Case Summary
| Citation | |
| Keywords | |
| Facts | |
| Issues | |
| Contentions | |
| Law Points | |
| Judgement | |
| Ratio Decidendi & Case Authority |
Full Case Details
Alagiriswami, J. (for himself, A.N. Ray, C. J. and H.R. Khanna, J.) – The appeal and the writ
petitions raise the question of interpretation of Section 21(3) of the Andhra Pradesh
Sugarcane (Regulation of Supply and Purchase) Act, 1961. The appellant and the petitioners
are sugar factories in the State of Andhra Pradesh. They applied under the provisions of
Section 21(3) for exemption from the tax payable under sub-section (1) of that Section on the
ground that they, having substantially expanded, were entitled, to the extent of such
expansion, to exemption from the payment of tax. The Government of Andhra Pradesh having
refused that request these writ petitions have been filed before this Court contending that the
decision denying them exemption is contrary to Section 21(3) which does not countenance
any classification and that the classification adopted is based on no nexus to the object of the
Act. The appeal is against the decision of the Andhra Pradesh High Court dismissing a writ
petition filed for similar relief.
- Two contentions, one regarding promissory estoppel and another regarding the exemption
given to Sarvaraya Sugars Ltd. were not pressed before this Court. Though in the beginning it
was urged that the grant of exemption under the Section was obligatory, later the only
contention raised was that the application of each of the factories should have been
considered on its merits and the State should not have fettered its discretion by laying down a
policy of granting exemption only to co-operative sugar factories and that the policy had no
nexus to the object of the Act. - Section 21 reads as follows:
“21. (1) The Government may, by notification, levy a tax at such rate not exceeding five
rupees per metric tons as may be prescribed on the purchase of cane required for use,
consumption or sale in a factory.
(2) The Government may, by notification, remit in whole or in part such tax in respect of cane
used or intended to be used in a factory for any purpose specified in such notification.
(3) The Government may, by notification, exempt from the payment of tax under this
Section—
(a) any new factory for a period not exceeding three years from the date on which it
commences crushing of cane;
(b) any factory which, in the opinion of the Government, has substantially expanded, to the
extent of such expansion, for a period not exceeding two years from the date of completion of
the expansion.
(4) The tax payable under sub-section (1) shall be levied and collected from the occupier of
the factory in such manner and by such authority as may be prescribed.
(5) Arrears of tax shall carry interest at the rate of nine per cent per annum.
(6) If the tax under this Section together with the interest, if any, due thereon, is not paid by
the occupier of a factory within the prescribed time, it shall be recoverable from him as an
arrear of land revenue.” - In its judgment in Andhra Sugars Ltd. v. A. P. State [AIR 1968 SC 599], this Court upheld
the constitutional validity of Section 21(3) and made the following observations:
157
“It was next argued that the power under Section 21(3) to exempt new factories and factories
which in the opinion of the Government have substantially expanded was discriminatory and
violation of Art. 14. We are unable to accept this contention. The establishment of new
factories and the expansion of the existing factories need encouragement and incentives. The
exemption in favour of new and expanding factories is based on legitimate legislative policy.
The question whether the exemption should be granted to any factory, and if so, for what
period and the question whether any factory has substantially expanded and if so, the extent
of such expansion have to be decided with reference to the facts of each individual case.
Obviously, it is not possible for the State Legislature to examine the merits of individual cases
and the function was properly delegated to the State Government. The Legislature was not
obliged to prescribe a more rigid standard for the guidance of the Government. We hold that
Section 21 does not violate Art. 14.”
Though, as we have stated, it was sought to be argued originally that under the provisions of
this Section it was obligatory on the part of the Government to grant exemption, it was later
argued based on the above observations that the question whether the exemption would be
granted to any factory and if so for what period and the question whether any factory has
substantially expanded and if so the extent of such expansion, has to be decided with
reference to the facts of each individual case. It was also further argued that the Government
could not by laying down a policy to exempt only co-operative sugar factories fetter their
hands from examining the merits of each individual case. It was contended that the policy
behind Section 21(3) being to encourage new sugar factories or expanded sugar factories the
Government could not refuse to consider all except one class i.e. the co-operative sugar
factories for the purpose of granting exemption. It was further urged that new sugar factories
and expanded sugar factories all fall into one class and there is nothing particular or special
about co-operative sugar factories justifying their treatment as a special class deserving a
special treatment. It was also urged that the only discretion which the Government had was in
deciding whether a factory had substantially expanded or not and in no other respect. - On behalf of the State of Andhra Pradesh, however, it was stated that only new cooperative sugar factories have been granted exemption and that too only for one year as
against the period of three years contemplated by the Act in the case of new factories and no
expanded factory, even a co-operative sugar factory, has been granted any exemption. It was
contended that the discretion has been given to the State to decide which factory or which
class of factories should be granted exemption, whether any exemption should be granted at
all and if so for what period, that the discretion is to be exercised by taking into consideration
the state of the industry and the financial position of any sugar factory during any particular
period or in any particular area, that it is open to the State to take into account all relevant
considerations and decide which class of factories should be granted exemption, and that the
co-operative sugar factories consisting of cane growers is a distinct category justifying their
treatment as a class separate from other sugar factories. - In view of the abandonment at a later stage of the contention that it was obligatory on the
part of the Government to grant the exemption contemplated under Section 21(3) to every
new factory or expanded factory for the period mentioned in the Section, it is unnecessary to
consider whether the word “may” found in that Section should be interpreted to mean “shall”
except to indicate that the policy behind the whole of Section 21 does not indicate that it is
158
obligatory on the part of the State to grant exemption. Quite clearly the discretion has been
left to the State to decide whether any particular factory should be granted exemption or not.
This is what this Court stated in its earlier decision. In deciding this question it is open to the
Government to take into consideration the state of the industry at any particular period. At
one period the industry may be in a very prosperous condition and might not need this
concession. It may also be that factories in a particular area are in need of this concession but
not factories in another area. How a power vested in an authority is to be exercised has got to
be decided by taking into consideration the whole of the background of the Act and the
purpose behind it. The purpose of the Act is, of course, to encourage new sugar factories and
expanded sugar factories. But how that power is to be exercised will have to be decided by
taking into consideration all the relevant factors relating to the sugar industry. It is wellknown that there is a difference in the sucrose content in the cane produced in different areas.
The quantity of sugar-cane produced per acre varies from 60 tons per acre in Maharashtra to
40 tons in Tamil Nadu and far less in Uttar Pradesh. These facts are available in any standard
literature and official publications on the subject. The varying fortunes of the sugar industry at
various periods are too well-known to need emphasis. We, are, therefore, of opinion that it
would be open to the State Government to grant exemption to new factories only but not the
expanded factories, to grant the exemption for one year instead of three years or two years as
contemplated under the Section, to grant the exemption to factories in one area but not to
factories in another area, to grant the exemption during a particular period but not during
another period. - We are also of opinion that co-operative sugar factories consisting of sugar-cane growers
fall under a distinct category different from other categories. Sugar cane growers have been
the object of particular consideration and care of the Legislature. This country which was at
one time a big importer of sugar has built up a sizeable sugar industry by a policy of
protection given to the sugarcane growers and sugar industry. The figures we have given
above have been one of the factors in fixing the price of sugarcane so that even a sugar-cane
grower in U.P. might get a reasonable return on his produce. We are of opinion, therefore,
that the Government are justified in treating the sugar factories consisting of sugarcane
growers as a distinct category. In this connection we should mention that the appellant in
Civil Appeal No. 1453 of 1969 urged before this Court that out of its 1280 shares 1247 shares
were held by cane-growers. But this was not urged in the petition before the High Court nor
had the State an opportunity of meeting such a contention. It is therefore not possible for us at
this stage to go into the question whether that appellant has been discriminated against. - The only question that arises is whether the Government would be justified in refusing to
consider the question of exemption to all factories other than co-operative sugar factories. In
its counter-affidavit the State of Andhra Pradesh has stated that application of each one of the
petitioners was considered on its merits and it was refused. On the other hand the petitioners
referred to the letter (Annexure III) written by the Government of Andhra Pradesh to the
appellant in Civil Appeal No. 1453 of 1969 which reads:
“I am to invite reference to your letter cited and to state that the Government have given
careful consideration to your request for exemption from payment of purchase tax to the
extent of expansion for two crushing seasons in respect of Bobbili and Seethanagaran: Units.
The present policy of the Government is to grant exemption from payment of purchase tax to
159
new and expanded sugar factories in the Co-operative Sector only. Besides Bobbili and
Seethanagaram Sugar Factories, there are a few other sugar factories in the private sector
which have also embarked on expansion programmes. Any concession given in one case will
be a precedent for others and it cannot be denied to others who will naturally apply for a
similar concession. The present financial position of the Government does not permit them to
be generous. In the circumstances, the Government very much regrets that it is not possible
for them to accede to your request.”
and urged that the Government could not have examined the request of each of the factories
on their merits. But it is to be noticed that that letter itself shows that the Government have
given careful consideration to the appellant’s request. It also shows that the present policy of
the Government is not a policy for all times. We have, therefore, no reason not to accept the
statement on behalf of the State of Andhra Pradesh that they have considered the request of
the appellant as well as the petitioners on their merits. The fact that after such examination
they have laid down a policy of exempting only sugar-cane growers’ factories cannot show
that they have fettered their discretion in any way. As we have already mentioned, even in the
case of co-operative sugar factories the exemption is granted only to new factories and that
too only for one year. - As regards the power of a statutory authority vested with discretion, de Smith also points
out:
“(B)ut its statutory discretion may be wide enough to justify the adoption of a rule not to
award any costs save in exceptional circumstances, as distinct from a rule never to award any
costs;’ all … although it is not obliged to consider every application before it with a fully
open mind, it must at least keep its mind ajar.”
In R v. Port of London Authority [(1919) 1 KB 176, 184], Bankes, L.J., stated the relevant
principle in the following words:
“There are on the one hand cases where a tribunal in the honest exercise of its discretion has
adopted a policy, and, without refusing to hear an applicant, intimates to him what its policy
is, and that after hearing him it will in accordance with its policy decide against him, unless
there is something exceptional in his case ….. if the policy has been adopted for reasons which
the tribunal may legitimately entertain, no objection could be taken to such a course. On the
other hand there are cases where a tribunal has passed a rule, or come to a determination, not
to hear any application of particular character by whosoever made. There is a wide distinction
to be drawn between these two classes.”
The present cases come under the earlier part and not the latter. The case in Rex v. London
County Council [(1918) 1 KB 68], is distinguishable on the facts of the case. The policy
behind the Act there under consideration was obviously to permit sale of any article or
distribution of bills or like things and in deciding that no permission would be granted at all
the London County Council was rightly held not to have properly exercised the discretion
vested in it. In the decision in Padfield v. Min. of Agriculture [(1970) 3 All ER 165], the
refusal of the Minister to exercise the power vested in him was considered as frustrating the
object of the statute which conferred the discretion and that is why a direction was issued to
the Minister to consider the appellants’ complaint according to law. We have already
discussed the background and the purpose of the Act under consideration and are unable to
160
hold that in refusing to grant exemption in these cases the State of Andhra Pradesh was acting
so as to frustrate the purpose of the Act. - In a recent case, British Oxygen v. Minister of Technology [(1970) 3 All ER 165], the
whole question has been discussed at length after referring to the decisions in R. v. Port of
London Authority and Padfield v. Minister of Agriculture. The House of Lords was in that
case considering the provisions of the Industrial Development Act 1966. The Act provided for
the Board of Trade making to any person a grant towards approved capital expenditure
incurred by that person in providing new machinery or plant for carrying on a qualifying
industrial process in the course of the business. After stating that the Board was intended to
have a discretion and after examining the provisions of the Act the. House of Lords came to
the conclusion that the Board was not bound to pay grants to all who are eligible nor did the
provisions give any right to any-person to get a grant. After quoting the passage from the
decision in R. v. Port of London Authority. Lord Reid went on to state:
“But the circumstances in which discretions are exercised vary enormously and that passage
cannot be applied literally in every case. The general rule is that anyone who has to exercise a
statutory discretion must not ‘shut (his) ears to the application’ (to quote from Bankes, L.J.). I
do not think that there is any great difference between a policy and a rule. There may be cases
where an officer or authority ought to listen to a substantial argument reasonably presented
urging a change of policy. What the authority must not do is to refuse to listen at all. But a
Ministry or large authority may have had to deal already with a multitude of similar
applications and then they will almost certainly have evolved a policy so precise that it could
well be called a role. There can be no objection to that provided the authority is always
willing to listen to anyone with something new to say – of course I do not mean to say that
there need be an oral hearing. In the present case the Minister’s officers have carefully
considered all that the appellants have had to say and I have no doubt that they will continue
to do so. The Minister might at any time change his mind and therefore I think that the
appellants are entitled to have a decision whether these cylinders are eligible for grant.”
Viscount Dilhorne again after referring to the passage in R v. Port of London Authority, said:
“Bankes, L.J. clearly meant that in the latter case there is a refusal to exercise the discretion
entrusted to the authority or tribunal but the distinction between a policy decision and a rule
may not be easy to draw. In this case it was not challenged that it was within the power of the
Board to adopt a policy not to make a grant in respect of such an item. That policy might
equally well be described as a rule. It was both reasonable and right that the Board should
make known to those interested the policy that it was going to follow. By doing so fruitless
applications involving expense and expenditure of time might be avoided. The Board says
that it has not refused to consider any application. It considered the appellants’. In these
circumstances it is not necessary to decide in this case whether, if it had refused to consider
an application on the ground that it related to an item costing less than £25, it would have
acted wrongly.
“I must confess that I feel some doubt whether the words used by Bankes, L.J., in the passage
cited above are really applicable to a case of this kind. It seems somewhat pointless and a
waste of time that the Board should have to consider applications which are bound as a result
of its policy decision to fail. Representations could of course be made that the policy should
be changed.”
161 - It is, therefore, clear that it is open to the Government to adopt a policy not to make a
grant at all or to make a grant only to a certain class and not to a certain other class, though
such a decision must be based on considerations relevant to the subject-matter on hand. Such
a consideration is found in this case. Halsbury (Vol. 1, 4th Edn. para 33 at page 35) puts the
matter succinctly thus:
“A public body endowed with a statutory discretion may legitimately adopt general rules or
principles of policy to guide itself as to the manner of exercising its own discretion in
individual cases, provided that such roles or principles are legally relevant to the exercise of
its powers, consistent with the purpose of the enabling legislation and not arbitrary or
capricious. Nevertheless, it must not disable itself from exercising a genuine discretion in a
particular case directly involving individual interests; hence it must be prepared to consider
making an exception to the general rule if the circumstances of the case warrant special
treatment. These propositions, evolved mainly in the context of licensing and other regulatory
powers, have been applied to other situations, for example, the award of discretionary
investment grants and the allocation of pupils to different classes of schools. The amplitude of
a discretionary power may, however, be so wide that the competent authority may be
impliedly entitled to adopt a fixed rule never to exercise its discretion in favour of a particular
class of persons; and such a power may be expressly conferred by statute.” - We are satisfied that in this case the State of Andhra Pradesh has properly exercised the
discretion conferred on it by the statute. The appeal and the writ petitions are dismissed.
K.K. Mathew, J. (dissenting) (for himself and Bhagwati, J.) – The short question for
consideration in these writ petitions and the civil appeal is whether the Government of
Andhra Pradesh was right in dismissing the applications filed by the writ petitioners and the
appellant claiming benefit of exemption from payment of the tax as provided in Section
21(3)(b) of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1951,
hereinafter called the Act, for the reason that the Government has taken a policy decision to
confine the benefit of the exemption to sugar factories in the co-operative sector. - It was contended that looking at the scheme of Section 21 the word ‘may’ occurring in
sub-section (3) thereof should be read as ‘shall’ as otherwise the sub-section will be
unconstitutional in that it does not provide guideline for the exercise of the discretion to grant
or refuse the exemption when all applicants fulfill the conditions specified in clause (b) of the
sub-section. The argument was that since no guidelines are furnished by the Legislature for
choosing between two factories fulfilling the conditions specified in clause (b), the subsection must be read as mandatory, namely, that it imposed an obligation upon the
Government, by notification, to exempt from payment of the tax all factories which, in the
opinion of the Government, have substantially expanded, to the extent of such expansion, for
a period not exceeding two years from the date of the completion of the expansion. - We do not think that there is any merit in the contention. Clause (a) of sub-section (3)
only says that if any factory “in the opinion of the Government, has substantially expanded”,
the Government may exempt it from the payment of tax to the extent of such expansion for a
period not exceeding two years from the date of completion of the expansion. So, if in the
opinion of the Government, a factory has substantially expanded, it is open to the
Government in its discretion to exempt that factory from payment of tax to the extent of such
expansion and that for a period not exceeding two years from the date of the completion of
162
the expansion. We are unable to read the Section as imposing a mandatory obligation upon
the Government to grant the exemption even if all the conditions specified in clause (h) of
subsection (3) are satisfied. There is nothing in the context which compels us to read the word
‘may’ as ‘shall’ and it seems to us clear that the Government was intended to have a
discretion. But how was the Government intended to operate or exercise the discretion? Does
the Act as a whole or the provision in question in particular indicate any policy which the
Government has to follow? The Legislature has, no doubt, clearly laid down the conditions of
eligibility for the exemption and it has clearly given to the Government discretion so that the
Government is not bound to grant the exemption to a factory which is eligible to the
exemption. But the discretion must not so unreasonably be exercised as to show that there
cannot have been any real or genuine exercise of it. The general rule is that anybody
exercising a statutory discretion should not “shut his ears to the application”. - The question, therefore, is whether the Government shut its ears and fettered its discretion
when it said that it will confine the benefit of the exemption provided in clause (b) of subsection (3) only to factories established in co-operative sector. - It was submitted that there is nothing in the provisions of sub-section (3)(b) to indicate
that the Government could confine the benefit of the exemption only to new and expanded
sugar factories in the co-operative sector fulfilling the conditions therein specified, and if the
Government chose to fetter the exercise of its discretion by a self-imposed rule or policy by
confining the benefit of the exemption only to new and expanded sugar factories established
or owned by cooperative societies, no discretion was exercised by Government in disposing
of the individual applications and that, at any rate, considerations foreign to the exercise of
the discretion had entered into its exercise. - It is therefore to be seen whether the policy decision of the Government to limit the
benefit of the exemption to sugar factories owned or established by co-operative societies of
sugar-cane growers is derivable from the sub-section or from any other provision of the Act
or could be gleaned even from its preamble. The questions to be asked and answered are: Has
the policy decision any nexus with the object of the provision in question or is it based on
considerations which are irrelevant to the purpose and object of the Act? Is there anything in
the provisions of the Act from which it is possible to infer that the Legislature could have
contemplated that the benefit of the exemption provided by sub-section (3)(b) should be
confined only to factories owned by co-operative societies consisting of sugar-cane growers? - It appears to us that the object of Section 21(3)(b) is to give incentive to sugar factories
which are new and which have expanded. It might be that the factories situate in one area may
require greater consideration at one time than factories situate in other areas. We will assume
that co-operative sugar factories consisting only of sugar-cane growers stand on a different
footing and form a class by themselves or for that matter, a distinct category. But what
follows? Can the Government evolve a policy confining the benefit of the exemption to the
category alone and exclude others however deserving they might be from the point of view of
the object of the provision for the legislative boundary? - The letter of the Government leaves no doubt in our mind that the Government could not
have considered the applications of the writ petitioners and the appellant on their merits. We
think that by the policy decision the Government had precluded itself from considering the
applications of the petitioners and the appellant on their merits. In fact, the Government, by
163
making the policy decision, had shut its ears to the merits of the individual applications. We
see no merit in the contention of Andhra Pradesh Government that it considered the
applications for exemption filed by the writ petitioners and the appellant on their merits as, by
its policy decision, it had precluded itself from doing so. We are not very much concerned
with the question that only a few of the co-operative societies have been granted the
exemption or that the exemption to them has been limited to a period of one year. We are here
really concerned with a principle and that is whether the Government was justified in
evolving a policy of its own which has no relevance to the purpose of the provision in
question or the object of the Act, as gatherable from the other provisions. We could have
understood the Government making a policy decision to confine the benefit of the exemption
to factories established by co-operative societies of sugar cane growers, if that policy decision
had any warrant in the directive principles of the Constitution as directive principles arc
fundamental in the governance of the country and arc binding on all organs of the State. There
is no provision in the Chapter on Directive Principles which would warrant the particular
predilection now shown by Government to the factories established in the co-operative sector.
Whence then did the Government draw its inspiration for the policy? We should not be
understood as saying that sugar-cane factories established by co-operative societies of sugarcane growers do not deserve encouragement or that they should not be granted exemption
from payment of tax. All that we say is that the wholesale exclusion of other factories
established, say, by a firm consisting of sugar-cane growers, or a company of which sugar
cane growers are the shareholders, is not warranted by anything in the provisions of Section
21(3). Now could we assume in the light of the language of Section 21 (3) (b) that the
Legislature intended that new factories owned by co-operative societies consisting of cane
growers alone should be the object of the legislative bounty? What is the relevant distinction
between a factory established by a co-operative society consisting of sugar-cane growers and
a factory established by a sugar-cane grower or a firm consisting of sugar cane growers for
the purpose of the sub-section? The object of sub-section, as we said, is to give incentive to
new and expanded factories with the ultimate object of increasing the production of sugar.
Whether b factory is established or owned by a co-operative society consisting of sugar cane
growers or by a company of which sugar-cane growers are the shareholders or established by
an individual who is a sugar-cane grower or a firm consisting of sugar-cane growers would
make no difference in this respect. They all stand on the same footing so far as their claim to
the legislative bounty is concerned. - We do not also say that it is illegal for the Government to adopt a general line of policy
and adhere to it. But the policy it adopts must comport with and be reconcilable with the
provisions of the Act and must have some relevance to its object. - Generally speaking, an authority entrusted with discretion must not, by adopting a rule or
policy, disable itself from exercising its discretion in individual cases. There is no objection in
its formulating a rule or policy. But the rule it frames or the policy it adopts must not be based
on considerations extraneous to those contemplated or envisaged by the enabling Act. It
“must not predetermine the issue, as by resolving to refuse all applications or all applications
of a certain class or all applications except those of a certain class.” - To sum up, the policy or rule adopted by the State Government to guide itself in the
exercise of its discretion must have some relevance to the object of Section 21(3) which is to
164
provide incentive to the establishment of new industries and substantial expansion of existing
industries with a view to increasing production of sugar. The classification made by the policy
or rule must not be arbitrary but must have rational relation to the object of the exempting
provision. That appears to be absent in the present case. Here, from the point of view of the
object of the exempting provision, co-operative societies of sugar-cane growers and other new
or substantially expanded industries stand on the same footing and there can be no
justification for specially favouring the former class of industries by confining the benefit of
exemption to them and leaving out of the exemption the latter class of industries. Picking out
co-operative societies of sugar-cane growers for favoured treatment, to the exclusion of other
new or substantially expanded industries, is wholly unrelated to the object of the exempting
provision and the policy or rule adopted by the State Government is not legally relevant to the
exercise of the power of granting exemption. - We would, therefore, quash Annexure III and issue a mandamus to the Government of
Andhra Pradesh in each of these writ petitions and the civil appeal to consider the applications
of the writ petitioners and the appellant on merits and pass the proper order in each case
without taking into account the policy decision contained in Annexure III. We would allow
the writ petitions and the civil appeal without any order as to costs.
ORDER - In accordance with the majority judgment of the Court, the Court dismissed the appeal
and the writ petitions.
