Case: Panipat Co-Operative Sugar Mills etc Vs. Union of India

2. The appellants are three public limited companies having factories in Haryana State where they carry on the business of manufacturing and selling sugar, an essential commodity within the meaning of the Act. The Act empowers the Central Government to control the production and distribution inter alia of sugar with the object of maintaining its supply and its equitable distribution.3. Under Section 3, the Central Government has been authorised to require a manufacturer of sugar to sell to it or to a State Government or any other authorised person either the whole of his stock or part of it at a fair price fixed by it. In pursuance of power reserved to it under Section 3 (2) (f) and Sec. 3 (3C), the Central Government required the sugar factories, including the appellant-companies to sell to it 60% of their production during the year 1970-71 at price fixed by it, the price fixed for the factories in Haryana zone under the impugned order being Rs. 124.63 per quintal.The concept of statutory control over sugar cane is as old as 1934 when the Central Sugar Cane Act, 1934 was enacted. Under that Act and orders passed thereunder Government used to fix the minimum price for cane. Since 1950 and later on under the Sugar Cane (Control) Order, 1955, such minimum price for cane used to be fixed having regard to (a) the cost of production of cane, (b) the return to the growers from alternative crops, and (c) fair price of sugar to the consumer.7. So far as sugar is concerned, statutory control over it was first imposed in 1942 under the Sugar and Sugar Products Control Order, 1942. The Sugar Controller thereunder regulated production, distribution and prices of sugar. From May 1, 1942, no sugar factory was permitted to effect sales except to authorised persons. This position continued until December 8, 1947, when sugar was decontrolled. In 1949, statutory control was once more imposed under which exfactory price of Rs. 76.35 per quintal for D-24 grade was fixed, as during that year sugar production declined. There was also a substantial diversion of cane to gur and khandsari industry. Control over sugar was relaxed in 1950 in that production over 90% of the total production of each factory was allowed free sale. This policy was subsequently modified and 95% of the average production of each factory during the two preceding years was fixed as basic quota and half of the production in excess of that quota was allowed free sale, while the other half together with the basic quota was reserved for sale at controlled prices. Since conditions appeared to improve, control was taken off in 1952-53, except that a small portion of production was reserved for sale at controlled prices. But as prices spiralled, Government in April 1954 requisitioned 25% of the stock for distribution on a tender basis. During 1954-55 to 1956-57 no controlled prices were fixed. By 1958 the prices began to soar and the Government once more decided to impose control.8. During 1958 Government requested the Tariff Commission to examine the cost structure of sugar and fair price which should be paid to the sugar industry. Such an exercise was not new, for, as early as 1947, and in 1951 and 1955 these questions had been gone through, in 1947 by one Dr. Srivastava, and in later years by expert committees appointed by Government. These committees worked out cost schedules and fair price to be paid to the industry but on an All-India basis. These cost-schedules were not fair as they did not take into account disparities existing from region to region in the matter of price of cane, percentage of recovery and duration of the crushing season.9. The Tariff Commission in 1959 did away with the All-India cost-schedule and instead constructed four zonal cost schedules having regard to their respective duration and recovery percentage on which a fair price could be fixed. Government then requisitioned the stock of sugar and distributed sugar at fixed prices. In September 1961, the Government removed control as the situation had improved. But the next two years witnessed a substantial fall in production and rise in prices. Government then passed the Sugar (Control) Order, 1963 under which it fixed ex-factory prices for different regious and regulated distribution according to quotas fixed for each State. Government in the meantime had worked out cost-schedules for as many as 22 zones, according to which, it fixed ex-factory prices ranging from Rs. 116 to Rs. 125 per quintal.10. On August 3, 1964, Government appointed the Sugar Enquiry Commission. The Commission in its Report deprecated the Governments practice of increasing the number of zones to 20 and more and recommended only five zones. The commission worked out the cost-schedules for these five zones on the basis of duration and recovery percentage in each of the zones and on the basis of minimum cane price, cess or tax, commission of co-operative societies, transport charges, and driage and other expenses, packing, grade differential and selling expenses. The Commission recommended that while working out the ex-factory prices for each year on the basis of these cost-schedules Government should make adjustments whenever any escalation took place in cost elements such as wages, taxes, packing charges, etc. On the question of return, the Commission observed as followsTariff Commission, in its last inquiry (1958) recommended a return at 12 per cent on capital employed. In doing so, it took into consideration factors such as the dependence of the industry on an agricultural raw material, the supply of which is affected by several imponderables, e.g., weather and pests and diseases. A number of factories located in favourable regions have made ample profits. In fact, the sample factories earned as much as 15.69 per cent in 1963-64 - Sizeable expansions in capacity have taken place. The Commission is satisfied that the rate of return of 12 per cent is not unreasonable and should encourage expansion of the industry. The Commission is aware that the rate of return indicated will not be realised by each individual unit in each zone. Majority of the units in a zone, however, should be able to earn this return if they maintain a reasonable degree of efficiency. The method adopted and followed by the Commission in assessing the working capital is the same as was adopted by the Tariff Commission in its 1959 Inquiry."11. There were two criteria for fixation of ex-factory prices; (1) estimated cost of production determined according to the cost-schedule prepared by the Tariff Commission in 1959 and adjusted from time to time to provide for increase in any of the elements of costs, and (2) average of prices at which sugar was sold in an area during two to three months immediately before April 1, 1963. From 1964-65 to 1966-67 Government fixed ex-factory prices on the basis of the cost-schedules worked out by the Sugar Enquiry Commission. But the year 1966-67 turned out to be the worst year in the decade owing to draught. Production of cane fell by 22% and that of sugar by 40% as compared to 1965-66. It was felt that the outlook for 1967-68 would be gloomier still as a further fall in the area under cane plantation would be by about 11%.12. To avoid such a prospect some steps had to be taken providing incentives for maximising sugar production and increasing the competitiveness of sugar factories, vis-a-vis gur and khandsari factories in securing cane by offering prices higher than the floor prices. Accordingly, Government announced in August 1967, its policy of partial control under which 60% of the output of sugar would be acquired and the balance of 40% would be left for free sale. To implement this policy, Government secured the passage of sub-section (3C) in Section 3 of the Act through Parliament. Having done that, it fixed the ex-factory prices on December 8, 1967 which as finalised in May 1968, varied from Rupees 145/- to 169.50 per quintal. These were fixed in the principles laid down by the Tariff Commission and the Sugar Enquiry Commission earlier, viz., on the basis of (a) floor price of cane fixed by Government, (b) cess or tax payable thereon, (c) the manufacturing cost, and (d) a reasonable return on capital employed.13. Since the cost-schedules worked out by the Sugar Enquiry Commission had by now become absolute, Government in 1968 requested the Tariff Commission to construct fresh cost schedules. The Commission selected 68 out of 200 working units in the industry for a detailed cost study. For the rest, it sent out elaborate cost forms for submitting the requisite data pertaining to 1966-67. For Haryana, out of the three units, one was selected for the detailed cost study.14. The Commission first worked out actual cost of production State-wise, by taking into account a number of units in each State, their installed average crushing capacity, the cane actually crushed per day, and the average yield of sugar. In this way the ex-factory cost per quintal of sugar came to Rs. 104.43. This figure took into account the actual price paid for cane, which was often higher than the minimum price fixed by Government, harvesting charges where incurred, transport, cess/purchase tax, and factory conversion charges which included salaries/wages, power, fuel, stores, repairs, maintenance, packing and other overheads. These average costs represented the average costs of sugar covering all grades. But the factories in different States had different durations depending on the availability of sugar cane in adequate supplies and different recoveries of sugar differing from factory to factory. A direct comparison of actual costs between factories or State would, therefore, have led to unrealistic results. These differing factors had, therefore, to be reduced to a common measure. For these purposes the Commission took into account five years average recovery and duration of a region as the base.15. Having regard to the wide disparity in duration and recovery of sugar, the costs were initially reduced to a standard duration of 120 days (of 22 hours each) with a uniform recovery of 10 per cent so as to have a comparison of costs as between units in a zone. Also the differential relating to different grades of sugar produced by the units was adjusted and a common schedule for D-29 grade was evolved. On this basis the conversion charges for each State were worked out. These did not include transport charges on cane, selling expenses and return. On such calculation, the conversion charges for Haryana, including depreciation, at the rate permissible under the Income Tax Act came to Rs. 19.58 as against the All India weighted average of Rs. 25.20 per quintal. For salaries/wages, the recommendations of the Central Wage Board for Sugar Industry formed the base. For stores and repairs the cost and variations therein from State to State were based on the index of whole sale figures published by the Economic Adviser to the Ministry of Industrial Development and Company affairs. For future an incidence of increase of 3% per annum was taken into account, i.e., for the years 1968-69 to 1970-71. The minimum bonus at 4% statutorily payable and managerial expenses were included in the costs of conversion; so also the transport charges from the factories to railway stations and the loading and unloading charges. For this, the base was the actual charges in 1966-67 which came to 15 paise per quintal for most of the States. For rehabilitation, the Commission suggested Rs. 2 per quintal.16. Owing to the wide ranging differences in the capital costs of various units as also differences from State to State, the Commission did not think it realistic to recommend return worked out according to the conventional method. A calculation of return of a uniform percentage on the basis of such widely varying capital costs from unit to unit and State to State would tend to vary the portion of the return margin substantially and confer an unwarranted benefit on the low cost units. At the same time, a reasonable return was indispensible if expansion was to be encouraged and fresh capital investment in the industry attracted, which, according to the Reserve Banks industrywise study, showed the lowest profit percentage in sugar industry of all other industries. The Commission, therefore, suggested a uniform amount per quintal as a margin to be added to the other costs in arriving at the fair price of sugar. The Commission for the reasons aforesaid was of the view that an amount of Rs. 10.50 would be a fair return which would be equivalent to 12.5% on the zonal averages of capital employed. According to Appendix 37 to the report, the average return at 12.5% on capital employed in the units in Haryan worked out at Rs. 10.40 per quintal to be added to the fair price worked out for that region. By adopting the standardised figure of Rs.10.50 per quintal the range of variations from region to region was expected to be narrowed down from Rs. 11.88 in the case of South Bihar to Rs. 16.94 in the case of Orissa, Kerala, Assam and West Bengal.17. It is quite clear that what the Commission did was to construct cost schedules and fair price of the entire production and not merely of the levy sugar. The return and rehabilitation also were worked out on the basis of the capital employed in the entire production and not the capital employed for the production of levy sugar. Thus, in Table 9.6 at page 89 of its report, the Commission included Rs. 12.50 (being return and rehabilitation) in the ex-works price of sugar. There is nothing in that table which would suggest that it was confined to levy sugar. Indeed Ch. 9 in which this table appears is headed "Cost Structure and Price Fixation", that is the ex-works price. In calculating the ex-factory price, the Commission took the minimum price of cane fixed by Government and not the actual price paid by the manufacturer as was also done by the Commission in 1959 and by the Sugar Enquiry Commission in 1965. On this basis, the ex-factory price for Haryana worked out to Rs. 128.69 per quintal (i.e., cost of cane Rs. 89.73, conversion charges Rs. 26.46, return and rehabilitation Rs. 12.50) for the year 1966-67 on the basis of the average of the past five years duration and recovery. The cost of cane would be course depend on the minimum price fixed for each year by Government. The figure of Rs. 89.73 was the minimum price fixed for 1966-67. It also did not include the co-operative societys commission, if any, the purchase tax or cess and the margin for cane driage. These were expected to be worked out by the authority fixing the fair price for each zone for a particular year.18. The cost schedule for conversion in the light of duration and recovery for eachd zone was made up of expenses classified as constants, variables, semi-variables and fixed expenses. For Haryana, it worked out to Rs. 26.46 per quintal on the basis of average duration of 125 days (of 22 hours) and 8.70 recovery. The cost schedule made up of the aforesaid expenses did not include (i) price of cane, (ii) commission to co-operative society, if any, (iii) purchase tax or cess and (iv) driage of cane, as these would be taken into account while fixing the minimum cane price. The constants comprise packing and grade differentials which would be static. The variables comprises seasonal expenses, i.e., other than those incurred normally when crushing does not take place, such as wages of seasonal recruits excluding allowances for retainers, relevant parts of stores, repairs, transport on cane, shift depreciation, overheads and credit for recoveries. Semi-variables would comprise power and fuel and retainer allowances which would vary with duration and recovery. Fixed charges would be expenses other than those covered by the three aforesaid expenses and which are of a fixed nature irrespective of duration and recovery.19. The sum total of these classified expenses would make up the conversion costs. To these and the minimum price of cane would be added Rs. 2 for rehabilitation and Rs. 10.50 as return on capital employed and excise duty. The Government did not accept the recommendation as to rehabilitation and deferred its decision thereon for reasons stated in its resolution dated February 20, 1970, by which it accepted the other recommendations as also the cost-schedules worked out by the Commission, the number of zones, return of a fixed sum of Rs. 10.50, etc.The ex-works price worked out in the Tariff Commission Report, 1969 for Haryana zone for the next three years, i.e., 1969-70 to 1971-72, based on the average recovery and average duration of the past five years (1963-64 to 1967-68), i.e., 8.70% and 125 days, was Rs. 128.69 per quintal. That figure was made up of the following :1. Wages and salaries Rs. 11.70; (2) stores, fuel and power Rs. 3,49; (3) repairs and maintenance Rs. 2.63; (4) packing charges Rs. 2.57; (5) overhead charges Rs. 0.75; (6) cane centre and cane development Rs. 1.36; (7) depreciation (Income-tax Act rates) Rs. 3.60; (8) transport of cane Rs. 1.53; (9) less - credits Rs. 0.75; (10) grade differential Rs. 1.07; (11) return and rehabilitation Rs. 12.50; (12) selling expenses Rs. 0.15; (13) bonus Rs. 0.50 = Total conversion charges Rs. 38.96; (14) cane and related costs Rs. 89.73; (15) ex-workds price Rs. 128.69. The figure of Rs. 89.73 arrived at on the basis of driage being Rs. 0.86 and average recovery of 8.70% was worked out as follows :(1) Minimum price of cane fixed by Government Rs. 7.37; (2) Co-operative Societys commission Rs. 0.13 and (3) Cess/purchase tax Rs. 0.24, Total Rupees 7.74 = Rs. 89.73 per quintal sugar, (vide Table 9.6 and Appendices 35 and 36 at pages 89 and 212-214, Report 1969). The ex-works price of Rs. 128.69 included Rs. 2 per quintal for rehabilitation. That amount was not included by Government when it fixed the price of Rupees 124-63 on January 8, 1971 as the Government, while accepting the cost-schedules and other recommendations of the Tariff Commission, had deferred its decision on rehabilitation pending consultation with the concerned interests. (Vide Government Resolution, Ministry of Food and Agriculture, dated February 20, 1970). Deducting Rs. 2 from the ex-works price worked out by the Commissions ex-works price would be Rupees 126.69 on the basis of 8.70% and 125 days as average recovery and duration.

Reasoning:
20. The history of control over sugar set out above shows that right from 1958 and even earlier, ex-factory prices of sugar were worked out on the basis of cost-schedules prepared by export bodies appointed for that purpose, that such prices and cost-schedules were prepared in respect of the entire production and not in relation only to that part of it which was required to be sold to Government, although partial control in one form or the other was in vogue for some periods before 1967, that such cost-schedules were prepared on the basis of average duration and recovery, the minimum price of cane, the average cost of production in the various zones, taxes, and lastly, a return on the capital employed, which as stated above was fixed at the static figure of Rs. 10.50 per quintal, that being the amount considered a fair return on capital employed in the industry. Both the Central Government and Parliament were aware of the methods followed by these expert bodies in framing cost-schedules on the basis of which ex-factory prices were fixed, the problems which the Government was faced with the securing adequate supply of sugar and its equitable distribution at reasonable price to remedy which sub-section (3C) was enacted. It is in the light of this back-ground that the provisions of that sub-section can be properly understood.Sub-section (3C), with which we are presently concerned, was inserted in Section 3 by Section 3 of Act 36 of 1967. The sub-section lays down two conditions which must exist before it applies. The first is that there must be an order made with reference to sub-section (2), clause (f), and the second is that there is no notification under sub-section (3A) or if any such notification has been issued it is no longer in force owing to efflux of time. Next, the words "notwithstanding anything contained in sub-section (3)" suggest that the amount payable to the person required to sell his stock of sugar would be with reference to the price fixed under the sub-section and not the agreed price or the market price in the absence of any controlled price under sub-section (3A). The sub-section then lays down two things; firstly, that where a producer is required by an order with reference to sub-section (2) (f) to sell any kind of sugar, there shall be paid to that producer an amount therefor, that is for such stock of sugar as is required to be sold, and secondly, that such amount shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to the four factors set out in clauses (a), (b), (c) and (d). Unlike the preceding three sub-sections under which the amount payable is either to agreed price, or the controlled price, or where neither of these prices is applicable at the market or average market price, the amount in respect of sugar required to be sold is to be calculated at the price determined by the Central Government. The last words of the sub-section empower the Central Government to determine prices either from time to time or for different areas, which means that it may determine zonal or regional prices, or for different factories, i.e., unitwise, or for different kinds or grades of sugar.The fair price, therefore, has to be determined on the minimum price of cane fixed by Government, the manufacturing cost on the basis of zonal cost-schedules, the tax or duty applicable in the zones and must be so structured as to leave in the ultimate result to the industry a reasonable return on the capital employed by it in the business of manufacturing sugar. It is clear from the reports of the Tariff Commission that a reasonable return recommended by that body at a fixed amount of Rs. 10.50 per quintal which worked out in 1966-67 at 12.5% per annum was not in respect of levy sugar only but on the whole, so that even if such a return was not obtainable on levy sugar but was obtainable on the whole, it would meet the requirement of cl. (d). In this conclusion we derive a two-fold support, firstly, from the language used in cl. (d) itself, viz., a reasonable return on the capital employed in the business of manufacturing sugar, which must mean the business as a whole and not the business of manufacturing levy sugar only, and secondly, from the fact of the Commission having all along used the same phraseology while recommending Rs. 10.50 per quintal as an addition by way of a reasonable return on the capital employed in the industry. The cost-schedules prepared by these bodies were for determining a fair price in relation to the entire sugar produced by the industry and the return which should be granted to it on the capital employed in the industry and not with respect to that stock only required to be sold under sub-section (2) (f). This is clear from the heading of Ch. 9 of the Tariff Commissions report, 1969, "Cost Structure and Price Fixation.To accept these contentions would in our view mean disregarding (1) the language of the sub-section, and (2) the entire background in which it was enacted and the mischief it was intended to remedy. As explained earlier, the sub-section provides two things; (a) the determination by Government of a fair price during the process of which regard shall be had to the four matters set out therein, and (b) payment to the manufacturer, part of whose stock is levied, an amount "therefor" calculated with reference to "such price" as the Central Government may determine. Though the payment would of course be for the stock required to be sold to Government, there is nothing in the sub-section to suggest that the price to be determined is to be with respect of that part of the stock of a particular manufacturer which is required to be sold to Government.The basis of a fair price would have to be built on a reasonably efficient and economic representative cross-section on whose workings cost-schedules would have been worked out and the price to be determined by Government under sub-section (3C) would have to be built. A claim that such a price has to be determined unitwise and a reasonable return has to be ensured to each unit or that such a price with such a return would be in respect of that part of its stock required to be sold under sub-section (2) (f) would appear to be inconsistent with the concept of partial control, the background in which it was evolved and the object with it attempted to secure. Such a policy meant determination of a fair price on the basis of which a producer would be paid for part of his stock required to be sold to Government. Such a price would have to be determined having regard to the four factors set out in the sub-section. Though factors (a) and (c) would be static, factor (b) would largely depend on variables, such as duration and recovery, the prices of fuel, labour etc. differing from zone to zone and sometimes within the zone, necessitating averaging and costing by selecting a representative cross-section of units for that purpose and arriving at a cost-schedule which would do justice to the weak and the strong alike. If this be the true meaning of clause (b), it must mean securing a reasonable return to the industry and not to each unit, irrespective of whether it is economic or reasonably efficient or not, or only in respect of its stock required to be compulsorily sold to Government. A unitwise fixation of price, as suggested by counsel, and payment on the basis of a price so worked out would mean perpetuating inefficiency and mismanagement, and depriving the partial control policy of the incentives for economy and efficiency inherent in it.We are, therefore, satisfied both on the language of the sub-section, the background in which it was enacted and the mischief the legislature sought to remedy through its working that the true construction is that a fair price has to be determined in respect of the entire produce, ensuring to the industry a reasonable return on the capital employed in the business of manufacturing sugar. But this does not mean that Government can fix any arbitrary price, or a price fixed on extraneous considerations or such that it does not secure a reasonable return on the capital employed in the industry. Such a fixation would at once evoke a challenge, both on the ground of its being inconsistent with the guidelines built in the sub-section and its being in contravention of Arts. 19 (1) (f) and (g), and 31.It would appear that barring the statement in the impugned order that Government had fixed the price at Rs. 124.63, the Government had not disclosed even in its return how it had worked out that price. At the instance of the appellants, the High Court, therefore, by its order dated September 14, 1971 called upon the Government to show the basis on which it had fixed the price. The Government thereupon filed an additional affidavit of the Deputy Secretary to the Ministry of Agricultural dated September 14, 1971 according to which on the available data before it the price would come to Rs: 126.93. This figure took note of the increase in the purchase tax by Haryana Government from 24 to 50 paise per quintal of cane. That was how the Government mentioned Rupees 8.003 as the price of cane per quintal instead of Rs. 7.37 which was the floor price fixed by Government for the year. Government also added Re. 1.05 being the estimated impact of increase in wages recommended by the Second Central Wage Board, the added depreciation allowed through changes in the Income-tax Act and increased cost in packing materials, the total of all the three having been worked out at Rs. 2.81 per quintal of sugar. According to this affidavit, when Government was considering the fixation of price for 1970-71, it had before it the actuals as to recovery and duration for 1969-70 as also the estimates supplied by the factories for 1970-71. From these, the Government came to the conclusion that there would not be any material difference in recovery and duration between the two years and that was why it decided to continue the ex-factory price for 1969-70 for the year 1970-71 also. The incidence of purchase tax for 1970-71 was placed at Rs. 2.06, higher than during the preceding year, because for 1969-70 it was from April 1, 1969, while in 1970-71 it was for the whole year. The estimates for recovery and duration for 1970-71 were on the actual recovery and duration for the preceding year which came to 8.76% and 187 days, as against the estimates given for that year by the factories, viz., 9.04% and 157 days. These were accepted for 1970-71 as the only actuals available to the Government on January 8, 1971 were in respect of the month of November 1970, which obviously were too meagre for acceptance for the whole year.34. Annexures II and III to this affidavit show that as against the levy price of Rs. 124.63 fixed by Government, free sugar was sold during 1969-70 at prices ranging from Rs. 126.21 to Rupees 138.01, exclusive of excise duty, and from October 1970 to May 25, 1971 when sugar was totally decontrolled at rates ranging from Rs. 132.30 to Rupees 151-38. It is undisputed that during the period of six weeks when the stay order granted by the High Court operated the appellants sold sugar at about Rs. 150.35. These figures were not accepted by the appellants, for, according to them, they sold free sugar during January 1971 to May 24, 1971 at prices ranging from Rs. 135.19 to Rs. 150.47, the average rate being Rs. 139.70 less Rs. 1.07 differential = Rs. 138.63. As against the levy price worked out by Government at Rs. 126.93, the appellants case was that on the actuals worked out for the year 1970-71, the price would be Rs. 129.42, thus causing to them a loss of Rs. 5.20 per quintal on levy sugar. The difference between the price calculated by the appellants and that calculated by the Government (Rs. 126.93) arises because of certain disparities in their respective figures, as also the percentage in recovery and duration. To the figure of Rs. 129.42, the appellants add additional cost of interest, increase is freightage by road and rail during the year, deterioration in quality, thus bringing the cost to Rs. 138.98. The loss on this calculation, according to them, would come to Rs. 3 lacs and odd on levy sugar which totalled 65,741 quintals.36. On Governments calculations based on the returns filed by the appellants, the Haryana factories realised Rs. 126.50 per quintal on levy sugar taking into account the different grades produced by them and Rs. 139.70 per quintal on free sugar upto May 25, 1971 when sugar was decontrolled. If levy sugar alone were to be taken into consideration, the loss per quintal of levy sugar would be the difference between Rs. 124.63 and Rs. 129.42, i.e., Rs. 5.20, and nearly double if the additional costs claimed by the appellants were to be admissible, which would raise their cost of production to Rs. 138.98. This calculation is of course on the basis that the return of Rs. 10.50 per quintal was altogether net, in the sense that it was not expected to absorb items such as interest and the profits on free sugar were not to be taken into consideration for ascertaining whether a reasonable return on the capital employed was actually obtained or not by the industry.37. The High Court, no doubt, did not hold the price of Rs. 124.63 as realistic and in view of the changes which had taken place during the year added in all Rs. 3.22, that is, Rs. 1.16 increase in wages, Rs. 0.56 additional depreciation and Rs. 1.20 as additional packing charges, totalling Rs. 2.92 and presumably Re. 0.30 for increase in purchase tax. Adding Rs. 3.22 to the Government price, the High Court worked out the fair price at Rs. 127.85 instead of Rs. 124.63. We need not examine the correctness or otherwise of this addition as the Solicitor General told us that he did not challenge the correctness of this addition. On the basis of Rs. 127.85 being the correct price, the appellants would lose Rs. 3.22 per quintal on levy sugar, if the price realised on levy sugar alone were to be taken into consideration. The Solicitor General also conceded that purchase tax on cane in Haryana was increased during the year 1970-71 from 24 paise to 50 paise per quintal with effect from April 1, 1970 and that increase according to para. 11 of the return, dated May 1971 was not taken into account as the Government was of the opinion that the price of 1969-70, which was adopted for 1970-71, contained sufficient cushion to absorb the impact of this increase. This opinion was based on the fact that the working results for the year 1969-70 turned out to be actually very much better than estimated.As already stated, the increase in purchase tax appears to be included in Rs. 3.22, granted by the High Court for otherwise the three increases stated in the judgment, viz., increase in wages, increase in depreciation and increase in packing charges, would make the total of Rupees 2.92 only.39. The largest addition in the price claimed by the appellants was Rs. 2.29 per quintal by way of additional interest. The basis for the claim was that owing to the production of sugar in 1969-70 being the all time highest, there were larger stocks lying unrealeased with the factories both in the case of levy as well as free sugar, with the result that the factories had to bear additional interest on the working capital involved in such unreleased stocks. The usual period of six months for the release of stock on the basis of which the return on capital at the static figure of Rs. 10.50 a quintal had actually become unrealistic. The result, therefore, was that the factories could not expect to get the said return on the capital employed.40. Since the question was an important one we called upon the Government to disclose the correspondence, if any, which it had in this connection with the Tariff Commission. Thereupon the Government produced the relevant correspondence. It appears from that correspondence that on March 26, 1970 the Indian Sugar Mills Association had made a representation for addition in the return of Rs. 10.50 on the ground that the 1969-70 years production had come to 42 lac tonnes, an all time record and in addition thereto there was already at hand a large stock lying undisposed of resulting in the component of working capital being very much higher than that calculated by the Tariff Commission while fixing Rs. 10.50 as the return. On June 5, 1970, the Government referred this representation to the Commission. By its letter dated July 29, 1970, the Commission recommended that the question of accumulation of stocks as represented by the association required sympathetic consideration and suggested an increase in lieu of interest at 9% on the additional working capital represented by the accumulated stock.41. In considering this claim, however, two facts need to be borne in mind. The production in 1970-71 was not as high as that in 1969-70 and in fact had considerably declined. So far as the Haryana factories were concerned, none of them had purchased cane at a price higher than the minimum fixed by Government, although the assumption behind the policy of partial control leaving 40% of the stock for free market and the unconventional method of granting a fixed return of Rs. 10.50 was that these two factors would enable the manufacturer to pay a higher cane price. The figures supplied to us by Government called out from the returns filed by the factories would also suggest that the claim for Rs. 2.29 per quintal was not warranted. The total production by the Haryana factories during 1970-71 was of the tune of 82,756 tonnes. Despatches upto May 24, 1971, when sugar was decontrolled, of free sugar were 7,065 tonnes at Rs. 139.70 per quintal. Despatches of levy sugar, upto the date of the interim order of stay dated April 8, 1971 were 2,380 tonnes and from April 8, 1971 to May 24, 1971, 4,194 tonnes at Rupees 158.02 per quintal. The balance of stock lying with the factories as on June 1, 1971 was 6911.7 tonnes. Despatches during the decontrol period, i.e., from June 1, 1971 to December 31, 1971 were 63,023 tonnes at the rate of Rs. 151.39 per quintal, leaving a balance in hand of 6094 tonnes. It may be mentioned that on June 30, 1972 the stock lying on hand came to 427 tonnes only. Since this was the position, the claim for additional interest at Rs. 2.29 per quintal does not appear to be sustainable, nor also the claim for deterioration of stock owing to the stock lying stored up beyond the normal period, the loss by way of deterioration during such period being the normal incidence of the trade which the manufacturer must anticipate.42. Regarding the claim of 63 paise owing to increase in freightage (i.e., of 54 paise by road and 9 paise by rail), the Tariff Commission refused to concede that claim. Even before us there are no adequate materials to come to any precise conclusion as to the extra burden which the appellants had actually to bear, though increase in freightage during the year is admitted.The actual figures of the year for duration and recovery were not in dispute. They were 162 days and 8.69% respectively. On that basis, the cost, according to the cost-schedule worked out for Haryana by the Commission, would come to Rs. 126.61, including Rs. 10.50. To that amount may be added the following, even assuming that they are all allowable : (1) increase in wages, Re. 1.05, (2) increase in depreciation, 56 paise, (3) deterioration in quality, 10 paise, (4) insurance and godown costs, 7 paise, (5) increase in cost of consumable stores, 12 paise, (6) increase in cost of gunny bags, Re. 1.20, (7) increase in freightage by road and rail, 63 paise, (8) interest on longer storage, Rs. 2.84 and (9) selling expenses, 45 paise (total Rs. 7.18 = Rs. 133.79). But for the reasons given above, items 3, 7 and 8 (total Rs. 3,66) must go and therefore the figure would come to Rs. 130.13. As against this, the realisations for levy and free sugar upto the date of decontrol, i.e, May 24, 1971 were as follows : 63,741 quintals at the average rate of Rupees 124.63 and 70,650 quintals at the average rate of Rs. 136.49. The average price thus realised comes to Rs. 130.77. There is no doubt that if the sales after May 24, 1971 which were all in free market were to be taken into account, the average realised would come to much more than Rs. 130.77. There is, therefore, no doubt that taking the picture as a whole the Haryana factories got in any event a reasonable return on the capital employed.45. On the construction of sub-section (3C) adopted by us and such of the materials produced before us, we are of the opinion that no case for quashing the impugned order has been made out, nor has the price fixed by Government been shown to be inconsistent with the sub-section.