Delhi High Court
Devyani Phosphate Private ... vs Uoi on 4 February, 2013
Author: Rajiv Shakdher
* THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 05.11.2012
% Judgment delivered on: 04.02.2013
+ W.P.(C) 7384/2010
DEVYANI PHOSPHATE PRIVATE
LIMITED AND ANR ..... Petitioner
Through: Mr. P.K. Mullick, Advocate.
versus
UOI ..... Respondent
Through: Mr. Rajeeve Mehra, ASG with
Mr Sachin Datta, CGSC and Ms.Inderjeet Sidhu,
Advocate.
+ W.P.(C) 6573/2011
NARMADA AGRO CHEMICALS PVT.
LTD AND ANR ..... Petitioner
Through: Mr. Sanjay Katyal, Advocate.
versus
UNION OF INDIA ..... Respondent
Through: Mr. Rajeeve Mehra, ASG with
Mr.Neeraj Chaudhari, CGSC and Mr. Ravjyog
Singh and Ms. Inderjeet Sidhu, Advocate.
+ W.P.(C) 8164/2011
V.K.PHOSPHATES LTD ..... Petitioner
Through: Mr. Kaushal Yadav, Advocate.
Versus
UOI ..... Respondent
Through: Mr. Rajeeve Mehra, ASG with
Mr. Sachin Datta, CGSC with Mr. Dinesh Sharma
and Ms.Inderjeet Sidhu, Advocate.
+ W.P.(C) 700/2012
AGRI GREEN FERTILIZERS &
CHEMICALS PVT. LTD. ..... Petitioner
Through: Mr. Kaushal Yadav, Advocate.
Versus
UNION OF INDIA ..... Respondent
Through: Mr. Rajeeve Mehra, ASG with
Mr.Jatan Singh, CGSC and Mr. Tushar Singh and
Ms.Inderjeet Sidhu, Advocate.
CORAM :-
HON'BLE MR JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J
1. These writ petitions involve a common issue, which is: Is the
provision in the Office Memorandums (OMs) issued by the respondents
from time to time, requiring the petitioners (and those who are similarly
placed), to achieve a minimum benchmark qua production of Single Super
Sulphate Fertilizer (in short SSP) unreasonable and/or arbitrary?
2. The challenge is difficult, and is therefore decidedly, an uphill task for
the petitioners, as it ventures into an area which relates to policy making.
The grounds for challenge are usual, that is, the policy in vogue is arbitrary,
unfair and unreasonable. Article 14 of the Constitution of India has
therefore been invoked by the petitioner, while laying a challenge to the
policy evolved by the respondents.
3. Therefore, while the issue is short, one would have to touch upon the
OMs issued by the respondents from time to time in order to give a sense of
how the policy has evolved, though the impugned clause which relates to the
minimum bench mark for production by industrial units, such as those
operated by the petitioners, has continued to be in existence to the detriment
of the manufacturers.
4. Therefore, in sum and substance the reliefs are identical, which
essentially seek from this court a writ, order or direction for striking down
the impugned clause which fixed a minimum benchmark for production by
units, with consequential relief, for release of funds in the form of subsidy
with interest. There are four writ petitions pertaining to the aforesaid issues.
4.1 Since WP(C) 7384/2010 was being dealt with as a lead case, the
respondents have filed their counter affidavit in the said case. The counter
affidavit is followed by an additional affidavit dated 03.09.2012. The said
additional affidavit is accompanied by the note dated 20.07.2009 placed
before the Cabinet Committee on Economic Affairs. This note attains
significance in view of the issue raised in the present writ petition.
5. With the aforesaid preface in place, let me advert briefly to the facts
obtaining in the present writ petition:
5.1 The Government of India, apparently since 1992 has been
administering, what is ubiquitously known as the concession scheme, [which
is presently known as the Nutrient Based Subsidy (NBS) policy] for
decontrolling phosphatic and potassic fertilizers. Amongst the phosphatic
fertilizers, SSP is apparently very popular with the farmers of the country.
Besides being a good source for phosphate, it evidently provides sulphur and
calcium as well. SSP contains 16% phospheric acid, 11% sulphur and 16%
calcium. I am informed that SSP is agro-nomically suitable for dry land oil
seeds crop. Overall, SSP is good for farm produce.
6. It is in this context that the Government of India (GOI) on 25.08.2008
revised the concession scheme for SSP for the year 2008-2009. By virtue of
this scheme, the GOI revised the concession scheme inter alia by fixing a
uniform all India Maximum Retail Price (in short MRP) qua SSP at the rate
of Rs. 3400 per metric ton. This was in a sense a deviation from the earlier
practice of having respective State Governments fix the MRP for SSP. The
revised concession scheme provided for on account payment of 85% of
claims (with which furnishing of the bank guarantee was scaled upto 90%)
irrespective of their annual production, provided the manufacturers claim
was certified by a statutory auditor and subject to the manufacturer filing the
complete information in the manner prescribed. The balance claim for
subsidy was dependent on due certification by the State Government with
regard to the quantity as well as the quality of SSP sold in the State.
7. The aforementioned policy however underwent a change with the
issuance of OM dated 13.08.2009. The said OM, which according to the
petitioners is responsible for their woes, introduced for the first time the
minimum benchmark for production. In addition, by virtue of the said OM
of 13.08.2009, the selling price of SSP was left open and thus, replaced the
provision in the preceding concession scheme which provided for an all
India MRP of Rs.3400 per Metric Ton (MT) qua SSP. The said OM also
introduced an ad hoc concession of Rs.2000 per MT qua SSP. The OM of
13.08.2009 was made effective from 01.10.2009.
7.1 As regards the minimum bench mark for production, the OM
provided that concession for SSP would be extended only to those units
which achieved an annual capacity utilization of at least 50% or annual
production of 40,000 MT qua production of SSP. Though, the words
'whichever is lower' did not appear in the OM dated 13.08.2009, it is the
common stand of counsels for the both parties that, this was the purport of
the said OM. As a matter of fact, not only does the underlying Cabinet Note
pointedly refer to this aspect but also, the subsequent OMs have clarified
this point; thus removing any scope for ambiguity. For the purpose of
ascertaining minimum benchmark for production, capacity utilization as on
31.03.2009, of the concerned unit, was to be taken into account. The above
provisions, as indicated above, came into effect from 01.10.2009.
8. On 04.03.2010, the GOI introduced the first phase of its NBS policy
w.e.f. 01.04.2010. The said NBS policy was made, inter alia, applicable to
SSP as well. The stress in the NBS policy was, apparently to pay subsidy,
based on the presence of primary nutrients in the fertilizer, namely, Nitrogen
(N), Phosphate (P), Potash (K) and Sulphur (S). The extent of subsidy was
to be determined by the GOI. In so far as payments of NBS to the
purchasers/marketers was concerned, it was provided that the same would be
released as per the procedure laid down in OM dated 13.08.2009.
8.1 The aforesaid was followed by the OM dated 09.04.2010 which really
related to the implementation of the NBS policy for decontrolling
phosphatic and potassic fertilizers except SSP. This circular provided
freight subsidy in respect of all decontrolled fertilizers except SSP. It may
be recalled that price fixation with respect to SSP had been decontrolled
pursuant to OM dated 13.08.2009. The OM dated 09.04.2010 thus provided
for freight subsidy on decontrolled fertilizers which were moved by rail,
based on actual claims.
9. The GOI, thereafter, issued a OM dated 21.04.2010, for
implementation of NBS policy qua SSP. This policy was brought into effect
from 01.05.2010. Accordingly, for production and sale of SSP, it provided
as follows: Per metric ton nutrient based subsidy was provided for powdered
and granulated SSP which met quality specifications as indicated in the
fertilizer control order for the period 2010-2011 w.e.f. 01.05.2010 at the rate
of Rs. 4400 per MT which notably was inclusive of cost of freight. This
circular also provided additional per metric ton subsidy with fortified SSP
which had Boron, at the rate of Rs.300.
9.1 However, clause 8 of this OM continued with the provision of
minimum benchmark for production, which was pari materia with the
provision in OM dated 13.08.2009. The said clause 8, provided that
capacity utilization/production would be calculated as on 31.03.2010,
bearing in mind capacity utilization and production for the period
01.04.2009 to 31.03.2010. The manufacturing units were required to inform
the concerned department their installed capacity/production, duly certified
by a statutory auditor. The information in this behalf was required to be sent
to the concerned inspection agency.
9.2 Clause 10 of this very OM, indicated that NBS policy for SSP was
optional and was, therefore, available only to those manufacturers/sellers of
SSP who would adhere to prescribed quality standards and maintain the
MRP printed on the bag. Thus, SSP producers/manufacturers, who were
desirous of opting for the NBS policy qua SSP were required to enter into a
Memorandum of Understanding (MOU) as per the enclosed proforma with
the department of fertilizers, GOI to avail of NBS policy.
10. It appears that the fertilizer manufacturers generally were unhappy
with the introduction of clause 8 in the circular dated 21.04.2010 (to which I
have already made a reference above), which deals with minimum bench
mark for production. Accordingly, the Fertilizers Association of India (in
short FAI), addressed a communication dated 27.04.2010, to the
respondents. FAI in its communication inter alia brought to fore, their
grievance that minimum benchmark for production of SSP to claim NBS
was a 'harsh step'. The reasons adverted to were as follows: the capacity
utilization of the entire SSP industry in the year 2009-10 was only 40%;
about 32 units had attained capacity utilization of more than 50% or,
production of more than 40000 metric tons in the year 2009-10, and
therefore, a large number of SSP manufacturers would be ineligible for
subsidy under NBS policy, in the year 2010-11 if, the minimum production
benchmark as provided in clause 8, was made applicable for the year 2009-
2010. There were other difficulties also put forth, with which one is not
presently concerned with. The sum and substance of the representation was
that SSP had been marked out for alleged discrimination as manufacturers of
other fertilizers, in respect of which subsidy was being extended, did not
have the minimum benchmark for production clause being made applicable
to them.
11. In view of the representation of FAI, the GOI issued yet another OM
dated 13.07.2010, with respect to extension of subsidy under the NBS policy
for the period 2010-2011. The GOI, while retaining the minimum
production bench mark, relaxed the rigour of its earlier OM dated
21.04.2010, having regard to the difficulties faced by the manufacturers due
to purported uncertainity and change in the policy between 2009-2010, by
indicating as follows in clause 4 (a), (b) and 5:
"....4. It is clarified that the following criteria for
payment of subsidy will be applicable w.e.f. 1st may
2010:
(a) Units which have achieved at least 50% capacity
utilization or production of 40000 MTs of SSP on
annual basis for 2009-10 and have fulfilled the
requirement of the policy under NBS are eligible for
claiming subsidy for sale of SSP under NBS directly
or through marketing arrangement, as the case may
be, w.e.f 1st May 2010 for the year 2010-11, subject to
the stipulation in paragraph 5 of this OM.
(b) In those cases where the requirement of stipulated
capacity utilization/ production on annual basis has
not been fulfilled, capacity utilization/ production
criterion on a pro rata basis for the quarter 1st May
2010 to 31st July 2010 would be applied for payment
w.e.f. 1st May 2010 for the year 2010-11, subject to
the stipulation in paragraph 5 of this OM.
5. Payment of subsidy for the year 2010-2011 w.e.f 1st
May 2010 will be provisional. Any SSP unit which fails
to achieve the benchmark criteria of 40000 production or
50% capacity utilization on annual basis for 2010-2011
(w.e.f 1st May 2010 to 30th April 2011) would not be
considered for subsidy under Nutrient Based Subsidy
policy or otherwise, for next year, i.e., 2011-12 and
recovery of the entire subsidy already paid under the
NBS w.e.f 1st May 2010 would be made along with
interest thereon. Each SSP unit is required to furnish an
undertaking to this effect while making claims for
subsidy under the NBS w.e.f. 1st May 2010..."
12. The GOI with respect to its earlier OM of 13.08.2009 vide its OM of
05.08.2010 inter alia extended the period of achieving the minimum
production benchmark by indicating that any SSP unit which failed to
achieve the bench mark criteria of 40000 MT or 50% capacity of utilization
on pro rata basis from 01.10.2009 to 30.04.2010 or on an annual basis from
01.10.2009 to 30.09.2010, would not be eligible for ad hoc subsidy for sale
of SSP for the period 01.10.2009 to 30.04.2010. Thus, in effect, it indicated
that anyone who had obtained a subsidy contrary to the provision of OM
05.08.2010, would have to refund the same alongwith penal interest.
13. The aforesaid narrative, broadly sketches out chronologically the
recent twists and turns in the policy, which is encapsulated in the various
OMs issued by the GOI from time to time. In so far the petitioners are
concerned, they have, notwithstanding the provisions contained in the OMs
qua minimum benchmark for production continued to lodge their claims for
payment of subsidy at various stages with the respondents. Before I refer to
those communications, it may be important to briefly advert to the relevant
facts pertaining to each of the petitioners.
WP(C) 7384/2010 (Devyani Phosphate Private Ltd. & Anr.)
14. The aforementioned petitioner, i.e., Devyani Phosphate Private Ltd.
(in short DPPL) apparently had set up a medium scale unit for manufacture
of SSP which is located in RICO Industrial Area, Gugli, Rajasthan. The
said unit apparently commenced its commercial production w.e.f.
03.07.2009. DPPL was inducted into the concession scheme for
decontrolled phosphatic fertilizers vide notification bearing no.
19011/10/2009-MPR dated 16.02.2010 w.e.f the date of its commercial
production, i.e., 03.07.2009.
14.1 It is the case of DPPL that, they had submitted their claim for receipt
of subsidy in the prescribed forms. Evidently; on account payment,
equivalent to 85% of the total subsidy claimed vis-à-vis supplies made for
the months of August and September, 2009, was released to DPPL.
14.2 However, w.e.f. October, 2009, the DPPL has not received its share of
the subsidy, on account of its failure to achieve the minimum benchmark for
production, as stipulated in OM dated 13.08.2009. DPPL claims that,
failure to achieve the minimum bench mark for production, was on account
of factors such as: time lag, required for stabilization of production in
market being a new unit; uncertainity in the market; and lack of demand on
account of failure of monsoon.
14.3 From time to time the DPPL has made representations dated
17.08.2010 for release of subsidy for the period 01.10.2009 to 30.04.2010
followed by reminders dated 27.08.2010, 08.09.2010., 16.09.2010,
25.09.2010, 30.09.2010 and 20.10.2010.
14.4 DPPL claims subsidy in the sum of Rs. 233.31 lacs (approximately)
for the period 01.10.2009 to 30.09.2010. During this period, DPPL claims
it suffered business losses to the tune of Rs.121.31 lacs. The said business
losses include a loss of Rs 63.35 lacs on account of interest on investment
and other losses quantified at Rs.57.96 lacs on account of labour, power and
other expenses. The subsidy for the aforementioned period is thus claimed
with interest at the rate of 18% per annum.
WP(C) 6573/2011 (Narmada Agro Private Ltd.)
15. In the captioned petition there are two petitioners: Narmada Agro
Chemical Private Ltd. (in short NACPL) and Krishna Industrial Corporation
Ltd. (in short KICL). NACPL claims to be in the business of manufacturing
SSP, since 1990. It claims to have annual installed capacity of 15000 metric
tons. KICL on the other hand claims to be in the business of manufacturing
SSP for the last 30 years. Admittedly, both NACPL and KICL have not
been able to achieve the minimum bench mark for production.
15.1 While, KICL approached the respondents vide representation dated
24.04.2010 for waiver of the minimum bench mark for production due to its
inability to achieve the same in the previous five (5) years; NACPL made its
representations vide communications dated 16.05.2011 and 27.05.2011.
15.2 Both seek release of subsidy for the period 2009-2010. For this
period NACPL has quantified the subsidy payable to it in the sum of Rs.
26,08,000/-.
WP(C) 8164/2011 (V.K. PHOSPHATES LTD.)
16. The petitioner in this case is: V.K. Phosphates Ltd. (in short VKPL).
VKPL claims that, it is a small scale unit, engaged in the sale and
manufacture of SSP, with an annual installed capacity of 30000 metric ton.
Presently, the manufacturing unit of the petitioner is lying closed since,
April, 2011.
16.1 VKPL avers that it lodged its claim for release of subsidy on
20.02.2011 vis-a-vis SSP, sold between the period October to December,
2009, in the State of Uttarakhand.
16.2 It is the case of VKPL that, a representation dated 30.05.2011 was
made to the respondents, to withdraw the provisions and its policies issued
from time to time which, incorporated the minimum benchmark for
production.
16.3 It is averred by VKPL that, the State Government of U.P. had issued a
certification on 04.07.2011, with regard to quality and quantity of SSP sold
by it, for the period October to December, 2009 and February, 2010.
Accordingly, VKPL made representations on 18.07.2011 to the respondents
for release of subsidy for the period October to December, 2009 and
February, 2010.
16.4 The aforesaid representation was followed by yet another
representation dated 22.09.2011, wherein it was indicated that apart from the
claim already lodged, it had a claim for subsidy against 145 metric tonnes of
SSP sold in the state of Uttrakhand, which had been duly verified by the said
State.
16.5 VKPL, apart from challenging the aforementioned OMs, which
prescribed for a minimum benchmark for production, claimed subsidy to the
tune of Rs. 8,97,500/- on account of sale of SSP, for the months of October
to December, 2009 and February 2010, with interest at the rate of 24% per
annum from 01.10.2009 till the date of realization.
WP(C) 700/2012 (Agri Green Fertilizers and Chemicals Pvt. Ltd.)
17. The petitioner in this case is Agri Green Fertilizers and Chemicals
Pvt. Ltd. (in short AGFCPL). It appears AGFCPL had set up a
manufacturing unit in Kudappa district in the State of Andhra Pradesh.
AGFCPL also claims to be a small scale unit. Apart from anything else, it is
also aggrieved by the minimum bench mark for production issued by the
GOI. AGFCPL, as on 31.03.2009, has an industrial unit established with an
annual installed capacity of 60000 metric tons. AGFCPL has lodged, a
claim in the sum of Rs. 76,26,328/- towards subsidy for the year 2009-2010.
Similarly, for the year 2009-2010, AGFCPL claims a sum of Rs. 27,94,000/-
towards subsidy. Thus, in all the total sum claimed is a sum of
Rs.104,20,328/-.
17.1 Like other petitioners, apart from laying a challenge to the minimum
bench mark for production contained in the impugned OMs, it seeks release
of subsidy in the sum of Rs. 104,20,328/- for the periods referred to above
with interest at the rate of 24% per annum w.e.f. June, 2009 till the date of
its actual realization.
SUBMISSIONS OF COUNSELS
18. In the background of the aforementioned facts, arguments were
addressed on behalf of the petitioners by Mr P.K. Mullick, Mr Sanjay Katyal
and Mr Kaushal Yadav, while the respondents were represented by Mr Rajiv
Mehra, learned ASG alongwith Mr Jatan Singh, Mr Neeraj Chaudhary & Mr
Sachin Dutta, CGSCs. The line of arguments which was put forth on behalf
of the petitioners was common and thus can be summed up as follows:
(i) The OM dated 13.08.2009, read with the succeeding OMs, imposes an
unreasonable and an arbitrary eligibility condition for grant of subsidy to
SSP manufacturing units which is based on a minimum benchmark for
production. The said benchmark for production is skewed in favour of
manufacturing units which have large installed capacities as against smaller
units. This has resulted in smaller units becoming sick and unviable. The
unreasonableness and arbitrariness was demonstrated by adverting to the
following hypothetical figures to show that higher the installed capacity the
lower is the eligibility standard:-
Units Installed capacity Eligibility criteria to be achieved
of unit (in MT) (MT) in order to secure subsidy
1 60000 30000
(50%)
2 80000 40000 (50% capacity = 40000 MT)
(50%)
3 100000 40000 (50% capacity = 50000 MT)
(40%)
4 120000 40000 (50% capacity = 60000 MT)
(33%)
5 200000 40000 (50% capacity = 100000 MT)
(20%)
6 300000 40000 (50% capacity = 150000 MT)
(13%)
(ii) What was sought to be demonstrated is: the bigger the unit lower the
benchmark which is required to be achieved in order to secure subsidy from
GOI. As would be seen in the hypothetical examples cited before me, in
case of Units 3 to 6, the eligibility criteria in percentage terms drops from
40% to 13%. Therefore, while unit no. 6 would only have to manufacture
SSP equivalent to 13% of its installed capacity to secure subsidy, unit no. 1
and 2 would have to manufacture SSP, equivalent to 50% of its installed
capacity.
(iii) According to the petitioners the provision for minimum benchmark
for production was thus unfair and unreasonable as it did not take into
account the age of the unit, the demand for the product in as much as the
latter depended on the buying power of the consumer, i.e., the farmer which
changed dramatically if, drought was experienced or a natural calamity
occurred such as floods etc.
(iv) The petitioners at the time of selling their product, an activity which
went on throughout the year, were unable to predict as to whether or not at
the end of the financial year they would be in a position to manufacture and
sell SSP equivalent to the minimum benchmark fixed by the GOI. In other
words, while the petitioners sold SSP to the farmer at the subsidized rate,
which was well below their cost of production, they were unable to recover
the same when, at the end of the financial year, they were not able to
demonstrate that they had achieved the minimum benchmark fixed for
production.
(v) If the objective of the respondent was to secure to the farmers
adequate quantities of SSP at affordable prices, the said objective could only
get impeded with the existence of the impugned provision for achieving
minimum benchmark qua production by SSP manufacturers/sellers. In other
words, it was submitted that even without the impugned provision of
minimum benchmark for production, farmers were getting quality SSP
fertilizer at subsidized rates.
(vi) The impugned provision has been made applicable only qua
manufacturers of SSP, there is no such provision qua other fertilizer such as
Di-ammonium Phosphate (in short DAP), NPK-complex etc. This situation
has created a class-discrimination as there is no intelligible differentia
between two classes of manufacturers of fertilizers. It is because the cost of
raw materials for manufacture of SSP is high that, it is made subject to
government control and therefore, necessarily survives on the subsidy
extended by the government, which is, 60% of the actual cost of SSP.
(vii) The impugned provision demonstrably discriminates between large
and small manufacturers. The said provision, therefore, ignores ground
realities which hamper production such as: non-availability of raw material,
floods, strike and also delay in receipt of subsidy. It was submitted that the
quality concerns of the GOI are adequately met as before commencing
manufacture the concerned unit has to obtain recognition and get itself
covered by the fertilizer subsidy scheme of the respondent. It is only those
units which meet the stringent norms adopted in this behalf, receive
recognition of the respondent. The final product is subjected to quality test
periodically by a GOI agency, i.e., Projects and Development India Ltd.,
which is a public sector undertaking under the control of the respondents.
Subsidy is received by the concerned unit only upon certification of quality
and quantity of the concerned State Government where SSP is sold.
(viii) In the submissions made on behalf of VKPL, there was a specific
reference to an entity by name of Suman Phosphate & Chemicals Ltd.
which, against an installed annual capacity of 3,30,000 MTs of SSP had
achieved production of only 40,246.383 MTs of SSP, during the period
01.05.2011 to 30.04.2012, and thus, in line with the extant provision for
minimum benchmark for production, would be entitled to subsidy.
18.1 In support of their submissions the petitioners relied upon the
following judgments: V. Sivamurthy vs State of Andhra Pradesh & Ors.
(2008) 13 SCC 730; UOI & Anr. vs International Trading Co & Anr.
(2003) 5 SCC 437 and Council of Scientific and Industrial Research &
Ors. vs Ramesh Chandra Agrawal & Anr. (2009) 3 SCC 35.
19. On behalf of the respondents, the learned ASG argued that the entire
thrust of the impugned provision was to encourage production of SSP in
order to decrease the dependence on expensive substitute which went by the
name of DAP. It was contended that apart from the above, SSP had great
agronomic importance for crops, such as, oil seeds and, those crops, which
were grown in water shed areas in addition to vegetable and fruits. Another
reason put forth for encouraging production of SSP was that phospheric
(P2O5) acid content in SSP was 16% as against 46% in DAP, in addition to,
Sulphur and Calcium.
19.1 It was submitted that in the country and today, eighty seven (87) units
were manufacturing SSP, which were located in various States, and had a
combined installed capacity of approximately 85 lac MTs were covered
under the subsidy scheme of the GOI. The argument was made with the
purpose that, despite the challenge made by the petitioners the subsidy
scheme was working well. By way of example the respondents gave
following statistics to show that with the advent of the scheme under the
OMs mentioned above the production of SSP in the country has gone up.
The figures put forth in that behalf were as follows:
Year Production
2006-2007 28.06
2007-2008 22.46
2008-2009 25.34
2009-2010 30.93
2010-2011 37.13
2011-2012 43.25
19.2 It was contended that, production of SSP enabled the GOI to reduce
its dependence on import of DAP. It was stated that despite DAP being
produced in the country, it had to be imported and the only way in which the
dependence on imported DAP could be reduced, was by increasing the
production of SSP. The respondents thus submitted, that during the period
2006-2007 to 2008-2009 the average production of SSP was 25.28 lac MTs
as against an installed capacity of 76 lac metric tonnes; a situation which
necessitated introduction of the minimum benchmark of production.
19.3 It was submitted that during this period SSP was sold locally, in and
around the area when the manufacturing unit was located, and therefore, had
to be transported to distant places, where there was no manufacturing units,
in the near vicinity. The sale of SSP was, therefore, almost negligible in the
State, which did not have SSP units located within its territory. Some
manufacturing units produced SSP as low as 5 to 10% of their capacity. It
was also observed that many SSP units were not seeking to claim the
balance 15% of the SSP sold by them, which raised concerns about the
quality of SSP sold in the market. It was also noticed that even though the
price of raw material used in SSP, i.e., rock, sulphate had fallen in the
international market, the production of SSP had not increased. Therefore, in
the background of these experiences, the GOI took the step of introducing
the impugned provision in the OM dated 13.08.2009, and simultaneously,
gave the manufacturer the liberty to arrive at his own MRP as against the
fixed MRP of Rs. 3400 per MT. Parallely, the manufacturer could claim an
ad hoc concession of Rs.2000 per MT. The said concession at the relevant
point of time was fixed keeping in mind the trend of cost of raw materials
used in the manufacture of SSP.
19.4 In sum and substance it was contended that the policy contained in
OM dated 13.08.2009 was framed keeping in mind the following objective:
(i) Open MRP will provide flexibility to the manufacturers/ marketers to
move and sell SSP in those states where production units are not located.
(ii) The minimum benchmark condition for production will give wide
option to farmers to choose the brand of SSP of their choice as the
manufacturers shall be able to sell their products far and wide in the country.
(iii) The minimum benchmark/ eligibility condition is aimed at
encouraging higher capacity utilization by the SSP units which will not only
increase the production of SSP but also its availability of quality SSP in the
country and commitment of the producers/ manufacturers.
(iv) Further the minimum benchmark/ eligibility condition will discourage
non serious producers under the scheme to avail subsidy.
19.5 It was contended that, the impugned benchmark was introduced by
the GOI after due deliberation. In this regard, the learned ASG relied upon
the note placed before the Cabinet Committee on Economic Affairs.
19.6 Apart from the above, it is contended that, a similar challenge had
been raised before the High Court of Bombay, Aurangabad Bench, in
WP(C) Nos. 7165/2009, 7350/2009 titled Gajraj Fertilizers Pvt. Ltd. vs UOI
and Balaji Fertilizers Pvt. Ltd. vs UOI. The said writ petitions, I was
informed, were disposed of by a common judgment dated 30.03.2010 passed
by the Division Bench of that court. The Division Bench of the Bombay
High Court dismissed the challenged laid by two SSP manufacturers to the
impugned provision.
19.7 It was also contended that the writ petition was not maintainable as it
sought to challenge the policy decision of the GOI, the scope for
interference qua which was narrow and could only be based on the grounds
of malafide and extreme arbitrariness. Reliance in this regard was placed on
the following judgments: Duncan Industries Ltd. vs Union of India (2006)
3 SCC 129; Balco Employees' Union (Regd.) vs UOI & ors. (2002) 2 SCC
333; P.T.R. Exports (Madras) Pvt. Ltd. vs UOI & Ors. AIR 1996 SC 3461;
Neyelignite Corporation Ltd. vs Commercial Tax Officer, Cuddallore &
Anr. (2001) 9 SCC 648 and WP(C) 13091/2009 dated 04.03.2010 titled
Sophisticated Marbles & Granite Industries vs UOI & Anr.
REASONS
20. Having heard the learned counsels for the parties and perused the
record, the following aspects clearly emerge:
(i) The GOI, apparently since October, 1992 had been administering
concession schemes vis-a-vis decontrolled phosphatic and potassic
fertilizers. Evidently, prior to this, as per the stand of GOI, it used to
administer what was known as the Retention Price Scheme which went back
to the year 1977. With the issuance of OM dated 25.08.2008, GOI revised
its concession scheme for the year 2008-2009. The main focus of the
revision apparently was, fixation of a uniform all India MRP of Rs.3400 per
MT vis-à-vis SSP. Pertinently, at this stage, GOI did not introduce a
minimum benchmark for production. Manufacturers/ sellers of SSP were
thus entitled to on account payment of 85% of the subsidy on sale of SSP.
The balance 15%, was required to be paid, on due certification of quantity as
well as quality of the SSP sold, in a particular State, by the concerned State
Government.
(ii) This, however, underwent a change with the issuance of circular dated
13.08.2009. For the first time in clause 6 of the said circular, the following
provision was made, introducing minimum benchmark for production:
"....6. Ad hoc concession for SSP w.e.f. 1st October 2009
will be provided to those eligible SSP units only, which have
either annual capacity utilization of at least 50% or annual
production of 40000 MT of SSP. For the purpose of
recognizing capacity utilization/ production, capacity as on
31st March 2009 will be taken into account. The SSP units are
required to inform the Department their installed capacity as
on 31st March 2009 certified by the statutory auditor with a
copy to the PDIL. PDIL will also be required to submit a
separate report on the installed capacity of the units as on 31st
March 2009. Capacity utilization/ production for three
months from the date of this notification on pro rata basis will
be taken into account for the capacity utilization/ production
benchmark as above for ad hoc subsidy for sales of SSP w.e.f.
1st October 2009...."
21. Undoubtedly, after the introduction of NBS policy with respect to
SSP vide OM dated 04.03.2010, there has been no variation in the impugned
clause, to the extent it relates to stipulation of a minimum benchmark for
production of SSP by manufacturers in order to enable them to avail of the
subsidy granted by the GOI. The only change was re-numbering of the
impugned clause. This becomes quite clear on reading OMs dated
04.03.2010, 19.04.2010 and 21.04.2010. As a matter of fact the last of these
three OMs, i.e., OM dated 21.04.2010 seeks to implement the NBS policy
qua SSP. Resultantly, NBS policy was made effective qua manufacturers of
SSP w.e.f. 01.05.2010. While under the OM dated 13.08.2009 ad hoc
concession was receivable by an eligible SSP manufacturer at the rate of
Rs.2000 per MT this was enhanced for the year 2010-2011 to Rs 4400 per
MT w.e.f. 01.05.2010. The NBS under OM dated 21.04.2010, however,
was extended to powdered granulated and fortified SSP with Boron. As a
matter of fact, for the last category an additional subsidy for 300 MT was
made available. In this OM dated 21.04.2010, the minimum benchmark for
production was incorporated in clause 8, which in sum and substance was
same as in clause 6 of circular dated 13.08.2009. Therefore, in order to
avoid prolixity, I have not extracted the same.
21.1 What is, however, important to note is that with the introduction of
NBS policy, SSP manufacturers were given an option to accept the regime
stipulated in the said OM of 21.04.2010 subject to the said manufacturers
entering into a MOU with the concerned department. This was clearly
stipulated in clause 10 of OM dated 21.04.2010. for the sake of convenience
the same is extracted hereinbelow
"...10. NBS policy for SSP is optional and available to
only those manufacturers/ marketers of SSP who will adhere to
quality standards and maintain the Maximum Retail Price
(MRP) printed in the bag. The SSP producers/manufacturers
who wish to opt for the NBS policy for SSP would be required
to enter into an MOU as per the enclosed proforma with the
Department to avail NBS...."
21.2 There is no dispute, and I heard none of the counsels disputing this
fact, that each one of them executed a MOU in that behalf to avail of the
benefits of the subsidy under the NBS policy.
22. It is also not in doubt that because the FAI made a representation to
the GOI that vide OM dated 13.07.2010 the rigour qua eligibility was
relaxed, in as much as, where SSP manufacturers had failed to achieve the
requirement of SSP capacity utilization/ production on annual basis, a pro
rata basis was applied for the quarter 01.05.2010 to 31.07.2010 for payment
of subsidy w.e.f. 01.05.2010 for the year 2010-2011 subject, however, to the
condition stipulated in clause 5 of the said circular. I have already referred
to the relaxation made in that behalf and therefore, need not advert to the
same once again.
23. Similarly, a further relaxation was given by GOI vide OM dated
05.08.2010 by introducing a pro rata basis for achieving the minimum
benchmark of production for the period 01.10.2009 to 30.04.2010 while
retaining the annual basis for the period 01.10.2009 to 30.09.2010.
Therefore, it cannot be said that the GOI had not calibrated its policy taking
into account the difficulties faced by SSP manufacturers, in particular, the
fact that the new units may have been set up in 2009 or existing units
required time to adjust themselves to the change in policy, which required
them to meet a minimum benchmark of production.
24. This apart the empirical data which the GOI has placed before me,
seems to suggest that there has actually been a flip in the production and sale
of SSP. I have no reason to doubt the figures given by GOI, as there was no
challenge raised to the same before me by the petitioners. The figures put
forth by the GOI suggest that between 2006-2007 to 2011-2012, while the
production of SSP has increased from 28.06 lacs MTs to 43.25 lac MTs with
a dip in 2007-2008, the consumption and sale has also gone up from 28.06
lac MTs to 43.01 lac MTs.
Year Consumption
2006-07 28.06
2007-08 19.97
2009-10 29.44
2010-11 31.46
2011-12 43.01
24.1 Like production, consumption and sale also dipped in 2007-08. If
these figures are to be believed, qua which I have no doubt, almost the entire
amount of SSP produced is consumed. There is obviously a great demand
for SSP. This fact is also supported, if one were to have regard to the
figures of DAP produced, imported and consumed in the country. The said
figures for the sake of convenience are set out hereinbelow:
Year Production Import Consumption
2006-07 48.52 28.76 69.24
2007-08 42.12 29.73 75.55
2008-09 29.93 66.31 99.04
2009-10 42.46 59.75 103.92
2010-11 35.37 74.09 112.46
2011-12 39.63 68.97 119.9
25. A perusal of the figures would show that the large quantity of the
DAP was consumed in the country and over the year the trend has only
increased. Therefore, the GOI in my opinion would be well within its right
to formulate policies which would give flip to production of SSP in the
country. By all accounts the policy appears to have worked, as the
production has only increased. Though the concern remains, that the,
import content has not been brought down to the extent perhaps expected by
the GOI. The figures also suggest that perhaps much has to be achieved in
terms of policy to reduce the dependence on DAP, which is one of the
reasons given for formulating the extant policy by the GOI.
26. The question which arises, therefore is, are the figures referred to
above coincidently in favour of GOI or was the aspect pertaining to
introduction of minimum benchmark for production thought out, and
thereafter introduced after due care and caution. The note placed before the
Cabinet Committee of Economic Affairs seems to suggest that the persons
concerned with framing the policy had taken into account the then existing
state of affairs, which was, the factum of abysmally low utilization of
installed capacity by SSP manufacturers, while introducing the impugned
provision. To give a synoptic account of the same, I may only refer to the
following extract as set out in the note:
"....3.4 Availability of quality SSP to the farmer
continues to be a major concern. In view of production of
small quantity of SSP annually by many units and their
capacity utilization as low as 5% -10% of the installed
capacity, there is concern about economic sustainability and
seriousness of such units as producers. Accordingly,
benchmark of say 50% capacity utilization can be considered for
payment of subsidy. However, there are certain large capacity
units, which may find difficult to attain 50% capacity utilization
as they may sometime find it difficult to procure rock either
from indigenous or imported sources. Accordingly, it is
proposed that concession for SSP should be provided to those
units only, which have annual capacity utilization of at least
5% OR annual production of 40000 MT of SSP, whichever
lower. This is due the fact that while 50% capacity utilization
is apprppriate benchmark for those units having lower
installed capacity of say 85 thousand MT and below, this may
adversely affect SSP units with higher capacity of one lakh MT
to four Lakh MT. the proposed benchmark would cover
majority of the SSP producing units. Initially, a three months
time from the date of notification of the proposed policy would
be provided to observe the capacity utilization on pro rata basis.
After examination of three months data, the proposed change
will be introduced. The installed capacity of the SSP units on
31st march, 2009 as determined by the PDIL will be considered
for this purpose. This will ensure production of quality SSP and
commitment by SSP producers.
3.5 As mentioned at paragraph 2.2 above, with the
approval of the competent authority in the Department, a revised
notification modifying the provision relating to marketing
arrangement was issued by the Department on 25th August 2008,
whereby all SSP units were allowed to produce and market SSP
irrespective of their production. This was in view of ensuring
availability of SSP to the farmer and not to violate the equality
of opportunity to the SSP units. This was in modification of the
proposal approved by the CCEA that all SSP should be
marketed by large producers, manufacturing more than one lakh
MT of SSP per annum or through NPK/urea manufacturers who
are already covered under the subsidy/ concession Scheme and
who are having a wide marketing network in the country. The
revision was notified on 25th August 2008 and was applicable
from May 2008 to June 2009. It is proposed that the same may
be considered and approved....."
26.1 In so far as financial implication of the policy was concerned, it was
also examined. It appears that, the policy framers, were of the view that
there was no substantial difference in the input cost qua both indigenous and
imported rock route. As a matter of fact, the view taken was that there was a
marginal saving of Rs. 4.67 crores annually.
27. As against this if, one were to look at the performance of each of the
petitioners, it appears that they wish to survive only on subsidy and make no
real attempt at increasing their productivity; when there is every evidence
available to show that there is a huge market for sale of SSP. In this regard I
may only refer to installed capacity of each of the petitioners and the
quantum of production carried out by them between 2007-08 to 2011-12:
Name of the Unit Installed Production (in MTs)
capacity
(in MTs)
2009-10 2007-08 2008-09 2009-10 2010 2011-
-11 12
Devyani Phosphate P. 60000 - - 5903 3352 15282
Ltd., Raj
Narmada Agro Chem P. 15000 1614 3600 4140 6300 7700
Ltd., Guj.
V.K. Phosphate U.P. 60000# 10079 5919 5498 5356 245
Agri Green Fert. & 60000* 8408 6047 10241 584 7601
Chem. P. Ltd., Ktk
Krishna Industries 66000 42225 19500 18817 2756 23180
* 30000 MTs during the year 2011-12, # 33000 MTs during 2011-12
Total production of SSP over the last 5 years
Total 2007-08 2008-09 2009-10 2010 2011-
Installed -11 12
capacity
as on
year
2009-10
All SSP covered under 80.96 22.46 25.34 30.93 37.1 43.25
28. The above table would show an abysmally low capacity utilization by
each of the three petitioners. As a matter of fact, the ratio of production to
the installed capacity, if one were to take the most recent year, 2011-2012,
ranges from 0.74% to 51%. The worst case of unutilized capacity is
presented by VKPL. As a matter fact, VKPL and AGFCPL have reduced
their installed capacity from 60000 MTs as obtaining 2009-2010 to 33000
and 30000 MTs respectively in the year 2011 and 2012.
28.1 As against this, the total production of SSP, as indicated above, has
been on the increase from 22.46 lac MTs produced in 2007-2008, to 42.25
lac MTs in the year 2011-2012. There is, however, an unutilized capacity of
nearly 35-37 lac MTs; if one were to take into account the total installed
capacity in the country, which obtained in the year 2009-2010, as per the
data provided by GOI. The total installed capacity in 2009-2010 was 80.96
lac MTs.
28.2 There is a case, therefore, rightly made out by the GOI that policy
needed to be introduced to increase productivity. The fact that since the
introduction of the policy in August, 2009, there has been an increase in the
production, would show that perhaps the policy has worked.
28.3 The argument of the petitioners that the policy is skewed and tends to
benefit the bigger players, i.e, larger manufacturers, may at first blush seem
to be correct, but this argument ignores the fact that petitioners in reality do
not want to take any steps for increasing their productivity and/or their
efficiency. One could have understood an argument that policy over all had
not resulted in increase in production of SSP; that, however, does not
appear to be the case. Therefore, to suggest that the provision for minimum
benchmark for production ought to be declared unreasonable and
discriminatory, is without merit and hence rejected.
29. The contention of the petitioners that the cost of production for SSP is
in the range of Rs.7000 per MT or more, and when, they sell SSP produced
by them at the subsidized price, they suffer a loss, is an argument which
cannot be accepted as, in a sense, the petitioners are responsible for what has
befallen them, in view their abysmal performance in not being able to
improve the level of their production. It is obvious that the cost of
production of their product is high as the volumes that they produce are
abysmally low. Larger the output, lower will be the cost of production.
Therefore, to suggest that losses have been, incurred by the petitioners on
account of a lopsided or skewed policy of the GOI, in my view, ignores the
demonstrable inefficiency of the units run and managed by the petitioners.
30. The main thrust of the policy introduced by the GOI is to provide
good quality SSP fertilizer in optimum quantities to the farmers. As long as
the Government is able to achieve this objective, the incidental impact on
inefficient manufacturers cannot render the policy in vogue illegal, on the
grounds of arbitrariness or unreasonableness.
31. It is well settled in framing economic policies, the GOI needs a play
in the joints. There is no perfect solution to every conceivable problem
which may arise in the implementation of an economic policy. If by and
large the policy is fair and achieves the object it seeks to achieve, the court
is not called upon to iron out the creases or correct perceived defects in the
policy just because there is another point of view available. Policies are
forged based on past experience, collation of empirical data and an element
of experimentation. Therefore, time and again courts have indicated that
policies of the State, if assailed, can be set aside on very narrow grounds of
malafides or extreme arbitrariness, or being unconstitutional or even
violative of statutory or other provisions of law. In this regard there are
several decisions rendered by this court as well as by the Apex Court. I
need not burden the judgment by replicating the principle enunciated in this
behalf. Suffice it to say, whichever way the present case is examined, it
does not fall within the realm of extreme arbitrariness or any other known
ground of challenge which perhaps could have persuaded me to strike down
the policy in issue.
32. Accordingly, the challenge to the impugned policy is repelled. In the
result, the captioned writ petitions are without merit and hence dismissed.
The parties will, however, bear their own costs.
RAJIV SHAKDHER, J
FEBRUARY 04,2013 /kk
