Madras High Court
Mohan Breweries And Distilleries Ltd. ... vs State Of Tamil Nadu, Represented By ... on 2 July, 1991
Equivalent citations: (1991)2MLJ380
ORDER Bakthavatsalam, J.
1. The petitioners have come up to this Court for the issuance of a writ of certiorarified mandamus to call for the records made in R.C. No. 32/1339/89, dated 21.2.1990 of the 2nd respondent herein as revised in the proceedings dated 16.11.1990 and quash the same and consequently to pay the petitioners for the Beer supplied by them to the 3rd respondent on par with the rate at which the 3rd respondent had purchased Beer from TASCO for the period from 1.1.1990 and pass such other orders.
2. In the year 1983, the Tamil Nadu Government framed Tamil Nadu Brewery Rules, 1983, under the Prohibition Act, 1937. The said Rules provide for granting licence for manufacturing beer and regulating its manufacturing activities. The petitioner company is one registered under the Indian Companies Act and has set up a brewery at Madras for the manufacture of beer after obtaining a licence under the Tamil Nadu Brewery Rules, 1983 (hereinafter referred to as 'Rules 1983'). The 3rd respondent Corporation is a wholly owned company which came into existence in the year 1983. The said Corporation was conferred with the exclusive privilege of dealing in wholesale of Indian made Foreign Liquor (hereinafter referred to as 'I.M.F.L.') and Beer in the State of Tamil Nadu. In view of that, the petitioner company is obliged to sell the Beer manufactured by them only to the 3rd respondent Corporation. It seems the price at which Beer has to be sold to the 3rd respondent Corporation was settled by negotiations between the parties taking into account the cost of production and a reasonable margin of profit. It is also to be noted that the Excise Duty on the Beer produced by the petitioner company was to be paid by the 3rd respondent Corporation, who was the exclusive wholesale purchaser from the petitioner company. It seems this system continued to be in vogue till January, 1989. After the general elections held in the month of January, 1989, there was a change of Government in the State and the Government brought about a change in the Excise Laws relating to the Indian Made Foreign Spirit (hereinafter referred to as 'I.M.F.S') and Beer and as per the said change, the liability to pay Excise Duty on I.M.F.S. and Beer was transferred or shifted from the 3rd respondent Corporation to the manufacturers. It seems the Government has also drastically increased the Excise Duty on the I.M.F.S. and Beer products. Consequently, the 3rd respondent Corporation was obliged to increase the agreed price so as to include the Excise Duty as increased by the Government of reimburse the payment of the Excise Duty. But, without doing so, the 3rd respondent Corporation was continuing to pay for the Beer at the old rates and to reimburse the excise duty paid by the petitioner company only at the old rates, even though the petitioner was required to pay the increased Excise Duty involving a huge loss to the petitioner company. At this point of time, when the petitioner company made a representation stating that it is obligatory on the part of the respondents to reimburse the Excise Duty paid by it as per the changes brought about in the Excise Laws in the month of January, 1989, the petitioner company was compelled to sell the stocks at a loss. In spite of several representations, nothing had happened and for the period from January, 1989 to December, 1989, it is alleged in the affidavit filed in support of the petitioner that there is a loss worked out to Rs. 222 lakhs. It is alleged that the petitioner company will file a separate writ petition for that purpose. In the meantime, the Government of Tamil Nadu amended the Tamil Nadu Brewery Rules, 1983, by a Government Order and introduced Rule 27-A to the aforesaid Rules. As per Rule 27-A of the said Rules, the 2nd respondent herein, could from time to time, fix the minimum and maximum price for the sale of beer by the manufacturer to the wholesaler, by the wholesalers to the retailer and by the retailer to the consumer. The said Rules provide that no sale shall be made otherwise than in accordance with the above prices. According to the petitioner, that though the amended Rules provide for a fixation of a minimum and maximum price at which the manufacturers could sell their products, no such prices were fixed by the 2nd respondent herein, except issuing a proceeding dated 3.3.1989 stating that there shall be no increase in the price of beer and that the price agreed to by the Tamil Nadu State Marketing Corporation Limited (hereinafter referred to as "TASMAC") the 3rd respondent herein, in force as on 3.3.1989 will be the maximum manufacturers' price. According to the petitioner, the said procedure is illegal. Since the petitioner company was incurring huge losses on account of the fact that they are compelled to bear the incremental excise duty from its cost price, the petitioner company made representations to the respondents 1 and 2 on 3.5.1989 setting out the aforesaid facts and impressing upon them the need to fix the price as contemplated by the Rules so as to enable the petitioner to get the cost price and a reasonable margin of profit with reference to the Beer manufactured by the petitioner company. It seems that no action was taken till February, 1990. It seem that in case of I.M.F.S. also the Excise duty was increased and the manufacturers were forced to supply stocks absorbing the incremental excise duty during March, 1989 and the prices for I.M.F.S. were fixed by the 2nd respondent herein wherein the incremental excise duty was reimbursed by TASMAC. It is further alleged in the affidavit that the authorities refused to consider the legitimate claims made by the petitioner either to fix the prices as contemplated by the Rules or to reimburse the excise duty in full and that the 2nd respondent issued an order on 21.2.1990 purporting to be one under Rule 27-A of the Distillery Rules fixing the manufacturers issue price at which the beer produced by the manufacturers was to be sold to the third respondent Corporation. As per the orders of the Commissioner, the manufacturers issue price of the beer manufactured by the petitioner company was notified as follows for different brands.
_____________________________________________________________________ Brand Size Manufacturers issue price (per case) _____________________________________________________________________ Rs.P. Golden Eagle Lager Beer 650 ML 77.51 Golden Eagle Deluxe premium Beer 650 ML 83.68 Black Knight Super strong Beer 650 ML 88.16 Black Knight Super Strong Beer 325 ML 117.25 _____________________________________________________________________ It is further alleged in the affidavit that the aforesaid price was less than the actual cost incurred by the petitioner in the manufacture of beer, that it cannot be equated to be the maximum price at which it could be sold by the petitioner company and that particularly having regard to the fact that the 3rd respondent was enjoying all the monopoly status, the petitioner was suffering a loss of Rs. 16 per case. It seems that the 2nd respondent passed orders on 21.2.1990 fixing the manufacturers issue price of the beer manufactured by TASCO, a State owned Corporation at Rs. 92 per case. It is further alleged in the affidavit that having regard to the fact that the raw materials that go into the manufacture of beer is common and the further fact that the retail price of the beer manufactured by TASCO, a State owned Corporation was notified to be lesser than the beer manufactured by the petitioner company, there was absolutely no justification to fix the manufacturers issue price of the petitioner's beer at Rs. 77.51 per case, which is Rs. 15 lesser than the price fixed for the beer manufactured by the State owned Corporation TASCO. At that point of time, the petitioner made representations to the respondents to amend the order of the 2nd respondent dated 21.2.1990 and fix a realistic maximum selling price so as to enable the petitioner company to meet the actual cost of production and get at least a reasonable margin of profit. It is further stated in the affidavit that by the wholesale price fixed by the 2nd respondent on 21.2.1990, the 3rd respondent Corporation was able to make an undue margin of profit of not less than Rs. 22 per case, that the petitioner was required to sell the stocks to the 3rd respondent herein at a price which was lesser than the actual cost price, that the Committee which went into the question of the cost of beer manufactured by the petitioner company and the TASCO., submitted a report to the effect that the cost of 650 ml. of beer manufactured by the petitioner under the trade name of 'Golden Eagle, Lager Beer' would cost about Rs. 83 per case, while a similar quantity of beer manufactured by TASCO., under the trade name of 'London Pilsner' would cost about Rs. 85 per case and that the aforesaid difference of about Rs. 2 per case in the cost as determined by the Committee would by itself be on the high side taking into account the fact that the variable cost which alone would be the basis of any difference would not lead to such a result. When matter stood this, it is alleged in the affidavit, that to the shock and surprise of the petitioner, the second respondent herein passed an order dated 16.11.1990 again purporting to be an order under Rule 27-A of the Tamil Nadu Brewery Rules fixing the manufacturers issue price of beer in relation to the petitioner's company and TASCO., that as per the said order, the cost of 650 ml. of beer manufactured by the petitioner company under the trade name 'Golden Eagle', 'Lager beer' has been fixed at Rs. 83.02 per case, while a similar quantity of beer manufactured by TASCO., under the trade name 'London Pilsner' has been fixed to be sold at Rs. 98.50 per case and that there is a difference of about Rs. 15 per case. The petitioner further alleges in the affidavit that Rule 27-A of the Rule does not contemplate the fixation of the manufacturers issue price, that it only contemplates the fixation of a minimum and maximum price at which the manufacturers should sell to the wholesaler, that the issue price fixed by the 2nd respondent by its order dated 16.11.1990 in relation to the beer manufactured by the petitioner would hardly cover the actual cost of the product manufactured by the petitioner and would consequently result in the petitioner company being compelled to sell its products at a loss to the 3rd respondent Corporation. In the affidavit filed by the petitioner it. is categorically stated that the wholesale price at which the 3rd respondent could sell the beer manufactured by the petitioner Company has been fixed at Rs. 145.50 per case while the selling price of the beer manufactured by the TASCO., has been fixed at Rs. 148.20 per case leaving a margin of Rs. 21.50 to the 3rd respondent in relation to the sales of the beer manufactured by the petitioner and as such it is alleged in the affidavit that the respondents had acted arbitrarily and discriminatorily in the matter of fixing of the price. It is further alleged in the affidavit that the petitioner company submitted a detailed representation on 19.11.1990 pointing out that the fixation of price of the beer manufactured by the petitioner is discriminatory, arbitrary and confiscatory, that the manufacturers issue price fixed by the respondents would not cover the actual cost incurred by the company and that the amounts that are lawfully liable to be paid to the petitioner towards the costs of its products plus a reasonable margin of profit had been illegally siphoned to the 3rd respondent Corporation. It is further stated that the impugned order of the 2nd respondent fixing the manufacturers issue price under Rule 27-A of the Rules is arbitrary, that the Tamil Nadu Prohibition Act doe not enable or authorise the making of any rules providing for the fixation of the manufacturers issue price and as such the provisions contained in Rule 27-A are liable to be liable and that in the absence of any guidelines provided for in Rule 27-A of the Rules, the power conferred on the 2nd respondent under Rule 27-A of the Rules is liable to be struck down. It is further alleged in the affidavit that assuming that Rule 27-A of the Rules enables the 2nd respondent herein to fix the minimum and maximum price for the sale of beer by the manufacturer to the wholesalers, etc., the said rule does not authorise or contemplate the fixation of the manufacturers issue price at which alone the manufacturer could be compelled to sell the beer manufactured by it. It is further alleged in the affidavit that the impugned orders of the 2nd respondent dated 21.2.1990 and 16.11.1990 have not fixed the price of beer as contemplated by Rule 27-A of the Rules, that they have sought to fix the manufacturers issue price at which the beer manufactured by the manufacturers ought to be sold and as such the said order is therefore inconsistent and contrary to the provisions contained in Rule 27-A of the Rules and liable to be struck down. It is further stated in the affidavit that the scheme underlying Rule 27-A of the Rules is to enable the Commissioner, the 2nd respondent herein, to fix the minimum price, which cannot be lowered than the cost price and also fix the maximum price which would include a reasonable margin of profit to the manufacturers, that the manufacturers cannot sell the beer beyond that price, that the said price is less than the cost price, that the petitioner company is obliged to sell its stocks only to the 3rd respondent and as such the petitioner is being compelled, to do business at a loss and as such the said order is liable to be struck down as being confiscatory and arbitrary. It is further pointed out in the affidavit that the resultant loss suffered by the petitioner company on account of the aforesaid price fixation is about Rs. 7.07 crores upto 31.1.1991 and as such the impugned proceedings are liable to be struck down as being confiscatory and violative of Article 14 of the Constitution of India. It is further stated that the impugned orders of the 2nd respondent fixing the manufacturers issue price in relation to the beer manufactured by the petitioner is liable to be struck down as being discriminatory. The petitioner further contends that the beer is manufactured in Tamil Nadu only by two Breweries, that the first is the petitioner company that the other company is TASCO., which is wholly owned by the Government of Tamil Nadu, that the raw materials which go in towards the manufacture of beer are common and that there could be hardly any difference in the cost of beer excepting for the difference in the variable cost which would depend upon the depreciation and overheads which might differ between the petitioner company and TASCO. The petitioner further contends that the Committee appointed by the Government had determined the cost of beer produced by the petitioner company as well as the TASCO to be Rs. 83 and Rs. 85 per case respectively, that even the difference of Rs. 2 per case would be on the higher side, that the Government had fixed the manufacturers issue price of the beer produced by the TASCO at Rs. 98.50 per case and as such the fixation of price as Rs. 83 per case fixed for the beer manufactured by the petitioner is discriminatory. It is further pointed out that any fixation of price which does not provide for actual cost and the reasonable margin of profit is violative of Article 14 of the Constitution of India.
It is further submitted that the actual cost of production of beer by the petitioner company has been worked out to a figure which is more than the price fixed by the 2nd respondent and that there is absolutely no justification in denying the petitioner of even its cost price together with a reasonable margin of profit. It is further contended that Rule 27-A of the Rules should be construed and worked out in a reasonable manner, that if the said provision is construed as enabling the authorities to fix any price which may even be lesser than the cost price of the petitioner product, then the said provision would be liable to be struck down as being violative of Article 19(1)(g) of the Constitution. It is further submitted that there is no justification for fixing a lower price for the beer manufactured by the petitioner company as compared to these manufactured by TASCO. With these allegations, the petitioner has come up before this Court to quash the proceedings of the 2nd respondent dated 21.2.1990 and 16.11.1990 as stated supra.
3. Notice of motion has been ordered by me on 19.2.1991.
4. A counter affidavit has been filed on behalf of the respondents. It is claimed in the counter affidavit that the petitioner company is obliged to market the beer manufactured for consumption in Tamil Nadu only through TASMAC, the 3rd respondent herein. It is further claimed in the counter affidavit that the collection of excise duty from the manufacturer is in consonance with the decision of the Supreme Court (Second McDowell's case) wherein it was held that the manufacturer is liable to pay sales tax on the excise duty even though the excise duty is paid by someone else. It is further stated that the price prevailing on 3.3.1989 was the negotiated price between the manufacturer and TASMAC on 13.2.1989 that the manufacturer, wholesaler and the retailer prices were frozen at the price prevailing as on 13.2.1989 and that as the result of the order passed by the Commissioner, the 2nd respondent herein dated 3.3.1989, the manufacturer was paid for beer supplied as indicated below:
_______________________________________________________________________ Price inclusive Increased Net price of Rs. 13.05 rep. excise duty paid to Brand name additional and vend fee M/s. Mohan excise duty and absorbed by Breweries vend fee and the manufac- from transport charge turer as a 3.3.1989 of Rs.3 result of SC & CPE's Order dt.3.3.1989 _______________________________________________________________________ Rs.P Rs.P Rs.P
1. Golden Eagle Lager Beer 650 ML 82.20 13.05 69.15
2. Golden Eagle Deluxe Premium Beer 650 ML 88.72 13.05 75.67
3. Black Knight Super Strong Beer 650 ML 100.64 13.05 87.59
4. Black Knight Super Strong Beer 325 ML 116.81 13.05 103.76 _____________________________________________________________________ The Commissioner, the 2nd respondent herein did detailed costing for beer price fixation exclusive of excise duty and transportation charges and arrived at the price of each brand of the petitioner company as indicated below:
______________________________________________________________________ Brand Name Price Rs.P. ______________________________________________________________________
1. Golden Eagle Larger Beer 650 ML 54.99
2. Golden Eagle Deluxe Premium Beer 650 ML 57.52
3. Black Knight Super Strong Beer 650 ML 59.26
4. Black Knight Super Strong Beer 325 ML 83.17 _____________________________________________________________________ The position that emerged as a result of the rates worked by the Commissioner is as indicated below:
______________________________________________________________________ Net price Net price Price paid to paid to suggested M/s.Mohan M/s.Mohan inclusive Breweries Breweries of new Differ-
from 3.3.1989 from 3.3.1989 Vend fee erice
Brand inclusive of exclusive of of Rs. 4.50
name transport transport but exclu-
charges of charges of sive of
Rs.3, but Rs.3 and Excise Duty
excluding increased ED and transport
increased and VF of charges of
ED & VF of Rs.13.05 Rs.3 by CPE
Rs.l3.05
Rs.P Rs.P Rs.P Rs.P
________________________________________________________________________
1. Golden Eagle Larger 69.15 66.15 54.99 11.66 Beer 650 ML
2. Golden Eagle Deluxe 75.67 72.67 57.52 15.15 Premium Beer 650 ML
3. Black Knight Super Strong Beer 650 ML 87.59 84.59 59.26 25.33
4. Black Knight Super Strong Beer 325ML 103.76 100.76 83.17 17.59 ______________________________________________________________________ It is further claimed in the counter affidavit that when the issue referred to Government by the Commissioner was under consideration, a further communication was received by the Government from the Commissioner stating that inasmuch as TASCO was proposing to establish a brewery and HS such there was no necessity for immediate relaxation of price for beer taking into account the increased Teased excise duty and vend fee levied as has been done in the case of I.M.F.S. manufacturers in month of April/May, 1989. It is further claimed that the claim for reimbursement of differential excise duty and vend fee paid by the petitioner from March, 1989 to December, 1989 is untenable since every purchase is a simple contract of stock delivery and payment thereon. The allegation that there was a loss of Rs. 222 lakhs for the period from February, 1989 to December, 1989 is denied in the counter affidavit. Referring to Rule 27-A of the Rules, it is stated in the counter affidavit that it is for the first time, on a scientific analysis of the cost of raw materials, overheads and return on investment, the price of manufacturer was fixed. In pursuance of the new rule, that the petitioner was getting a fair price including a fair margin of profit, notwithstanding the absorption of increased excise duty and vend fee and that the same showed that the negotiated price paid by TASMAC in the past was much more than the actual cost of production plus a reasonable margin of profit. It is further claimed in the counter affidavit that the petitioner company earned enormous profits in the system of negotiated prices prior to 3.3.19S9 and as such the proceedings of the 2nd respondent dated 3.3.1989 by virtue of the powers vested dh him under Rule 27-A of the Rules, is valid. It is further claimed in the counter affidavit, by the impugned order dated 21.2.1990, the maximum manufacturer's issue price has been fixed with retrospective effect from 30.12.1989, the date on which beer price was fixed for TASCO, that no minimum price was fixed, as it was an exercise in futility for what was in focus was not the floor price but the ceiling price and though it was not termed 'maximum' the term 'issue price' meant only the highest price at which the petitioner could vend, issue, sell beer to TASMAC. It is further claimed in the counter affidavit that following the maxi mum issue price frozen at the price level as or 3.3.1989, and on analysing cost of production overheads and return on investment, the maxi mum manufacturer's issue price was revised. In para 11 of the counter affidavit, the components of price for the two beer manufacturers' products an given which runs as follows:
_________________________________________________________________________ Brand name Variable Contri- Trans Total Retail cost bution port price price per case per case cost given per (Overheads bottle & return on invest-
ments) __________________________________________________________________________
1. Golden Eagle Larger Beer 650 ML 59.19 15.32 3.00 77.51 15.00
2. Golden Eagle Deluxe Premium Beer 650 ML 65.36 15.32 3.00 83.68 16.00
3. Black Knight Super Strong Beer 650 ML 67.91 17.25 3.00 88.16 18.00
4. Black Knight Super Strong Beer 325 ML 98.93 15.32 3.00 117.25 10.00 TASCO
1. London Pilsner 650 ML 59.30 29.70 3.00 92.00 15.00
2. London Premium 650 ML 65.50 29.50 3.00 98.00 18.00 _____________________________________________________________________ Note : Per case of 650 ML contains 12 bottles and 325 ML 24 bottles.
As such, it is claimed in the counter affidavit that in the comparable varieties, the variable cost position shows a small difference only. It is further claimed in the counter affidavit that in regard to contribution per case, the price allowed to TASCO is more than that of the petitioner-company inasmuch as the investment of TASCO is much more than that of the petitioner company and depreciation of the assets of the new company is bound to be more than that of the petitioner. It is further claimed in the counter affidavit that the representation of the petitioner to Government that the net realisable price is much lower than the price fixed by the 2nd respondent herein was examined and after a detailed analysis, it was found that the Claim is unfounded. In paragraph 13 of the counter affidavit it is stated that it is true that while the price of Golden Eagle Lager Beer has been fixed at Rs. 83.02 per case, a comparable beer of TASCO under the trade name 'London Pilsner' has been fixed at Rs. 98.50 per case, that the difference is as a result of increase in overheads and cost of investment for TASCO which came into being in 1989 with an investment of Rs. 8 crores as compared to Rs. 3 crores of the petitioner company way back in 1984. It is further claimed in the counter affidavit that in the price offered to the two manufacturers, there is variation and this is due to the increased contribution allowed for TASCO based on increased overheads which include depreciation cost on the assets of TASCO which were acquired, recently and higher capital investment in the project. It is further claimed that there is no change in the 20% before tax profit margin allowed to the products of the two companies. It is further claimed in the counter affidavit that it is true that as a result of fixing of manufacturer's price and the retailer's price, the difference was allowed as profit margin to the wholesale dealer, that the margin of profit is bound to vary from brand to brand and from manufacturer to manufacturer that the price mechanism is so intricate, and that there is bound so be variation in price for the different brands of beer, taking ultimately the perception of the consumers' preference for the products. It is further claimed in the counter affidavit that Rule 27-A tested against the Prohibition Act ignores the fact that the Brewery Rules have been framed under Section 54 read with Section 17(8) of the Prohibition Act, which control the production manufacture, possession, transport, purchase and sale of liquors, and that therefore the addition of Rule 27-A of the Rules under the powers vested in Section 54 of the Tamil Nadu Prohibition Act, 1937 for the purpose of fixing the price of beer by the 2nd respondent herein is perfectly valid. It is further claimed in the counter affidavit that Rule 27-A of Rules is one of the limbs of the Brewery Rules which has its genesis in Section 17-B of the Prohibition Act read with Section 54. With regard to the contention that there is an element of arbitrariness in conferring powers on the Commissioner, it limed in the counter-affidavit that a 'Price ion Committee' has been instituted at the instance of the Commissioner and that the Government by order dated 31.3.1989 in G.O. Ms. No. 452, Home, Prohibition and Excise (III Department, constituted a Committee and that the Committee was asked to take into account several factors in arriving at the price. It is further claimed in the counter affidavit that the committee met on several dates during the year 1989-90 and arrived at the correct prices of beer. It is further contended in the counter affidavit that the allegation of the petitioner that the Commissioner has no power is not correct. It is further claimed in the counter affidavit that the price fixed by the Commissioner is the maximum price taking into account the profit also and that therefore the only restriction is that the products should not be sold above the maximum price fixed by the Commissioner. It is further claimed in the counter affidavit that there is negligible variation between the variable cost of TASMAC AND TASCO, that due to the fact that TASCO being a new one, the investment cost is more and the contribution towards overhead and return on investment is correspondingly more than in the case of petitioner company whose investment is low, that the difference in contribution is approximately Rs. 15 per case and that therefore the contention of the petitioner company is untenable and it is not violative and discriminative of Article 14 of the Constitution. It is further stated that there is no arbitrariness in price fixation by the Commissioner, the 2nd respondent herein, that the profit is bound to vary from brand to brand and from manufacturer to manufacturer, that there is no unjust enrichment in favour of the 3rd respondent company as contended by the petitioner company, that a fair price has been allowed to the petitioner company for the beer products and a reasonable profit margin has also been provided in the price fixation and that there is no arbitrariness in the fixation of manufacturers' price. It is further claimed in the counter affidavit that a reasonable profit margin following the "Bureau of Business Enterprises" norms has been adopted in giving 20% profit before taxation, and as such there is no arbitrariness in the price fixation. It is further stated in the counter affidavit that the investment of the petitioner company being lower than that of TASCO which has come into existence only at the end of 1989, the contribution allowed to TASCO is more than that of the petitioner company and that in both the cases, only similar profit margin viz., 20% before taxes has been allowed in fixing prices of the beer products. The 3rd respondent has adopted the counter affidavit filed by other respondents.
5. A reply affidavit has been filed by the petitioner company stating that the contention raised by the respondents in para 6 of their counter affidavit is not correct. It is further alleged that in any event, the petitioner company has not received the alleged detailed working or costing of its products and the basis on which the figures mentioned in para 6 of the counter affidavit. It is further alleged in the reply affidavit that the statutory rules contemplate a minimum and maximum price to be fixed by the 2nd respondent herein and that it is not open to the respondents to interpret the said rule and construe an irregular order to come within the purview of the Rules. The allegations made in para. 10 of the counter affidavit that the price had been fixed on analysing the cost of production, overheads and return on investment are untenable. It is further stated in the reply affidavit that first of all there can hardly be any difference in the variable cost between any two varieties of beer since the major components of the cost relating to the raw materials, packing materials, etc. are common, that apart the allegation made by the respondents that the investment of TASCO is much more than that of the petitioner company and therefore the fixed cost component of. the petitioner company has been more is not acceptable. It is further stated that on a perusal of the counter affidavit, it can be seen that the petitioner company's investment has been taken to be only Rs. 3 crores as against Rs. 8 crores of TASCO, that it had been wilfully omitted to take into account the expansion work carried out by the petitioner company which has costed Rs. 5.04 crores that if the same is added to the original investment of Rs. 3.24 crores, the total amount would be nearly Rs. 8.28 crores and that therefore be obvious that the respondents purposefully omitted to take into account the contribution that would be allowed to the petitioner on overheads, depreciation, etc. It is also stated in the reply affidavit that the records, if produced before this Court, would go to show the arbitrary and vindictive action taken by the respondents in this regard, that as a matter of fact, the petitioner company has given the actual costing to the Commissioner a number of times during the past two years which brings about the details of the variable cost and the fixed price components. With regard to the power to make Rule 27-A of the Rules, it is submitted in the reply affidavit that in the present case the power to fix such a price cannot be inferred but must find a specific and express source which is lacking in the present case, and that the impugned proceedings have not taken into account the realistic cost and have not provided for the reasonable margin of profit but has been totally arbitrary and unreasonable. The allegations made in para. 25 of the counter affidavit that similar norms had been adopted for the determination of the price of the products of TASCO are also denied. The allegation of the petitioner company is reiterated in the reply affidavit stating that different standards had been adopted and pricing had been done in a manner which is not only unreasonable but is not expected of a public authority. It is categorically stated in the reply affidavit that there has been an invidious discrimination as referred to in the main writ petition, that the records relating to the profit and loss account of the petitioner company would go to disprove the allegations made by the respondents in para 21 of the counter affidavit. It is further stated in the reply affidavit that the actions of the Government or public authorities which are arbitrary and which are wanting in reasonableness and public interest are open to judicial scrutiny under Article 226 of the Constitution. It is further stated in the reply affidavit that having regard to the issues involved in the present case, the impugned proceedings are wholly illegal and violative of Articles 14 and 19 of the Constitution besides being violative of the provisions of the Prohibition Act.
6. Mr. K. Parasaran, the learned senior counsel appearing for the petitioner company, contends that Rule 27-A of the Brewery Rules, 1983 is ultra vires and that the price fixed in this case is not in conformity with the Rules in this case. The learned senior counsel points out that two different prices have been fixed and that it cannot be done. He further contends that the price fixation is arbitrary. According to the learned senior Counsel the Respondent has no power to fix the prices. The learned senior counsel also contends that there are no guidelines to fix the prices under Rule 27-A of the Rules framed in the year 1983. The learned senior counsel, referring to the order of S. Ramalingam, J. in Shiva Distilleries Ltd. v. The Commissioner of Prohibition And Excise (W.P. Nos. 3717 and 3721 of 1991, dated 19.4.1991), contends that the principles laid down in that case squarely will apply to the facts and circumstances of the case on hand. Referring to Section 3 of Essential Commodities Act, 1955 and Section 18(a) of the Industrial Development Registration Act, 1951 (Act 65 of 1951) the learned senior counsel contends that there are no guidelines in the Prohibition Act and Rules, for fixing the price. The contention of the learned senior counsel is that scope of the enactment (i.e.) the Prohibition Act itself is entirely different and as such no question of fixing the prices arises under the Prohibition Act. The learned senior counsel further contends that the action of the respondents is violative of Article 14 of the Constitution of India and he relies upon the decisions in State of U.P. v. Renusagar Power Co. and in Shri Sitaram Sugar Co. Limited v. Union of India , for the said proposition. According to the learned senior counsel that no guidelines are prescribed in the Act to fix the fair issue prices. The learned senior counsel's main point of attack is that the action of the respondents in fixing the fair price is arbitrary and that it offends Article 14 of the Constitution. He further argues that different prices are fixed for the petitioner company and for other State owned Corporations without taking note of the factual aspects. The learned senior counsel further argues that the contentions raised in the counter affidavit relying upon factual aspects are not correct. He further argues that the petitioner company was making several representations from the beginning and that there was no response. According to the learned senior counsel this Court should interfere with the matter and a direction should be given to re-do the fixation of price.
7. The learned Advocate General appearing for the State contends that principle laid down in the Order of S. Ramalingam, J. in Shiva Distilleries Limited, represented by its Chairman v. The Commissioner of Prohibition and Excise Madras and Ors. W.P. Nos. 3717 and 3721 of 1991, dated 19.4.1991, is entirely different from the facts of the case on hand and it would not apply to the facts of this case. According to the learned Advocate General, the question of fixation of price should not be interfered in a petition under Article 226 of the Constitution of India. He relies on the decisions in State of M.P. v. Nandlal ; and in Shri Sitaram Sugar Co. Limited v. Union of India , for the said proposition. According to the learned Advocate General the fair price fixation is reasonable that all the relevant factors have been taken into consideration before arriving at the decision and that 20% profit had been given uniformly to both the manufacturers. The learned Advocate General further contends that there is a difference as a result of increase in overheads and cost of investment with regard to TASCO since it was started recently in the year 1989. The learned Advocate General further argues that there is no loss to the petitioner company and that this Court, sitting under Article 226 of the Constitution, should not sit on appeal, in deciding the question whether the fixation of price is reasonable or not. He further contends that the Government has got the power to make the rule, in view of Section 54 of the Tamil Nadu Prohibition Act, 1937 and under Schedule VII, List III, Entry 8 of the Constitution. The learned Advocate General further argues that the fixation of the price is an incidental power to grant licence and as such the State has got power to issue orders under Section 17(B) of the Prohibition Act read with Section 54. He further contends that the above mentioned section clearly shows that the power of the State to fix the fair price is an incidental and that it cannot be said that there is no power as such. The learned Advocate General further contends that there is no question of excessive delegation arises in this case and that the State has power to fix the fair price.
8. Replying to the arguments of the learned Advocate General Mr. K. Parasaran, the learned senior counsel appearing for the petitioner contends that the respondents have acted in an arbitrary and vindictive manner in arriving at the fair price. The learned senior Counsel has produced Form - B4 issued to the petitioner-company on 27.1.1988. The learned senior counsel contends that in policy decisions, if it is taken arbitrarily, the Court can take note of it. He refers to the decision in Union of India v. C. Damani and Co. , for this proposition. According to the learned senior counsel appearing for the petitioner that there is no guideline either in the Act or in the Rules to fix the price. He further contends that there is no necessity for fixing the price by experts, and that this is a case of abdication of delegation of powers. The learned senior counsel further refers to the profit and loss account of the petitioner-company for the year 1985-86, and contends that the Brewery unit's expansion for the year 1987-88 was not taking note of. The learned senior counsel further states that it is true that in the year 1982-83, Rs. 3.5 crores was invested and as such the State has fixed the fair price arbitrarily without taking note of the expansion. Referring to the statement made by the State in para 11 of the counter affidavit, which has been extracted in the earlier portion of this order, the learned senior counsel contends that the difference in contribution would be Rs. 14 or more since the price Rs. 15.32 is calculated on the investment of Rs. 3 crores and not on Rs. 8 crores. The learned senior counsel, taking into account the facts mentioned supra, that the price has to be re-fixed on the basis of Rs. 8 crores for the period from 13.12.1989 to 15.11.1990. The learned senior counsel further contends that the excise duty should be included in the price schedule as per the order of S. Ramalingam, J., cited supra and that it has not been done in this case.
9. The learned Advocate General appearing for the State fairly states that the initial investment alone has been taken into account in fixing the price and that the file may be looked into. Entire files have been produced before this Court for perusal.
10. I have given very careful consideration to the arguments of Mr. K. Parasaran, the learned senior counsel appearing for the petitioner-company and of the learned Advocate General appearing for the respondent-State. The entire files produced before this Court have also been perused. The simple point to be decided in this case is whether there is a discrimination in fixing the price which offends Article 14 of the Constitution, that is the variation and difference in the price for the brewery of different companies, one by the petitioner-company and another owned by the State, i.e., the MAC/TASCO in this case. Though the learned Counsel on both sides raised many points of law, I think for the purpose of deciding this case, suffice it to confine myself only with the above mentioned point. First of all, I am not inclined to accept the contention raised by the learned senior counsel that there is no power for the State to fix the price. As rightly pointed out by the learned Advocate General appearing for the respondents-State, in Schedule VII, List IL Entry 8 of the Constitution, the power is vested with the State Government. Apart from that a reading of Section 17(B) of the Prohibition Act read with Section 54 of the Act clearly shows that Rule 27-A of the Brewery Rules, 1983 gives only an ancillary power and the fixation of price has been done in accordance with the provisions of Rule 27-A of the Rules. When the respondent-State is given the power to grant licences, I do not think the contention that the State has no power to re-fix the price has any substance. In my view, such power has to be taken as an ancillary power as already stated in Assistant Collector of Central Excise Calcutta v. National Tobacco Co. of India Ltd. A.I.R. 1972 S.C. 2363.
11. With regard to the contention of the learned senior counsel regarding excessive delegation of powers, in my view the said power is vested in Section 17(c) of the Act. But what has been done in this case has to be looked into. By the impugned orders, the respondent-State has fixed the price. On a perusal of the files produced before me, I find that the decision has been taken on 2.1.1990 and, the then Secretary to Government has written to the Commissioner of Prohibition and Excise, Chepauk to send the proposal for fixing the price of beer since the Tamil Nadu Spirit Corporation has commenced production of beer from 22.12.1989, with a view to ensure a fair return to the Tamil Nadu, Spirit Corporation Limited. I find an endorsement that the price of beer for TASCO has been fixed in consultation with the Secretary, Home on the basis of the recommendation of the price fixation committee. The said letter is signed on 5.1.1990. On a perusal of the files produced before me, it is seen that the variable cost has been worked out on the basis of the investment of the petitioner-company made originally. As rightly pointed out by Mr. K. Parasaran, the learned senior counsel appearing for the petitioner-company which has been proved by the balance sheet produced before me for the years 1985-86, 1987-88 and 1988-89, it is clear that the expansion of the unit of the petitioner-company has not been taken note of, when fixing the fair price. I am not able to accept the argument of the learned Advocate General that the investment of the petitioner-company was taken into account and the variable cost was worked out on that basis. In my view, in so far as the respondent-State has not taken note of the investment made by the petitioner-company with regard to the expansion of the brewery unit and the issue price has been fixed without taking note of the said fact the action of the respondents in fixing the price, in my view, is arbitrary and illegal. As I have already stated, it is not necessary for me to discuss other points in this case.
12. It is true that in Shri Sitaram Sugar Co. Ltd. v. Union of India , the Supreme Court has held that the judicial review is not concerned with matters of economic policies. The apex Court in that case held that the Court does not substitute its judgment for that of the legislature or its agents as to matters within the province of either. In that case, the Supreme Court had held as follows:
Judicial review is not concerned with matters of economic policy. The Court does not substitute its judgment for that of the legislature or its agents as to matters within the province of either. The Court does not supplant the "feel of the expert" by its own views. When the legislature acts within the sphere of its authority and delegates power to an agent, it may empower the agent to make findings of fact which are conclusive provided such findings satisfy the test of reasonableness. In all such cases, judicial inquiry is confined to the question whether the findings of fact are reasonably based on evidence and whether such findings are consistent with the laws of the land.
The above mentioned case arose under Essential modifies Act with regard to the fixation of the prices of levy sugar by Central Government. Further, She Supreme Court in that case has held that is imperative that the action of the authority should be inspired by reason. But in the above mentioned case, itself the Supreme Court has further held (at page 1295), as follows:
...Price fixation is in the nature of a legislative action even when it is based on objective criteria founded on relevant material. No rule of natural justice is applicable to any such order. It is nevertheless imperative that the action of the authority should be inspired by reason. The Government cannot fix any arbitrary price. It cannot fix prices on extraneous considerations.
...Any arbitrary action, whether in the nature of a legislative or administrative or quasi-judicial exercise of power is liable to attract the prohibition of Article 14 of the Constitution. As stated in E.P. Royappa v. State of Tamil Nadu , "equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch." Unguided and unrestricted power is affected by the view of discrimination; Mrs. Maneka Gandhi v. Union of India . The principle of equality enshrined in Article 14 must guide every State action, whether it be legislative, executive or quasi-judicial; Ramana Dayaram Shetty v. The International Airport Authority of India , Ajay Hasia v. Khalid Mujib Sehravardi and D.S. Wakara v. Union of India .
A paragraph at page 1297 in the above mentioned decision is worth extracting. ...The true position, therefore, is that any act of the repository of power, whether legislative or administrative or quasi-judicial, is open to challenge if it is in conflict with the Constitution or the governing Act or the general principles of the law of the land or it is so arbitrary or unreasonable that no fair minded authority could ever have made it....
The Supreme Court, in the above mentioned case, had reiterated the principles laid down in State of Madhya Pradesh v. Nandlal . In that case, the Supreme Court though held that manufacture and sale of country liquor is not a fundamental right, the State Government cannot ignore requirement of Article 14 of the Constitution of India. In that case, the Supreme Court has held that the said action is plainly arbitrary, irrational and thus offends Article 14 of the Constitution. In my view, it is not fair on the respondent-State to fix higher price for TASCO and lesser price for the petitioner-company products, without taking into consideration the real investment and as such it offends Article 14 of the Constitution.
13. It is interesting to note that Mr. K. Parasaran, the learned senior counsel appearing for the petitioner-company has also relied upon the decision in Shri Sitaram Sugar Co. Ltd. v. Union of India . The said portions have already been extracted in the earlier portion of this order. In State of Uttar Pradesh v. Renusagar Power Co. , in which the Supreme Court has held as follows : (at page 1765) ...This Court in Commissioner of Income Tax Bombay v. Mahindra and Mahindra Ltd. of the report, dealt with the parameters of the Court's power of judicial review of administrative or executive action or decision. Indisputably, it is a settled position that if the action or decision is perverse or is such that no reasonable body of persons, properly informed, could come to or has been arrived at by the authority misdirecting itself by adopting a wrong approach or has been influenced by irrelevant or extraneous matters, the Court would be justified in interfering with the same. (See also the Observations at page 787) of the report. In this case, the parameters had been adhered to. All relevant factors had been borne in mind. It is true that each factor had not been independently considered, but these had been borne in mind. In our opinion, the Government did not Act in violation either of the principles of natural justice or arbitrarily or in violation of the previous directions of the High Court....
After referring to many decisions of the Supreme Court, S. Ramalingam, J. in Shiva Distilleries Limited represented by its Chairman v. The Commissioner of Prohibition and Excise, Chepauk Madras and Ors. W.P. Nos. 3717 and 3721 of 1991, observed as follows:
...The above decisions are clear authorities for the proposition that in the matter of price fixation under any statutory provision there is a duty cast on the statutory functionaries to assure to the manufacturer a reasonable return which, in other words, is called 'cost plus' basis. In this case, it has been demonstrated that if the impugned order dated 1.3.1989were to be implemented, the petitioners would not get any profit, but, on the contrary would suffer considerable loss for the supplies effected them from 1.3.1989 onwards till 31.3.1989....
In my view, it has been demonstrated fully before me that if the impugned orders are implemented, the petitioner-company would not get any profit but on the contrary would suffer considerable loss. I respectfully agree with the principle enunciated by S. Ramalingam, J., on this aspect. Taking note of the fact that the respondent-State has not taken into account the relevant materials, and made the refixation of price only on the original investment of the petitioner-company when arriving at the price, it cannot be said that any reasonable man can accept this. It has been pointed out before me that the respondent-State has not taken note of the expansion made by the petitioner-company as shown in the balance sheets for the years 1985-86, 1986-87 and 1987-88, etc. to fix the price of 'variable cost'. By ignoring this, in my view, the respondent-State has made the TASCO to get over the petitioner-company in the sales of the beer. As extracted from the price statements stated above, it is very clear that in the price components, the difference in contribution is Rs. 14 or more because Rs. 15.32 is calculated on the basis of Rs. 3 crores and not on Rs. 8 crores, which included the investment made by the petitioner-company for the brewery unit alone. So, in my view, the respondent-State has to take note of Rs. 8 crores as the" investment and fix the price for the period from 13.12.1989 to 15.11.1990.
14. Though Mr. K. Parasaran, the learned senior counsel appearing for the petitioner-company referring to the decision in Indian Express (Bombay) v. Union of India A.I.R. 1986 S.C. 515, requests that this Court should give a direction that till a new price is fixed the price of the public sector from 30.12.1989 to be reimbursed to the petitioner-company. I do not think it necessary for the simple reason that I am sure that the respondent-State will move expeditiously and finalise the price within a month from the date of receipt of a copy of this order. Since the relief asked for in the main writ petition is only to that extent, I am not concerned with any other relief asked for indirectly in this writ petition. As I have already stated, the other points raised by both counsels with regard to delegation of powers etc., need not be taken into consideration which are not necessary for the purpose of deciding the issue on hand. As I am satisfied that the price fixed by the respondent-State is arbitrary and taking note of the dicta laid down by the Supreme Court with regard to "price fixation cases" and the order of S. Ramalingam, J., mentioned above, the impugned orders are to be quashed, and the matter is remitted back to the respondent-State, the first respondent herein, to re-fix the price as per the directions given above. In the result, the writ petition will stand allowed. However, there will be no order as to costs.