Holding

The circular only intimated a new differential subsidy scheme whose rate would be based on the ex‑factory price worked out by the FICC as per the Working Group’s formula, not on the manufacturers’ actual costs.

Summary

The case concerned the interpretation of a circular dated 19 June 1982 issued by the Fertilizer Industry Coordination Committee (FICC) regarding the payment of a differential subsidy for Single Super Phosphate (SSP). Surya Phosphate Ltd. argued that the circular promised a subsidy based on the actual ex‑factory price it incurred, including the landed cost of sulphuric acid, while the Government maintained that the ex‑factory price would be calculated by the FICC using a normative formula recommended by a Working Group. The Supreme Court examined the language of the circular, the Working Group’s recommendations, and the subsequent method adopted by the FICC. It held that the circular merely announced a new scheme of differential subsidy whose rate would depend on the ex‑factory price worked out by the FICC, not on the manufacturers’ self‑stated costs. Consequently, the High Court’s interpretation that the Government must base the subsidy on the actual costs shown by the company was rejected. The appeal by the Union of India was allowed, setting aside the High Court’s decision.

Issues considered

Whether the 19 June 1982 circular represented that the differential subsidy would be based on the actual ex‑factory price shown by each manufacturer or that the ex‑factory price would be determined by the FICC using its prescribed formula.
Whether the method adopted by the FICC for computing the ex‑factory price, as recommended by the Working Group, is valid and binding on the manufacturers.
Whether the Government is obliged to consider the landed cost of sulphuric acid incurred by a manufacturer in calculating the subsidy.
Whether the High Court’s interpretation of the circular was correct.

Subjects

administrative lawprice controlsubsidyex‑factory priceinterpretation of circularfertilizer industrydifferential subsidystatutory price control

Judgment

UNION OF INDIA AND ORS. A
v.
SURYA PHOSPHATE LIMITED AND ANR.

AUGUST 12, 1992
B
[KULDIP SINGH AND P.B. SAWANT, JJ.]

Administrative Law :

Price controf-Ferti/ize,-Single Super Phosphat~ovemmenl's cif'-:-
cular dated 19.6.1982--lnterpretation of-New scheme for J>!IYment of difr . C
ferential rate of subsidy in place of unifonn subsidy-Whether to be on IM
basis of actual cost shown by manufacturers-Nonnative method adopted by
Government for working out the cost of different components-Validity of. '

Single Super Phosphate (SSP) a fertilizer, was brought under! D
Retention Price Control with effect from 23.5.1982. 'Jbe Fertili7.er Industry
Coordination Committee (FICC) issued a scheme of subsidy in order to '
boost up the consumption or phospatic fertill7.er. The bendlt of the saij :
subsidy was passed on to the farmers by IORring the prke. However, ·
prior to 23.5.1982 there was no uniformity in the price of SSP and it varied , E
from manufacturer to manufacturer and from zone to zone. The Govar-·
MeDt therefore changed the formula on the recommendation or a Workiq
Group which examined and reviewed the subsidy on SSP. According to the
revised formula variable costs would be determined and fixed costs sag-
gested by the Group would be added to arrive at the ex.factory price.
Consequently, Government sent a Circular letter dat.ed 19.6.1982, to all '.F
manufacturers or SSP.

The Respondent-company has been manufactlllias SSP slace
28.11.84 long after the new formula for subsidy came into fene. It ud no
aptive plant and had to procure the raw material viz. Suphuric Adi frCl!M
die market at a higher price. Though the Respondt!nt-company's llllit did G
Ht incur any capital cost on setting up a matching Sulphuric Add Plaat,
aotlonal cost on setting up such a plant to match the requirement of
Installed capacity of SSP was provided for, while working out the coawa-
don cost. Subsidy was accordingly worked out and paid to the Res,_.
dent· company. . H
817
)

818 SUPREME COURT REPORTS (1992) 3 S.C.R.

A Not satisfied with the method of calculating subsidy, and insisting
that the Government was obliged to take into consideration the landed
costs of Sulphuric Acid at its factory, the Respondent-company filed a
Writ Petition before the High Court. It was held by the High Court that
the Government was bound to calculate subsidy payable to the company
taking into consideration its ex-factory price. Being aggrieved against the
B said order, Government preferred the-present appeal.

Allowing the appeal, this Court
>---
HELD : 1. The Circular letter issued by Government on 19th June,
1982 made no representation other than conveying to each of the manufac-
c turing units that a scheme .for payment of differential rate of subsidy in ._
place of the earlier uniform Oat subsidy was being introduced. What that
differential rate of subsidy would be, would depend upon the ex- factory
price worked out by the FICC separately for each manufacturing unit. The
method by which the ex-factory price was to be worked out for each of the ~---
D manufacturing units was not indicated in the Circular letter. That was to
be on the basis of the recommendation of the Working Group as accepted
by the Government. In fact, the new method of payment of subsidy was
based on the said recommendation which also included the formula to
work out the ex-factory price. (824 D,E]
E 2. It was implicit in the said Circular letter that the ex-factory price ......~
would be worked out by the FICC on certain basis. It is incorrect to say
that in the absence of a method for working out the ex-factory price
indicated in the said Circular letter, it should be presumed that what was
represented to the manufacturing units was that they would be paid
subsid~ on the basis of the actual costs shown by them. [824-H, 825-A,B]
F
3. Understandably, the method adopted by the FICC for working out ~
the ex-factory price was on a norma.tive basis as recoininended by the
Working Group and accepted by the Government. That was as it should
be. In the absence of such norms for working out the costs of different
G components, there would virtually be chaos an_d arbitrariness, as also
misfeasance at both ends. (825-C]

CIVIL APPELLATE JURISDICTION: CivilAppeal No. 585of1992. r-
From the Judgment and Order dated 25.6.1991 of the Patna High
H Court in Civil Writ Juri~diction Case No. 92 of 1990 (R).
I

\

U.0.1. v. SURYA PHOSPHATE [SAWANT, J.] 819

G. Ramaswamy, Attorney General, V.C. Mahajan, Hemant Sharma, A
Mrs. Indra Sawhney, Sudhir Walia, C.V. Subba Rao and Ms. Sushma sµri
Advs. for the Appellant. ·

AShok Bhan, Harish Salve, Yunus Malik, L.R. Singh, ND. B. Raju,
Vikas Singh and Gopal Singh for the Respondents. B

. The Judgement of the Court was delivered by

SAWANT, J. The question involved in the present appeal is of the
interpretation of Circular letter dated i9th June, 1982 issued by the Fer-
tilizer Industry Coordination Committee, Government of India [Depart- C

- ment of Chemicals & Fertilizers] ['FICC'J to all manufacturers of Single
Super Phosphate. Did the Circular letter represent to the manufacturers
that they would be paid differential rate of subsidy based on the actual
ex-factory price of each of the manufacturing units or did it inform then\
that the subsidy would be based on tbe ex-factory price of each of the units D
which would be worked out by the FICC? To appreciate the controversy,
it is necessary to have a glimpse of the relevant facts.

Single Super Phosphate ['SSP'] is a low nutrient phosphatic fertilizer. ',
Its two major ingredients are Rock Phosphate and Sulphur. The consump-
tion norms of the two items for manufacturing one metric tonne of SSP are , E
0.57 M.T. of Rock Phosphate and 0.125 M.T. of Sulphur.

SSP was brought under Retention Price Control w.e.f. 23rd May,
1982. There are a number of units manufacturing SSP in the small and
medium sectors.
'f
In order tci boost up the consumption of phosphatic fertilizer, FICC
had in March, 1976 issued a scheme of flat subsidy of Rs. 1250 per tonne
of p-205 [equivalent of Rs. 200 per tonne of SSP]. The benefit of this
subsidy was passed on to the farmers· by lowering suitably the prevailing '
price of phosphatic Sulphur. G

2. Before 23rd may, 1982, viz., the date on which the SSP was brought
under the Retention Price Control, every manufacturer of SSP, irrespective
of the cost of manufacture, used to get the same subsidy at the above rate.
However, different retail prices were fixed for different manufacturers and I-I
820 SUPREME COURT REPORTS (1992) 3 S.C.R.

A for different marketing zones of the same manufacturer. The retail prices
Vt'Cre fixed from time to time by the Fertilizers Association of India in ~
accor<lance with the formula laid down by the Ministry of Agriculture in
May 1966. Under this formula the ex-factory priee for each manufacturing
unit was fixed talcing into account the prescribed fixed charges and varia-
B lions in the price of raw materials and bags as compared to the costs of
these materials provided for in the original formula. The result was that
there was no uniformity in the price of SSP.

3. The Working Group on Review of Subsidy on SSP examined all
these aspects and gave a report in i980. The Group recommended that the
C scheme of flat subsidy at the above rate be replaced' by a scheme of
differential level of subsidy for each manufacturer depending on the ex-
factory price and other expenses incurred by each manufacturer as fixed
.cc:ording to the formula/guidelines recommended by the Workibg Group.
The· Group came to the conclusion that a system of Retention Price of SSP
D similar to the one existing for Nitrogenous and Comple·· Fertilizers was not ~-·
expedient. While variable costs, which constituted about 80 percent of the
total cost of SSP, were susceptible of determination on a normative ap-
proach and without difficulty, the detailed costing of a fixed ~st element
under each unit was not a practical proposition. This was so mair..1.y because
of the existence of a large number of units manufacturing SSP which were
E also multi-product/multi-activity units. The Group, therefore, suggc-;ted a
formula for determining the variable"costs to which were to be added the
fixed costs suggested by the Group in order to arrive at the ex-factory price
~ each manufacturing unit.

F 4. This recommendation of the Group was broadly accepted by the
Government and SSP was brought under Statutory Price Control w.e.f.
23rd May, 1982. While accepting the recommendation of ·the Group, ~.
however, the Government made some changes in it. It is not necessary to
refer to them here. The new method of payment of subsidy and formula of
G working out the ex-factory price as suggested by the Group and modified
by the Government came into effect on 23rd May, 1982.

5. Pursuant to the introduction of the new method of payment of the
subsidy the circular letter in question, viz., that of 19th June, 1982 was r
addressed by the Government to all manufacturers of SSP. lt is necessary
H to quote the circular letter verbatim:
U.0.1. v. SURYA PHOSPHATE [SAWANT, J.) 821

"To A
All manufacturers of Single Super Phosphate.

Sub :- Single Supt!'r Phosphate--Retention Ex-factory
Price in respect of.....
B
Dear Sir,

Consequent upon issue of Government of India, Ministry
of Agriculture, Deptt.rof Agriculture & Cooperation, telegram
No. 1-9/82-F.A. (CP) dated 22nd May, 1982 fixing a uniform
retail price of Single Super Phosphate with effect from 23rd C

- May, 1982, it has become necessary to replace the scheme for
payment of uniform flat subsidy of Rs. 1,250 per MT of p2 OS
by a scheme for payment of differential rate of subsidy based
on the ex-factory price worked out separately for each.
manufacturing unit. D
2. To enable this office to work out the ex-factory price in
respect of SSP manufactured in your unit, information in the
enclosed proformae may please be furnished to this office ·.
urgently, latest by 15th July, 1982. The information should be
furnished separately for the periods 1.10.81 to 31.U.81 and E
1.1.82 to 31.3.82 only certified by a Chartered Accountant or
your Statutory Auditors."

6. Along with the Circular letter, as stated in its body, pro formae
-.-: were circulated for collecting information of various elements contributing
to the variable and fixed costs. F
7. After the then existing units submitted the relevant information and
taking into consideration their representations, the variable costs were deter-
mined With reference to the expenses for each factory on the a,verage of three
months preceding the last quarter. The costs were calculated with reference
to the details furnished by each unit in the detailed pro formae for variable G
input costs. To this cost was added the fixed costs to arrive at the ex-factory
price of each individual unit. The extracts of the relevant minutes of the
meetings of the FICC held on l(>th October, 1982 and 17th February, 1983
which are annexed as Annexure 'C' to the present petition, show the details
of the manner in which 'the ex-factory price was worked out for the product; H
)

822 SUPREME COURT REPORTS (1992] 3 S.C.R.

A 8. The respondent-company commenced its production of SSP for
the first time on 28th November, 1984, i.e., long after the replaced subsidy
as suggested and worked out by the new formula came into force. The
installed capacity of the unit as declared by the Company was 120 tonnes
per day or 39,800 M.T. per annum. As the respondent-company had no
B captive plant for manufacturing Sulphuric Acid, the notional cost of a
matching 43 tonnes per day Sulphuric Acid captive plant based on the
actual cost of the standard plant for 1984 was taken at Rs. 99.81 lakhs for
the purposes of computation of fixed charges applicable to the unit. It may
be stated here that admittedly those manufacturing units which had a
captive Sulphuric Acid plant could produce Sulphuric Acid at lesser cost
C and others had to procure it at a higher price from market. In order to
equalise the cost of production of SSP of both types of units this method
of taking the notional cost had to be adopted as approved by the PICC.
Thus, it would be seen that though the respondent-Company's Qnit did not
incur any capital cost on setting up a matching Sulphuric Acid plant, the
D notional cost of a Sulphuric Acid plant to match the requirement of
installed capacity of SSP was provided for while working out the conversion
cost in the case of respondent-Company's unit. Based on this notional costs
which formed part of the capital employed, normative working capital, the
share capital and borrowings, etc. were also worked out and their fixed
charges were accordingly determined. There is no dispute that subsidy
E worked out by. the above methodology was paid to the respondent-Com-
pany as it was paid to other units manufacturing SSP.

9. The respondent-Company, however, was not satisfied with the
method of calculating the subsidy and insisted that while working out the
p sub!>idy the Government was obliged to take into consideration the landed
costs of Sulphuric Acid at its factory as revealed in the cost data submitted
by it. It worked out the subsidy on the said basis at Rs. 1,12,58,449 as
arrears of subsidy from the date it commenced production and filed a writ
petition before the High Court for recovery of the said amount. The
respondent-Company also prayed for injunction to restrain the Govern-
G ment from paying the ex-factory price of SSP manufactured by it except on
the basis of its actual cost of. production including the actual landed cost
of Sulphuric Acid at the factory.

10. By the impugned judgment, the Patna High Court held that in ·
H view of the fact that the respondent-Company purchased Sulphuric Acid
U.O.I. v. SURYA PHOSPHAIB [SAWANT, J.) 823

from open market and transported it to its factory, the Government was A
~ . bound to calculate the subsidy payable to the Company taking into con-
sideration its ex-factory price of SSP. It is this decision of the High Court .
which is under challenge before us.

11. Shri Sen, the learned counsel appearing for the respon~ent-
B
Company contended that the language of the Circular letter dated ,19th
June, 1982 [reproduced here in above] is very clear. By this Circular letter,
the FICC had in terms promised every manufacturer of SSP a differential
-~ rate of subsidy based on the ex-factory price worked out for each of the
SSP manufacturing units. Hence, the Government was obliged to pay the
entire difference between the retail price of SSP fixed by the Government c
- [which was lower than the cost of production of SSP] and the actual
ex-factory price of SSP of each of the manufacturing units. Hence, uged
Shri Sen, the High Court was right in directing the Government to calculate
the subsidy payable to the respondent-Company as per the interpretation
of the Circular letter by the Company and also to pay the arrears in
D
question. He also contended that that is the only interpretation possiblt: of
the said Circular. letter.

12. There is no dispute that what holds the field for the payment of
the subsidy is the Circular letter of 19th June, 1982. The controversy relates
to its interpretation. Taking into consideration the entire history of the E
r subsidy as we have narrated above, the recommendation of the Working
Group, its acceptance by the Government and the issuance of the Circuf.ar .
letter to implement the recommendation and the subsequent minutes pf
=-:. the meetings of the FICC held on 16th October, 1982 and 17th February,
1983 and the method for working out the ex-factory price detailed therein, F
we are of the view that the contention advanced by Shri Sen is not ~rreCt.
Viewed in its proper context, there is no doubt that the Circular letter in
"'f
question had only intimated to the manufacturers that consequent upon
the fixing of the retail price of SSP w.e.f. 23rd May, 1982, it had become
necessary to replace the 'old scheme of the payment of uriiform flat subsidy-,
by a new scheme. The new scheme was for payment of differential rate of G
subsidy. That rate of subsidy was to be based on the ex;factory price which
had to be worked out separately for each manufacturing unit. In order to
- -, work out the ex-factory price of each unit, it was necessary to have
information from each of the units on items detailed in the pro fonnae. The
information called for was for two different quarters preceding the quarter H

•
).

824 SUPREME cou:u· REPORTS (1992) 3 S.C.R.

A beginning from April, 1982 since the uniform retail price of SSP had come ~
into effect from 23rd May, 1982. This quarterly information was to be
certified either by the Chartered Accountant of the unit concerned or by
the statutory auditors. The quarterly information was required because the
variable costs were to be determined with reference to the expenses for
each factory on the average of three mon~!is preceding the last quarter. In
B para 2 of the Circular letter it was clearly stated that the information in
question was required "to enable this office to work out the ex-factory price
in respect of SSP manufactured in your unit". This was a clear indication
~-
that it was the PICC which was going to work out the ex-factory price. If
the subsidy was to be based only on the ex- factory price to be stated by
c
-
the manufacturing unit, there was no question of working it out by the
PICC office.

13. It would thus be seen that the Circular letter made no repre-
sentation other than conveying to each of the manufacturing units that a
scheme for payment of differential rate of subsidy in place of the earlier
l__
D
uniform flat subsidy was being introduced. What that differential rate of
subsidy would be would depend upon the ex-factory price worked out ~y
the PICC separately for each manufacturing unit. The method by which
the ex-factory price was to be worked out for each of the manufacturing
units-was not indicated in the Circular letter. That was to be on the basis
E of the recommendation of the Group as accepted by the Government. In
fact, the new method of payment of subsidy was based on the said recom~ ~
mendation which also included the formula to work out the ex-factory
price.
,,,,._
F 14. Shri Sen attacked the recommendation of the Group and the
method adopted by the PICC to work out the ex-factory price and the
subsidy, on the ground that they were not made known to the manufactur- -~
ing units. They were, according to him, kept confidential by the Govern-
ment and all that was held out was the promise contained _in the Circular
letter of 19th June 1982 which, according to him, was for payment of
G subsidy to each unit on the basis of its actual costs. It is not necessary for
us to go into the question as to whether the method/formula adopted by
the FICC should have been made known to the manufacturers or not.
)'
Suffice it to point out that the Circular letter in question had not indicated
any particular method of working out the ex-factory price. It was implicit
H in the said Circular letter that the ex- factory price would be worked out
.
U.0.1. v. SURYA PHOSPHATE .(SAWANT, J.] . 825

by the FICC on certain basis. It is incorrect to say that in the absenee of A
~ a method for working out the ex-factory price indicated in the said Circular
letter it should be presumed that what was represented to the manufactur-
ing units was that they would be paid subsidy on the basis of the actual
costs shown by them.

15. Understandably, the method adopted by the FICC for working B
out the ex-factory price was on a normative basis as recommended by the
Group and accepted by the Government. That was as it should be. In the
absence of norms for working out the costs of different components, there
would virtually be a chaos and arbitrariness. To give only one instance:· if
a manufacturing unit were to consume more Rock Phosphate and Sulphur
or Sulphuric Acid than the consumption norm, its cost of production of
c
SSP would be higher than the cost of production of the standard SSP. It
cannot be argued that in spite of it, the manufacturing unit shoUid be paid
>Jbe differential rate of subsidy on the basis of the unwarranted cost. One
_), can multiply such instances with reference to each of the other elements
of cost of producing SSP. In the absence of norms; there wowd be a good D
deal of scope for arbitrariness and misfeasance at both ends. We are~ ·
therefore, of the view that the contention urged by Shri Sen cannot be
accepted.

16. For the reasons stated above, the interpretation placed by the
E
r High Court on the Circular fotter of 19th June, ·1982 cannot be accepted.
Consequently, the conclusion arrived by it is erroneous. Hence we allow

~
-
the appeal and set aside the impugned decision.

The respondent-Company will bear the cost of the appeal.

G.N. Appeal allowed.

'f-