Case: Udaipur Phosphates Fertilizers Ltd Vs. Union Of India

This appeal has been filed against the impugned judgment of the Delhi High Court dated 6.9.1999 in L.P.A. No. 375 of 1999 by which the judgment of the learned Single Judge of the High Court dated 26.5.1999 dismissing the writ petition wasappellant is a company registered under the Indian Companies Act and is engaged in the manufacture of fertilizers and chemicals. One of the products it produces is Single Super Phosphate1976, the manufacture and sale of SSP was not controlled by the Government. However, from 1976 to 1982, the manufacture of SSP was subjected to a system of uniform subsidy whereby each manufacturer was given a uniform rate of subsidy. In the year 1982, the Government of India brought SSP under a formal price control known as the Retention Price and Subsidy Scheme (hereinafter referred to as RPS) for regulating the price and sale of SSP. The scheme had been introduced on the basis of a detailed study and recommendation of an Inter-Ministerial Working Group appointed by the Government. Under the RPS, the manufacturers were obliged to sell their fertilizers at a subsidized price fixed by the Government, which was below the cost of production. The respondent No. 2 calculated the cost of production of each unit on the basis of certain factors such as capacity, location, age of the plant, etc. and added a certain amount of notional profit, and the result was called the retention price. The difference between the retention price and the selling price as fixed by the Government was calculated and paid to the manufacturers as subsidy. Thus, while price of the fertilizers for the consumers, namely, the farmers was subsidized by the Government, the manufacturers were given an amount which was calculated by the FICC on the basis of normative cost of production of the unit which was to be calculated on the assumption that the unit performed efficiently at 90% capacity15.1.1986, the Department of Industrial Development, Ministry of Industries issued Press Note No. 1 whereby the capacity indicated in the industrial license could be re-considered with reference to the highest production achieved during any of the previous 5 years plus 1/3rd thereof, provided that was within the licensed capacity plus 25%. Thereafter, the Department of Industrial Development, Ministry of Industry issued Press Note No. 9 (1988 series) on 6.4.1988 w.e.f. 1.4.1988 which provided a scheme for re-endorsement of higher capacity of the fertilizer units. Under the said scheme, the unit could apply for re-endorsement of an enhanced capacity on the basis of the best production actually achieved in any financial year between 1.4.1988 andaccordance with the abovementioned Press Note of 1988, the appellant vide application dated 8.8.1988 applied to the Ministry of Industries for re-endorsement of the capacity of the appellant unit on the basis of the actual production between 1.4.1988 andthe respondents asked for several verifications which were provided by the appellant. However, it is alleged that despite repeated follow-ups, after the various verifications, respondent No. 1 issued letter of approval only on 31.3.1993, i.e. three years after the appellant had applied for re-endorsement, stating that they were recognizing the appellants enhanced capacity of 74,089 MT from the earlier capacity of 66,000 MT with retrospective effect from 1.4.1990. It was further informed that respondent No. 1 was tentatively recovering an amount of Rs. 26.55 lakhs by downward revision of the ex-works price of the appellant fromappellants grievance is that the Government has retrospectively re-endorsed the capacity of the appellant and reduced the price payable to the appellant with retrospective effect, which effectively denied the appellant from taking advantage of the re-endorsed capacity. The appellant filed the abovementioned Special Leave Petition challenging the order dated 6.9.1999 passed by the High Court of Delhi whereby the learned Division Bench dismissed LPA No. 375/1999 on the ground that when the appellant had applied for re-endorsement of the capacity, in view of the fact that the appellant had already achieved the maximum production, thereby fulfilling the condition of Press Not No. 9 (1988 series), then the re-endorsement was bound to automatically take place. Further, merely because it took some time for inspection by the respondents, it did not mean that the re-endorsement was not automatic.

Court's reasoning:
Merely because the respondent would have to make an inspection that there was no additional investment in the plant, machinery and equipment exceeding 10% of the book value, and such inspection takes some time, does not mean that the re-endorsement was not automatic.The Press Note No. 9 at paragraph 2f clearly indicates that this scheme is in addition and not a substitution for the facilities already available under any existing scheme. Hence, the grievance of the appellant that from the date of application for re-endorsement i.e. 8.8.1990 till 31.3.1993, when the re-endorsement was granted, the benefit of subsidy was not given is wholly untenable on account of the fact that the appellant overdrew the subsidies on account of the enhanced capacity which was on its own showing an admitted fact.