Holding

The proviso to Section 6(1) applies only to wholesale or retail dealers who pass on the excess price, and therefore does not preclude a manufacturer-consumer from claiming a refund from the Fund.

Summary

The Allahabad Canning Co., a manufacturer of syrups and related food products, purchased levy sugar from K.M. Sugar Mills at a price higher than the controlled price. The excess amount of Rs 22,681.88 recovered by the High Court registrar was credited to the Levy Sugar Price Equalisation Fund under the Levy Sugar Price Equalisation Fund Act, 1976. The company applied for a refund of this amount under Section 6(1) of the Act, but the Central Government rejected the claim, alleging that the company had passed on the higher sugar cost to consumers of its finished products. The High Court upheld the rejection. On appeal, the Supreme Court examined whether the proviso to Section 6(1) – which bars refunds to wholesale or retail dealers who pass on the excess price – applied to a manufacturer that is merely a consumer of levy sugar. The Court held that the proviso is limited to wholesale or retail dealers in sugar and does not affect manufacturers; therefore the appellants were entitled to the refund. The appeal was allowed, the High Court judgment set aside, and the Union directed to pay the claimed amount with interest.

Issues considered

Whether the proviso to Section 6(1) of the Levy Sugar Price Equalisation Fund Act, 1976 bars a refund claim by a manufacturer who is a consumer of levy sugar and not a wholesale or retail dealer
Whether the appellant had passed on the excess sugar price to consumers of its end products for purposes of the proviso

Legislation cited

Essential Commodities Act, 1955s. 3
Levy Sugar Price Equalisation Fund Act, 1976s. 3(1), s. 3(2), s. 6(1)

Subjects

Levy sugarprice equalisation fundrefundSection 6 provisowholesale dealerretail dealermanufacturerexcess realisationEssential Commodities Act

Judgment

207 A

ALLAHABAD CANNING CO.
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I I v.
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B i,.

h UNION OF INDIA ~~ _:.
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t.·
July 24, 198-1
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' ! [P.N. Bfi.\GWATI, A\L\RENORA NATH SEN AND RANGANATH .;1:

i.. ."·t l\l!SRt\ 1 JJ.} c
I\'-
; .·
. [.rvy Sugar Price Equa/i.t ation Ftcnd Act, 1976- Pro•iso 10 s. 6 (0-Whtn
ortrodtd--Sc<>pe of.

Section 3 ( 1) of the Levy Su~ar Price Equali.<ation Fund Act, 1976 csla-
bl 'shei! ~fund known as th~ Le•·y SugH Price Equali_,.tion Fund. Sub-sec. D
(2) of ~c'ion ) l'"o,·idcd tha i I here shnll be cn~dited to the fund amoums
repr~nt;~~ all ~,c,,_s rcali<ations made by the manufaclurers. Section 6 (I)
pro,·ided that ..·here any amount of e•cc""' realisation was credited to th~
Fund, the buyer of levy ~u~:~r from whom such e~ccs~ r~Jiisation "'as made by
the =n~factu...:n ~hall be entitled t(' the rd'und of such cx~,s rellis1lion
rroru the Fund. Tho-rewa< a proviso to se.:tion 6 (I) "'hich inter a lin pJecluded
E
bu)"ers of kvY wgar to claim refund of eXC<".is realisation in certain cases. The
app.::ll. nts. who carried on the busincs' of manufacture or syrups, squashes,
i•m~ and jellieY, preservation o( v<:<CI' 'bc~ and other food products and from
.-bc>m C.IICC<~ real's:~tion w~1 m1d<' and cn:dited to the Fund, appl'ed ro•
rclund o( such relis"<tioo. The Central Government rejected the appellants'
•pplication for refund on the ~round th~t they had not been able lo establish
fully and d<ar!y 1hat 11te mciJI."ncc o( higher sugnr price wn~ not rassed on by F
IMmto1h~ con~urncr, of the end products. The arpdJnnts preferred a writ
Ptti• ion wh'ch was diwliso.:d by the High Court on the ~,me around. Hence
thiuppeaJ by spetlul kavc. .

Allowina the appeal,

· . . .HELD :The provl'o on · 11, !)bin term~ apJ'Iit$ only wl1eic the pnrty G
~';. 01 ' 01 refund of tl1e amount <lf ell~ e.~ realisation It 11 wholc~afe or a retail .
lcr 111·hu has ras..,d on the illcldcn~e oft he exce-;s owr tho controlled price ·
or~ suillr 10 tho r~tail dtai~'T or to tho ~muumet, u the case mny be. The
:a~w obviou~ly •~nnot ap,lly to a c:~J~G ~~rhcrc a clAim f(lr refund fins b<-en
th • by a ~on,um« ur aua.,r from wiHlltl e~~ T<111i!lation h,,, been made by '~.

e_m~nu~actureror tll£»t.ttU6C-D) . . . : : t
·l1
ln !he ln,~nt '•~the ~~llant~ ~ro admittedly consumeu ur suw . ll i
.!
-~
208 ~UPREMI? COURT REPORTS (1985] [ S C.R,
A and not dealers in sugar and since they w~ro. not ~calers in sugar, there could
be no quest;00 of any incident<! of c.<ecss be on~ passed on by them to the reuil
dealer or to the consumrr. (1060] ·

The proviso to section 6 (I) contemplates a case where a de~lcr-,.hether
wholesolc or retail~ells sugar to a retail dealer or consumer os. the case m•y
B be and not where 8 pcr.on ...:11~ a mnnufacturcd product contoon~ng sugar 01
one of its ingredients. [J06G]

in the inslnnt C3SC the appellants sold manuf~ctured PrOdUc't COD'"inong
su~or a. one of its ingredient. Therefore, tile proviso to section 6 (I} was ?ot
attracted and the opp:l Iants were entitled to cia 1m reru nd or the excess reah,..
tion from the Fund. [106HJ
c
Crvtt, APratATE JL•RtSD!CTloN : Civil Appeal No. 14&7 of
1984;

Appeal by Special leave from the Judgment and Order dated
D the 21st August, 1981 of the Allahab:td High Court in Civil Mise,
Wnt Petition No. 9820 of 1981

Hurbans Singh for the nppel!ant'.

Abdul KadPr and G.S. Narayanan for the Respondent.
E
The Judgment of the Court was delivered by

BHAOWATt,J. This is an appeal by Special Leave directed
against an order of the H igh Court of Allahabad dbmissing a writ
petition filtd by tlte appellants claiming refund of a sum of Rs. l
22681.88 from the L~vy Sugar Price Equalisari.,n Fund under Sec·
I
F
1. tion 6, sub·s(ction (I) of the Ltvy Sugar Price Equallsauon Fuod
Act, 1976 (hereinafter r~fcrred to as the Equali.sation Fund Act).
t The facts of the ca.e are few .tnd '""Y b~ bri efly stated as follows:

The app~llaots carry on business of manufacture of syrups,
'I
I
l
G
squashes, j"rns and jellies, prescrv,1tion of l'cgt·tabk-s and other (O()d
product~. One of the essential raw materials for the'o products
manufactured by the appellanh is sugar. Ther.i was ut the ·material
time Sugar Control Order· t966 · issued unlkr S. 3 of the Ess~ntial
Commotlitie! Act, 19SS,' cl<tusc 4 of which provided thnt no purcha~
ser ~hall ~ell or C@ree to sell or oth~rwi'se di,'posc of sugar or deliver

I
or a~ree to.dcli.ver ~ug~r, or,, remov~,.ony . sugur . from. tho bond~d
gullnwtl of the fa ctory in which it is ~torc:d, except under and io

.. ____ (_..._..,__.._.,. ~./"""' .~ . .. ___ .. ..
, , - .
ALLAHABAD CANNING CO. v. UNION (Bflagwati, J.) 209

accordance with the directions issued in writing by the Central A
Government or th.c Chief Olrector. Pursuant to this Order the Cen~
tral Government introduced the policy of partial decontrol of su-
gar in August, 1967 a1,1d under this policy, the Central Government
adopted a scheme of acquiring levy sugar from the factory. The
price of le~y sugar acquired by the Central Govt. was fixed every
B
year in accordance with the principles set out in Section 3 (3c) of
the Essential Commodities Act, 1955 and during the period in ques-
tion the price of levy sugar was determined under the sugar (Price
Determination) Order 1972. This Order was however challenged by
factories manufacturing sugar and an interim order was passed c
by the High Court of Allahabad permitting them to charge a price
higher than that fixed under the Order, on condition that they· fur-
nished bank guarantee for the difference in price in favour of the
Registrar of the High Court. No~. different prices were fixed under
the sugar (Price Determination) Order, 1972 for different zones and
so far as the East U.P. Zone was concerned, the price fixed was Rs. 0
175 per quintal exclusive of ex cis~ duty, sales tax etc. with the re-
sult that the price inclusive of these taxes and duties amounted to
Rs. 190 per quintal. The appellants purcahsed from K.M. Sugar
Mills Limited, Motinagar, Faizabad a certain quantity of sugar un~
der. a release order issued by the Central Government under the
E
Levy Sugar Supply (Control) Order 1972 and they lifted an aggregate
quantity of 400 q,1intals of sugar on 12-8-1972 and 16-8·1972. Now,
under the sugar (Price Determination) Order, 1972 K.M. Sugar
Mills Limited were not entiled to recover from the appellants price
at a rate exceeding Rs. ·190 per quintal but by virtue of the stay
order granted by the High Court of Allahabad they recovered from F
the appellants price at the rate of Rs. 23 4. 89 per quintal and the
total excess amount charged by K. M. Sugar Mill~ Limited from the
appellants thus came to R<>. 22681.88 for which bank guarantee was
given by K. M. Sug.tr Mil1s Limite·d in favour of the Registrar of the
High Court. The writ petition filed by K.M. Sugar Mills Limited
against the Sugar (Price Determination) Order, 1972 along with G
other similar writ petitions filed by other manufacturers of sugar was
however. ultimately dismissed hy the Allahbad High Court in Nove-
mber, 1974 with the result that the Registrar of the High Court be-
came ~ntit1ed to encash the. bank guarantee given by K.M. Sugar
Mills Limited and a sun of R~. 22,681.88 was accordingly recove-
red by the Registrar under the bank guarantee.

Since th~ e')\cess amo~nt recovered by the various manufactu· H
~ :.

210 SUPREME COURT REPORTS [1985] 1 s.c.R. ......
rers of sugar, including K.M. Sugar Mills Limited really belonged
to the consumers to whom sugar had been sold by these manufactu-
rers, Parliament enacted Levy Sugar Price Equalisation Fund Act,
1976 with effect from 1-4-1976 for the purpose of ensuring that the
excess amount so recovered should not remain in the hands of
B manufacturers of sugar so as to unjustly enrich them but should be
paid to the consumers of sugar from whom it had been unlawfully
recovered by the manuracturers. Section 3(l) of the Equalisation
Fund Act established a Fund known as the Levy Sugar Price Equ·
lisation· Fund. Sub Section (2) of Section 3 provided that there
shaH be credited to the Fund amounts representing aU excess reali-
c sations made by the ·manufacturers, irrespective of whether such
realisations were made before or after the commencement of the
Equalisation Fund Act. Pursuant to this provision, the Registrar of
of the High Court de~osited a sum of Rs. 22681.88 to the Credit
of the Fund. Section 6 of the Equalisation Fund Act then proceeded
to enact that where any amount of excess realisation is credited to
0 the Fund, the buyer of Levy sugar from whom such excess realisa-
tion was made by the manufacturer shall be entitled to the refurid
of such excess realisation from the Fund. This Section is material
for the purpose of determination of the controversy arising in the
present appeal and we would, therefore, reproduce it as follows :
E
(1) Where any amount is credited to the Fund a refund
shall be made from the Fund to the buyer of Levy
Sugar from whom any excess realisation was made by
the producer or dealer, -
Provided that no buyer shall be entitled to claim as
F
refund under this sub-section if he-

(a) being the wholesale dealer, had passed on the inci·
dence of such excess over the controlled or fair price
of levy sugar to the retail dealer by whom the price
of such sugar was paid or
G
(b) being a retail dealer, had passed on the incidence
of such excess over the controlled or fair price of levy
sugar to the consumer by whom the price of such su-
gar was paid.''

8 Since a sum of Rs: 226~1 ,8~ represeQt~d e-x;cess r~alisation
ALLAHABAD CANNING CO. v. UNION (Bhagwati, J.) 211

made by K.M. Sugar Mills Limited from the appellants and this A
amount was credited to the Fund by the Registrar of the High
Court, the appellants filed an aplication in form IV making a claim
for refund ofthis amount from the Fund. This application was filed
by the appellants, on 30th April, 1979, admittedly within the pres~
cribed pe.riod of six months. The Central Government, however, B
rejected the claim made by the appellants on the ground that they
had not been abkto establish fully and clearly that the incidence of
higher sugar price was not passed on by them to the consum-~rs of
the end products.

The appellants thereupon preferred a Writ Petition in the c
High Court but the High Court also rejected the Writ Petition on
the same groun.d, namely, that according to the finding recorded by
the Central Government the appellants had not been able to
establish fully and clearly that the incidence of higher sugar price
was not passed on to the consumers of the end products and since D
this was a finding of fact base on evaluation of the material and
evidence produced by the appellants before'the competent authority,
the High Court would not be justified in interfering with the order
of the Central Government. The appellants therupon preferred the
present appea~ with spedalleave obtained from this Court.
E
The main point of controversy between the parties centres
round the true interpretation of S. 6 Sub~section (1) of the Equali~
sation Fund Act. This provision lays down ·as a condition precedent
to its applicability that the excess realisation made by the manu~
facturer of sugar should have been credited to the Fund. Now, the
F
application made by the appellants in from IV stated in so many
terms that the amount in qeustion had been deposited by the Regi~
strar of the High Court in terms of the Levy Sugar Price Equalisa·
tion Fund Rules, 1972, through the Chief Pay & Accounts Officer,
Govt. of India, Ministary of Agriculture & Irrigarion, Department
of Food, New Delhi. This statement was not at any time disputed on
·behalf of the Central Government either in the order made by the G
Central Government rejecting the claim of the appellants or in the
proc-eedings before the High Court. It is indisputable that a sum of
Rs. 22681.88 representing the excess realisation made from the
appellants by K.M. Sugar Mills Limited was credited to the Fund
by th~ Registrar of the High Court. And in any event, this must be H
212 SUPREME COURT REPORTS [1985] 1 S.C.R.
A presumed to have been done because the Equalisation Fund Act
having been enacted for this pupose, the Registrar of the High
Court would naturally be expected to carry out his obligation under
the statute by depositing the amount of excess realisation recovered
by him under the bank guarantee given by K.M. Sugar Mills Limi·
B ted. There can, therefore, be no doubt that in terms of Section
6, Sub-section (1) the appellants were entitled to claim refund of the
sum of Rs. 22681.88 from the Fund. The only question is whether
the proviso to section 6, Sub-section (l) precluded the appellants
from claiming refund of that amount. The proviso on its plain terms
applied only where the party claiming refund of the amount of
c excess realisation is a wholesale or a retail dealer who .has passed
on the incidence of the excess over the controlled price of levy su·
gar to the retail dealer or to the consumer, as the case may be. The
proviso obviously cannot apply to a case where a- claim for refund
has been made by a consumer of sugar from whom excess realisa-
tion has been made by the manufacturer of sugar. The appellants
D
were adm~ttedly consumers of sugar and not dealers in sugar and
since they were not dealers in sugar, th~re could be no question of
any incidence of excess being passed by them to the retail dealer or
to the consumer.

E The learned counsel appearing on behalf of the respondent
contended that the excess over the controlled or fair price of levy
sugar must have been {'assed on by tbe appellants to the consumer
when they sold the manufactured products to them, because the
higher price paid by them for the sugar purchased from K.M. Sugar
Milts Limited must have been taken into account by them in fix-
F ing the pdce of the manufactured products. This may be so or may
not be so. Tt is not necessarY for us to examine this question becau-
se it is irrelevant on the terms of the proviso to Section 6, Sub-sec-
tion (l). That proviso deals with a situation where a wholesale or
retail dealer passes on the incidence of excess over the controlled or
fair price of levy sugar to a retail dealer or consumer, who purchases
G such sugar. Tt contemplets a case where a dealer-whether whole
sale or retail-sells sugar to a retail dealer or consumer as tht; case
may be and not where a person sells a manufactured product con·
taining sugar as one of its ingredients, we have, therefore, no dou-
bt that the proviso to Section 6, Sub-section (1) was not attracted in
the case of the appellants and, consequently, the appellants were
entitled to claim refund of the $'\JPl of tb~ R~· ~7681.88 fr~tn th~
sqm of Fund,
ALLAHABAD CANNING CO. V. UNION (iJhagwati,9.) 21J

We accordingly allow the appeal, set aside the judgment of A
the High Court and issue a Writ directing the respondent to pay to
the appellants a sum of Rs. 22681.88 together with interest thereon
at the rate of 6 per cent per annum from today until payment. The
respondent will pay the costs of the a peal to the appellants.
B

H.S.K. Appeal all,.,wed.

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i.