Ganges Fertiliser & Chemicals ... vs Union Of India
1999 Latest Caselaw 435 Del

ORDER

C.M. Nayar, J.

1. This judgment will dispose of C.W.P.No.3966/95,C.W.P.No.3601/94, C.W.P.No.4365/95 and C.W.P.No.4366/95 as common questions arise for consideration in all these petitions though the petitioners have claimed different amounts as fertilizer subsidy from the respondents.

2. The petitioners in each case are alleged to be units manufacturing Single Super Phosphate Fertilisers (SSP). In the manufacturing process, the petitioners utilised rock phosphate and sulphuric acid as the raw material for the manufacture of SSP. Prior to 23rd May, 1982 there was a system of having a flat rate of subsidy for all manufacturing units in the country and thus the amount of subsidy was simply to be deducted from the total price and the advantage of the subsidy was simply passed on to the consumers. With effect from 23rd May, 1982 the flat rate of subsidy system was abolished and it was decided by the respondents to have a uniform price for supply of SSP to the consumers and a scheme was framed for payment of differential rate of subsidy based on ex-factory price worked out separately for each manufacturing unit on normative basis. The scheme was introduced vide circular dated 19th June, 1982 by respondent no.2 and each unit was asked to submit details as per proforma enclosed with the above stated circular dated 19th June, 1982 which reads as follows:-

"No.FICC/F&A/SSP/70/82-83/284

Government of India

Fertilizer Industry Coordination

Committee

(Deptt. of Chemicals & Fertilizers)

8th Floor, Sewa Bhawan,

R.K.Puram,

New Delhi-110066.

Dated the 19th June, 1982.

All manufacturers of Single Super Phosphate.

Sub.:- Single Super Phosphate retailing Price in Respect of.

Dear Sir,

Consequent upon issue of Government of India, Ministry of Agriculture, Deptt.of Agriculture & Cooperation, telegram No.1-9/82F.A.(GP) 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 P2O5 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 proforma may please be furnished to this office urgent ly, 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 duly certified by a Chartered Accountant or your Statutory Auditors.

Yours faithfully,

(D.R.SHIVARAMAIAH)

ACCOUNTS OFFICER"

3. Similarly another circular dated 11th November, 1982 was issued to all manufacturers of SSP giving the details of the scheme for payment of subsidy to the SSP manufacturing units. copy of this circular has also been placed on record. Further facts are stated in paragraphs 9, 10, and 11 of the writ petition (C.W.P.No.3966/95) which read as follows:-

9. That as per the scheme for payment of subsidy in vogue since May, 1982 known as the Retention Price & Subsidy Scheme (herein after referred to as RPS Scheme) each individual manufacturer was only to declare the price at which raw material was purchased along with the total quantity purchased. The subsidy payable to each unit was worked out separately for each unit in terms of Annexure I & II to this writ petition.

10. That the unit of the petitioner has been inspected by ferti liser Inspectors at regular intervals and the fertiliser produced by the petitioners has always been found to be satisfactory and as per standard. The inspection by the fertiliser inspectors are always done with an element of surprise and the unit of the petitioner is never aware of when an inspection is to take place. Also the fertiliser inspector draws samples from the factory on a random basis as provided under the Fertiliser Control Order itself. Thus ensuring that the production is strictly as per norms. The factory of the petitioner has also qualified chemists who test each batch of production produced by the factory to determine whether the production is as per standard or not. The test results of such testing are preserved by the petitioner.

11. That after completing supply of SSP the petitioners are required to submit regular monthly subsidy bills to the FICC in the proforma as enclosed in Annexure-IV and the subsidy payable to the petitioner used to be paid within 7-10 days. If the sub mission of such monthly subsidy claim bills. It is because of such prompt payment in the past that the fertiliser industry has survived and the petitioner has managed its liquidity problem effectively. Delay in payment of subsidy completely cripples the industry as the capital block in such delay cannot be managed from other resources. This problem of liquidity was acknowledged by the respondents themselves (vide Annex.I) when the R.P.S. scheme was first introduced and that is why there was provision of ad-hoc payment even without finalisation of the rate of subsi dy payable."

4. The plea of the petitioners with regard to the basis of working out subsidy is reflected in paragraph 12 which reads as follows:-

12. That the respondents in order to determine the rate at which subsidy would be payable to each manufacturer fixed certain norms for consumption of raw materials which norms were to ensure that there is uniformity in the matter of payment of subsidy to each manufacturer and which norms were to ensure that any unit which does not perform efficiently and which accordingly utilises more raw material than prescribed under the norms then the unit should not be compensated for its inefficiency. Accordingly by the same reasoning no unit could be penalised for manufacturing standard grade fertiliser by utilising less raw materials than the norms because such unit due to its efficiency had been utilising less raw material in their manufacture because such units due to its advanced technology was ensuring that the reaction between the rock phosphate and sulphuric acid was complete and thus there as no wastage of the raw material as was the case in other units which were not performing so efficiently. If more efficient units were to be penalised by the respondents as was being done in the case of the petitioner then the very purpose of fixing norms for consumption would be defeated and the respondents would be encouraging inefficiency which ultimately would result in national loss because inefficient units are wasting precious raw material in their process of manufacture."

5. The petitioners have challenged the impugned action of the respondents in not disbursing the subsidy for the amounts as referred to in the prayer clauses in each petition. It is contended that the respondents are duty bound to pay the subsidy to the petitioners along with interest as the respondents are not entitled to stop payment of subsidy as long as the fertilizers supplied by the petitioners are as per standard and in conformity with The Fertilizer (Control) Order, 1985. The respondents have filed counter affidavits wherein they have given their reasons for declining to pay the amounts. Reference may be made to paragraph 2 of the brief facts as submitted in the counter affidavit filed in C.W.P.No.3966/95 which may be reproduced as follows:-

Brief Facts

In 1989-90, the Respondents received a complaint based on the published annual accounts of the concerned companies, including the Petitioner unit, that the annual specific consumption of rock phosphate in the case of some SSS manufacturing units, including the Petitioner unit, was much less that the prescribed norm of 0.57 MT of rock phosphate per MT of SSP. Subsequently, certain reports appeared in a newspaper in July, 1989 alleging that certain fertiliser units were involved in fraud. The Respondents accordingly, asked the concerned units including the Petitioner unit to explain the reason for consumption of rock phosphate much lower than the normative consumption of 0.57/MT of SSP for the concerned years prior to 1988-89. The consumption norm of 0.57/MT of rock was recommended by the Working Group set up in 1980 to go into the principles and mechanism of pricing for SSP which was brought under the Retention Price Scheme w.e.f.

23.05.1982. The Respondents also got the conerned units technically inspected. The issue was looked into technically as to the possible consumption of rock going by the operational conditions. It was decided to withhold the subsidy on excess production of SSP achieved out of consumption of rock phosphate below the minimum accepted normative level of consumption.

On the basis of recommendations of certain technical committees which had been appointed by the Respondents to go into the issue of norms of consumption for rock phosphate for SSP units, the Respondents decided to revise the normative consumption of rock from 0.57/MT to 0.56/MT. The revised normative consumption was applicable only with effect from 1.4.1992. SSP was decontrolled with effect from 24.8.1992. Alongwith the revision in the normative consumption of rock, it was also considered that the consumption of rock cannot generally be below 0.54/MT and above 0.60/MT. Accordingly, only where the consumption on an annual basis was below 0.54/MT recovery on excess production was required to be made. In the case of Ganges Fertilisers & Chemicals Ltd., an amount of Rs.54.87 was recovered. Rs.12.03 lakh out of withheld earlier has been released to the petitioner unit. Subsequently an amount of Rs.18.10 lakh was found recoverable.

The Petitioner wanted release of the amount withheld.

6. Similarly reasoning for declining to grant subsidy to the petitioners are reflected in replies to paragraphs 12, 13, 14 and 15 which read as follows:-

12. The ex-works price and subsidy payable is calculated on the basis of the normative consumption of rock and sulphur without taking into account the actual consumption. In case the consumption is lower than the normative consumption and had the ex-works price and subsidy been calculated on the basis of actual consump tion instead of normative consumption, the ex-works price and subsidy payable would have worked out much lower than that calculated with the normative consumption. The unit which has been having a lower consumption of rock has been enjoying the benefits of a higher ex-works price than was possible on the basis of its actual consumption. It has, therefore, already got the benefit and compensation for its efficiency by way of lower consumption in a higher subsidy rate. The respondents have also allowed production on the basis of the minimum possible consumption of rock. It was not technically possible to achieve production of SSP with consumption of rock phosphate below 0.54MT/MT of SSP.

13. As per the recommendation of the Working Group committee based on a technical study of the Industry, the consumption norms for rock phosphate and Rock phosphate Sulphur Up to 31.3.92 0.125MT/MT of SSP 0.57MT/MT of SSP

w.e.f. 1.4.92 the consumption norms were revised to 0.56 MT/MT of SSP in respect of rock phosphate and 0.120 MT/MT of SSP in respect of sulphur. It would, therefore, be seen that the norms have been marginally revised only after 10 years. This has been done on the basis of recommendations based on technical studies. As indicated in reply to Para 12 the petitioner unit has already derived the benefit of fixation of ex-works price & subsidy payable on a normative basis instead of actual consumption.

Subsidy on excess production due to consumption of raw materials below the minimum achievable consumption norm of rock is recover able.

14. The judgment of the Hon'ble Supreme Court in the case of Union of India Vs. Surya Phosphates Ltd. in fact lays down that the method of calculating the ex-works price on a normative basis is as it should be, as in the absence of norms there would virtu ally be chaos and arbitrariness. A copy of the judgment is at Annex.II. Therefore, the interpretation of the judgment in the case of M/s Surya Phosphate Ltd.indicated by the petitioner that lower consumption of rock should not be penalised cannot be accepted as their lower consumption is below the minimum normative consumption of rock fixed on a normative basis. The judgment of the Hon'ble Supreme Court in fact has upheld the respondent's right for fixation on a normative basis. It was not technically possible to achieve production of SSP with consumption of rock below 0.54 MT. Therefore it was considered that the production of SSP by consuming rock phosphate below 0.54 MT/MT of SSP was in excess and subsidy paid on such excess quantity was ecoverable.

15. The petitioner unit is well aware of the fact that the recovery of Rs.54.87 lakhs was on account of excess production of SSP with consumption of rock-phosphate below the minimum possible normative consumption of rock viz. 0.54MT/MT of SSP. The amount was withheld from the petitioner unit on the basis of a complaint that some SSP units were involved in fraud (copy of the newspaper report is at Annexure-I). To check the veracity of the om plaints, the same was looked into from the technical angle. Only on the basis of technical reports and ecommendations it was considered that consumption of rock beyond the minimum normative consumption was not possible. Hence on the excess production beyond the minimum normative consumption of rock, recovery was made.

7. It is further stated in reply to paragraphs 20 and 21 as follows:-

20. Standard SSP cannot be manufactured if the consumption of rock phosphate is below the minimum possible consumption limit of 0.54MT/MT of SSP. Recovery was made only in case where the actual consumption of rock phosphate was below the minimum possible consumption worked out on an annual basis. Furthermore the petitioner unit has already accrued the benefit of normative price fixation irrespective of its actual raw material consumption where the actual consumption of rock phosphate was below the normative level.While finalising the fixed charges (constant factor) the capital cost data as furnished is taken into account but the same is restricted to the fixed charges determined for a standard SSP unit with the same vintage, if higher than the latter. This is applicable to all SSP units.

21. The decision on the minimum possible consumption limit of 0.54/MT of rock per MT of SSP has been taken on the basis of technical studies and recommendations. To look into the allega tion made in the newspaper reports as well as the complaints sent to the respondents, the respondents decided to examine the issue from the technical angle.Accordingly a technical consultant was appointed from the fertiliser industry in January 1990 to carry out the detailed study of the allegations. The Report pointed out that actual consumption of rock phosphate for production of SSP depended upon a number of factors like total P205 content and the activity of rock phosphate, the extent of acidulation, fineness of grinded rock, H2S04 strength, temperature, mixture, peddle etc. It was stated that by improving the activity of the rock phosphate to higher level by improving the process parameters and providing more curing time and also if P205 content in the rock is higher than 31%, the consumption of rock could go down below the normative figure of 0.57 MT. However, itwas found that it would not be possible to have consumption below the normative consumption on a continuous basis especially when the losses occurred at different stages are taken into account.

Another technical Committee also dealt with the issue of consumption norms of raw material. It was observed that depending upon the P205 content, quality and fineness of rock phosphate and conversion efficiency, it may be possible to achieve the consump tion upto 0.54/MTof SSP.

Accordingly, on the basis of Technical studies and recommenda tions, the consumption norm of rock was revised to 0.56/MT of SSP w.e.f. 1.4.1992 and it was also concluded that the minimum con sumption of rock which is achievable is 0.54MT for 1 MT of SSP.In the case of the petitioner unit the consumption of rock in the years 1986-87 and 1987-88 was even below the minimum possible consumption of rock at 0.54MT/MT of SSP and accordingly subsidy on the excess production beyond the production possible with the minimum normative consumption of rock, was required to be made. The amount recoverable on this account was Rs.42.83 lakh. Accord ingly,an amount of Rs.12.03 lakh from the earlier withheld amount of Rs.54.87 lakh was released in 1994-95.

Further, in the case of all SSP units it was decided to analyse their consumption of rock from the period 1988-89 onwards and to make recovery on any subsidy paid on the excess production beyond the minimum normative consumption of rock at 0.54/MT of SSP on an annual basis. In the case of the petitioner unit even during the year it was found that the consumption of rock was only 0.521 MT/MT of SSP on an annual basis. Hence, an amount of Rs.18.10 lakh was recoverable."

8. The reason for not paying the subsidy to the petitioners have been adequately explained in the paragraphs as stated above. The learned counsel for the petitioners have vehemently argued that the matter is squarely covered by the Division Bench judgment of this Court reported as M/s Brij Fertilizers Pvt. Ltd. & Ors. Vs. U.O.I. & Anr. 48 (1992) Delhi Law Times 443 where the subsidy to each of the units was directed to be paid in accordance with the bills which had been submitted by the petitioners from time to time. The above said judgment of the Division Bench was subsequently upheld by the Supreme Court in Union of India and another Vs. M/s Brij Fertilizers Pvt. Ltd. and others

9. The learned counsel for the respondents on the other hand have categorically submitted that the subsidy to each of the petitioners were paid in accordance with the reports as well as guidelines as fixed by the Fertilizer Industry Coordination Committee (FICC). The basic reliance is placed on the report of the Committee dated 8th September, 1989 which has been placed on record along with other reports. These documents were filed when the matters were being heard. The learned counsel for the respondents, however, have argued that the claims of the petitioners have been correctly rejected on the basis of the averments made in the counter affidavits. The petitioners are quite aware of the reports and the basis of rejection and no injustice has been done. Reliance is placed on the judgment reported as Union of India and others Vs. Surya Phosphate Limited and another to reiterate that it will be open for the parties to work out the subsidy by the method adopted by FICC. Paragraphs 17 and 18 of this judgment which deal with the contentions and ultimate decision may be reproduced as under:-

17. 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 confiden tial by the Government and all that was held out was the promise contained in the Circular letter of June 19, 1982 which, accord ing 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 by the FICC on certain basis. It is incorrect to say that in the absence of a method for work ing 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.

18. Understandably, the method adopted by the FICC for 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 arbi trariness. 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 unwar ranted 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 arbi trariness and misfeasance at both ends. We are, therefore, of the view that the contention urged by Shri Sen cannot be accepted."

10. It is, however, not in dispute that the petitioners were not served with the documents on which reliance has been placed by the respondents nor any specific Order was passed after providing an opportunity to the petitioners to present their cases which is the basic requirement as enunciated in the rule of 'audi alteram partem' that will imply that the subsidies have been declined without following the principles of natural justice and without affording an opportunity to the petitioners to meet the submissions which are sought to be raised at the time of hearing of the present petitions.

11. In view of the above circumstances, the respondents have declined to entertain the claims of the petitioners on the basis of the averments made in the counter affidavits as well as by contending that the subsidy in each case was refused on the basis of the reports of the Committees as referred to in the earlier part of the judgment. These documents are placed on record and copies of the same have been supplied to learned counsel for the petitioners. The petitioners shall, therefore, be granted an opportunity of personal hearing and the respondents shall pass reasoned orders which have not so far been passed after examining the matter afresh within a period of four months from today. In case the petitioners are found entitled to subsidy amounts, the same shall be disbursed within one month from the date of decision by the respondents. The present petitions are disposed of in the above terms. There will be no order as to costs.