Rama Sugar Industries Ltd. v. State of Andhra Pradesh & Ors.

Judgment

RAMA SUGAR INDUSTRIES LTD. STATE OF ANDHRA PRADESH & ORS. December 17, 1973 [A. N. RAY, CJ., H. R. KHANNA, K. K. MAmEW, A. ALAGJRISWMU AND P. N. BHAGWATI, ]J.] Arullira Pradesh Sugarcane (Regulation of Supply and Purchase) Acl, l-951- Sec. 21(3)(b)-Gof'ernment.r discretion to grant exemption from payment of Purchase Tax. Adniinistrative discretion-Wllelher Government had fettered its discrerion by ·laying' downa policy of confining tire benefit of ·exemption to Cooperative Su;:ar ·Factories. Section 20(3)(b) of the Act lays down that the Government may, by notifi· cation, exempt from the payment of tax 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.

The Andhrll Pradesh Government took a policy decision to grant exemption from payment of purchase tax to new and expanded supr factories inthe cooperative sector only due to present financial poo1tiOn of the Government. In pursuance of the said policy, the exemption was granted for one year from the ·payment of tax to the cooperati_ve societies of arowers of sugarcane. The benefit of the exemption wiu refused to the appellant and other joint stock companies running the sugarfactories. On behalf Of the appellant it was contended that the Government could not by laying down a policy to exempt OD!y cooperative sugar factories fetter their hands from examiains the merits of each individual case. It was also contended that the policy beblnd oec.

21 (3) being to encourage new •agar factories or expanded factories the Government could not refuse to consider all except one clus, that is, the cooperative sugar factories, for the purpose of granting exemption. lt was further urged that new sugar factories and· expanded sugar factories all fall into one clUB and there is nothing particular or special about . cooperative auaar factories justifying their treatment 81 a special class deserving a special treatment, The State of Andhra Pradesh contended that it had full dis· -cretion to decide the Policy in granting the exemption and that cooperati\'e sugar !actories consisting of cane growers is a distinct category justifying their treatment as a class separate from other sugar factories. On facts it was asserted. by the State that the exemption was granted only to new cooperative sugar factories and that too only for one year.

It was also asserted that the case of the appeJlant-; was individually comidered and rejected on merits. • Dismissina the appeal and writ petitions, the majority of the Court, HEID: Per A. N. Ray, C.J., H. R . .Khanna and A. Alagiriswami, JJ (I) The purpose of the Act is tQ encourage new nor factories and expanded sugar factories. But how that Power is ID be exercised will have to be decided by taking into consideration all tile relevant factors relating to the sugar industry. It is \vell known that there is a difference in the sycrose content in the cane produced - in different areu. At one period the industry may be in a very prosperous condition and miaht not.need the exemption. It may also be that factories in a particular area are in need of this concession but not factories in another area.

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 QQe area but not to factories in .another area, to Jtrant the exemption during a particular period but not during another period. (791 H-792 Cl (II) The coonerative sugar factories consisting of sugarcane growers faU under a distinct category different from other categories and the Government is justified in treating the cooperative sugar factories as a distinct class for the pur• poses of the protection and concessions, considering their contribution to tilt sizable sugar Industry now built up in this country. {792 'C-D] (1974j. Z S.C.R. (Ill)

There is DO reason to reject the 'statement OD behalf of the State of Andhra Pradesh tbat they had con:;idered the rcqu:st of the appellant as well as of the petitioners on their merits and that the exemption had been granted only to new cooperative factories· for the short period of one year only. [793C·D] R. v. Port of London Authority, (1919) I KB 176 at 184) Padfitld '"Min. of Agriculture etc. (1968 1 All ER 694) British Oxygen v. Minister of Technology (1970 3 All ER 165) and Obserrations i11 Halsbury's Lall's of f:11g/a11d (4th edition, Vol. I, para 33 at p. 35) cited with approval. Per minority ( ~fathe~' and Bhagwati, JI.) : Picking out cooperative societies of sugarcane growers for favoured treatment to the exclusion of other new or subs· tantiaHy expanded industries is wholly unrelated to the object of the exempting provision and the policy or rule adopted by the State Government is le~ally not relevant to the exercise of the ~O\'.'er of granting exem,Ption.

Considennj: the object of sub·section (b) of Sec. 21 (3), there is no distinction between a factory ostablished by a cooperative society consisting of sugarcane growers or a company or a firm "'hose share holders and partners are suaarcane growers. The classifi· cation made by the poficy or rule must not be arbitrary but must have a rational relation to the object of the exempting provision. The Government, by making the policy decision, bad shut its ears to the merits of the individual applications. That the exemption is granted to few cooperati,·e factories and for a short time nre not relevant considerations. [802 C-E] R. v. Torquay Lise11si11g (1951) 2 K.B. 784, Obserratio11s of S. A. de S111i1h, i11 15 Modern Law Rei·lew, 73, and obsen·ations of H.W.R. Wadi' in 'Adn1inistra· 1ive Law' 3rd edition pages 66·67 cited \Vith approval in addition to the references n1ade by the n1ajority decision. CIVIL ArPrLLATE ORIGINAL JURISDICTION : Civil Appeal No. 1453 of 1969.

Appeal by special leave from the judgment and order dated the 29th November, 1968 of the Andhra Pradesh High Court at Hyderabad in Writ Appeal No. 345 of 1968 and Writ Petitions Nos. 183, 249 & 240 of 1971 & 3, 105 & 134 of l972. Under Article 32 of the Constitution for enforcement of Fundamental rights. S. V. G11ptc and G. Naraya110 Roa. for the appellant (in C.A. 1453/69). Nire11 De, Attorney General of India and P. Paramesflwara Rao, for the respondent (In C.A. 1453/69). 1 Y. S. Chitale, K. P. Chaudhry, K. Raje11dra Chaudhry and Veena IJ,'l'i Ta/war, for the petitioner (In W.P. 183171). K. Sri11frasa11wrthy and Na1111it Lal, for the petitioner (in W.Ps. ~49. 250/71 and 3 and 105/72). A. S11bba Rao. for the petitio11er (in W.P. 134/72). P. Rr1111 !?eddy and P. Para111es11'ara Rao. fOr the respondents (in all W.Ps.) The Judgment of A. N. Ray, CJ .. H. R. Khanna and A. Alagiri- ~wami, JJ. was delivered by Alagiriswami, J. K. K. Mathew. J. gave a disscnting·Opinion on behalf of P. N. Bhagwati J. and himself.

ALAGIRISWAMI, J. The appeal and the writ petitions raise the question of interpretation of section 21 (3) of the Andhra Pradesh Sugar- R,AMASUGAR LTD. v. 'A ... P. STATE (A.lagiriswami, 1.) cane (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 provisic:ms of section 21(3) for exemption from the tax payable under sub-section (I) <if 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) wipch does not countenance anY. classification and that the classi1\cation adopted is based on no nexus to the object of the Act.

The apepal 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 was not pressed before this Court. Though in the beginning it was urged that the gr~ of exemption under the section was obligatory, later the only contention raised was that the application of each of the factorills should have been co11sidered 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 tom1e 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. exeeeding three years from the date on which it. commences crushing of cane; Cb) any factory which,. in the opinion of the Government, has substantially ei<panded, to the extent of such expan· sion, 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 in- . terest, if any, due thereon, is not paid by the occupier of [1974]

2 ~.C.R. 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 (1968 1 SCR 705) this Court upheld the constitutional validity of section 21(3) and .illade the following observations : "It was next argued that the power under s. 21(3) to exempt new factories and fttctories which in the opinion of the Government have substantially expanded was discriminatory and violative of Art. 14. We are unabl~ to accept this contention. The establishment of new factories and the expansion of the existinj! 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 f;lctory, and if so, for what period and the question whdher any factory has substantially expanded and it so, the extent of such expall/iion have to be decided with reference to the facts of each individual case. Obviously, it is not possible for the State legiS:; ture to examine the merits of individual cases and the function was properly delegated to the State G"vernment. The legislature was not obliged to prescribe a 1: ~re rigid standard for the guidance of the Government. We . ild that s. 21 does not violative Art. 14."

Though, as we have stated, it was sought to be urged 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 questihn whether the exemption should be granted to any factory and if so for what period and tho question whether any factory has substantially expanded a'*1 if so the extcot of ~uch expansion, has to be decided with reference to the facb of eacl1 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. Reliance was placed on the observations in S.A. ·de Smith's Judicial Review of AdmilTistrative Action (2nd Edn.) where at page 294 it is observed :

"A' tribunal entrusted with a discretion must not, by the adoption of a general rule of policy, disable itself from exercising its discretion in individual cases. . .. ... But the rule that it formulates must not be based on considerations extraneous to those contemplated by the enabling Act; otherwise it has exercised its discretion invalidly by taking irrelevant considerations into .account. Again, a factor that may properly be taken into account in exercising a discretion may become an unlawful fetter upon discretion if it is eleva•ed to the status of a general rule that results in the pursuit of consistency at the expense of the merits of individual cases. . . . A fortiori, the authority 11.AMA SUGAR LTD. v. A· P. STATE (A/agiriswami, /.) 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 and then proceeding to refuse an application before it ~n pursuance of such a resolution ...

" 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 alt fall into one clas.• and there is nothing particular or special about ~tive su~ar factories justifying their treatment as a special class deservin~ a special treatment. It was also urged •hat the only discre•ion which the Government had wa• in deciding whether a factory ·had substantially expanded or not and in no other resoect.

On behalf of the State·of Andhra Pradesh, however, i• was stated that onlv new co-onerative su~ar factories have been l(ranted exemp· tion and that too onlv for one year as aeain•t the period of three years contemnlated bv •he Act in the case of new factories and no exnan.ded factorv. even a co-Onerative su~ar factorv. has been l!"a"ted any exemniir1n. Tt wa• cnntended that the d;scretion has been fliven to the State to <ledde whirh factory or which class of factone< · sho•11rl h... l!r•"t-d at •nd .if sn fnr what ""rio<i. that th"';. tii<i:r.r'"'finn- ;~ tn hP. e-,;erclc;erl bv talcinq into consideratiQt1 the state of th~ in<ln•trv and the f;nancial nositinn of anv su~ar factorv durinq anv ptlrticuhr neriad or in anv narticufar area. t'1at it is o1'tn to the i<:••t• tn take i"t"' accou"t all! releva"t considertaicin• an~ decide w'h;r:'h ,r:1~~<: of f~ctnrlP.c: c.ly,ulct he 11ran.fP~ exemotion.

1'nd th~t the co-onerati~~ suC?ai' f~ctories cons;stin2 nf cane erowers is :\ distinct r-..atP.<rnrv iustifyine: their treatment as a cl~ss senarate from ·nthf'r !=l11~nr factori... Tn vi~ nf t'1e Ah""""""'P.11t Rt !!' lqtfll:,. cit"°" nf the contP.'1tinn fhA.t it WA• n~:~m11tnt'V nn _ tlu•' 9"q1'f ,.., t-1-tP nnve~mfl:nf .,,. errant t'h"' ,.."l"Pt'l'\ntioti. ,.:_nftf&Trift1"'f•~ 11t'U~~ ll!P,.~l\ft ?1 (~\ .tn PUl&"f ,,llt-U:1 far:fn..,r nt' PTf'l~ndC<t f11,.•"1r '"'" +i. •. """~"" m-.,f11W1"!''1 ;" t1,. 111•r.~n11 it f< 11'1"~fl:4:"1"V to 00"' 411~'"" ""'1fll:fliP.T th,. wn""' "mAv" .fnn"" ;n th'lt sectfe'ln <t'1ou1d be . ilitl!l'."r•'l'it to mean "•hall" excent to i"dieat• that the nntlev behind th• whnl• nf • ..,,t;on 21 ~""" n<>t indicat• that it is obltt!•torv on the G part of the State to ~t mm11tlon. Quite clearly th• discretion h•• i,-., left to t'1e Stato to decide whether anv ·particnlar factory A""""' '1o °"""'"' ... ...,,.,11on or not.

1"11• · I~ what this Court stallici in Its earlier decision. In deciding this question It Is. open to tie Government to take ,into considerati0n the state of the Industry at anv °""ticular period. At one neriod the industry may be in a wry t'roso~rous condition, and ·might not need this concession. It mav J . "\so be that factories in a particular area are in need of this concessioii but not factories in another area. How a newer vested in, an authority is to he exercised has got to be decided bv taldng into consideration the whole of the backgi;ound. of the Act and the purpose behind it. The vurpose of the Act is. of course, to enco.urage 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 well known that there is a difference in the sucrose content in the cane produced in different areas.

The· quantity of sugarcane produced per acre varies from 60 tons per acre in Maharashtra to 40 tons in Tamilnarlu and far less in ll ttar 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 wellknown 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 giant the exemption for one year instead of the 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 sugarcane growers fall . uqder a distinct category different from other categories.

Sugarcane growers have been the object of particular consideration ad 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 \n, fixing the price of sugarcane so that even a: sugarcane 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 124 7 shares were held by canegrowers. 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 !he question of exemption to all factories other than co-operative sugar factories. In its counter affid~vit 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 (iAnnex.IU) written by the Government of Andhra Pradesh to the appellant in Civil Appeal No. 1453 of 1969 which reads ; "! am to in1'ite reference to your letter cited and to stated 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 c"n<l Seethanagaram Units.

The present 'policy of the Goven1mec.' is to grant exemption from payment of purchase tax to new and expanded sugar factories in the Co-operative Sector only. Besides Bobbili and Seethana.. J,AMA SUGAR LTD, v. A· P. STATE (Alagiriswami, J.) 79 Jo gram Sugar Factories, there are a few other sugar factories m the private sector which have also embarked on expan· sion 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 cirmumstances, 'th~ Government very much regret that it is not possible for them to accede to your request." and urged that the Govemment could not have exemined the request. of each of the factories on their merits. But it is to be noticed that that letter itse1[ shows that the Government have given careful con· sideration 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 r~ason not to accept the statement 011} 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 sugarcane growers' factories cannot show that the{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 authorityvested with a dis-- cretion, de Smith also points out :

"but its statutory discretion may be wide enough, to justify · the adoption of a rule not to award any costs save in exceptional circumstances, as distini:t from a rule never to award any costs at all ......... although it is not obliged to consi- , der every application before it with a fully open mind, it must at least kep its mind a jar." In R. v. Port of London Authority (1919 1 Kn 176 at 184) Bankes L.J. ·stated the relevant· principle in the following words : "There ate on the one hand cases where a tribunal in the ho~est exercis~ of its discretion ~as. adopted a policy, and, without refusmg to hear an apphcant, intimates to him what its. policy is, and that after hearing him it will in ac· ' )!dance with its .policy decide against him, unless there is somet/Uni? exceptional in his case .... if the policy has been adopted for reasons which the tribunal may Jegitimaiely entertain, no objection could be aken to such a course.

On the other hand there are ca~es Y'here a tribunal has passed a r_ule, . or com~ to a determmation, not to hear any applicat10n of ff particular character by whomsoever made. There is a wide distinction to be drawn between these two classes.' The prese_nt cases come under the earlier part apd not the latter, ~he ~ase m Rex v. London County Council (1918 1 KB 68) is distmgu1shab\e on the facts of the case. The policy ·behind the Act there under consideration was obviously to permit sale of any arlil:le or distribution of bills or like things and in deciding that no pennission would be granted at aU the London County Council was righUy held not to have properly exercised the discretion vested in it. In the decision in Pad~ld v. Min. of Agriculture etc. (1968 1 All ER 694) the refusal of the Minister to exercise the power vested i~ 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 u_nable to 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 Lon4on Authority (1919 1 KB 176) and Pad~ld v. Minister of Agriculture (1968 1 All ER 694). 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 aPPfOVed capital expenditure incurred by that per so ti in providing new ma chi· nery or plant for carrying on a qualifying industrial process in the course of the business.

After stating that the Board was intended {o have a discretion and after examining the provisions of the Act 1he 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, already referred to, Lord Reid went on to state : "But the circumstances in which discretions are exercised vary enormously and that pa8sage cannot be appliecj, !ifarally jn every case. The general rule is that anyone who has to <0xercise a· statutory discretion must not 'shut (bis) ears to the application (to quote from Bankes Ll). I do not think .that there is afly great difference between a policy and a rule. 'There may be cases -where an officer or authority ought to 1is•en 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 alreadv with a multitude of similar applications and then they will almost certainlv have evolved a policy so precise that it could well be called a rule. There can be no objection to that previded the authority is alwavs willing to listen to anyone with something new to say---0! course I do not mean to say that there need be an oral hearing. In the present case the Min'ister's officers have carefullv considered all that the anoellants have had to say ll_ncl T liave no doubt that thev will continue to do so. The -Minister might at anv time change his mind a·nd therefore I think •hat the aonellants are entitled to have a decision' whether these cylinders are eligible for grant." II R,AMA SUGAR LTD. v. A. P. STATE (A.lagiriswami, /.) Viscount Dilhome again after referring to the passage in R. v. Port of London Authority, said :

"Bankes U 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 d'raw .. 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 equallr well be described as a r)lle. It was both reasonable and nght that the Board should make known to those interested the_ policy that it was go!n& to follow. By doing so fruitless applications involving expense and expenditure of time might be avoided. The Board says that it has not µ:fused to consider any application. It considered the appellants'. In these cin:wnstances it is not necessary to decide in this case whether, if it had refused to consider. an application on the ground that it rclaled to an item costillg Jess than £25, it would have• acted wrongly.

I must. confess that I feel some doubt whether the words used by Bankes LJ in the plSSBge cited above are really applicable to a case of this kind. It seems someWbat pointless and a waste QJ time that the Board should have to.consider applications ~ are bound as a resuh of its policy decision to fail. Representations could of course be made that tho policy should be changed." 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 1 certain class and not to a certain other class, though such a decision must be based. on considerati!'ns relevant to the subject matter on hand. Such .l\ consideration is found in this case. Ha!sbury \Vol. 1. 4th Edn., para 33 at page 35) puts the matter succinctly tlius :

"A public body endowed with a statutory discretion may legitimately adopt general rules or principles of pciliCy to guide itself as to the manner of exercising its own discretion in individual cases, provided that such rules or principles are legally relevant to the exercise of.Jts ·powers, consistent with the purpose of the enabling-1egislr'ion and not arbitrary or capricious. Nevertheless, it must not disable itself from exercising a genuine discreti>JD in a particul~r case directly involving individiial interests, hence it must be prepared to consider making an exception to the general ru1e if the circumstances of the case warrant special treatm, · These propositions, evolved mainly in the context of lice1J>,ng and other regulatory powers, have been applied to other situatiollS, for example, the award of .discretionary [1974] 2 $.C.R. 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 person; ·and such a power may be expressly conferred by statute." We are satisfied that.in this case the State of A11Jhra Pradesh has ·properly exercised the discretion conferred on it by the statute. The appeal and the writ petitions are dismissed with costs, oae ·Set. MATHEW, 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 ins. 21(3)(b) of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase)

Act, 1951, herein· after called the Act for the teason that the Government has taken a policy decision to confine the benefit of the exemption to sugar factori<S 'in the cooperative sector. The material provisions of s. 21 of the Act are as follows : "21 (1) The Government may, by notification, levy a tax at such rate not exceedin_g five rupees per metric tonne 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 i!l part such tax in respect of cam; 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 cmshing 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." It was contended that looking at the scheme of s. 21 the word may' occurrin,g in sub-section (3) thereof should be read as 'shall' RAMA SUGAR LTD. v. A. P. STATE (Mathew, J.) as otherwise the sub-section will be unconstitutional in that it does not provide guidelme tqr ·the exercise of the discretion to grant or refuse the exemption when all applicants fulfil the conditions specified in eta use ( b) of the sub-section.

The argument was that since no gu1uc1ines arc furmshed by the legislature for choosing between two factories fulfilling the conditions specified in clause (b ), the sub-section must be read as mandatory, nameiy, that it imposes an obligation upon the Government, by notification, to exempt from payment of the tax all factories which, Ill the opinion of the Government, have substantiaily expanded, to the. extent of such expansion, for a p:riod 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. Chusc (b) 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 ot 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 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 (b) 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 hO\V wa~ the Govcrnn1eot intended to operate or exercise the discretion ? ·Docs the Act as a \Vholc Or the provision in question in particular indi.::atc 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 a 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, in the words of Bankes L.J. in R. v. P.L.A. ex.p. Kynoch Ltd.(') "shut his cars to the application'). The question, therefore, is whether the Government shut _its cars and fettered its discretion when ir said that it will confine the benefit of the exemption provided in clause (b) of sub-section (3) onl\' to factories established in cooperative sector. (I) [19t9] 1 K.B. t76, at 184.

SUPREME COURT REPOJ.TS It was s11bmitted that there is nothing in the provisions of subsection ( 3 )( b) to indicate that the Government could confine the benefit of the exemption only to new and expanded sugar factories in the cooperative sector fulfilling the conditions therein ~ified, and tf the Uovemment 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 supr 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 lor<ign to the exercise of the discretion had entered into its exercise.

It is therefore to be seen whether the· policy decision of the Uovcrnment to limit the benefit of the exemption to sugar factorios owned or established by cooperative societies of sugar cane growers is derivable frOlll the sub-section or from any other provision of the Act or could be gleaned even from its preamble. The question to be asked nod answered arc : Has the policy decision any nexus with the object of tile provision in question or is it 1based on consideration.s which arc· irrelevant to the purpose and object of the Act ? Is there anything in the provisions of thl' Act from which. it is possible to infer that the legislature could have contemplated that 'the benefit of the c.1emption provided by sub-section(3)(b) should be confined only to factorle; owned by cooperative societies consisting of sugar cane growers ? It appears to us that the object of s. 21(3)(b) is to give incentive to sugar factories which are new and which have exj>anded.

It might be that the factories situate in one area may require greater coasidera, tion at one time then factories situate in other areas. We will ~ume that cooperative 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 that category alone and exclude others however deserving they might be from the point of view of the object of the provision for the legislative bounty? The letter of the Government (Annexure Ill) reading as under leaves no doubt in our mind that the Government could not !:aw considered the applications of the writ petitioners and the appdlanl on their merits : uAnne:rure Ill S. A. Guadar, I.A.S. Hyderabad Special Secretary to Govt. Dated 6th Jan. 1963. Food & Agriculture Department D.O. letter No. 3960/ Agri. IIl/67-1. D·:ar Rajah Sahcb, Sub :

Purchase tax on sugarcane-Exemption front payn1cnt of purchase tax to the extent of expansion-r.:-garding. RAMA SUGAR LTD. ·v. A. P. STATE (Mathew, J.). Ref: Your letter No. 54/66-67 dt. 6·2-1967 addressed to the Director of Agriculture. 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· extont ot expJnr.ion for two· crushing seasons in respect of Bobb11i and Seetnan.;gararn Units. The present policy of the Government is to grant exemption from payment of purchase. tax to new and expanded sugar factories in lhe Co-operative Sector only. Besides- Bobbili and Scetnanagaram, Sugar Factories, there are a few other sugar factories in the private sector 1which have al~ embarked on expansion programmes. Any concession given in one case will be a precedent !or otners anJ it cannot be denied to others wlio will naturally apply fo1 a sllllilar concession.

The present financial position of the Govcrrnnent dues not permit them to be generous. In the circumstances, tnc Government very much regret that it is not possible for them to accede to your request. With regards, To : Rajah of 'Bobbili; The Palace, Bobbili, Srikakulam District." Yours sincerely, Ml. S. A. Quuder We think that by' the. policy decision the· Government had precluded itself from considering the applications of the petitioners and the awellant . on their merits. In fact, the Governnient. by making the Policv decision, had shut its ears to the merits of the individual applications. We SC!l no merit in the contention of Andhra Pradesh Government that it considered the applications for exemption filed by the writ petitioners· and the appelllint on their merits as, by its policy decision, it had precluded itself from doing so.

What are not verv much 'concerned with the . auestitm that only a few oi the cooperative societies have been granted the exemption . or that the exemption to them has been limited to a peri<XI of one year. We are here reallv concerned with a principle and that is whether the Government was justified in evolving a policy of its own which has . no relevance to tho purpose of the provision in auestion 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 su~ar-cane growers,- if that policy decision had anv warrant in the directive principles of the Constitution as direc- 11-1748 Sup. CI/74 [1974] 2 S.Cl.R. tive principles are fundamantal in the &ovcrnance of the country and arc bmdin~ Oil all· orpns of the State.

There l~ no provision un the Chapter on Directive Principles which would warrant the particular predilection now shown by Government to the factories establish<d in the co-operative sector. Whence then did the Government draw its inspiration for the policy? We should not be tmderstood as saving that sugar-<:ane factories established by cooperative societies of sugar-cane iuowers do not deserve encourage· ment or that they should not b,e )lranted 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 anythin_g in the provisions of s. 21( 3). How could we assume in the ·light of the language of s: 21(3)(b) that the legislature intended that riew factories owned by co-operative societies consisting o'. cane growers alone should be the object of the legislative bounty ?

What. is the relevant distinction betweeln a factory established by a co-operative society consisting of sugarcane growers and a factory cstablish</j by a sugar-cane grower or a firm consisting of sugar-cane growers for the purpose of the· subsection ? The object Or the sub-.scction, as we said, is to give iriccntive to new and expanded factories with the ultimate object of in· creasing the proJuction of sugar. Whether a factory is establish~d or owned by a co-o;icrative soc.iety consisting of sugar-cane growers or by a company of which sugar-cane growers arc the shareholders or established by an imlividual who is a sugar-cane grower or a firm consisting of . sugar-cane greiw((rs wou1d m·ake 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 £eneral line of oolic,v and adhere to it.

But the policy it adopts must comfort with an\! be reconcilable with the provisions of the Act and must have some relevance to its object. Generally speaking. an .authority entrusted with a discretion n\ust not by adopting a rule or policy, disable itself from exercising its discretion in individual cases. There is no objection in its formulat· inir a rule or polic\'. But the rule it frames or the poEcy it adopts must not b~ based on cons:tlerations extraneous to those contc1nplated or envisaged by the enabling Act. It "must not predetermine the issue, as· by resolvin11: to refuse all applications or all applications of a certain class or all applications except those of a certain class" (see S.A. de Smith. "Judicial Review of Administrative Action", 2nd ed .. p 295). In R. V. Torouay Licensing, Jl., ex. Brockman( 1), Lord Goddard C.J, said : "The ,iustices cannot make a rule to be applied in every IJ case without hearing it. They may lay' down for them· II p9511 2 K. B. 784.

RAMA SUCMR LTD. v. A. P. _STATE (Mathew, I.) selves a general rule but are bound to, consider whether it is applicable to any P.Brtic11lar case." In other w_ords. alihou2h they have a duty genuinely to «cr~ise a discretion bv considerinR _each individual case on its merit,, the due di&:Charge of this duty _is compatible with the adoption of a general oohcy in relation to a cla~~ of cases. But ·"one qualification mus~ pc added : the policy of the justices must be reconcila/>le with tit< po/icy of the Act from which they derive their powers : ii must not be an irrelevant co11sideratio11 that they are impliedly precluded from taking into aqcount" (see S. A. de Smith. Note : "PoHcy and Discretion in Licensing Functions(') ) . It is this qualification which has got to be remembered when an authority frames a rule or adopts a general policy for the exercise of its discretion.

This is further clear from lho poss:ige from Halsbury's Laws of England quoted with approval in the majority judgment(') : "A public body cndo~ed with a statutory discretion may le~matelv adopt general rules or principles of polic) to 2uid~ itself as to tl\e l)lanner of exercisin2 its own discrc · tinri in individual case~ •. P.rovided that such rules or principles are le2allv relevant to. the exercise of its powers, consistent with ihe purpose of the enabling legislation and nor arbitrary or capricious. ?-feverthe!ess. it must not disable itself from exercisin2 a genuine discretion in a pai ticular case directly involvinJ!; i~ividual interests; hence it must bo prepared to consider n;iakin2 an eiception to the gene' . ral rule if. the circumstances of the case warrant special treatment." In llritish Oxygen Co. Ltd. v. Ministry of Technology(") the ouesfoa was whether the Industrial Development Act, 1966, which provided at the relevant time tliat the Board of Trade may m"ke to any person a grant towards approved capital expenditure incurred by that person in providing new machinery or plant for carrying on a oualifving industrial precess in th• course of l:msincss, authorised the Board of Trade to frame a pol'cy decision to refuse subsidies in respect of anv item costing le.ss than £ 25.

The House of Lords held that the Boarl:I may decline to make a iuant towards bulk capital expenditure O)\ the individual cylinders on the sole iuound that eac] cvlinder coot less than £ 25. because the discretion conferred was unqualified and the Minister was accordingly not precluded frpm making such a rule or oolicv provided that he did not refuse to listen to an apQ]ication for· the exercise of ais cliscretion. After referring ·to. this dedsion, H. W. R. Wade has said(') : (t) IS Modem Law Review 73. · (2) Vol. I, 4th ed., para 33 at p. 35. (3) [19701 3 All E.R. 165. (4) See "Administrative Law"• 3rd ed., pp. <6-67. "But however ,firm its policy· ml\Y .be, nothing can absolve a l>Ublic authority lrom the duty of formini its judgment on the facts of each case, if that la what tho statute intended. A tribunal which has to exercise discre· tion must therefore be careful not to treat itself as bound by its own previous decisions.

Unlike a court of law, it must not pursue consistency at the expense of the merits of individual cases' (see Merchandise Transport Ltd .. v. B.T.C. (1962) 2 Q.B. 173)". To sum up, the policy of rule adopted by the State Government to guide itself in the exercise of its discretion must have some relevance to the object of s. 21 ( 3) which is to provide incentive to the establishment of new industries and substantial expansion of eidsting industries with a view to increasin1t production of sugar. The classi· fication made bv the polic_y 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 stan'd 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 sugarcane 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 poliey or rule adopted by the State Government is not l.egally relevant to the exercise of the power of grantin1t exemption.

W c would, therefore, quash Annexure III and issue a mandamus to the Government of Andhra Pradesh in each of those writ petitions a.nd the Civil Appeal to consider the applications of the writ petitioners and the appellant on merits and pass the proper order in ~ach case without takin1t into account the policy decision contained m Annexure Ill. We woulu ~How 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 anl:I the Writ petitions with costs, one set, S.B.W. Appeal and Petitions dismissed.