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Carrying forward rule in sugar industry


Under the present regulated release mechanism for sugar industry, the centre fixes the quota of levy sugar and non levy sugar. Levy sugar being the quota/percentage of sugar to be kept aside for distribution through public distribution channels by producers. As per the Clause 2 of the Levy Sugar Supply (Control) Order, 1979 the Central Government may, from time to time, by order issue directions to any producer or recognized dealer to supply levy sugar of such type or grade, in such quantities and from such place of manufacture or storage to such persons or organizations or to such Governments, as may be specified in the order and at a price not exceeding the price determined under Section 3-C of the Essential Commodities Act, 1955. Section 3 of the Essential Commodities Act, 1955 describes powers of the Central Government to control production, supply, and distribution etc. of essential commodities. Levy sugar means sugar requisitioned by the Central Government under Section 3 of the aforesaid Act especially sub- section (2) (f) thereof. Section 3-C of the said Act describes powers of the Central Government to determine the minimum price of sugarcane, manufacturing cost of sugar, duty or tax and securing of reasonable return on the capital employed in the manufacturing of sugar and for that different prices may be determined from time to time for different areas or for different factories and for different kinds of sugar.

From 1985-86 to 2009-10, the percentage of levy sugar and non levy/free sugar was being fixed by the Govt. of India and since 2001-02, the percentage was fixed as 10% levy sugar and 90% free sale. The Department of Food and Public Distribution (Directorate of Sugar), Govt. of India had found that the Governments and the Corporations were not lifting allotted sugar from the factories which resulted in huge accumulation of sugar with the sugar factories affecting their financial position also, hence it issued a circular to all the factories dated 18.06.2002( Annexure-3) allowing Sugar Mills to sell equivalent quantity of unlifted levy sugar after lapse of three months from the date of allotment, in the open market, but levy obligation of the concerned Sugar Mills was to remain unchanged, meaning thereby that it will shift to the next year in addition to next year’s levy sugar. The situation of lifting of levy sugar by the government remains unchanged over the years. In a Cooperative Sugar Journal Vol.40, April, 2009 No.8 (Page nos.85-86), a monthly publication by National Federation of Cooperative Sugar Factory Limited, New Delhi, it can clearly be seen  that although levy entitlement for the year 2005-06 at the rate of 10% was 19.27 lac tonnes, but the Government/Corporation lifted only 8.01 lac tonnes; similarly, levy entitlement for the year 2006-07 at the rate of 10% was 28.36 lac tonnes, but the Government/Corporation lifted only 9.73 lac tonnes; whereas levy entitlement for the year 2007-08 at the rate of 10% was 26.36 lac tonnes, but the Government/Corporation lifted only 9.2 lac tonnes. This makes it quite evident that there has not been major deviation either in the production of the sugar or the demand of sugar or in the lifting of levy sugar for all these years rather the Government/Corporation has simply not been able to lift even close to 5% of their levy sugar entitlement. It is primarily because of this reason that the Government/Corporation has been trying again and again to seek for carrying-forward of there past years unlifted levy quotas .It is important here to understand the reasonableness and rationale behind this carry forward rule specifically with respect to the public distribution of  sugar as an essential commodity. If a person does not get sugar for any reason for two months, it is not that in the third month, he will consume three times the quantity. The distribution under Public Distribution System does not get increased in subsequent periods. His requirement each month he fulfills by purchase elsewhere. This clearly shows that the main object and policy behind, imposition of levy quota on sugar producers, is the distribution of sugar through public distribution and this in no way gets fulfilled by lifting of unlifted levy sugar in the subsequent years. Moreover under the Sugar (Control) Order 1966 and orders issued, a sugar mill is not free to stock its production of free sale sugar at will. It is obliged to make weekly/monthly dispatches as sale of quantities fixed by Central Government; the failure to abide by with attracts stiff penalties and prosecutions. It will, thus, be seen that all the free sale sugar of a year is sold immediately. Now if the levy liability is not lifted then even this stock is sold but liability continues. Thus, in the year, if the sugar mills are required to deliver past levy liability as well as current levy liability, all at once, they will have in sufficient stocks to meet the same, thus, exposing them to penalties and prosecutions and that too for no fault of theirs rather for fault of State. This position cannot be but termed as unfair, arbitrary and unreasonable within the meaning of Article 14 of the Constitution of India. Thus, this carry forward rule, which was earlier held to be valid, cannot hold good anymore and the only thing that stands justified is to give a reasonable time period of 3 months to Government/Corporations to liquidate their accumulated carry forward liabilities. This has clearly been reiterated by a recent order of the Patna High Court[1].


[1] M/S Vishnu Sugar Mills Limited vs. The Union Of India & Ors on 12 January, 2012

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