IN THE HIGH COURT OF JUDICATURE AT PATNA CWJC No 9555 of 2007 M/S VISHNU SUGAR MILLS LIMITED Versus THE UNION OF INDIA & ORS W I T H CWJC No 9892 of 2007 M/S RIGA SUGAR COMPANY LIMITED Versus THE UNION OF INDIA & ORS ----------- For the petitioners : M/s Y V Giri, Sr Advocate & Jyoti Saran, Advocate For the Corporation: M/s R S Pradhan, Sr Advocate & A N Rai, Advocate For the Union of India: M/s Sarvadeo Singh & Kaushal Kumar Jha, CGC For the S t a t e : M/s Ritesh Kumar, JC to AAG I & A K Dubey, JC to AAG 9 ----------- 7 02.09.2008 The two writ applications are under similar circumstances filed for same relief and as such, with consent of parties, have been taken up together and are being disposed of together. The facts in detail would be those in relation to the first writ application being CWJC No 9555 of 2007 (M/s Vishnu Sugar Mills Limited) as counter affidavits and rejoinders in detail have been filed therein. As pleadings are complete, with consent of parties, these writ applications are being disposed of at the stage of admission itself. These proceedings are the third of the trilogy of cases in relation to the levy sugar liability of the sugar mill. First, they had moved this Court for a direction to the respondents to ensure that the levy quota of sugar be promptly lifted so that petitioners do not have to store levy sugar without receiving price thereof for long periods. This Court, having considered the matter, 2 permitted sale of levy sugar as free sale sugar as the respondents were unable to lift the levy sugar quotas with no carry forward levy liability. The significance of this will be discussed later on. The second round of litigation was by filing CWJC No 6964 of 2006 which was dismissed by judgment and order dated 04.09.2006 (Annexure-11 to the first writ application). In this, the petitioners contended that by not lifting the levy quota, the levy liability should lapse for all intents and purposes and in alternative even if merely the allotment lapsed with levy liability persisting, the carry forward of liability rule was bad. Both these contentions were repelled by this Court firstly on the ground that it was only allotment that lapsed not the liability and so far as the carry forward rule, as enunciated in the policy circular dated 18.06.2002 of the Government of India is concerned, was valid but this Court struck a note of caution in the following words : “However, before parting, I may observe that carry forward rule is reasonable if it is carried forward for a reasonable short period. If it is pointed out that this carry forward rule is being extended for unreasonable long period then the question may arise as to its reasonableness or otherwise but in the facts of the present case, the period does not appear to be unreasonable especially considering the circumstances in which earlier lifting could not be done.” Now, even though initially various pleas and reliefs were sought for, relief is restricted to attack on the carry forward rule which was initially introduced by the Central Government in its policy circular dated 18.06.2002 (Annexure-E to the counter affidavit of Union of India). By this circular, all sugar mills were directed that in view of large scale report of non-lifting of levy sugar by State Governments or their nominees resulting in accumulation of sugar stocks adversely 3 effecting the financial positions severely of the sugar factory and, as such, keeping in view the said position, the Central Government has decided to allow sugar mill to sell equivalent quantity of their levy liability which remained unlifted after lapse of three months after the date of allotment. This was with a rider that the levy obligation would remain unchanged. Thus, the effect was that though the sugar mill could convert unlifted levy sugar into free sale sugar in presenti but they would have to account for and deliver their levy liability at any future date as and when demanded by the Central Government. Effectively, levy liability would accumulate year after year if Government or its agency fails to lift the levy quota. The statutory scheme, in brief, is that under the Sugar (Control) Order 1960 and Levy Sugar Supply (Control) Order 1979 which are orders issued and enforced under the Essential Commodities Act 1955 with reference to Section 3(1)(f) read with Section 3 (3-C) of the Act, the Central Government is authorized to declare and acquire certain fixed percentage of production of sugar by a sugar mill as levy sugar at a price so fixed. Since 2002, this has been fixed at 10% of the production in a sugar year. A sugar year is the period beginning from 01st November and ending on 31st October, the next year. The effect is that for a production year, 10% of the total production has to be kept apart by the sugar mill for being sold to the Government or its agency at the prices notified. The price fixation has been subject matter of challenge many a times and has been upheld by Courts on the ground that it is only a part of the stocks that are acquired as levy sugar and the 4 losses, if any, can be made up by selling the balance free stocks in open market. It was also held that the prices have been fixed keeping in view a reasonable return to the sugar mills. Levy sugar, which is so acquired by the Central Government, is allotted to various State Governments on monthly basis in order to meet their liability under the Public Distribution System and for distributing sugar to people below the poverty line. It is monthly allotment because in the Public Distribution Network, levy sugar is sold on monthly basis and is for monthly consumption. It is not that if for two months for any reason sugar is not supplied to the card holders then in the third month either they are supplied three times the monthly quota or their requirement accumulates and shoots up to three times the monthly quota. Sugar is a foodstuff for daily consumption. Daily consumption does not accumulate. In recent times, the Central Government observed that most of the States for various reasons were unable to lift their levy quotas which resulted in accumulation of stocks with sugar mill. Sugar mill got their levy price only when the levy sugar is lifted by State or its agency. Thus, if allotments were not lifted the stocks lay dead with the sugar mills and their capital blocked. Even the unremunerative levy price not coming to them had severe financial repercussions on the operation of the mill as on one hand they were required to meet their statutory liabilities including to the cane growers but on the other hand they were unable to realise full value for their goods and rather met additional cost and expenses in relation to storage of sugar. It is considering this difficulty that the Central Government issued the policy circular dated 5 18.06.2002 (Annexure-E to the counter affidavit of Union of India) whereunder they permitted the sugar mills to sell the lapsed allotment of levy sugar in free market. I may note that this position is not unique for the State of Bihar but as would appear from the order of the Central Government dated 05.10.2007 (Annexure-14 to the first supplementary affidavit of the petitioner), it was a countrywide phenomena where huge stocks of levy sugar remained unlifted and was permitted to be sold as non-levy free sale sugar. The said order (Annexure-14) gives a detailed factorywise statement spread over virtually the entire country where sugar mills are located. Another thing apparent is that this was not a one time phenomena but a recurring phenomena at least from the year 2002 upto date. In this connection, some salient facts may also be noted from the pleadings. Bihar State Food and Civil Supplies Corporation is the agent for the State of Bihar for the purposes of lifting levy sugar and distributing it to the Public Distribution System. It has filed counter affidavit in which it has admitted that it has huge stocks of levy sugar undisposed and cannot afford to procure more sugar. It has communicated the same to the Central Government as well. The reason is that it finds it unremunerative to trade any further in levy sugar and more importantly PDS dealers are unable to dispose of their sugar stocks and the requirement for sugar under BPL category is virtually nil. The stocks at the hands of the Bihar State Food and Civil Supplies has become unmanageable and is deteriorating. In its counter affidavit, the Union of India has admitted that in the past two years, through FCI, it 6 has already created a buffer stock of 50,000 Metric Tonnes of levy sugar. The effect on the sugar mill now is that though they are free to sell presently the lapsed levy sugar allotment in the market as free sale sugar, they are now being made accountable for the lapsed quotas to be delivered at a future date which is accumulating year after year. The result is that instead of delivering 10% on year’s production as levy now they may be required to deliver much more and may be even 20 to 25% on basis of accumulation in any one year. It is this accumulation of liability that is being objected to because if in a production year instead of statutory liability of only 10%, they are required to meet the accumulated past liability as well then their liability for that year would become effectively 20 or 25% which would cause them immense financial loss in that year. It is this part now they challenge as unreasonable. It is this part that was upheld by this Court in the earlier writ application but with a caveat as quoted above and now in this last case of the trilogy they attempted to demonstrate the same by facts and figures which have not been disputed rather based on those facts in the supplementary counter affidavit of Union of India a huge accumulated liability is being impressed upon the sugar mills. The figures are to be found in Annexure-17 to the second supplementary affidavit of the petitioners and have been accepted as correct in the supplementary counter affidavit of Union of India. The facts are as under noted : Production year Levy Liability (Metric Tonnes) Lifted Quantity (Metric Tonnes) 1 2003-2004 3,433.00 NIL 2 2004-2005 3,236.30 NIL 7 3 2005-2006 5,528.50 4,960.00 4 2006-2007 5,690.50 6,208.00 Total 17,888.30 11,168.00 Balance carried forward levy liability 17,888.30 (-) 11,168.00 6,720.30 Metric Tonnes These facts would show that at the end of the sugar year 2006-2007 as against the total levy liability of 17,888.30 Metric Tonnes of sugar the total lifting was 11,168.00 Metric Tonnes. Thus, the unlifted levy sugar which carried forward from the year 2003-2004 was 6,720.30 Metric Tonnes. Figures would show that for the years 2003- 2004 and 2004-2005, no levy sugar was lifted at all. The carry over of this 6,720.30 Metric Tonnes of sugar liability is much more than liabilities in the previous year and, therefore, in a subsequent year, the liability would be more than twice the year’s 10% of the production. Effectively, if the entire liability was required to be discharged, the petitioner would be required to deliver over 20% of its production of ensuing year as levy liability as against statutory liability of only 10%. What petitioners question that when State is unable to utilize even half of that amount in a year how does it propose to utilize twice the amount and what is the purpose of keeping the liability levy under the carry forward rule for such long periods. There is no answer from the respondents. Here and in this connection, I may notice another important predicament for the sugar mills as created by this carry forward rule. Under the Sugar (Control) Order 1966 and orders issued thereunder, a sugar mill is not free to stock its production of free sale 8 sugar at will. It is obliged to make weekly/monthly dispatches as sale of quantities fixed by Central Government, the failure to abide by with attracts stiff penalties and prosecutions. It will, thus, be seen that all the free sale sugar of a year is sold immediately. Now if the levy liability is not lifted then even this stock is sold but liability continues. Thus, in the year, if the sugar mills are required to deliver past levy liability as well as current levy liability, all at once, they will have in sufficient stocks to meet the same, thus, exposing them to penalties and prosecutions and that too for no fault of their’s rather for fault of State. This position cannot be but termed as unfair, arbitrary and unreasonable within the meaning of Article 14 of the Constitution of India. This Court, in their earlier proceedings, had held the carry forward rule valid provided carry forward was not beyond reasonable time but seeing the manner in which the liabilities are being carried forward and added to the next year liability and allowed to increase year after year, in my view, now renders the provision arbitrary and unreasonable. This is carrying forward the liability beyond reasonable limit. It must end and Government must ensure that the year’s consumption requirement are set realistically and levy procurement adjusted accordingly. This balance has to be maintained notwithstanding unlike tax liability or unfilled up vacancies in service, this cannot accumulate as it is based on daily consumption which does not accumulate. If a person does not get sugar for any reason for two months, it is not that in the third month, he will consume three times the quantity. The distribution under Public Distribution System does not get increased in subsequent periods. His requirement each month he 9 fulfills by purchase elsewhere. Thus, this carry forward rule, which was earlier held to be valid, cannot now hold good and, accordingly, the carry forward liabilities would totally lapse extinguishing the liability but before this can be effective, the Central Government is given three months’ time to liquidate the accumulated carry forward liabilities beyond which the same would not continue and with the next sugar production year commencing from 01st November 2008, there would not be a carry forward of past liability and the levy liability would start with a clean slate. In view of the above, the decision of the Central Government dated 18th June 2002 of carry forward of liability cannot be enforced any further than the period as indicated above. The writ applications, with the aforesaid observations and directions, are consequently allowed. M.E.H./ (Navaniti Prasad Singh)