WP(C) 242/2010 BEFORE HON’BLE THE CHIEF JUSTICE MR. MADAN B. LOKUR HON’BLE MR. JUSTICE P.K. MUSAHARY (P.K. MUSAHARY, J) The principal question that arises for consideration is whether the Hill Transport Subsidy (for short HTS) payable to carriage contractors engaged by th e State of Arunachal Pradesh (for short the State) is required to be calculated on the basis of the Government of India letter dated 28.11.1995 (as claimed by t he Food Corporation of India or FCI) or on the basis of the Government of India letter dated 23.2.2001 (as claimed by the State). In our opinion, HTS is require d to be paid on the basis of the letter dated 28.11.1995 and not on the basis of the letter dated 23.2.2001. 2. While the issue raised is rather simple, the financial ramifications are quite enormous and therefore, although a preliminary objection was raised by th e FCI to the maintainability of the writ petition filed by the State, we do not propose to express any opinion on it. The additional reason is that it would be in public interest if the issue raised is quickly decided one way or the other. Indeed, even the Supreme Court required that the matter be decided within eight weeks, vide order dated 25.11.2010 passed in SLP (C) No.9597 of 2010 (a time fra me that we could not adhere to because of the complexity of the issues raised). Taking all this into account, we have gone into the meat of the matter. Background Facts 3. Sometime in 1971-72, the Agricultural Prices Commission recommended (and this recommendation was accepted and implemented) that food grains from the sto cks of the Government of India be released for delivery to the Principal Distrib ution Centres (for short PDCs) in the hill States (such as Arunachal Pradesh) un der the Public Distribution Scheme. It was decided that the central issue price for the food grains would include the rail freight, thereby making the pool issu e price free on rail. Thereafter, for carrying the food grains by road from the rail-head to the PDCs, the transportation cost incurred was to be borne by the S tate Government. 4. We are concerned in this case with the hill State of Arunachal Pradesh w hich does not have any rail-head and has a difficult terrain, large area and a s parse population. All these factors combined to create a problem in Arunachal Pr adesh whereby the pool issue price could not be maintained without passing on a heavy burden to the consumers. 5. A solution to this problem was found through a letter dated 9.7.1975 whe reby the Government of India decided that the benefit of pool issue price of foo d grains be extended to supplies made to the PDCs. To achieve this, FCI was requ ired to establish godowns at the PDCs (wherever possible) or reimburse the State Government the cost of transportation upto the PDCs. Certain conditions were r equired to be observed, but we are not concerned with them. The sum and substanc e of the letter dated 9.7.1975 is two-fold: Firstly, the supply of food grains u nder the public distribution scheme would be free on rail upto the rail-head. Se condly and thereafter, Arunachal Pradesh would be entitled to reimbursement of t he cost of transportation upto the PDC. It may be mentioned that this reimbursem ent is called Hill Transport Subsidy (or HTS). 6. The letter dated 9.7.1975 is of some importance to appreciate the scheme of things and this reads as follows: No.167 (32)/72- PY.1 Government of India Ministry of Agriculture & Irrigation (Department of Food) New Delhi the 9th July, 1975 From A.K.Agarwal Deputy Secretary to the Government of India To The Managing Director, Food Corporation of India, New Delhi. Subject:- Distribution of foodgrains at Principal Distribution Centres of Hill State - reimbursement of Transport Cost. Sir, In its report on the price policy for kharif cereals for 1971-72, the Agricultur al Prices Commission inter-alia recommended that population in Hill States bein g generally poor, the pooled price for grains issued out of the Union Government stocks should be for delivery at the principal distribution centres in such sta tes . While the rail freight incurred on the movement of foodgrains issued from the Central stocks is included in the Central issue prices, the road transport c harges for their further movement from rail heads is incurred by the State Gover nments. 2. In case of hill states, the number of rail heads is limited and the cost of moving grains by road to the interior is heavy. The people in Hilly are as have, therefore, to bear an additional burden on account of lack of rail tran sport facilities. The question as to how the extra burden caused to these States Governments/ Union Territories in the movement of foodgrains could be reimburse d has been examined by the Central Governments. 3. It has been decided that the benefit of the pool price of food grains is sued out of the central stocks be extended in the case of supplies to a number o f important distribution centres in the hill stations/Union Territories having n o rail heads/FCI’s Godowns. The FCI should open godowns at the principal distrib ution centres wherever possible or reimburse the State Governments/ Union Territ ories the cost of transportation upto these centres. A list containing the princ ipal distribution centres in the hill states/Union Territories is attached. 4. The following conditions are, however, to be observed by the State Gover nments/Union Territory Administrations while utilizing the transport reimburseme nt received from the FCI. Full benefits of the transport subsidy should be passed on to the consumers by t he State Governments/Union Territories Administrations. Where the State Governments are already giving some subsidy they should consider passing on the same quantum of subsidy by opening more interior distribution ce ntres not covered by these recommendations; and In the exceptional case of J&K where the State Government is already giving not only transport subsidy but substantial price subsidy to the consumers, the relie f which the Government of J&K will get on account of this transport subsidy will be taken into account by the Plan Finance Division while dealing with their res ource gap problem. 5. This order will come into force with effect from 1.8.1975. Yours faithfully , Sd/- (AK Aggarwal) (Deputy Secretary to the Govt. of India) (Emphasis supplied) 7. We are not really concerned with the events that transpired immediately thereafter, except to note that on 5.2.1986 the FCI communicated to its Regional Office in Guwahati/Shillong that the Government of India, by a letter dated 29. 1.1986 approved twelve PDCs in different districts and sub-divisions of Arunacha l Pradesh for the purpose of HTS. 8. To sum up this aspect of the case: HTS was intended to reimburse Arunach al Pradesh the expenditure incurred by it for transporting food grains from the rail-head to the PDC so that the beneficiaries under the public distribution sch eme are not burdened with the transportation cost. 9. It appears that during the actual working of the public distribution sch eme and the release of HTS a few course corrections needed to be made due to som e facts and factors that needed consideration. We are not directly concerned wit h these course corrections, but since these were needed, a letter dated 31.10.19 90 was issued by the Government of India to the Food and Civil Supplies Departme nt of all the North Eastern States. In this letter, a base depot was explained t o mean not only FCI depots but also linked rail-heads. The letter also explained the concept of Road Reimbursement Charges or Transportation Charges to mean r eimbursement of expenditure incurred for transporting food grains from the rail- head to the base depot. This amount was quantified as 11 paise per quintal per k m. The letter explained HTS to mean reimbursement of transportation charges from the designated base depot of the FCI to the approved PDC. This amount was payab le on an actual basis, unlike Road Reimbursement Charges. 10. Equally importantly, the letter dated 31.10.1990 specifically stated tha t to avoid any ambiguity, and in supersession of all previous instructions HTS would be reimbursed on actual basis for transportation of food grains from the base depots to the PDCs. Effectively therefore, this was only a favourable modif ication and a reaffirmation of the existing policy. 11. The letter dated 31.10.1990 is of some importance and it’s relevant extr acts are reproduced hereinbelow, with the salient features highlighted by us: NO.179 (5)/90- PY.I Government of India Ministry of Food and Civil Supplies (Department of Food) New Delhi -1 Dated 31st October, 1990 To The Secretary, Food and Civil Supplies Department (North Eastern States) Subject: Reimbursement of transport charges in NEF States for lifting of foodgra ins under PDS from central pool ---Regarding. Sir, At present, two type of road reimbursement charges are being allowed for distrib ution of foodgrains to NEF States covered under the scheme referred, as given be low:- ROAD REIMBURSEMENT CHARGES: These charges are paid to the State Govt. for lifting of foodgrains from rail heads other than base depots and taking upto the base depots. The existing ceiling limit for such road reimbursement charges is 11 paise per qtls. per km. , and HILL TRANSPORT SUBSIDY: These transport charges cover the expenditure incurred by State Government for moving the stocks from base depots (designated by FCI) upto the a pproved Principal Distribution centres (PDC’s). PDC’s are approved by the Govern ment of India. These charges are reimbursed by the FCI on actual basis as certif ied by the State Government. 2. It has been observed that FCI has at times not been able to make food grains available at the base depots and in such cases, the State Governments are lifting foodgrains from other than base depots from distant BG/MG terminals/ FCI depots and move foodgrains directly to PDCs. The instructions regarding paym ent of transport charges to cover such cases do not seem to be free from ambigui ty. In order to avoid any ambiguity, and in supersession of all previous instruc tions, the following instructions are issued regarding reimbursement of such cha rges:- & & In case stocks are lifted from the base depots to the approved PDCs the transpor tation charges i.e. Hill Transport Subsidy would be reimbursed on actual as incu rred by the State Government. 3. & 4. The base depots would mean not only FCI’s Depots but also the li nked rail head. The list of various base depots approved for the purpose for the various States in North East is given in Annexure. & &. &.. 5. The State Governments while submitting their claims on fortnightly or on monthly basis would give full details with supporting documents of movement of foodgrains so that the same are verifiable and FCI would scrutinize and pass the same for payment in shortest time possible so that States Govts. are not pu t to any undue financial hardship in this regard due to lockup of their funds. T he State Govt. should not allow their bills to accumulate and should not delay f or more than a fortnight. The document which would be submitted in this regard b y the State Governments along with their road reimbursement claims would be deci ded by the Zonal Manager (NEF). 6. The above claims would be scrutinized by the District Office concerned a nd recommended for payment to the SRM who would pass the bills for payment throu gh District Manager. These bills in any case should be passed within 10 working days. 7. & 8. & Yours faithfully, Enclo: As above (S.C. Sharma) Under Secretary to the Govt. of India Copy forwarded to:- 1. Manager (Sales), FCI, New Delhi/Manager (Proc.), FCI, New Delhi. 2. US (F)/I 12. Factually, as on 31.10.1990, Arunachal Pradesh had seven identified base depots or linked rail-heads and 12 approved PDCs. 13. To sum this aspect of the case: As on 31.10.1990 Arunachal Pradesh was e ntitled to Road Reimbursement Charges for transportation of food grains from the rail-head upto the base depots at 11 paise per quintal per km and HTS for trans portation of food grains from the base depot to the PDC on an actual basis. 14. Notwithstanding the above clarifications, some problems in the implement ation of the HTS scheme continued to remain. The most important of them was with regard to payment of HTS in situations where, given the hilly terrain, low popu lation density and the large land mass, it was more convenient to off-load the f ood grains either en-route to the PDC or on some convenient off-route location. In other words, while transporting the food grains from the base depot to the PD C, it was sometimes more convenient to off-load the stock at a Fair Price Shop t hat was en route or at a Fair Price Shop that was not en route but the diversion was more convenient given the associated factors mentioned above. 15. A solution to this problem was found by the Government of India which is sued a letter dated 28.11.1995 to the FCI further liberalizing the HTS reimburse ment policy. It was decided that as far as Arunachal Pradesh is concerned, HTS w ould be admissible even if the food grains were off-loaded en route at distribut ion centres or Fair Price Shops or even off-route at such centres or Fair Price Shops. This was, however, subject to two conditions, that is: 1. The reimbursement will not, under any circumstances exceed the amount re imbursable had the stocks been otherwise moved to the PDC. 2. No demand for shifting or increasing the number of PDCs would be enterta ined. 16. The letter dated 28.11.1995 is extremely significant for the determinati on of the controversy before us and it reads (with emphasis supplied) as follows : No.179 (1)/90-PY.I Government of India Ministry of Food (Department of Food Procurement & Distribution) KRISHI BHAWAN New Delhi-I, dated 28th November, 1995 To The Managing Director, Food Corporation of India, 16-20, Barakhamba Lane, NEW DELHI. Subject: - Reimbursement of Hill Transport Subsidy to Arunachal Pradesh. Sir, I am directed to say that the question of extending certain concessions to the G overnment of Arunachal Pradesh in the implementation of the scheme of hill trans port subsidy in view of the special features of the State viz, hilly terrain, la rge area, very low density of population etc. has been under consideration of th is Ministry for some time. In relaxation of the instructions contained in this M inistry’s letter No.179 (5)/90-PY.I dated 31st October, 1990, it has been decide d that reimbursement of hill transport subsidy will be allowed to the State of A runachal Pradesh even in such cases where the food grains are off-loaded at dist ribution centers/FPS other than the PDCs or enroute to PDC. The relaxation of th e scheme will, however, be subject to the following conditions:- (i) The reimbursement of HTS upto the off-route distribution points/FPS will not under any circumstances exceed the amount that would have become reimbursab le, had the stocks been moved to the Principal Distribution Centres. (ii) No demand for either shifting or increasing the number of existing PDCs will be entertained. 2. These instructions will take effect from the date of issue of this communication. The bills already pending with the FCI may also be disposed off i n terms of these instructions. 3. This issues with the concurrence of Finance division vide their Dy. No.3 702/Dir (Fin), dated 23rd Nov., 1995. Yours faithfully, (M. SUDHAKARAN) Under Secretary to the Govt. of India Copy to: Secretary, Food & Supplies Deptt., Govt. of Arunachal Pradesh, ITANAGAR. Copy also to:- Director (Finance) (Emphasis supplied) 17. To sum this aspect of the case: A combined reading of the two letters da ted 30.10.1990 and the letter dated 28.11.1995 makes it clear that the overall s cheme of payment of HTS remained unchanged in as much as reimbursement was still required to be made on actual transportation expenses from the designated base depot to the approved PDC. However, the payment scheme was liberalized in as muc h en route or off route off-loading was permitted subject to the overall maximum of reimbursement of transportation charges from the base depot to the PDC. The beginning of the problem 18. The above arrangement continued quite well for some time. Eventually, ho wever, Arunachal Pradesh felt the necessity of shifting some existing PDCs since they seemed to be inconveniently located. The Government of India addressed thi s problem, notwithstanding the letter dated 28.11.1995 to the effect that no dem and for either shifting or increasing the number of existing PDCs would be enter tained. The reconsideration by the Government of India resulted in its issuing a letter dated 23.2.2001 to the FCI permitting the shifting of six PDCs. It appea rs to us that this letter dated 23.2.2001 is not only quite innocuous but also q uite unambiguous, but it has resulted in this litigation, which we believe is ra ther needless. The letter dated 23.2.2001, which is the nub of the controversy ( with the relevant extracts highlighted by us) reads as follows: MOST IMMEDIATE No.179 (5)/98-PY.I Government of India Ministry of Consumer Affairs, Food & Public Distribution (Department of Food & Public Distribution) Krishi Bhavan, New Delhi, Dated the 23rd Feb, 2001 To The Managing Director, Food Corporation of India 16-20, Barakhamba Lane, New Delhi. Subject:- Shifting/Extension of 6 PDCs - regarding. Sir, The proposal of the State Government of Arunachal Pradesh for shifting/extension of the existing PDCs to new locations under Hill Transport Subsidy Scheme (HTS) has been under consideration of the Government. It has been decided to shift/extend the following 6 (Six) PDCs under HTS scheme in Arunachal Pradesh for the purpose of reimbursement of transportation cost of foodgrains on actual basis, subject to the condition laid down from time to time for regulating the scheme of reimbursement of transport cost under HTS scheme. Full benefits of the transport subsidy will be passed on by the State Government of Arunachal Pradesh to the consumers: - 1. Lemeking to the shifted from Taliha. 2. Mechuka to be shifted from Liromoba. 3. Damin to be shifted from Nypin. 4. Tuting to be shifted from Mariyang in Upper Siang District. 5. Kibithoo to be shifted from Hayuliang. 6. Vijoynagar to be shifted from Miao. 2. This order will have immediate effect. Yours faithfully, Sd/= (B. K. DEVVARMA) DIRECTOR (POLICY ) TELE: 3385792 (Emphasis supplied) 19. According to Arunachal Pradesh, the letter dated 23.2.2001 substantially modified the reimbursement scheme. The view of Arunachal Pradesh was that reimb ursement of HTS would now be payable on an actual basis from the base depot to t he Fair Price Shop rather than upto the PDC. Frankly, we cannot see how such a c onstruction can be placed on the letter dated 23.2.2001 but anyway that is how A runachal Pradesh understood the letter, acted on it and apparently made payments to the contractors engaged by it. The reimbursement bills submitted in this reg ard were also cleared by the FCI after due checking and super-checking . 20 The view of the FCI (as canvassed before us) is that the HTS scheme did not undergo any modification - only that the location of some existing PDCs was shifted and the condition laid down from time to time for regulating the scheme of reimbursement of transport cost under HTS scheme remained unchanged. That i s to say that reimbursement would be made on actuals for transportation cost inc urred from the base depot to the PDC. 21. Be that as it may, the net result of the interpretation given by Arunach al Pradesh was that HTS claims by Arunachal Pradesh increased quite suddenly and rapidly during 2003-04. The result of this was that sometime in 2004 the FCI st opped reimbursement claims on the ground that huge over-payments had been made t o Arunachal Pradesh under the HTS reimbursement scheme. This resulted in some co rrespondence between the Government of India and Arunachal Pradesh and ultimatel y a meeting was convened between the Government of India, the FCI and Arunachal Pradesh on 22.3.2005 on the subject of reimbursement of HTS claims. 22. A perusal of the Minutes of the meeting held on 22.3.2005 makes it clear that Arunachal Pradesh was claiming reimbursement of HTS claims for transportat ion costs incurred from the base depot to the FPS rather than upto the PDC. It w as decided, after discussion, that the bills would be scrutinized by the Deputy Commissioners as per the circular of the Government of India dated 28.11.1995 a nd that they would certify that the bills have been passed only after obtaining necessary certificates and verification reports. Some further decisions were als o taken in that meeting, particularly relating to a special audit for the paymen ts made during 2003-04, but according to Arunachal Pradesh there was no discussi on on this issue (and therefore no decision thereon). 23. The relevant extracts of the Minutes of the meeting held on 22.3.2005 re ad as follows: Minutes of the meeting held on 22.3.2005 under the Chairmanship of JS (P&FCI) w ith officers of FCI and Arunachal Pradesh Government regarding reimbursement of Hill Transport Subsidy claims. The list of participants is at Annexure - I. 2. It was explained that Government of India reimburses the transportation cost beyond the FCI Base Depots and upto the PDCs, in the predominantly hill Sta tes including the North Eastern Region, keeping in view the high expenditure on movement of foodgrains in these States due to difficult & inaccessible terrain. In case of Arunachal Pradesh, by way of special dispensation, instructions were issued on 28.11.1995 to provide for reimbursement of HTS upto the distribution c entres/FPSs on en-route locations to the PDCs subject to the condition t hat the transportation cost would not exceed the amount that would be reimbursed had the stocks been moved to the PDCs. Further, the State Government had also b een allowed a ’rolling’ advance of Rs.10 crore which was to be utilized for sett lement of the pending bills and further advance released after adjustment of the previous advance. 3. Explaining the reasons for the sudden increase in the claims since 2003- 04 the representatives of the Arunachal Pradesh Government indicated that the He ad Load Carriage System was started on an experimental basis in two Districts in the year 2001-02 and was subsequently extended to 16 Districts in view of its s uccess by implementing the Head Load Carriage System the foodgrains are now bein g reached to families living in remote and far flung areas not having motorable roads. The HTS bills presented by contractors were being properly scrutinized by the Deputy Commissioner of the respective Districts. The delivery of foodgrains to distribution points in off route locations were duly certified by the Circle Officers and members of the Vigilance Committees constituted at the FPS level. 4. It was observed from the position explained by the State Government’s re presentatives that the entire cost of transportation from the Base Depots of FCI to the FPSs was being claimed as reimbursement under the HTS Scheme without str ictly applying the condition imposed vide the 28.11.1995 circular. This was perh aps also not being checked by the Regional Office, FCI while scrutinising and pa ssing the bills for payment. As a result excess payments under the scheme could not be ruled out. 5. After discussion, the representatives of the State Government and the FC I agreed as under: - (i) & (ii) & (iii) The Deputy Commissioners shall scrutinize the bills keeping in view the ci rcular of Government of India dated 28.11.1995 and certify that the bills have b een passed only