to sell fertilizers in open market or to anybody else other than its members. On these facts, the Court came to the conclusion that there is no commercial or business activity involved when the society distributes and supplies fertilizers to its members and therefore the society cannot be said to be engaged in the business of selling of fertilizers and therefore was not a dealer within the meaning of clause 2(f) of the Fertilizer (Control) Order, 1985. In so far as the case in hand is concerned, the appellant is admittedly involved in the business of manufacturing sugar for the commercial gain.
13. The next judgment relied upon by Mr. Mehta is State of UP v. Gulshan Sugar & Chemicals Ltd. (supra) In that case, the respondent consumed coal for running its factory and sometimes, quality of coal supplied was not of the kind required by the respondent and the same was therefore rejected. Further, a huge quantity of coal dust was collected during the storage, loading and unloading of coal and coal dust was also produced when coal was broken into pieces of required sizes. The rejected coal and the coal dust being of no use to respondent, it disposed of the same without obtaining any licence under the Control Order. The question before the Court was whether the respondent was a dealer within the meaning of Uttar Pradesh Coal Control Order, 1977. The High Court held that a casual solitary [LPA 393/2007] Page 12 of 15 transaction would not make a person dealer and that since there was nothing on record to show that there was continuity in transactions of sale of coal dust or rejected coal by the respondent, the Supreme Court agreed with the finding of the High Court that the respondent was not in the business of sale or storage for sale of coal.
14. The last judgment cited by Mr. Valmiki Mehta is in the case of Belsund Sugar Co. Ltd. v. State of Bihar & Ors. (supra). In that case, the submission on behalf of the State Government was that the various Control Orders regulating sugar have been issued with the objective of maintaining and ensuring availability of the same. The object of Sugar (Control) Orders was thus different from the various objects of the Market Act. The various provisions of the Market Act for regulating sale, purchase and storage of free sugar would, therefore, be available and there is no repugnancy between the provisions of the Sugar (Control) Orders and the Market Act. While rejecting this submission, the Supreme Court observed in para 86 of the decision that it is the ultimate sale of the manufactured article, namely, sugar by way of levy sugar or in free market that is sought to be controlled by the Control Orders which cannot effectively operate save and except in harmony with the provisions enacted for the control of raw material, namely, sugarcane as envisaged by the Sugarcane Orders as well as the Sugarcane Act and, therefore, they together provided a complete [LPA 393/2007] Page 13 of 15 machinery for controlling the production, sale and purchase not only of the raw material, i.e. sugarcane, but also the finished product, i.e. sugar and consequently, the entire regulatory machinery and the infrastructural facilities to be made available by the Market Committees for regulating the sale and purchase of such an "agricultural produce" would get totally excluded. We see no relevance of the observations made in paragraph 86 of the above cited judgment to the issue which is involved in the instant case. In our opinion, the conclusion of the learned Single Judge that the appellant was involved in the business of manufacturing of sugar and hence was squarely covered by Section 3(3E), is correct and therefore we reject the first contention of the appellant.
15. Re: Contention (b) As regards contention (b), the applicability of the Incentive Scheme of 1997, it will be necessary to refer to para 3 of the said Scheme which reads as under:
"3. APPLICABILITY OF THE SCHEME
(i)The Incentive Scheme shall be applicable to the sugar factories to whom letters of intent/industrial licences have been issued to the new units and expansion units including those sanctioned after March, 1994.
(ii) The sugar factories which have been issued letters of intent/industrial licences during the period 07.09.1990 to 31.3.1994 will have an option to avail of incentive under 1993 Incentive Scheme or the incentive now being proposed in this Scheme, subject to the condition that [LPA 393/2007] Page 14 of 15 the same are implemented by 31.12.1999."
16. On going through the relevant clauses of the Scheme, it is clear that the Scheme of 1997 is a specific scheme and is not for general application. The scheme is applicable only to the sugar factories to whom the letters of intent/industrial licences have been issued for the new units and expansion units including those sanctioned after March, 1994. It is not disputed before us that no letter of intent / industrial licence has been issued to the appellant factory as the appellant factory has come into existence after the de-licencing of the sugar industry. The appellant's unit was established after 31.12.1999 and the Incentive Scheme of 1997 has no application in respect of the factory of the appellant. Therefore on this clear finding of fact, the second submission of Mr. Mehta is also liable to be rejected.
17. In the result, we dismiss the appeal with costs assessed at Rs.20,000/-.
CHIEF JUSTICE S.MURALIDHAR, J SEPTEMBER 09, 2008 pk [LPA 393/2007] Page 15 of 15