Supreme Court upholds quashing of show cause notice, orders subsidy payment to small scale manufacturers

The Supreme Court dismissed the appeals, upholding the High Court's decision to quash the show cause notice and directing the payment of subsidy to the respondents, small scale manufacturers of fertilizer. The Court found the Union of India's withholding of subsidy based on the PDIL report, prepared without the manufacturers' knowledge, to be arbitrary and lacking valid justification. Emphasizing the need to protect small scale manufacturers from arbitrary actions, the Court assessed costs at Rs. 10,000.

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Issues Involved:
1. Validity of withholding subsidy by the Union of India.
2. High Court's exercise of extraordinary jurisdiction at the stage of show cause.
3. Reliance on the PDIL report prepared without respondents' knowledge.

Summary:

1. Validity of Withholding Subsidy:
The main issue was whether the Union of India had valid justification to withhold the payment of subsidy to the respondents, small scale manufacturers of fertilizer. The subsidy scheme, introduced in 1982, required manufacturers to give a written undertaking to the President of India. The Fertilizer (Control) Order, 1985, defined 'fertilizer' and 'prescribed standard of fertilizer' and set out detailed provisions for price control, distribution, and enforcement. The PDIL report, requested by the Madhya Pradesh Government, concluded that indigenous rock phosphate from Hirapur mines could not produce SSP of the required standard unless blended with imported rock. Based on this report, the subsidy was withheld, and manufacturers were asked to explain how they achieved the standard specification. The High Court found that the PDIL report was prepared behind the manufacturers' backs and could not be relied upon to reject their claims. The Court directed the Union of India to pay the subsidy as the laboratory reports furnished by the manufacturers were not questioned by the appropriate authorities.

2. High Court's Exercise of Extraordinary Jurisdiction:
The High Court's interference at the stage of show cause was questioned. The manufacturers approached the High Court claiming that the fertiliser produced by them was verified by inspectors appointed under the Control Order, and thus, the subsidy could not be withheld. The High Court quashed the show cause notice and directed the payment of subsidy, finding that the PDIL report was prepared without notice to the manufacturers and could not be used to deny subsidy. The Supreme Court upheld this decision, stating that the High Court was justified in protecting the manufacturers from arbitrary actions by the authorities.

3. Reliance on PDIL Report:
The PDIL report indicated that indigenous rock phosphate from Hirapur mines was unsuitable for producing SSP of 16% water soluble P2O5 unless blended with imported rock. The report was prepared for determining disability allowance and not for verifying compliance with the Control Order. The Supreme Court found that the report could not furnish material for rejecting the respondents' claims and withholding their subsidy. The Court noted that the inspectors' reports indicated that the fertiliser produced by the respondents was of standard quality, and there was no material to doubt these reports. The Supreme Court concluded that the entire exercise by the appellants was arbitrary and without valid justification.

Conclusion:
The Supreme Court dismissed the appeals, upheld the High Court's decision to quash the show cause notice, and directed the payment of subsidy to the respondents. The Court emphasized the need to protect small scale manufacturers from arbitrary actions and assessed costs at Rs. 10,000.

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