Holding

A factory’s nil production in the base period is deemed a ‘quantity of sugar produced’, making it eligible for rebate on any excess produced in the current year, and the percentages in clause (2) of the 1974 notification are to be applied to the average production of the preceding five years.

Summary

The Central Excise Collector appealed against several sugar factories claiming that they were not entitled to the excise‑duty rebate under four Government notifications because the factories had produced no sugar in the corresponding periods of the base year. The factories argued that the phrase “quantity of sugar produced during the corresponding period” includes zero production, so they should receive rebate on the excess produced in the current year. The Supreme Court examined the purpose of the notifications – to induce early and continuous sugar production – and held that a literal reading that excludes nil production would lead to absurd results and defeat the statutory intent. Accordingly, the Court adopted the interpretation of the majority of High Courts, allowing factories with zero base‑year production to claim rebate, and clarified that the percentages in the 1974 notification apply to the average production of the preceding five years, not merely to the excess. All civil appeals were dismissed except the Karnataka High Court appeals (Civil Appeals 3831‑32/88), which were allowed.

Issues considered

The meaning of ‘quantity of sugar produced during the corresponding period’ in the rebate notifications – does it include zero production?
Whether a factory that did not produce sugar in the base period is eligible for rebate on excess production in the current year.
How to compute the rebate under clause (2) of the 12‑Oct‑1974 notification – whether percentages apply to average production of the preceding five years or to excess production.
The correct interpretation of the notifications in light of their purpose and avoidance of absurd outcomes.

Legislation cited

Central Excise Rules, 1944s. Rule 173‑G, s. Rule 8(1)
Central Excises and Salt Act, 1944s. First Schedule, Item No.1, Sub‑item (1)

Subjects

Excise duty rebateStatutory interpretationCentral Excise RulesSugar industryBase periodNotification constructionAbsurdity doctrinePercentage calculationCentral Excise CollectorNeoli Sugar Factory

Judgment

A COLLECTOR OF CENTRAL EXCISE ETC. ETC.
v.
NEOLI SUGAR FACTORY ETC. ETC.

MARCH 30, 1993
'f
B [B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.)
'
Central Excise Rules, 1944: Rule 8( 1}-Notifications dated 28.9.1972,

c
4.10.1973, 12.10.1974 and 30.9.1976-Constmction-Rebate provided in
clause (1) of Table of the Notifications--Whether sugar factories entitled to
though they did not produce any sugar in the base year but produced certain
-
quantity of sugar during current sugar y<ai--Method to work out clause (2)
of Notification dated 12.10.74. 'y-

In a Notification dated 28.9.1972, with a view to induce the sugar
factories (respondents) to produce more and· also to commence their
D operations early in the sugar year (the year commencing on and with 1st
October and ending with the 30th of September of the following year) a
rebate was provided.

The scheme of the Notification was :
E
(1) If during the months of October and November 1972 (in the
~
Sugar Year 1972-73), a factory produced sugar in excess of the quantity of
sugar produced by it during the months of October-November 1971, such·
factory was granted rebate in the Excise Duty at the rate of rupees forty
per quintaI in so far as the excess production is concerned. -
F
(2) Rebate for the period 1st December 1972 to 30th April, 1973 was
available at the rate of rupees twenty per quintal provided the production
._
of sugar during the said period was in excess of 115% of the quantity of
sugar produced by the said factory during the corresponding period in the
previous Sugar Year, in so far as the excess production is concerned.
G
(3) For the months of May and June 1973 rebate at the rate of rupees
twenty per quintal was available provided the factory produced more sugar ·-<'
than it produced during the corresponding months in the previous Sugar
Year. The said rebate was available again only with respect to the excess
H production.
758
I

COLLECTORv. SUGAR FACTORY 759
~
(4) For the period commencing from 1st July, 1973 and ending with A
30th of September, 1973, rebate was available at the rate of rupees twently
per quintal provided the factory produced sugar in excess of the quantity
produced during the corresponding period in the previous Sugar Year.
This rebate too was confined to the excess production.

However, tne benefit of the rebate mentioned in any of the clauses B
aforesaid was not available to a factory which inter a/ia did not work during
the 'base pariod'."
,.;.
The other three Notifications dated 4.10.73, 12.10.74 and 30.9.76 were
similar. All the four Notifications were applicable to the Sugar years -
1972-73, 1973-74, 1974-75 and 1976-77, respectively.
c
The respondents - sugar factories did not produce any sugar in one
or the other of the four blocks (mentioned in th.e Table contained in the
Notification) in the base year (previous sugar year), During the current
sugar year, they produced certain quantity of sugar during that block D
period.

The respondents contended that they were entitled to the benefit of
rebate provided in clause (1) of the Table contained in the Notification,
whereas the Revenue submitted that they were not entitled to the benefit
-~ of rebate. E

The claim for rebate made by the respondnets was allowed in the
first instance, but later proceedings were initiated to recover back, or
re-adjust, the benefit already allowed.

These disputes were carried to the High Courts. F
~~
Almost all the High Courts except Karnataka held in favour of the
respondents. In Patna High Court, there was a conflict of opinion.

Hence this batch of appeals by the Revenue contending that the
benefit of rebate was available only where the "sugar produced in a factory G
during the period commencing from the 1st day of October, 1972 and
y ending with the 30th day of November, 1972 which is in excess of the
'
quantity of sugar produced during the corresponding "period in 1971"; that
nil production could not be equated to "the quantity of sugar produced" in
clause (I); that clause (I) of the first proviso in the 1972 Notification has H
760 SUPREME COURT REPORTS (1993] 2 S.C.R. :j,..._

A to be harmonised with the several clauses in the table; and that no
interpretation should be adopted which rendered any part or the Notifica-
tion superfluous.

Dismissing all the civil appeals, except Civil Appeal Nos. 3831-32 or
1988, this Court, T
B
HELD : 1.01. The several clauses in the Nolilil'lltion must be read

c
together, harmonised and reasonably understood without ignoring the
underlying object"and purpose of the notification. An interpretation which
leads to absurd consequences should be avoided. (770. E] -
1.02. The object behind the notification was evidently not only to
induce the factories to produce more sugar but also to induce them to start -y·
their production early in the silgar year. The object appears to be also to
induce the factories to keep on ·producing the sugar all the year·round, •,
which they may perhaps not have done otherwise. Running the ractories r•
D during the off-season (off-season means October.November period and
.
then again lb• period fr~m May-June to September), may have its own
problems which may increase the cost of production. (770 F]

1.03. The main issue is whether the words "the quantity or sugar

E
produced during the corresponding period .. " do not take in the case or a >---.
factory which has not produced any sugar whatsoever during the relevant
corresponding period? It does take in. Holding otherwise would have this
absurd consequence: a factory which has produced, say, just one quintal
of sugar during the relevant corresponding period and has produced 1000
quintals during October-November, 1972 would qualify for the rebate on
F 999 quintals while another factory which has not produced any sugar · nil
production • but has produced 1000 quintals during October- November, ......_
1972, would not qualify. [770 G-H]

1.04. The idea behind the notification is to induce the manufacturers
to produce more in the current sugar year than what they have produced
G in the previous sugar year or during the previous corresponding period in
the previous sugar year, as the case may be. Where a factory. has not
produced any sugar or has produced a particular quantity of sugar during
--<
the said period in the pevious sugar year but produces a larger quantity
during the· said period in the current sugar year, it must be rewarded.
H [771 B·D]
COLLECTOR"· SUGAR FACTORY 761
A,
1.05. The case of October-November appears to be rather an excep- A
lion. Normally, it appears, no factory owner commenced lJrei>roductlou of
sugar in these months because of several unfavourable factors. Indeed,
these unfavourable factors appear to be present to a large extent even
during the ·months June to September. The notifications were evidendy
'1 meant to compensate the factory-owners for producing during thesr
months as well. (772 C-Dl B

- 1.06. One must proceed on the assumption that every industrialist
and businessman would, ordinarily, like to produce as much more as
possible, since, normally speaking, more production means more proflts.
[772 E) c
1.07. No manufacturer produces sugar merely for the sake of rebate.
Rebate is an inducement, an additional attraction. It is not.as if without
rebate provided by these notifications, no one would have produced sugar.
[771 DJ
1.08. There is no arithmetical difficulty in working out 115% of zero; D
it is zero. What applies to ciause(l) applies equally to clauses (2), (3) and
(4). It is only that the factory need not necessarily have worked during each
of the corresponding periods in the base year; it is enough if it has worked
_,1, in the base year. (771 E·Fl

1.09. The interpretation placed upon the said notifications by the
E
majority of the High Courts is the correct one. The view taken by the
Karnataka High Court in its Judgment under appeal in Civil Appeal Nos.
3831-32 of 1988 and the view taken by the Patna High Court in hi Civil
Writ Jurisdiction Case No. 865 ofl966 are not correct. [772 F]
F
~- 1.10. The basis for the percentages prescribed in the Notification
dated 12th October. 1974 the average production of the previous live years
and not the excess production. By way of illustraties, take a factory which
produces 2500 tons during the period Dec." 1, 1974 to Sept. 30, 1975 as
against the average production of 1000 tons during the corresponding
periods in the live previous sugar years. Out of 2,500 quintals produced G
r during the said period in the current sugar year (December 1, 1974 to
September 30, 1975), the average of the c_orresponding perieds of the live
previous sugar years i.e., 1000 quintals should be deducted first, which
·means the excess production during the said period during the current
year is 1500 quintals. 7.5% of 1000 quintals is 75 quintals. On this quantity H
762 SUPREME COURT REPORTS [1993] 2 S.C.R.

A or 75 quintals, the rate or rebate as per sub-clause (a) will be Rs. 20 per
quintal in the case of rree sale sugar and Rs. 5 per quintal in the case of
levy Sugar. Next 10% or excess production means 11!0 quintals ..ttich would
be eligible for rebate under sub-clause (b) at the rate or Rs. 40 per quintal
in the case or rree sale sugar and Rs. 10 per quintal ·in the case or levy
sugar. The next 100 quintals would be eligible for rebate under sub-clause
B (c) at the rate of Rs. 50 per quintal in the case or rree sale sugar and Rs.
14 per quintal in the case or levy sugar. Then again the next 100 quintals
would be.eligible for rebate under sub-clause (d) at the rate or Rs. 60 per
qu.intal in the case or free sale sugar and Rs. 18 per quintal in the case of -
levy sugar. The balance orl125 quintals would qualiry for rebate under
C sub-clause (e) at the rale or Rs. 82 per quintal in the case or free sale sugar
and Rs. 22 per quintal in the case or levy sugar. (774 B-E)

Etikoppaka Co-operative Agricultural Society v. Union of India, 1982
E.L.T. 19 (A.P.); 1986 (26) E.L.T. 904 (Bombay); 1982 (59) E.L.T. 409
(Allahabad); 1982 E.LT. 19 (Punjab & Haryana); 1986 (24) E.LT. 259
D (Madras) and 1987 (30) E.L.T. 260 (Orissa), approved. [768 H, 769 A]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1718 of
1984.

E From the Order dated 17.11.81 of the Customs Excise and Gold
(Control) Appellate Tribunal, New Delhi in Appeal No. ED (SB) (T)
338/78-D (Otder No. 698/83-D).

A.K. Ganguli, B. Sen,A.K. Chitale, B.R.L. Iyengar J. Ramamurti, Mrs.
Radha Rangaswami, P. Parmeswaran, C. V. Sobba Rao, C. Ramesh, Virender
F Kaushal, Praveen Kumar, Vivek Gambhir, S.K. Gambhir, P.H. Parekh, B.N.
Agarwal, A.V. Phadnis, Kh. Nobin Singh, M. Veerappa, Ashok Sagar,
Ravinder Narain, D.N. Misra (For JBD & Co.,).E.C. Vidyasagar for L.R.
Singh, R. Vaigai and R.K. Maheshwari for the appearing parties.

The Judgment of the Court was delivered by
G
B.P. JEEVAN REDDY, J. With a view to induce the Sugar Factories ·-..(
in the country to produce more and also to c·ommence their operations
early in the year, the Government of India have been issuing notifications,
from time to time, providing for rebate in the Excise Duty in certain
H circumstances. These notifications were issued by the Central Government
COLLECTOR v_ SUGAR FACTORY[REDDY,J.) 763
""'-
in exercise of the power conferred.by Sub-Rule (1) of Rule 8 of the Central A
Excise Rules, 1944. We are concerned in these appeals with four such
notifications namely (1) the Notification dated 28.9.72 (applicable to the
Sugar Year 1972-73), (2) Notification dated 4.10.73 (applicable to the
Sugar Year 1973-74), (3) Notification dated 12.10.74 (applicable to the
Sugar Year 1974-'75) and (4) the Notification dated 30.9.76 (applicable to B
the Sugar Year 1976- 77). 'Sugar year' means the year commencing on and
with 1st October and ending with the 30th of September of the following
- year. The interpretation of these notifications is involved in this batch of
appeals.

In so far as it is materia~ the notification dated 28.9.72 and the · C
notification dated 4.10. 73 are similar. So are the notifications dated
12.10.74 and 30.9.76. It would be appropriate if we set out the notification
dated 28.9.72 in its entirety :

D
'Notification No. 203/72 dated 28.9.1972

In exercise of the powers conferred by sub-rule (1) of
rule 8 of the Central Excise Rules, 1944, the Central
Government hereby exempts sugar, described in column· E
(2) of the Table below and falling under sub-item (1) of
Item No.1 of the First Schedule to the Central Excises and
Salt Act, 1944 (1 of 1944), from so much of the duty of
excise leviable thereon as is specified in the corresponding
entry in column (3) of the said Table.
F
TABLE

S. No. Description of Sugar Duty of Excise
1 2 3
1. Sugar produced in a factory during the Rupees G
period _commencing from the 1st day of forty per
October, 1972 and ending with the 30th quintal
day of November, 1972 which is in excess
of the quantity of sugar produced during
the corresponding period in 1971.
H
r
'

764 SUPREME COURT REPORTS [1993] 2 S.C.R.

A 2. Sugar produced in a factory during the Rupees
period commencing from the 1st day of twenty per
December, 1972 and ending with the 30th quintal
day of April, 1973 which is in excess of
115% of the quantity of suggar produced '(
during the period commencing from the
B
1st day of Decmber, 1971 and ~nding with

·-
the 30th day of April, 1972.
3. Sugar produced in a factory during the Rupees
period commencing from the 1st day of twenty per
May, 1973 and ending with 30th day of quintal
c June, 1973 which is in excess of the .
quantity of sugar produced during the
corresponding period in 1972.
4. Sugar produced in factory during the Rupees
period commencing from the 1st day of twenty per
D July 1973 and ending with the 30th day of quintal
September, 1973 which is in excess of the
quantity of sugar produced during the
corresponding period in 1972.

E Provided that the exemption under this notification
shall not be admissible to a factory -

(a) which did not work during the base period, or -
(b) which had only a trial run in the base period, or
F
(c) which commences production for the first time on or
after the 1st day of October, 1972 :

Provided further that in computing the production of
sugar during the periods mentioned in column (2) of the
G said Table, -

(a) the data, as furnished in Form R.G. 1 prescribed
."'
in Appendix I to the Central Excise Rules, 1944, or in
such other record as the Collector may prescribed under
H rule 53 or rule 173G of the said rules, shall be adopted :
)

COLLECTOR v. SUGAR FACTORY [REDDY,J.) 765

(b) any sugar obtained from reprocessing of sugar- A
house products left over in process at that end of the base
period or earlier shall be taken into account ; and

(c) any sugar obtained by refining gur or Khandasari
sugar, or any sugar obtained by reprocessing of defective
or damaged sugar or brown sugar, if the same bas already B
been included in the quantity of sugar produced, shall not

- be taken into account.

Explanation I - A factory shall be deemed to have bad a
trial run during the base period only if, on first going into c
production, the period during which actual crushing was
done during the base period was less than 40 per cent of
the average duration of the· season in the State in which
the factory is situated.

Explanation II - In this notification, the expression, 'base D
period', means the period commencing from the 1st day
of October, 1971 and ending with the 30th day of Septem-
ber, 1972."

Though the Sugar Year extends over a period of twelve months .E
commencing from 1st of October, the period commencing with 1st Decem-
ber and ending with 30th April is said to be the peak production period;

- Most of the sugar factories were commen~ing their operations only in the
month of December. Either with a view to induce these sugar factories to
produce more or with a view to induce them to commence their ojJeration
early in the sugar year, the rebate provided for producing sugar in the F
months of October and November in excess of the corresponding period
in the previous sugar year was kept relatively high. The scheme of the
notification dated lB.9. 72 appears to be this :

(1) If during the months of October and November 1972 (in the G
Sugar Year 1972-73), a factory produced sugar in excess of the quantity of
·'r, sugar produced by it during the months of October- November 1971, such
factory was granted rebate in the Excise Duty at the rate of rupees forty
per quintal in so far as the excess production is concerned.

(2) Rebate for the period 1st December 1972 to 30th April, 1973 was H
\

766 SUPREME COURT REPORTS [1993) 2 S.C.R.

A available at the rate of rupees twenty per quintal provided the production
of sugar during the said period was in excess of 115% of the quantity of
sugar produced by the said factory during the corresponding period in the
.previous Sugar Year, in so far as the excess production is concerned.

(3) For the months of May and June 1973 rebate at the rate of rupees
B twenty per quintal was available provided the factory produced more sugar
than it produced during the corresponding months in the previous Sugar

C
Year. The said rebate was available again only with respect to the excess
production.

(4) For the period commencing from 1st July, 1973 and ending with
-
30th of September, 1913, rebate was available at the rate of rupees twenty
per quintal provided the factory produced sugar in excess of the quantity
produced during the corresponding period in the previous Sugar Year.
This rebate too was confined to the excess production.

D However, the benefit of the rebate mentioned in any of the clauses
aforesaid was not available to a factory which inter alia did not work during
the 'base period'. The expression 'base period' was defined in Explanation
- IL It meant the period commencing from the 1st day of october 1971 and
ending with the 30th day of September, 1972 {Previous Sugar Year).
E The sugar factories (concerned with the sugar year 1972-73) did not
produoe any sugar in one or the other of the four blocks (mentioned in the
table contained in the Notification) in the base year {previous sugar year).
During the current sugar year, however, they produced certain quantity of
sugar during that block-period. To be more precise, take factory A. It
-
F produced 1000 quintals of sugar in the months of October-November, 1972
(Block-period (1) but had not produced any sugar whatsoever in the
corresponding period {October-November, 1971) in the base year. The
question arose whether in such a situation, Factory A was entitled to the
benefit of rebate provided in Clause {1) of the Table contained in the
G aforesaid notification with respect to the said 1,000 quintals ? The conten-
tion of the factory was that it was so entitled, whereas according to the
Revenue, it was not.

It is brought to our notice that even before the controversy actually
arose between the parties, the Committee of the Sugar Mill Owners'
H Association addressed a letter to the Ministry of Finance, Government of
COLLECTOR v. SUGAR FACTORY [REDDY,J.] 767

India seeking a clarification as to the meaning and purport of the aforesaid A
notification. The letter written by the Committee read as follows : .

'I am to refer to the Notification No. G.S.R. dated 28th
September, 1972, issued by the Union Ministry of Finance
(Department of Revenue & Insurance), New Delhi, on
the above subject (copy enclosed for ready reference). In B
this connection, the Government had issued a similar
Notification on 13th Oct. 1971, on the same subject. On
this Notification, .in response to an enquiry made by the
Committee of the Association, the Board had clarified as
per their letter No. F. No.14/33-71/CX. 1 dated 26th c
November, 1971, that a factory which had worked during
the base period i.e. during the period commencing from
1st day of October, 1970 and ending with 30th day of
September, 1971, though it bad not worked during the
period from 1st October, 1970 to 30th November, 1970,
and the production during this period was nil, would be D
entitled to the excise rebate at the notified rate on its
entire production achieved during the month of October
and November, 1971. As the Notification issued this year
is also on similar lines, the Committee presume that the
clarification given by the Board last year will apply to the E
. Notification issued this year also, i.e., where a factory has
worked in the base period (1st October, 1971 to 30th
September, 1972) it will be entitled to the full reb.ate on
its entire production during the various periods mentioned
in the Notification, although during the corresponding
periods in the last season, the production may be nil. F

The Committee shall be glad if you kindly confirm
whether their above presumption is correct.

Thanking you for a line in reply".
G
In its letter dated 1st November, 1972 the Ministry of Finance
intimated the Committee that the presumption made by the Committee is
confirmed in respect of the established factories only. Later on, however,
the Government of India revised their opinion which has led to the pres~nt
controversy. H
t

768 SUPREME COURT REPORTS [1993) 2 S.C.R. ~·

A It is brought to our notice that the sugar factories are governed by
and follow the procedure prescribed by Rule 173-G of the Central Excise
Rules, which rule occurs in Chapter VII-A - "Removal of Excisable Goods
on Determination of Duty by producers, Manufacturers or Private Ware-
House Licencees." Rule 173 G requires every assessee to keep an account-
current with the Collector separately for each excisable goods, in the such
B form and manner, as the Collector may require. The· rule requires the
assessee to make credit periodically in such account -current, by cash
payment into the treasury, so as to keep the balance in such account-cur-
rent suffient to cover the duties due on the goods intended to be removed
at any time. Every such assessee has to pay the duty determined for each
-
C consignment by debit to such account current before remov;1l of goods. The
Rules further require every assessee to furnish a monthly return in the
prescribed form, on the basis of which, assessment is completed by the
appropriate officer.

D Coming back to the facts of these appeals, the claim for rebate made
by these factories was allowed in the first instance but later proceedings
were initiated to recover back, or re-adjust, as the case may be, the benefit
already allowed. This was the phenomenon all over the country. These
disputes were carried to High Courts. The main dispute was the same as
indicated hereinabove. The factory has produced a certain quantity of
E sugar in block-period (i) (or, for that matter, any other block-period) in
the sugar year 1972-73, but had not produced any sugar whatsoever in the
corresponding period in the base year (previous sugar year) - but has
produced some quantity of sugar during the base year· as such; whether
such factory is entitled to.the rebate prescribed in clause (i) (or such other
-
F clause, as may be applicable) of the said Notification? Since the Notifica-
tions for 1972-73 and 1973-74 are more or less similar, disputes raised
before High Courts pertained to both these years. (Indeed, the said issue
is common to the other two notifications concerned herein as well, with
some difference, as we shall indicate at the proper stage). It appears that
almost all the High Courts except Karnataka have held in favour of the
G factories. In Patna High Court, there appears to be a conflict of opinion.
Karnataka High Court has, however, held in favour of the Union of
India.

The first of the reported decisions is of the Andhra Pradesh High
H Court (Chinnappa Reddy, J., as he then was) in Etikoppaka Co- operative
+
COLLECTOR v. SUGAR FACTORY[REDDY,J.] 769

Agricultural Society v. U11ion of Inida, 1982 E.L.T. 19. The reasoning in the A
said Judgment has been followed by most of the other High Courts. See
1986 (26) E.L.T. 904 (Bombay); 1982 (59) E.L.T. 409 (Allahabad) ; 1982
E.L.T. 19 (Punjab & Haryana); 1986 (24) E.L.T. 259 (Madras) and 1987
(30) E.L.T. 260 (Oris~a).

B
Shri Ganguli, learned counsel for the Union of India contends as
follows : Language of the Notifications (pertaining to the year 1972-73 and
1973-74) is quite clear and unambiguous. The benefit of rebate is available
only where the "sugar produced in a factory during the period commencing
from the 1st day of October, 1972 and ending with the 30th day of
November, 1972 which is in excess of the quantity of sugar produced during C
) the comsponding period i11 1971" · to take clause (i) of the Notification
- f relating to 1972-73. The clause contemplates and is based on the premise
· that sugar is produced during October- November, 1972 as well as Oc-
tober-November, 1971. If no sugar was produced during the corresponding
period in the previous sugar year (October-November, 1971), the very D
clause is inapplicable. The contention of the factory-owners, which has no
doubt been accepted by a majority of High Court, does voilence to the
plain language of the clause. The interpretation placed by the factory-
owners leads to certain absurd consequences. Learned counsel gave more
1 than one illustration to emphasise his submission. Take a. case where a
,A., factory has produced one thousand quintals of sugars in October-Novem- E
ber 1971 and has also produced one thousand quintals in October-Novem-
ber 1972. In such a situation the factory would not get any rebate in terms

- of the notification dated 28.9.72, whereas another factory which may not
have produced any sugar whatsoever in October-November 1971 but has
produced one thousand quintals of sugar in October-November 1972, gets F
the rebate at the rate of rupees forty per quintal. This would really amount
·~ to, says the counsel, punishing the first factory - more efficient factory - for
producing the sugar in the previous year and to rewarding the second one
· the indolent factory - which did not produce any sugar during October-
November, 1971. Another illustration given by the learned counsel is this;
a factory had produced five thousand quintals of sugar during the period G
1st December, 1971 to 30th April, 1972; it produces the very some quantity
r·· again during the period 1st December 1972 to 30th April, 1973; such a
factory would not be entitled to any rebate under clause (2) of the said
notification; but another factory which had produced, say, just 1000 quin-
tals during the period December 1, 1971 to April 30, 1972 but produces H
770 SUPREME COURT REPORTS [1993] 2 S.C.R.
,,.._
I

A five thousand quintals during the period December 1, 1972 to April 30,
1973 would get the benefit of rebate on 4000 quintals. This again amounts
to, says the counsel, rewarding the inefficient and indolent and punishing
the efficient. The learned counsel seeks to reinforce his argument by
referring to clause (2). It relates to the period 1st December 1972 to 30th
April, 1973. Rebate in the sugar produced during this period is available ..,_,
B only if it is in excess of 115 per cent of the quantity of sugar produced
during the period December 1, 1971 to April 30, 1972. If the production is
nil during the corresponding period in the previous sugar year, asks the
couose~ how is one to work out 115 % of it. What is 115% of zero ? asks
he. For all these reasons counsel says, nil production cannot be equated to
-
c "the quantity of sugar produced ..... ." in clause (1). Counsel also says that
Clause ( 1) of the first Proviso in the said notification should be harmonised ~
with the several clauses mentioned in the Table and that no interpretation -y
should be adopted which renders any part of the said notification super-
fluous.
D
We find ourselves unable_ to agree with the learned counsel for the
Union of India. While we agree that the several clauses in the Notification
must be read together, harmonised and reasonably understood, we cannot
also ignore the underlying object and purpose of the notification. We also
agree that an interpretation which leads to absurd consequences should be
E avoided. Even so, we are afraid, we cannot agree with the learned counsel.
The object behind the notification was evidently not only to induce the
factories to produce more sugar but also to induce them to start their
production early in the sugar year. The object appears to be also to induce
the factories to keep on producing the sugar all the year-round, which they -
F may perhaps not have done otherwise. Running the factories during the
off-season (we are told, off-season means October-November period and
then again the period from May-J.une to September), may have its own
problems which may increase the ciist of production. Be that as it may, the
main issue is whether the words " the quantity of sugar produced during
G the corresponding period ....." do not take in the case of a factory which has
not produced any sugar whatsoever during the relevant corresponding
period ? On a consideration of the rival points of view, we are of the
opinion that it does take in. Holding otherwise would have this absurd
consequence : a factory which has produced, say, just one quintal of sugar
during the relevant corresponding period and has produced 1000 quintals
H during October-November, 1972 would qualify for the rebate on 999 quin·
COLLECTOR v. SUGAR FACTORY [REDDY, J.] 771

tals while another factory which he,, not produced any sugar - nil produc- A
tion - but has produced 1000. quintals during October- November, 1972,
would not qualify. How does this interpretation advance the purpose of the
notification, is difficult to appreciate.

Coming to the second illustration given by the learned counsel, we
must ~ay that the idea behind the said notification is to induce the manufac- B
turers to produce more in the current sugar year than what they have

-
produced in the previous sugar year or during the previous corresponding
period in the previous sugar year, as the case may be. If this is the object
there is nothing absurd in saying that a factory which has produced five
thousand tons during December 1, 1971 to April 30, 1972 and produces C
the. very same quantity during the period December l, 1972 to April 30,
1973, does not qualify for rebate under clause (2). There is no reason or
occasion for granting him any rebate. But where a factory has not produced
any sugar or has produced a particular quantity of sugar during the said
period in the previous sugar year but produces a larger quantity during the D
said period in the current sugar year, it must be rewarded. It may be
remembered that no manufacturer produces sugar merely for the sake of
rebate. Rebate is an inducement, an additional attraction. It is not as if
without rebate provided by these notifications, no one would have
produced sugar. We are also unable to see any difficulty in operating clause
(2) of the said notification. There is no arthimetical difficulty in working E
oun15% of zero; it is zero. What applies to clause (1) applies equally to
clauses (2), (3) and (4). Our understanding is reinforced and supported by

- clause (a) of the first proviso. It says that the benefit of the said rebate
would not be available to a factory "which did not work. during the base
period." Why does it say so? What is its meaning and implication? It is only
F
that the factory need not necessarily have worked during each of the
corresponding periods in the base year; it is enough if it has worked in the
base year.

We may point out that a majority of the High Courts in the country
have adopted the very same interpretation as has been placed by us. G

It is then argued by the learned counsel for the appellant that
exemption notifications should be strictly concluded. Ther> is no quarrel
with the proposition but there is another equally valid principle that such
notifications should be given their due effect, keeping in view the purpose H
772 SUPREMECOURTREl'ORTS (1993] 2 S.C.R.
>-
A underlying. We must reiterate that no factory owner would keep his factory
idle during a particular period only with a view• to produce sugar during
the same period in the next sugar year and earn rebate in the next year.
More particularly, it can not reasonably be expected that a factory-owner
would deliberately keep his factory idle during the peak production period
<
(December to April) only with a view to produce sugar during that period -(
B next year and earn rebate in such next year. It would be unrealistic to say
so. Actually these notifications were being issued every year confined to

c
that year. They were being issued just on the eve of the sugar year or a few
days after the commencement of the sugar year and there were variations
in the relevant clauses from year to year. Construed realistically, we see no
room for any absurdity resulting from our interpretation. The case of
October-November appears to be rather an exception. Normally, it ap-
--
pears, no factory-owner commenced the production of sugar in these
months because of several unfavourable factors. Indeed, these un-
favourable factors appear to be present to a large extent even during the
months June to September. These notifications were evidently meant to
D
compensate the factory-owners for producing during these months as well.
As stated already, one must proceed on the assumption that every in- ,
dustrialist and businessman would, ordinarily, like to produce as much
more as possible, since, normally speaking, more production means more
profits.
E ,~,

For the above reasons, we are of the opinion that the interpretation
placed upon the said notifications by the majority of the High Courts is the
correct one. We do not agree with the view taken by the Karnataka High
Court in its Judgment under appeal in Civil Appeal Nos. 3831-32 of 1988.
-
F For the same reason, we do not also agree with the view taken by the Patna \
High Court in Civil Writ Jurisdiction Case No. 865 of 1966. ).._
<
Now coming to the Notifications for the years 1974-75 and 1976-77,
the concept of base year is not to be found here; otherwise they are similar
G to those relating to 1972-73 and 1973- 74. In the notification dated 12.10. 74
(relating to the sugar year 1974-75) the sugar year is divided into two
blocks/periods. The first block comprises ,October and November 1974
whereas the second block takes in December 1974 to September 1975.
Here too, the question is identical to that arising in the years 1972-73 and
H 1973-74. The answer too will naturally be the same.
COLLECTOR'" SUGAR FACTORY [REDDY,J.] 773
~ ..
In view of the aforesaid conclusion, it is not necessary for us to go A
into the other questions raised by the factory-owners except the folloWing:

There is a minor controversy with respect to the working of Clause
(2) in Notification No, 146174 dated 12.10.74 relating to the sugar year
1974-75. Clause (2) the table contained in the notification reads as follows:
B
TABLE

- No. Description of Sugar Duty of excise
Free Sale Levy of Sugar
Sugar C
1 2 3 4
1.
2. Sugar produced in a factory during
the period commencing on the 1st
day of December, 1974, and ending
with the 30th day of September,
D
1975 which is in excess of the ave-
r age production of the
corresponding period of the
preceding five sugar years, that is, -
(a) on excess production upto Rs. 20/- per Rs. 51- per E
·'°"· 7.5% quintal quintal
(b) on excess production on the Rs. 40/- per Rs. 10/- per
next 10% quintal quintal
(c) on excess production on the Rs. 50/- per Rs. 14/- per
next 10% quintal quintal
F
( d) on excess production on the Rs. 60/- per Rs. 18/- per
next 10% quintal quintal
(e) on excess production beyond Rs. 82/- per Rs. 22/- per
37.5% qilintal quintal

Mr. Ganguli, learned counsel for the Union of India says that some G
of the Courts have applied the percentages mentioned in sub-clauses (a)
to (e) to the excess production and not to the average production of the
preceding five sugar years. We may take an illustration to explain what the
learned counsel says. Take a case. where the average production of a
factory during the corresponding period (December 1 to September 30) of H
774 SUPREME COURT REPORTS. (1993) 2 S.C.R.

A the preceding five sugar years is 1000 quintals. That factory produces 2,500
quintals during the period December 1, 1974 to September 30, 1975. In
such a case, the ascending percentages mentioned in sub-clauses (a) to (e)
of clause (2) have to be applied for working out the rebate. According to
us, it must be done in .the following manner, keeping in mind that the basis
for these percentages in the average production of the previous five years, '(
B and not the excess production. Out of 2,500 quintals produced during the
said period in the_ current sugar year (December 1, 1974 to September 30,
1975), the average of the five previous sugar years i.e., 1000 quintals should
be deducted first, which means the excess production during the current
year is 1500 quintals. 7.5% of 1000 quintals is 75 quintals. On this quantity
C of 75 quintals, the rate of rebate as per sub-clause (a) will be Rs. 20 per
quintal in the case of free sale sugar and Rs. 5 per quintal in the case 1>f
levy sugar. Next 10% of excess production means 100 quintals which would y
be eligible for rebate under sub-clause (b) at the rate of Rs. 40 per quintal
in the case of free sale sugar and Rs. 10 per quintal in the case of levy
D sugar. The next 100 quintals would be eligible for rebate under sub-clause
(c) at the rate of Rs.50 per quintal in the case of free sale sugar and Rs .
.14 per quintal in the case of levy sugar. Then again the next 100 quintals
would be eligible for rebate under sub-clause (d) at the rate of Rs. 60 per
quintal in the case of free sale.sugar and Rs. 18 per quintal in the case of
levy sugar. The balance of 1125 quintals would qualify for rebate under
E sub-clause (e) at the rate of Rs. 82 per quintal in the case of free sale A
sugar and Rs. 22 per quintal in the case of levy sugar. This is the inter-
pretation and understanding contended for by Shri Ganguli and we must
say that none of the counsel for the factory-owners' disputed the same. It
is accordingly direded that the above method shall be followed in working
F out clause (2) of the notification dated 12.10.74.
Accordingly all the civil appeals except Civil Appeal Nos. 3831- 32 ~-
of 1988, fail and arc dismissed. Civil Appeals No. 3831-32 of 1988 are
allowed. The authorities will take action in •ccordance with this judgment.
There will be no order as to costs.

V.P.R. CA Nos. 3831-32/88 allowed.
Rest of the appeals dismissed.