Kerala Flour Mills, Mattancherry, CochIn Vs. the Board of Revenue (Civil Supplies), Govt. of Kerala, Trivandrum and ors. - Court Judgment

Malimath, C.J.

1.The petitioner is a firm engaged in the manufacture of wheat products like maida, sooji, atta, bran etc. by grinding wheat in the wheat roller flour mills owned by it. The petitioner has obtained a licence under the Wheat Roller Flour Mills (Licensing and Control) Order, 1957 (hereinafter referred to as 'the Flour Mills Order'), which has been issued by the Central Government in exercise of the powers conferred by Section 3 of the Essential Commodities Act 1955. The petitioner has also obtained a licence under the Kerala Food Grains Dealers (Licensing) Order 1967 issued under Sub-sections (1) and (2) of Section 3 of the Essential Commodities Act, 1955 which enables it to carry on the business of dealing in foodgrains. The petitioner has been purchasing wheat allotted to the State of Kerala by the Government of India through the Food Corporation of India at the prescribed prices. After grinding the said wheat into products like maida, sooji etc. the petitioner has been selling the same to the persons nominated by the State of Kerala, at prices fixed under the Kerala Wheat Products (Ex-Mill) Price Control Order, 1979. Clause 10 of the Flour Mills Order, as was in force at the relevant point of time, reads as follows :

'10. Power of licensing authority and specified authority to issue directions to licensees

(1) The licensing authority or as the case may be, the specified authority may issue directions to licensees in regard to --

(a) the purchase of wheat for the purpose of manufacture into wheat products;

(b) the production or manufacture of different kinds of wheat products; and

(c) the disposal of wheat products;

Provided that no direction under item (a) shall be issued by the specified authority without obtaining the prior concurrence of the Central Government.

(2) Every licensee shall be bound to carry out the direction of the licensing authority or as the case may be, the specified authority under Sub-clause (1).'

It is in accordance with the directions issued under Clause 10 by the licensing authority that the petitioner had purchased certain quantity of wheat. The purchase was made at the price of Rs. 155/- per quintal. As on 31-7-1982 the petitioner was in possession of 89 tonnes of wheat which was yet to be processed into wheat products. The issue price of wheat was raised from Rs. 155/- to 185/- by the Central Government with effect from 1-8-1982. The sale price of the wheat products is governed by the Kerala Wheat Products (Ex-Mill) Price Control Order, 1979. The prices of different wheat products were fixed under the said order. The price of maida fixed under the said order before 1-8-1982 was Rs. 248.79 per quintal and the price of sooji was fixed at Rs. 233.79. With effect from 1-8-1982 the sale prices of maida and sooji were raised. So far as the sale price of maida is concerned it was fixed at Rs. 260/- and the price of sooji was fixed at Rs. 255/-. Though the order in this behalf was published in the Kerala Gazette, Extraordinary dated 6-8-1982 the same has been given effect from 1-8-1982. The petitioner in the normal course was entitled to convert the 89 tonnes of wheat which was in its possession on 31-7-1982 into different wheat products and sell the same with effect from 1-8-1982 at the enhanced new rates. The old sale prices of maida and sooji etc. were obviously fixed taking into consideration the price fixed for the sale of wheat. As a result of the increase in the prices as aforesaid, the petitioner became entitled to a higher profit than he would have been entitled to but for the enhancement of the prices with effect from 1-8-1982.

2. The Director of Civil Supplies, who is the specified authority contemplated by Clause 10 of the Flour Mills Order issued an order as per Ext. P1 dated 30-7-1982 which reads as follows:

'Government of India have enhanced the issue price of wheat to Roller flour mills from Rs. 155/- per quintal to Rs. 185/- per quintal with effect from first August 1982. You are requested to assess the closing stock of wheat and wheat products such as maida and sooji available with the millers as on the close of business on 31st July 1982 including the stock in transit. Necessary undertaking to this effect that the millers would pay differential cost by 31-8-82 may be obtained in duplicate and a copy of the undertaking sent to the Food Corporation of India depot concerned under intimation to the Board.'

A copy of the same was forwarded to the petitioner for due compliance. On verification of the stock as on 31-7-1982 it was found that the petitioner possessed 89 tonnes of wheat. In accordance with Ext. P1 the Petitioner was required to give an undertaking that it would pay the differential cost by 31-8-1982. The expression 'differential cost' used in Ext. P1 means the difference in the purchase prices of wheat. The petitioner had purchased wheat at Rs. 155 per quintal, before 31-7-1982. With effect from 1-8-1982 purchase price of wheat was raised to Rs. 185. Therefore the differential cost in the present case is the difference between the two prices which is Rs. 30 per quintal. The petitioner, however, did not execute an undertaking as contemplated by Ext. P1. This was followed by another order of the Director of Civil Supplies, Ext. P2 dated 16-8-1982, which called upon the petitioner to deposit the amount due towards differential cost on the stock of wheat and wheat products held by the petitioner on the close of the transaction on 31-7-1982 including the stock in transit under the major head '109-Food other receipts' by a demand draft drawn in favour of the Controller of Account, Department of Food, New Delhi, with full details as per the pro forma within three days. The petitioner then approached this court under Article 226 of the Constitution challenging the orders Exts. P1 and P2.

3. The contention of the learned counsel for the petitioner is that the petitioner became the owner of 89 tonnes of wheat before 31-7-1982, the same having been purchased by paying the stipulated price for the same and that therefore if as a result of subsequent increase in the purchase price of wheat or the sale price of wheat products it results in higher profits, he is entitled to the same and that the Government of India has no right to demand the same from the petitioner. It is his contention that none of the statutory provisions by which the petitioner is governed entitle the Government of India to claim any amounts by way of differential costs in regard to the stock of wheat held by it as on 31-7-1982. The answer to these contentions by the counsel for the Central Government however is that the petitioner has not become the owner of 89 tonnes of wheat in question and that the said quantity of wheat is held by the petitioner not as the owner thereof but as an agent of the Central Government. As the petitioner holds the quantity of wheat as an agent, it is contended that the agent cannot appropriate the higher amount of profits that flow as a result of the increase in the price of wheat and wheat products. It is also contended that the petitioner should pay the amount demanded as it is bound to carry out the directions issued by the licensing authority or the specified authority under Clause 10 of the Flour Mills Order as also under Clause V of the license.

4. The petitioner has asserted in the writ petition that it has become the owner of 89 tonnes of wheat, it having purchased the same from the Food Corporation of India on payment of full value for the same. As already stated the wheat was purchased by the petitioner at the prescribed rate of Rs. 155/- per quintal. Sub-clause (1) of Clause 10 of the Flour Mills Order empowers, among other things, the licensing authority and the specified authority to issue directions to the licensees in regard to purchase of wheat for the purpose of manufacture into wheat products. It is not disputed that the purchase of wheat in question by the petitioner was made in pursuance of the directions issued under Clause 10(1)(a) of the Flour Mills Order. It is in accordance with the directions issued by the licensing authority that the petitioner has purchased the wheat for the purpose of manufacturing wheat products. The expression 'purchase of wheat' would not have been used if the petitioner was constituted as an agent of the Central Government. Clause v of the licence issued under the Flour Mills Order in favour of the petitioner also states that the licensee shall abide by any directions by the licensing authority or the specified authority, as the case may be, in regard to purchase of wheat, extraction of maida, sooji and rawa and also in regard to the distribution or disposal of wheat products. This Clause also proceeds on the basis that the licensee becomes the purchaser of the wheat with an obligation to abide by the directions in regard to extraction of maida, sooji and rawa and also in regard to the distribution or disposal of wheat products. One would expect a provision for payment of remuneration or commission if the relationship between the Government of India and the licensee is that of principal and an agent. We do not find any provision in the Flour Mills Order or the licence issued under the said Order or under any other agreement or direction providing for remuneration for the services rendered by the agent. It is also necessary to point out that in none of the orders in the licence or other directions has the licensee at any time been described or treated as an agent by the Central Government. There is no express provision for remuneration of the agent obviously for the reason that the relationship is not that of a principal and an agent. The petitioner licensee having purchased the wheat being under an obligation to sell the same to the specified person at the prescribed rate, he would be entitled to the profit flowing from such sale. No other material or circumstances are available in this case, from which the case of the Central Government that the licensee is an agent of the Central Government can be sustained. We have no hesitation in taking the view that the petitioner-licensee became the owner of the wheat that was purchased at the prescribed rate for the purpose of converting the same into wheat products and selling the same to the specified persons at the prescribed rates. It is also not possible to spell out any fiduciary relationship between the Central Government and the petitioner-licensee. The decision of the Supreme Court in AIR 1965 SC 1773 between Venkata Subbarao v. State of Andhra Pradesh fully supports the view we have taken in this behalf. That was a case which arose under the order made under Section 3 of the Essential Supplies (Temporary Powers) Act, 1946 in regard to procurement and distribution of paddy and rice. Under the said order procurement agents were appointed with authority to purchase paddy and rice at the prescribed rate after executing an agreement in the prescribed form. They were required to sell the paddy and rice so procured by them to the specified persons at prescribed rates. The sale price having been enhanced, the procurement agents-licensees were required to pay the differential cost resulting from the increase of sale prices to the Government. The demand was sought to be justified in that case on the ground that the licensee acts only as an agent and that he did not become the owner of the paddy or rice purchased on the strength of the licence issued in his favour. Dealing with this question this is what the Supreme Court observed at paragraph 32 of the judgment :

'32. No doubt the description in the Procurement Order and the agreement as 'agent' is of some value, but is not decisive and one has to gather the real relationship by reference to the entire facts and circumstances. To start with, it is clear that as the purchases were made by the procuring agents out of their own funds, stored at their own cost, the risk of any deterioration, driage or short-fall fell on them, they were the full owners of the paddy procured and they pledged the goods for raising funds. This aspect of their full ownership of the grain purchased is highlighted by tile fact that they entered into agreements with the Government itself to sell the rice with them to District Supply Officers at the controlled market prices. Any contention that the procuring agents were not full owners of paddy or rice procured by them must manifestly fail as being inconsistent with the basis upon which this agreement by them to sell to Government was entered into. If further confirmation were needed it is provided by the fact that on the scales by procuring agents to Government under their Supply Agreement sales tax was payable which on the terms of their Madras Central Sales Tax Act in force at the relevant time would hot have been payable if the paddy and rice were that of Government and which they were holding merely as commission agents on behalf of the Government.'

The facts are similar in this case except that the licensee is not required to execute an agreement in the present case. In the present case also the licensees purchased the wheat out of their own funds, stored at their own costs and are liable for the risk of any deterioration, driage or short-fall fell on them. The Kerala Wheat Products (Ex-Mill) Price Control (Amendment) Order, 1982 which governs this case shows that the sale price of maida and sooji which has been fixed at Rs. 260/- and 255/- respectively is inclusive of sales tax. Sales tax is therefore imposed on the licensee on the basis that he is the owner of the stock and that a transaction of sale comes into existence when the licensee supplies wheat products at the prescribed price to the specified persons. The Supreme Court has also pointed out that it is not possible to draw the inference that a fiduciary relationship can be spelt out, The case on hand is on all fours with that dealt by the Supreme Court. Following the said decision it has to be held that the petitioner-licensee is not an agent of the Central Government and that no fiduciary relationship can be spelt out from the circumstances of this case.

5. The next question for consideration is as to whether the petitioner becomes liable to pay the amount of differential cost to the Central Government in pursuance of any directions issued by the Licensing Authority or the specified Authority in exercise of the powers conferred either by Clause 10 of the Flour Mills Order or Clause v of the licence. Clause 10 which we have extracted earlier empowers the Licensing Authority or the specified Authority to issue directions to the Licensing Authority in regard to purchase of wheat for the purpose of manufacture into wheat products and in regard to production or manufacture of different kinds of wheat products and in regard to disposal of wheat products. Clause v of the licence also provides that the licensee shall abide by any directions issued by the Licensing Authority or specified Authority, as the case may be, in regard to purchase of wheat, extraction of maida, sooji and rawa and also in regard to distribution or disposal of wheat products. The directionscontained in Ext. P1 or P2 calling upon thepetitioner to pay the differential cost do notfall either under Clause 10 of the Flour MillsOrder or under Clause v of the licence as thedirections do not pertain to purchase ofwheat. It is obvious that the purchase of89 tonnes of wheat in question had alreadytaken place before the impugned orders' cameto be made. The directions contained in theimpugned orders do not also pertain toproduction or manufacture of different kindsof wheat products or in regard to disposal ofwheat products. The directions only pertainto the differential cost arising out of theincrease in the sale prices of wheat and wheatproducts. We have therefore no hesitation intaking the view that neither Clause 10 of theFlour Mills Order nor Clause v of the licenceempowers the Licensing Authority or thespecified Authority to lay claim to the differential costs as done under the impugnedorders Exts. P1 and P2.

6. If the Central Government cannot lay claim to the differential cost either on the ground that the petitioner is an agent of the Central Government or on the ground that the petitioner is bound to obey the directions issued under Clause 10 of the Flour Mills Order or under Clause v of the licence the demand would virtually amount to imposition of a tax on the petitioner on the stock of wheat held as on 31-7-1982. No tax can be imposed by an executive fiat. Hence we have no hesitation in holding that the impugned orders have been issued without the authority of law and are therefore liable to be quashed.

7. The view which we have taken receives support from the decisions reported in AIR 1984 Pat 331 between Bokaro Roller Flour Mills Private Ltd. v. Union of India, AIR 1986 Punj and Har 182; between Haryana Roller Flour Mills Pyt. Ltd. v. Union of India, AIR 1985 Delhi 312; between Delhi Flour Mills Co. Ltd. v. Commr. of Food and Supplies, Delhi and an unreported decision of the Madras High Court in Writ Petition No. 7087 of 1982 and connected cases between M/s. United India Roller Flour Mills Ltd. and Union of India. The learned Counsel for the Central Government as also the learned High Court Government Pleader, however, relied upon a Full Bench decision of this Court, reported in 1977 Ker LT 921 : (AIR 1977 Ker 181) between Velayudhan Nair v. State of Kerala. That was a case which arose under the provisions of the Kerala Sugar Dealers' Licensing Order, 1967, in which agreements were executed by the wholesale dealers in the year 1965, Clause 13 of which stated that the dealers were bound to obey the directions regarding the proper sale and distribution of sugar issued by the specified authorities. It is in pursuance of this clause that a circular was issued in 1967. In terms of the circular, price fixation orders were issued by the Government to show that the retail selling price was arrived at taking into account certain specified components, of which price equalisation charge was one. In respect of this component, Sub-paragraph 6 of Para. 7 of the Circular entitled the Government to realise the amount from the wholesalers. The licensee, however, contended that the property in the sugar having passed to him on payment of the price fixed by the Government, any subsequent sale or dealing with the sugar was entirely a matter for him and not the concern of the Government. The Full Bench negatived the contention of the licensee relying upon Clause 13 of the agreement that was exequted by the licensee. Clause 13 of the agreement stipulates that the dealers were bound to obey the directions regarding proper sale and distribution of sugar issued from time to time by the specified authorities. Paragraph 4 of the Circular issued on 15-2-67 under the said Clause recalls the quota of sugar allotted to the Kerala State. Paragraph 5 of the Circular states that the sugar is issued to the consumer taking into account the transport charges of the wholesale dealer, the margin of profit due to the wholesaler, administrative surcharge due to Government and the margin due to the retailer. Paragraph 6 speaks of the decision to fix the uniform price throughout the State for sugar and in connection with the same instructions to be issued arc given in paragraph 7. Dealing with the wholesale stage of distribution of sugar, it is stated in the same paragraph that the wholesale dealer was not entitled to anything more than the actual transport charges and the margin of Rs. 2.68 per quintal. Sub-paragraph 6 of Para 7 relates to price equalisation charge which reads as follows :

'6. Price equalisation charge:-- The difference between the wholesale issue price on the one hand and the sum total of the ex-factory price of sugar, transport charge, margin to the dealer, administrative surcharge, and allowance for sales tax on gunny, on the other hand, will be collected from the wholesale dealer towards price equalisation charge, and credited to Government. Such price equalisation charges will become payable to Government in the case of sugar moved from factories in Madras, Mysore and Pondicherry.'

It is thus clear that that was a case in which the licensee was only entitled to the actual cost which he incurred for the transport of sugar and to the fixed margin of profit of Rs. 2.68. He was not entitled to anything more than the actual cost and the stipulated profit of Rs. 2.68, per quintal. If as a consequence of the increase in the selling price, a higher amount came to be collected by the licensee, that amount was required to be paid to the Government describing the said amount as price equalisation charge. In other words, there was a specific provision to deal with such a situation arising from increase in the sale price. But there is no corresponding provision available in this case on which either the Central Government or the State Government can rely upon. Hence they cannot get any assistance from the Full Bench decision of this Court.

For the reasons stated above this writ petition is allowed, the impugned orders Exts. P1 and P2 are quashed and the respondents are restrained from realising any amount in pursuance of the said orders. The bank guarantee furnished by the petitioner in pursuance of the interim direction issued during the pendency of this case shall be released forthwith. No costs.