JUDGMENT P.K. Musahary, J. 1. The principal question that arises for consideration is whether the Hill Transport Subsidy (for short HTS) payable to carriage contractors engaged by the State of Arunachal Pradesh (for short the State) is required to be calculated on the basis of the Government of India letter dated 28.11.1995 (as claimed by the Food Corporation of India or FCI) or on the basis of the Government of India letter dated 23.02.2001 (as claimed by the State). In our opinion, HTS is required to be paid on the basis of the letter dated 28.11.1995 and not on the basis of the letter dated 23.02.2001. 2. While the issue raised is rather simple, the financial ramifications are quite enormous and therefore, although a preliminary objection was raised by the FCI to the maintainability of the writ petition filed by the State, we do not propose to express any opinion on it. The additional reason is that it would be in public interest if the issue raised is quickly decided one way or the other. Indeed, even the Supreme Court required that the matter be decided within eight weeks, vide order dated 25.11.2010 passed in SLP(C) No. 9597 of 2010 (a time frame that we could not adhere to because of the complexity of the issues raised). Taking all this into account, we have gone into the meat of the matter. BACKGROUND FACTS: 3. Sometime in 1971-72, the Agricultural Prices Commission recommended (and this recommendation was accepted and implemented) that food grains from the stocks of the Government of India be released for delivery to the Principal Distribution Centres (for short PDCs) in the Hill States (such as Arunachal Pradesh) under the Public Distribution Scheme. It was decided that the central issue price for the food grains would include the rail freight, thereby making the pool issue price free on rail. Thereafter, for carrying the food grains by road from the rail-head to the PDCs, the transportation cost incurred was to be borne by the State Government. 4. We are concerned in this case with the hill State of Arunachal Pradesh which does not have any rail-head and has a difficult terrain, large area and a sparse population. All these factors combined to create a problem in Arunachal Pradesh whereby the pool issue price could not be maintained without passing on a heavy burden to the consumers. 5. We are concerned in this case with the hill State of Arunachal Pradesh which does not have any rail-head and has a difficult terrain, large area and a sparse population. All these factors combined to create a problem in Arunachal Pradesh whereby the pool issue price could not be maintained without passing on a heavy burden to the consumers. 5. A solution to this problem was found through a letter dated 09.07.1975 whereby the Government of India decided that the benefit of pool issue price of food grains be extended to supplies made to the PDCs. To achieve this, FCI was required to establish godowns at the PDCs (wherever possible) or reimburse the State Government the cost of transportation upto the PDCs. Certain conditions were required to be observed, but we are not concerned with them. The sum and substance of the letter dated 09.07.1975 is two-fold: Firstly, the supply of food grains under the public distribution scheme would be free on rail upto the rail-head. Secondly and thereafter, Arunachal Pradesh would be entitled to reimbursement of the cost of transportation upto the PDC. It may be mentioned that this reimbursement is called Hill Transport Subsidy (or HTS). 6. The letter dated 09.07.1975 is of some importance to appreciate the scheme of things and this reads as follows: No.l67(32)/72-PY.l Government of India Ministry of Agriculture & Irrigation (Department of Food) New Delhi the 9th July, 1975 From A.K. Agarwal Deputy Secretary to the Government of India To The Managing Director, Food Corporation of India; New Delhi. Subject: Distribution of foodgrains at Principal Distribution Centres of Hill State-reimbursement of Transport Cost. Sir, In its report on the price policy for kharif cereals for 1971-72, the Agricultural Prices Commission inter-alia Recommended that "population in Hill States being generally poor, the pooled price for grains issued out of the Union Government stocks should be for delivery at the principal distribution centres m such states." While the rail freight incurred on the movement of foodgrains issued from the Central stocks is included in the Central issue prices, the road transport charges for their further movement from rail heads is incurred by the State Governments. 2. In case of Hill States, the number of rail heads is limited and the cost of moving grains by road to the interior is heavy. 2. In case of Hill States, the number of rail heads is limited and the cost of moving grains by road to the interior is heavy. The people in Hilly areas have, therefore, to bear an additional burden on account of lack of rail transport facilities. The question as to how the extra burden caused to these States Governments/Union Territories in the movement of foodgrains could be reimbursed has been examined by the Central Governments. 3. It has been decided that the benefit of the pool price of food grains issued out of the central stocks be extended in the case of supplies to a number of important distribution centres in the Hill Stations/Union Territories having no rail heads/FCI'sGodowns. The FCI should open godowns at the principal distribution centres wherever possible or reimburse the State Governments/Union Territories the cost of transportation upto these centres. A list containing the principal distribution centres in the Hill States/Union Territories is attached. 4. The following conditions are, however, to be observed by the State Governments/Union Territory Administrations while utilizing the transport reimbursement received from the FCI. (i) Full benefits of the transport subsidy should be passed on to the consumers by the State Governments/Union Territories Administrations. (ii) Where the State Governments are already giving some subsidy they should consider passing on the same quantum of subsidy by opening more interior distribution centres not covered by these recommendations; and (iii) In the exceptional case of J&K where the State Government is already giving not only transport subsidy but substantial price subsidy to the consumers, the relief which the Government of J&K will get on account of this transport subsidy will be taken into account by the Plan Finance Division while dealing with their resource gap problem. 5. This order will come into force with effect from 01.08.1975. Yours faithfully, Sd/- (A.K. Aggarwal) (Deputy Secretary to the Government of India) (Emphasis supplied) 7. We are not really concerned with the events that transpired immediately thereafter, except to note that on 05.02.1986 the FCI communicated to its Regional Office in Guwahati/Shillong that the Government of India, by a letter dated 29.01.1986 approved twelve PDCs in different districts and sub-divisions of Arunachal Pradesh for the purpose of HTS. 8. We are not really concerned with the events that transpired immediately thereafter, except to note that on 05.02.1986 the FCI communicated to its Regional Office in Guwahati/Shillong that the Government of India, by a letter dated 29.01.1986 approved twelve PDCs in different districts and sub-divisions of Arunachal Pradesh for the purpose of HTS. 8. To sum up this aspect of the case: HTS was intended to reimburse Arunachal Pradesh the expenditure incurred by it for transporting food grains from the rail-head to the PDC so that the beneficiaries under the public distribution scheme are not burdened with the transportation cost. 9. It appears that during the actual working of the public distribution scheme and the release of HTS a few course corrections needed to be made due to some facts and factors that needed consideration. We are not directly concerned with these course corrections, but since these were needed, a letter dated 31.10.1990 was issued by the Government of India to the Food and Civil Supplies Department of all the North Eastern States. In this letter, a base depot was explained to mean not only FCI depots but also linked rail-heads. The letter also explained the concept of "Road Reimbursement Charges or Transportation Charges" to mean reimbursement of expenditure incurred for transporting food grains from the rail-head to the base depot. This amount was quantified as 11 paise per quintal per km. The letter explained HTS to mean reimbursement of transportation charges from the designated base depot of the FCI to the approved PDC. This amount was payable on an actual basis, unlike Road Reimbursement Charges. 10. Equally importantly, the letter dated 31.10,1990 specifically stated that "to avoid any ambiguity, and in supersession of all previous instructions" HTS would be reimbursed on actual basis for transportation of food grains from the base depots to the PDCs. Effectively therefore, this was only a favourable modification and a reaffirmation of the existing policy. 11. The letter dated 31.10.1990 is of some importance and it's relevant extracts are reproduced hereinbelow, with the salient features highlighted by us: No. 179(5)/90-PY.l Government of India Ministry of Food and Civil Supplies (Department of Food) New Delhi-1 Dated 31st October, 1990 To The Secretary, Food and Civil Supplies Department (North Eastern States) Subject: Reimbursement of transport charges in NEF States for lifting of foodgrains under PDS from Central pool - Regarding. Sir, At present, two type of road reimbursement charges are being allowed for distribution of foodgrains to NEF States covered under the scheme referred, as given below: i) ROAD REIMBURSEMENT CHARGES: These charges are paid to the State Government for lifting of foodgrains from rail heads other than base depots and taking upto the base depots. The existing ceiling limit for such road reimbursement charges is 11 paise per qtls. per km., and ii) HILL TRANSPORT SUBSIDY: These transport charges cover the expenditure incurred by State Government for moving the stocks from base depots (designated by FCI) upto the approved Principal Distribution Centres (PDC's).PDCs are approved by the Government of India. These charges are reimbursed by the FCI on actual basis as certified by the State Government. 2. It has been observed that FCI has at times not been able to make food grains available at the base depots and in such cases, the State Governments are lifting foodgrains from other than base depots from distant BG/MG terminals/FCI depots and move foodgrains directly to PDCs. The instructions regarding payment of transport charges to cover such cases do not seem to be free from ambiguity. In order to avoid any ambiguity, and in supersession of all previous instructions, the following instructions are issued regarding reimbursement of such charges: a) ... b) ... c) In case stocks arc lifted from the base depots to the approved PDCs the transportation charges i.e. Hill Transport Subsidy would be reimbursed on actual as incurred by the State Government. 3.... 4. The base depots would mean not only FCI's Depots but also the linked rail head. The list of various base depots approved for the purpose for the various States in North East is given in Annexure.... 5. The State Governments while submitting their claims on fortnightly or on monthly basis would give full details with supporting documents of movement of foodgrains so that the same are verifiable and FCI would scrutinize and pass the same for payment in shortest time possible so that States Governments are not put to any undue financial hardship in this regard due to lockup of their funds. The State Governments should not allow their bills to accumulate and should not delay for more than a fortnight. The State Governments should not allow their bills to accumulate and should not delay for more than a fortnight. The document which would be submitted in this regard by the State Governments along with their road reimbursement claims would be decided by the Zonal Manager (NEF). 6. The above claims would be scrutinized by the District Office concerned and recommended for payment to the SRM who would pass the bills for payment through District Manager. These bills in any case should be passed within 10 working days. 7. ... 8. ... Yours faithfully, (S.C. Sharma) Enclo: As above. Under Secretary to the Government of India Copy forwarded to: 1. Manager (Sales), FCI, New Delhi/Manager (Proc.), FCI, New Delhi. 2. US(F)/I. 12. Factually, as on 31.10.1990, Arunachal Pradesh had seven identified base depots or linked railheads and 12 approved PDCs. 13. To sum this aspect of the case: As on 31.10.1990 Arunachal Pradesh was entitled to Road Reimbursement Charges for transportation of food grains from the railhead upto the base depots at 11 paise per quantal per km and HTS for transportation of food grains from the base depot to the PDC on an actual basis. 14. Notwithstanding the above clarifications, some problems in the implementation of the HTS scheme continued to remain. The most important of them was with regard to payment of HTS in situations where, given the hilly terrain, low population density and the large land mass, it was more convenient to off-load the food grains either en-route to the PDC or on some convenient off-route location. In other words, while transporting the food grains from the base depot to the PDC, it was sometimes more convenient to off-load the stock at a Fair Price Shop that was en-route or at a Fair Price Shop that was not en-route but the diversion was more conveneint given the associated factors mentioned above. 15. A solution to this problem was found by the Government of India which issued a letter dated 28.11.1995 to the FCI further liberalizing the HTS reimbursement policy. It was decided that as far as Arunachal Pradesh is concerned, HTS would be admissible even if the food grains were off-loaded en-route at distribution centres or Fair Price Shops or even off-route at such centres or Fair Price Shops. It was decided that as far as Arunachal Pradesh is concerned, HTS would be admissible even if the food grains were off-loaded en-route at distribution centres or Fair Price Shops or even off-route at such centres or Fair Price Shops. This was, however, subject to two conditions, that is: (1) The reimbursement will not, under any circumstances exceed the amount reimbursable had the stocks been otherwise moved to the PDC. (2) No demand for shifting or increasing the number of PDCs would be entertained. 16. The letter dated 28.11.1995 is extremely significant for the determination of the controversy before us and it reads (with emphasis supplied) as follows: No.l79(1)/ 90-PY.I Government of India Ministry of Food (Department of Food Procurement & Distribution) KRISHI BHAWAN New Delhi-1, dated 28th Nov, 1995 To The Managing Director, Food Corporation of India, 16-20, Barakhamba Lane, New Delhi. Subject: Reimbursement of Hill Transport Subsidy to Arunachal Pradesh. Sir, I am directed to say that the question of extending certain concessions to the Government of Arunachal Pradesh in the implementation of the scheme of hill transport subsidy in view of the special features of the State vte. hilly terrain, large area, very low density of population etc. has been under consideration of this Ministry for some time. In relaxation of the instructions contained in this Ministry's letter No. 179(5 V90-PY.I dated 31 st October. 1990. it has been decided that reimbursement of hill transport subsidy will be allowed to the State of Arunachal Pradesh even in such cases where the food grains are off-loaded at distribution centers/FPS other than the PDCs or en-route to PDC. The relaxation of the scheme will, however, be subject to the following conditions: (i) The reimbursement of HTS upto the off-route distribution points/FPS will not under any circumstances exceed the amount that would have become reimbursable, had the stocks been moved to the Principal Distribution Centres. (ii) No demand for either shifting or increasing the number of existing PDCs will be entertained. 2. These instructions will take effect from the date of issue of this communication. The bills already pending with the FCI may also be disposed off in terms of these instructions. 3. This issues with the concurrence of Finance division vide their Dy. No. 3702/Dir(Fin), dated 23rd Nov., 1995. Yours faithfully, (M. Sudhakaran) Under Secretary to the Government of India Copy to: Secretary, Food & Supplies Deptt., Govt. The bills already pending with the FCI may also be disposed off in terms of these instructions. 3. This issues with the concurrence of Finance division vide their Dy. No. 3702/Dir(Fin), dated 23rd Nov., 1995. Yours faithfully, (M. Sudhakaran) Under Secretary to the Government of India Copy to: Secretary, Food & Supplies Deptt., Govt. of Arunachal Pradesh, Itanagar. Copy also to: Director (Finance) (Emphasis supplied) 17. To sum this aspect of the case: Acombined reading of the two letters dated 30.10.1990 and the letter dated 28.11.1995 makes it clear that the overall scheme of payment of HTS remained unchanged inasmuch as reimbursement was still required to be made on actual transportation expenses from the designated base depot to the approved PDC. However, the payment scheme was liberalized inasmuch en-route or off-route offloading was permitted subject to the overall maximum of reimbursement of transportation charges from the base depot to the PDC. THE BEGINNING OF THE PROBLEM: 18. The above arrangement continued quite well for some time. Eventually, however, Arunachal Pradesh felt the necessity of shifting some existing PDCs since they seemed to be inconveniently located. The Government of India addressed this problem, notwithstanding the letter dated 28.11.1995 to the effect that no demand for either shifting or increasing the number of existing PDCs would be entertained. The reconsideration by the Government of India resulted in its issuing a letter dated 23.02.2001 to the FCI permitting the shifting of six PDCs. It appears to us that this letter dated 23.02.2001 is not only quite innocuous but also quite unambiguous, but it has resulted in this litigation, which we believe is rather needless. The letter dated 23.02.2001, which is the nub of the controversy (with the relevant extracts highlighted by us) reads as follows: Most Immediate No.l79(5)/98-PY.I Government of India Ministry of Consumer Affairs, Food & Public Distribution (Department of Food & Public Distribution) Krishi Bhavan, New Delhi, Dated the 23rd Feb, 2001 To The Managing Director, Food Corporation of India, 16-20, Barakhamba Lane, New Delhi. Subject: Shifting/Extension of 6 PDCs regarding. Sir, The proposal of the State Government of Arunachal Pradesh for shifting/extension of the existing PDCs to new locations under Hill Transport Subsidy scheme (HTS) has been under consideration of the Government. Subject: Shifting/Extension of 6 PDCs regarding. Sir, The proposal of the State Government of Arunachal Pradesh for shifting/extension of the existing PDCs to new locations under Hill Transport Subsidy scheme (HTS) has been under consideration of the Government. It has been decided to shift/extend the following 6(Six) PDCs under HTS scheme in Arunachal Pradesh for the purpose of reimbursement of transportation cost of foodgrains on actual basis, subject to the condition laid down from time to time for regulating the scheme of reimbursement of transport cost under HTS scheme. Full benefits of the transport subsidy will be passed on by the State government of Arunachal Pradesh to the consumers: 1. Lemeking to the shifted from Taliha. 2. Mechukato be shifted from Liromoba 3. Damin to be shifted from Nypin. 4. Tuting to be shifted from Mariyang in Upper Siang District. 5. Kibithoo to be shifted from Hayuliang. 6. Vijoynagar to be shifted from Miao. 2. This order will have immediate effect. Yours faithfully, Sd/- (B.K. Dewarma) Director (Policy) Tele: 3385792 (Emphasis supplied) 19. According to Arunachal Pradesh, the letter dated 23.02.2001 substantially modified the reimbursement scheme. The view of Arunachal Pradesh was that reimbursement of HTS would now be payable on an actual basis from the base depot to the Fair Price Shop rather than upto the PDC. Frankly, we cannot see how such a construction can be placed on the letter dated 23.02.2001 but anyway that is how Arunachal Pradesh understood the letter, acted on it and apparently made payments to the contractors engaged by it. The reimbursement bills submitted in this regard were also cleared by the FCI after due checking and "super-checking". 20. The view of the FCI (as canvassed before us) is that the HTS scheme did not undergo any modification-only that the location of some existing PDCs was shifted and "the condition laid down from time to time for regulating the scheme of reimbursement of transport cost under HTS scheme" remained unchanged. That is to say that reimbursement would be made on actuals for transportation cost incurred from the base depot to the PDC. 21. Be that as it may, the net result of the interpretation given by Arunachal Pradesh was that HTS claims by Arunachal Pradesh increased quite suddenly and rapidly during 2003-04. That is to say that reimbursement would be made on actuals for transportation cost incurred from the base depot to the PDC. 21. Be that as it may, the net result of the interpretation given by Arunachal Pradesh was that HTS claims by Arunachal Pradesh increased quite suddenly and rapidly during 2003-04. The result of this was that sometime in 2004 the FCI stopped reimbursement claims on the ground that huge over-payments had been made to Arunachal Pradesh under the HTS reimbursement scheme. This resulted in some correspondence between the Government of India and Arunachal Pradesh and ultimately a meeting was convened between the Government of India, the FCI and Arunahal Pradesh on 22.03.2005 on the subject of reimbursement of HTS claims. 22. A perusal of the Minutes of the meeting held on 22.03.2005 makes it clear that Arunachal Pradesh was claiming reimbursement of HTS claims for transportation costs incurred from the base depot to the FPS rather than upto the PDC. It was decided, after discussion, that the bills would be scrutinized by the Deputy Commissioners as per the circular of the Government of India dated 28.11.1995 and that they would certify that the bills have been passed only after obtaining necessary certificates and verification reports. Some further decisions were also taken in that meeting, particularly relating to a special audit for the payments made during 2003-04, but according to Arunachal Pradesh there was no discussion on this issue (and therefore no decision thereon). 23. The relevant extracts of the Minutes of the meeting held on 22.03.2005 read as follows: Minutes of the meeting held on 22.03.2005 under the Chairmanship of JS (P&FCI) with officers of FCI and Arunachal Pradesh Government regarding reimbursement of Hill Transport Subsidy claims. The list of participants is at Annexure-I. 2. It was explained that Government of India reimburses the transportation cost beyond the FCI Base Depots and upto the PDCs, in the predominantly hill States including the North Eastern Region, keeping in view the high expenditure on movement of foodgrains in these States due to difficult and inaccessible terrain. The list of participants is at Annexure-I. 2. It was explained that Government of India reimburses the transportation cost beyond the FCI Base Depots and upto the PDCs, in the predominantly hill States including the North Eastern Region, keeping in view the high expenditure on movement of foodgrains in these States due to difficult and inaccessible terrain. In case of Arunachal Pradesh, by way of special dispensation, instructions were issued on 28.11.1995 to provide for reimbursement of HTS upto the distribution centres/FP Ss on en-route locations to the PDCs subject to the condition that the transportation cost would not exceed the amount that would be reimbursed had the stocks been moved to the PDCs. Further, the State Government had also been allowed a 'rolling' advance of Rs. 10 crore which was to be utilized for settlement of the pending bills and further advance released after adjustment of the previous advance. 3. Explaining the reasons for the sudden increase in the claims since 2003-04 the representatives of the Arunachal Pradesh Government indicated that the Head Load Carriage System was started on an experimental basis in two Districts in the year 2001-02 and was subsequently extended to 16 Districts in view of its success by implementing the Head Load Carriage System the foodgrains are now being reached to families living in remote and far flung areas not having motorable roads. The HTS bills presented by contractors were being properly scrutinized by the Deputy Commissioner of the respective Districts. The delivery of foodgrains to distribution points in off-route locations were duly certified by the Circle Officers and members of the Vigilance Committees constituted at the FPS level. 4. It was observed from the position explained by the State Government's representatives that the entire cost of transportation from the Base Depots of FC1 to the FP Ss was being claimed as reimbursement under the HTS Scheme without strictly applying the condition imposed vide the 28.11.1995 circular. This was perhaps also not being checked by the Regional Office. FC1 while scrutinising and passing the bills for payment. As a result excess payments under the scheme could not be ruled out. 5. After discussion, the representatives of the State Government and the FCI agreed as under: (i)... ... (ii)... ... This was perhaps also not being checked by the Regional Office. FC1 while scrutinising and passing the bills for payment. As a result excess payments under the scheme could not be ruled out. 5. After discussion, the representatives of the State Government and the FCI agreed as under: (i)... ... (ii)... ... (iii) The Deputy Commissioners shall scrutinize the bills keeping in view the circular of Government of India dated 28.11.1995 and certify that the bills have been passed only after obtaining the certificate by the concerned Circle Officer and verification by representatives of the Vigilance Committees. (iv) All the HTS payments made in Arunachal Pradesh since 2003-04 would be scrutinized afresh and subject to a special audit by the FCI. specifically keeping in the mind the conditions imposed in the circular dated 28.11.1995. Any excess payments shall be adjusted against pending and future bills. The FCI would not release any funds till this scrutiny and audit was completed. The entire work relating to the special audit, scrutiny pf bills etc. would be completed within a period of two months. Responsibility would be fixed on the officers responsible for the excess payments and disciplinary action initiated, (v) It was reiterated that the advance of Rs. 10 crore to be given by the FCI was only in the form of a 'rolling' advance and all advances beyond Rs. 10 crore at any one point of time was irregular and should be stopped forthwith. (Emphasis supplied) 24. The meeting held on 22.03.2005 was followed up by the Government of India through its letter dated 29.03.2005 and this letter is reproduced below, since it has been challenged by Arunachal Pradesh in this writ petition. The challenge to the letter dated 29.03.2005 is with reference to the instruction to process the bills for payment in terms of the letter dated 28.11.1995. The letter dated 29.03.2005 reads as follows: Confidential Joint Secretary Government of India, Ministry of Consumers Affairs, Food & Public Distribution, Department of Food and Public Distribution Krishi Bhawan, New Delhi-110001 Sanjay Kaul Tel: 23381177(O) 26881251(R) D.O. No. 2/LS/6/2004-Py.III 29.03.2005 Dear Sir, I invite your kind attention to this Departments' letter of even number dated 14.2.2005 addressed to Secretary, Food & Civil Supplies Deptt., Government of Arunachal Pradesh and copied to FCI, on the subject of Reimbursement of HYS claims to Arunachal Pradesh. A reply dated 17.02.2005 has since been received from the Government of Arunachal Pradesh (Annexure-I) and from the Zonal Manager (NE), FCI dated 24.02.2005 (Annexure-II). A meeting to review the system of settlement of bills was held in the Ministry on 22.03.2005 with representatives of the FCI and the State Government of Arunachal Pradesh. A copy of the minutes (Annexure-III) is enclosed to this letter. The decisions agreed upon in the meeting may kindly be implemented. 3. It has also been decided that the FCI shall undertake a special audit of all HTS bills settled in the case of Arunachal Pradesh relating to the period 2003-04 and onwards and confirm that only bills strictly in accordance with the Government and FCI's instructions on the subject have been fully complied with. The bills may be specifically scrutinized with reference to this conditions imposed in this Department's letter No. 179 (1)/90-Py. I dated 28.11.1995 which provide that the reimbursement of HTS in the case of off-route distribution points should not exceed the amount that would have become reimbursable had the stocks been moved to the PDCs. The entire work relating to the special audit, scrutiny of bills etc. may kindly be completed within a period of two weeks. 4. It may also kindly be ensured that no further funds are released to the State Government under the HTS scheme till all the payments have been scrutinized and the special audit completed. Any excess payments should be adjusted against pending and future bills and disciplinary action initiated against the officers responsible for irregular/excess payments and advances made. 5. During the meeting it was reiterated that the advance of Rs. 10 crore to be given by the FCI was only in the form of 'rolling' advance and all advances beyond Rs. 10 crore at any point of time was irregular and should be stopped forthwith. Suitable instructions should be issued on this accordingly. It is further requested that the Sr. Regional Manager, FCI, Assam region may be made personally responsible for the correct scrutiny/accountal of HTS bills of Arunachal Pradesh. 6. Action taken in the matter may kindly be intimated to the Ministry at an early date. With kind regards, Yours sincerely, Enclo: As above Sd/-Illegible (Sanjay Kaul) ShriV.K. Malhotra, Chairman, Food Corporation of India, 16-20, Barakhamba Lane, New Delhi-110001. 25. 6. Action taken in the matter may kindly be intimated to the Ministry at an early date. With kind regards, Yours sincerely, Enclo: As above Sd/-Illegible (Sanjay Kaul) ShriV.K. Malhotra, Chairman, Food Corporation of India, 16-20, Barakhamba Lane, New Delhi-110001. 25. As mentioned above, Arunachal Pradesh objected to the "decision" to hold a special audit as stated in the Minutes of the meeting held on 22.03.2005. The objection of Arunachal Pradesh is recorded in its letter dated 11.04.2005 addressed to the Government of India in which it is written, inter alia, that "the points noted at para 5, sub paras (iv) and (v) were not discussed and at no point of time, we insisted for special audit, though it is your prerogative to institute audit." 26. It seems that for quite some time, no steps were taken to verify the HTS claims through a special audit and consequently no reimbursements were made to the transporters. This situation continued till about April, 2007 when a meeting was held by the Cabinet Secretariat of the Committee of Secretaries which included, inter alia, the Secretary in the Department of Food and Public Distribution of the Government of India and the Secretary in the Ministry of Food and Civil Supplies of the State Government. The entire issue relating to HTS in Arunachal Pradesh was discussed and it was decided, inter alia, that a committee would be appointed to verify the rate of transportation of food grains as fixed by the Deputy Commissioners in Arunachal Pradesh and, more importantly, the actual receipt and lifting of food grains at designated PDCs. The question of verification of rates arose because it appears that the transporters were overcharging Arunachal Pradesh (and therefore the FCI) and the question of actual lifting and receipt arose, we are told, because there was alleged falsification of quantities of food grains transported; that is to say that much larger quantities were shown to have been transported than the actual deliveries. 27. The relevant extracts of the Minutes of the meeting held by the Cabinet Secretariat on 27.04.2007 are reproduced hereinbelow since they give a rather clear picture of the controversy before us: CABINET SECRETARIAT Doc. No. 35/2007-CA-III MINUTES OF THE MEETING OF COMMITTEE OF SECRETARIES Venue: Committee Room, Cabinet Secretariat Rashtrapati Bhavan Date of meeting: 27.04.2007 Time of meeting: 12.00 Noon PRESENT ... ... ... No. 35/2007-CA-III MINUTES OF THE MEETING OF COMMITTEE OF SECRETARIES Venue: Committee Room, Cabinet Secretariat Rashtrapati Bhavan Date of meeting: 27.04.2007 Time of meeting: 12.00 Noon PRESENT ... ... ... Hill Transport Subsidy in Arunachal Pradesh to operationalize PDS. A meeting of the Committee of Secretaries, under the Chairmanship of Cabinet Secretary, was held on 27th April, 2007 at 12.00 Noon in the Committee Room, Cabinet Secretariat, Rashtrapati Bhavan, to consider the note dated 26.04.2007 received from the Department of Food & Public Distribution on die subject mentioned above. 2. Secretary, Department of Food & Public Distribution stated that in Arunachal Pradesh, 12 Principal Distribution Centres were approved in the year 1986 by the Government of India for the purposes of reimbursement of Hill Transport Subsidy (HTS). Foodgrains are released to Government of Arunachal Pradesh by FCI from 7 base depots, 4 of which are located in Arunachal Pradesh. In November, 1995, it was decided that reimbursement of HTS would be allowed to State Government in such cases where foodgrains were off loaded at distribution centres, FPS or en-route of PDCs. The payments under HTS to Arunachal Pradesh had increased disproportionately from 2001-02 to 2003-04. Some complaints were also received about misutilization of funds under the scheme. Subsequently, in September, 2004 payments to the State Government were stopped until further orders. The State Government contended that the head-load system was extended to all the 16 districts of the State to reach PDS foodgrains to beneficiaries in in accessible and remote locations. The transport charges for head-load carriage is about Rs. 125.00 per quintal per km. The average yearly off-take of food grains for Arunachal Pradesh is about 80.000 MT. The State Government claims transportation rate @Rs. 2.25 per quintal per km by road. The State Government has represented to allow these rates for average road distance from base depots to PDCs which is 333 km. The State Government has suggested HTS payment of Rs. 135 crore annually as per the existing approved tender rates. The system of movement of PDS foodgrains to the State can be improved by FCI opening 6 new base depots within the State, for which the cooperation and administrative support of State Government is required by way of providing staff on deputation, identifying suitable premises etc. 3. The rates being claimed by the State Government are very high compared to other States with similar terrain. 3. The rates being claimed by the State Government are very high compared to other States with similar terrain. Out of existing 13 PDCs, 11 are connected by motorable roads except two PDCs at Damin and Vijaynagar. Head-load transportation to and from these centres would be necessary and the possibility of air dropping the foodgrains may be considered. There is no dispute on the rate of head-load transportation. For road transportation, FCI has offered the rate of Rs. 1.15 per quintal per km whereas, the State Government has requested for Rs. 2.25 per quintal per km. There is also some difference in the average distance calculated by FCI and the State Government which needs to be reconciled. 4. ... ... 5. Secretary, Food & Civil Supplies, Government of Arunachal Pradesh informed that the State Government had constituted a Committee to look into the details of variation in transportation rates in different districts. The Committee recommended that any rate below Rs. 1.15 per quintal per km. is not workable. In view of this, the rate of Rs. 1.15 per quintal per km. should be taken as the minimum floor, rather than the average. He also requested that the past payments for the years after 2004 should be released so that payments to the contractors could be made. 6. ... ... 7. ... ... 8. ... ... 9. After detailed deliberations, the following decisions were taken: (i) ... ... (ii) ... ... (iii) ... ... (iv) ... ... (v) ... ... (vi) For the past pending claims, Secretary, Department of Food & Public Distribution would constitute a Committee to verify rates fixed by the D Cs and actual receipt and lifting of foodgrains at designated PDCs. This Committee would submit a report in two months' time. Based on the recommendations of the Committee, Secretary, Department of Food & PD would take further action for making payments to the State Government for past-dues. (vi) ... ... (vii) ... ... (viii)... ... REPORT OF THE HIGH POWERED COMMITTEE: 28. In accordance with the above decision taken on 27.04.2007 (and duly communicated to Arunachal Pradesh) a committee was constituted by an order dated 15.05.2007 cosisting of senior and experienced officers with the terms of reference specified as below: JUDGMENT P.K. Musahary, J. 1. (vi) ... ... (vii) ... ... (viii)... ... REPORT OF THE HIGH POWERED COMMITTEE: 28. In accordance with the above decision taken on 27.04.2007 (and duly communicated to Arunachal Pradesh) a committee was constituted by an order dated 15.05.2007 cosisting of senior and experienced officers with the terms of reference specified as below: JUDGMENT P.K. Musahary, J. 1. The principal question that arises for consideration is whether the Hill Transport Subsidy (for short HTS) payable to carriage contractors engaged by the State of Arunachal Pradesh (for short the State) is required to be calculated on the basis of the Government of India letter dated 28.11.1995 (as claimed by the Food Corporation of India or FCI) or on the basis of the Government of India letter dated 23.02.2001 (as claimed by the State). In our opinion, HTS is required to be paid on the basis of the letter dated 28.11.1995 and not on the basis of the letter dated 23.02.2001. 2. While the issue raised is rather simple, the financial ramifications are quite enormous and therefore, although a preliminary objection was raised by the FCI to the maintainability of the writ petition filed by the State, we do not propose to express any opinion on it. The additional reason is that it would be in public interest if the issue raised is quickly decided one way or the other. Indeed, even the Supreme Court required that the matter be decided within eight weeks, vide order dated 25.11.2010 passed in SLP(C) No. 9597 of 2010 (a time frame that we could not adhere to because of the complexity of the issues raised). Taking all this into account, we have gone into the meat of the matter. BACKGROUND FACTS: 3. Sometime in 1971-72, the Agricultural Prices Commission recommended (and this recommendation was accepted and implemented) that food grains from the stocks of the Government of India be released for delivery to the Principal Distribution Centres (for short PDCs) in the Hill States (such as Arunachal Pradesh) under the Public Distribution Scheme. It was decided that the central issue price for the food grains would include the rail freight, thereby making the pool issue price free on rail. Thereafter, for carrying the food grains by road from the rail-head to the PDCs, the transportation cost incurred was to be borne by the State Government. 4. It was decided that the central issue price for the food grains would include the rail freight, thereby making the pool issue price free on rail. Thereafter, for carrying the food grains by road from the rail-head to the PDCs, the transportation cost incurred was to be borne by the State Government. 4. We are concerned in this case with the hill State of Arunachal Pradesh which does not have any rail-head and has a difficult terrain, large area and a sparse population. All these factors combined to create a problem in Arunachal Pradesh whereby the pool issue price could not be maintained without passing on a heavy burden to the consumers. 5. A solution to this problem was found through a letter dated 09.07.1975 whereby the Government of India decided that the benefit of pool issue price of food grains be extended to supplies made to the PDCs. To achieve this, FCI was required to establish godowns at the PDCs (wherever possible) or reimburse the State Government the cost of transportation upto the PDCs. Certain conditions were required to be observed, but we are not concerned with them. The sum and substance of the letter dated 09.07.1975 is two-fold: Firstly, the supply of food grains under the public distribution scheme would be free on rail upto the rail-head. Secondly and thereafter, Arunachal Pradesh would be entitled to reimbursement of the cost of transportation upto the PDC. It may be mentioned that this reimbursement is called Hill Transport Subsidy (or HTS). 6. The letter dated 09.07.1975 is of some importance to appreciate the scheme of things and this reads as follows: No.l67(32)/72-PY.l Government of India Ministry of Agriculture & Irrigation (Department of Food) New Delhi the 9th July, 1975 From A.K. Agarwal Deputy Secretary to the Government of India To The Managing Director, Food Corporation of India; New Delhi. Subject: Distribution of foodgrains at Principal Distribution Centres of Hill State-reimbursement of Transport Cost. Subject: Distribution of foodgrains at Principal Distribution Centres of Hill State-reimbursement of Transport Cost. Sir, In its report on the price policy for kharif cereals for 1971-72, the Agricultural Prices Commission inter-alia Recommended that "population in Hill States being generally poor, the pooled price for grains issued out of the Union Government stocks should be for delivery at the principal distribution centres m such states." While the rail freight incurred on the movement of foodgrains issued from the Central stocks is included in the Central issue prices, the road transport charges for their further movement from rail heads is incurred by the State Governments. 2. In case of Hill States, the number of rail heads is limited and the cost of moving grains by road to the interior is heavy. The people in Hilly areas have, therefore, to bear an additional burden on account of lack of rail transport facilities. The question as to how the extra burden caused to these States Governments/Union Territories in the movement of foodgrains could be reimbursed has been examined by the Central Governments. 3. It has been decided that the benefit of the pool price of food grains issued out of the central stocks be extended in the case of supplies to a number of important distribution centres in the Hill Stations/Union Territories having no rail heads/FCI'sGodowns. The FCI should open godowns at the principal distribution centres wherever possible or reimburse the State Governments/Union Territories the cost of transportation upto these centres. A list containing the principal distribution centres in the Hill States/Union Territories is attached. 4. The following conditions are, however, to be observed by the State Governments/Union Territory Administrations while utilizing the transport reimbursement received from the FCI. (i) Full benefits of the transport subsidy should be passed on to the consumers by the State Governments/Union Territories Administrations. (ii) Where the State Governments are already giving some subsidy they should consider passing on the same quantum of subsidy by opening more interior distribution centres not covered by these recommendations; and (iii) In the exceptional case of J&K where the State Government is already giving not only transport subsidy but substantial price subsidy to the consumers, the relief which the Government of J&K will get on account of this transport subsidy will be taken into account by the Plan Finance Division while dealing with their resource gap problem. 5. 5. This order will come into force with effect from 01.08.1975. Yours faithfully, Sd/- (A.K. Aggarwal) (Deputy Secretary to the Government of India) (Emphasis supplied) 7. We are not really concerned with the events that transpired immediately thereafter, except to note that on 05.02.1986 the FCI communicated to its Regional Office in Guwahati/Shillong that the Government of India, by a letter dated 29.01.1986 approved twelve PDCs in different districts and sub-divisions of Arunachal Pradesh for the purpose of HTS. 8. To sum up this aspect of the case: HTS was intended to reimburse Arunachal Pradesh the expenditure incurred by it for transporting food grains from the rail-head to the PDC so that the beneficiaries under the public distribution scheme are not burdened with the transportation cost. 9. It appears that during the actual working of the public distribution scheme and the release of HTS a few course corrections needed to be made due to some facts and factors that needed consideration. We are not directly concerned with these course corrections, but since these were needed, a letter dated 31.10.1990 was issued by the Government of India to the Food and Civil Supplies Department of all the North Eastern States. In this letter, a base depot was explained to mean not only FCI depots but also linked rail-heads. The letter also explained the concept of "Road Reimbursement Charges or Transportation Charges" to mean reimbursement of expenditure incurred for transporting food grains from the rail-head to the base depot. This amount was quantified as 11 paise per quintal per km. The letter explained HTS to mean reimbursement of transportation charges from the designated base depot of the FCI to the approved PDC. This amount was payable on an actual basis, unlike Road Reimbursement Charges. 10. Equally importantly, the letter dated 31.10,1990 specifically stated that "to avoid any ambiguity, and in supersession of all previous instructions" HTS would be reimbursed on actual basis for transportation of food grains from the base depots to the PDCs. Effectively therefore, this was only a favourable modification and a reaffirmation of the existing policy. 11. 10. Equally importantly, the letter dated 31.10,1990 specifically stated that "to avoid any ambiguity, and in supersession of all previous instructions" HTS would be reimbursed on actual basis for transportation of food grains from the base depots to the PDCs. Effectively therefore, this was only a favourable modification and a reaffirmation of the existing policy. 11. The letter dated 31.10.1990 is of some importance and it's relevant extracts are reproduced hereinbelow, with the salient features highlighted by us: No. 179(5)/90-PY.l Government of India Ministry of Food and Civil Supplies (Department of Food) New Delhi-1 Dated 31st October, 1990 To The Secretary, Food and Civil Supplies Department (North Eastern States) Subject: Reimbursement of transport charges in NEF States for lifting of foodgrains under PDS from Central pool - Regarding. Sir, At present, two type of road reimbursement charges are being allowed for distribution of foodgrains to NEF States covered under the scheme referred, as given below: i) ROAD REIMBURSEMENT CHARGES: These charges are paid to the State Government for lifting of foodgrains from rail heads other than base depots and taking upto the base depots. The existing ceiling limit for such road reimbursement charges is 11 paise per qtls. per km., and ii) HILL TRANSPORT SUBSIDY: These transport charges cover the expenditure incurred by State Government for moving the stocks from base depots (designated by FCI) upto the approved Principal Distribution Centres (PDC's).PDCs are approved by the Government of India. These charges are reimbursed by the FCI on actual basis as certified by the State Government. 2. It has been observed that FCI has at times not been able to make food grains available at the base depots and in such cases, the State Governments are lifting foodgrains from other than base depots from distant BG/MG terminals/FCI depots and move foodgrains directly to PDCs. The instructions regarding payment of transport charges to cover such cases do not seem to be free from ambiguity. In order to avoid any ambiguity, and in supersession of all previous instructions, the following instructions are issued regarding reimbursement of such charges: a) ... b) ... c) In case stocks arc lifted from the base depots to the approved PDCs the transportation charges i.e. Hill Transport Subsidy would be reimbursed on actual as incurred by the State Government. 3.... 4. The base depots would mean not only FCI's Depots but also the linked rail head. b) ... c) In case stocks arc lifted from the base depots to the approved PDCs the transportation charges i.e. Hill Transport Subsidy would be reimbursed on actual as incurred by the State Government. 3.... 4. The base depots would mean not only FCI's Depots but also the linked rail head. The list of various base depots approved for the purpose for the various States in North East is given in Annexure.... 5. The State Governments while submitting their claims on fortnightly or on monthly basis would give full details with supporting documents of movement of foodgrains so that the same are verifiable and FCI would scrutinize and pass the same for payment in shortest time possible so that States Governments are not put to any undue financial hardship in this regard due to lockup of their funds. The State Governments should not allow their bills to accumulate and should not delay for more than a fortnight. The document which would be submitted in this regard by the State Governments along with their road reimbursement claims would be decided by the Zonal Manager (NEF). 6. The above claims would be scrutinized by the District Office concerned and recommended for payment to the SRM who would pass the bills for payment through District Manager. These bills in any case should be passed within 10 working days. 7. ... 8. ... Yours faithfully, (S.C. Sharma) Enclo: As above. Under Secretary to the Government of India Copy forwarded to: 1. Manager (Sales), FCI, New Delhi/Manager (Proc.), FCI, New Delhi. 2. US(F)/I. 12. Factually, as on 31.10.1990, Arunachal Pradesh had seven identified base depots or linked railheads and 12 approved PDCs. 13. To sum this aspect of the case: As on 31.10.1990 Arunachal Pradesh was entitled to Road Reimbursement Charges for transportation of food grains from the railhead upto the base depots at 11 paise per quantal per km and HTS for transportation of food grains from the base depot to the PDC on an actual basis. 14. Notwithstanding the above clarifications, some problems in the implementation of the HTS scheme continued to remain. The most important of them was with regard to payment of HTS in situations where, given the hilly terrain, low population density and the large land mass, it was more convenient to off-load the food grains either en-route to the PDC or on some convenient off-route location. The most important of them was with regard to payment of HTS in situations where, given the hilly terrain, low population density and the large land mass, it was more convenient to off-load the food grains either en-route to the PDC or on some convenient off-route location. In other words, while transporting the food grains from the base depot to the PDC, it was sometimes more convenient to off-load the stock at a Fair Price Shop that was en-route or at a Fair Price Shop that was not en-route but the diversion was more conveneint given the associated factors mentioned above. 15. A solution to this problem was found by the Government of India which issued a letter dated 28.11.1995 to the FCI further liberalizing the HTS reimbursement policy. It was decided that as far as Arunachal Pradesh is concerned, HTS would be admissible even if the food grains were off-loaded en-route at distribution centres or Fair Price Shops or even off-route at such centres or Fair Price Shops. This was, however, subject to two conditions, that is: (1) The reimbursement will not, under any circumstances exceed the amount reimbursable had the stocks been otherwise moved to the PDC. (2) No demand for shifting or increasing the number of PDCs would be entertained. 16. The letter dated 28.11.1995 is extremely significant for the determination of the controversy before us and it reads (with emphasis supplied) as follows: No.l79(1)/ 90-PY.I Government of India Ministry of Food (Department of Food Procurement & Distribution) KRISHI BHAWAN New Delhi-1, dated 28th Nov, 1995 To The Managing Director, Food Corporation of India, 16-20, Barakhamba Lane, New Delhi. Subject: Reimbursement of Hill Transport Subsidy to Arunachal Pradesh. Sir, I am directed to say that the question of extending certain concessions to the Government of Arunachal Pradesh in the implementation of the scheme of hill transport subsidy in view of the special features of the State vte. hilly terrain, large area, very low density of population etc. has been under consideration of this Ministry for some time. In relaxation of the instructions contained in this Ministry's letter No. 179(5 V90-PY.I dated 31 st October. 1990. it has been decided that reimbursement of hill transport subsidy will be allowed to the State of Arunachal Pradesh even in such cases where the food grains are off-loaded at distribution centers/FPS other than the PDCs or en-route to PDC. In relaxation of the instructions contained in this Ministry's letter No. 179(5 V90-PY.I dated 31 st October. 1990. it has been decided that reimbursement of hill transport subsidy will be allowed to the State of Arunachal Pradesh even in such cases where the food grains are off-loaded at distribution centers/FPS other than the PDCs or en-route to PDC. The relaxation of the scheme will, however, be subject to the following conditions: (i) The reimbursement of HTS upto the off-route distribution points/FPS will not under any circumstances exceed the amount that would have become reimbursable, had the stocks been moved to the Principal Distribution Centres. (ii) No demand for either shifting or increasing the number of existing PDCs will be entertained. 2. These instructions will take effect from the date of issue of this communication. The bills already pending with the FCI may also be disposed off in terms of these instructions. 3. This issues with the concurrence of Finance division vide their Dy. No. 3702/Dir(Fin), dated 23rd Nov., 1995. Yours faithfully, (M. Sudhakaran) Under Secretary to the Government of India Copy to: Secretary, Food & Supplies Deptt., Govt. of Arunachal Pradesh, Itanagar. Copy also to: Director (Finance) (Emphasis supplied) 17. To sum this aspect of the case: Acombined reading of the two letters dated 30.10.1990 and the letter dated 28.11.1995 makes it clear that the overall scheme of payment of HTS remained unchanged inasmuch as reimbursement was still required to be made on actual transportation expenses from the designated base depot to the approved PDC. However, the payment scheme was liberalized inasmuch en-route or off-route offloading was permitted subject to the overall maximum of reimbursement of transportation charges from the base depot to the PDC. THE BEGINNING OF THE PROBLEM: 18. The above arrangement continued quite well for some time. Eventually, however, Arunachal Pradesh felt the necessity of shifting some existing PDCs since they seemed to be inconveniently located. The Government of India addressed this problem, notwithstanding the letter dated 28.11.1995 to the effect that no demand for either shifting or increasing the number of existing PDCs would be entertained. The reconsideration by the Government of India resulted in its issuing a letter dated 23.02.2001 to the FCI permitting the shifting of six PDCs. The Government of India addressed this problem, notwithstanding the letter dated 28.11.1995 to the effect that no demand for either shifting or increasing the number of existing PDCs would be entertained. The reconsideration by the Government of India resulted in its issuing a letter dated 23.02.2001 to the FCI permitting the shifting of six PDCs. It appears to us that this letter dated 23.02.2001 is not only quite innocuous but also quite unambiguous, but it has resulted in this litigation, which we believe is rather needless. The letter dated 23.02.2001, which is the nub of the controversy (with the relevant extracts highlighted by us) reads as follows: Most Immediate No.l79(5)/98-PY.I Government of India Ministry of Consumer Affairs, Food & Public Distribution (Department of Food & Public Distribution) Krishi Bhavan, New Delhi, Dated the 23rd Feb, 2001 To The Managing Director, Food Corporation of India, 16-20, Barakhamba Lane, New Delhi. Subject: Shifting/Extension of 6 PDCs regarding. Sir, The proposal of the State Government of Arunachal Pradesh for shifting/extension of the existing PDCs to new locations under Hill Transport Subsidy scheme (HTS) has been under consideration of the Government. It has been decided to shift/extend the following 6(Six) PDCs under HTS scheme in Arunachal Pradesh for the purpose of reimbursement of transportation cost of foodgrains on actual basis, subject to the condition laid down from time to time for regulating the scheme of reimbursement of transport cost under HTS scheme. Full benefits of the transport subsidy will be passed on by the State government of Arunachal Pradesh to the consumers: 1. Lemeking to the shifted from Taliha. 2. Mechukato be shifted from Liromoba 3. Damin to be shifted from Nypin. 4. Tuting to be shifted from Mariyang in Upper Siang District. 5. Kibithoo to be shifted from Hayuliang. 6. Vijoynagar to be shifted from Miao. 2. This order will have immediate effect. Yours faithfully, Sd/- (B.K. Dewarma) Director (Policy) Tele: 3385792 (Emphasis supplied) 19. According to Arunachal Pradesh, the letter dated 23.02.2001 substantially modified the reimbursement scheme. The view of Arunachal Pradesh was that reimbursement of HTS would now be payable on an actual basis from the base depot to the Fair Price Shop rather than upto the PDC. Yours faithfully, Sd/- (B.K. Dewarma) Director (Policy) Tele: 3385792 (Emphasis supplied) 19. According to Arunachal Pradesh, the letter dated 23.02.2001 substantially modified the reimbursement scheme. The view of Arunachal Pradesh was that reimbursement of HTS would now be payable on an actual basis from the base depot to the Fair Price Shop rather than upto the PDC. Frankly, we cannot see how such a construction can be placed on the letter dated 23.02.2001 but anyway that is how Arunachal Pradesh understood the letter, acted on it and apparently made payments to the contractors engaged by it. The reimbursement bills submitted in this regard were also cleared by the FCI after due checking and "super-checking". 20. The view of the FCI (as canvassed before us) is that the HTS scheme did not undergo any modification-only that the location of some existing PDCs was shifted and "the condition laid down from time to time for regulating the scheme of reimbursement of transport cost under HTS scheme" remained unchanged. That is to say that reimbursement would be made on actuals for transportation cost incurred from the base depot to the PDC. 21. Be that as it may, the net result of the interpretation given by Arunachal Pradesh was that HTS claims by Arunachal Pradesh increased quite suddenly and rapidly during 2003-04. The result of this was that sometime in 2004 the FCI stopped reimbursement claims on the ground that huge over-payments had been made to Arunachal Pradesh under the HTS reimbursement scheme. This resulted in some correspondence between the Government of India and Arunachal Pradesh and ultimately a meeting was convened between the Government of India, the FCI and Arunahal Pradesh on 22.03.2005 on the subject of reimbursement of HTS claims. 22. A perusal of the Minutes of the meeting held on 22.03.2005 makes it clear that Arunachal Pradesh was claiming reimbursement of HTS claims for transportation costs incurred from the base depot to the FPS rather than upto the PDC. It was decided, after discussion, that the bills would be scrutinized by the Deputy Commissioners as per the circular of the Government of India dated 28.11.1995 and that they would certify that the bills have been passed only after obtaining necessary certificates and verification reports. It was decided, after discussion, that the bills would be scrutinized by the Deputy Commissioners as per the circular of the Government of India dated 28.11.1995 and that they would certify that the bills have been passed only after obtaining necessary certificates and verification reports. Some further decisions were also taken in that meeting, particularly relating to a special audit for the payments made during 2003-04, but according to Arunachal Pradesh there was no discussion on this issue (and therefore no decision thereon). 23. The relevant extracts of the Minutes of the meeting held on 22.03.2005 read as follows: Minutes of the meeting held on 22.03.2005 under the Chairmanship of JS (P&FCI) with officers of FCI and Arunachal Pradesh Government regarding reimbursement of Hill Transport Subsidy claims. The list of participants is at Annexure-I. 2. It was explained that Government of India reimburses the transportation cost beyond the FCI Base Depots and upto the PDCs, in the predominantly hill States including the North Eastern Region, keeping in view the high expenditure on movement of foodgrains in these States due to difficult and inaccessible terrain. In case of Arunachal Pradesh, by way of special dispensation, instructions were issued on 28.11.1995 to provide for reimbursement of HTS upto the distribution centres/FP Ss on en-route locations to the PDCs subject to the condition that the transportation cost would not exceed the amount that would be reimbursed had the stocks been moved to the PDCs. Further, the State Government had also been allowed a 'rolling' advance of Rs. 10 crore which was to be utilized for settlement of the pending bills and further advance released after adjustment of the previous advance. 3. Explaining the reasons for the sudden increase in the claims since 2003-04 the representatives of the Arunachal Pradesh Government indicated that the Head Load Carriage System was started on an experimental basis in two Districts in the year 2001-02 and was subsequently extended to 16 Districts in view of its success by implementing the Head Load Carriage System the foodgrains are now being reached to families living in remote and far flung areas not having motorable roads. The HTS bills presented by contractors were being properly scrutinized by the Deputy Commissioner of the respective Districts. The HTS bills presented by contractors were being properly scrutinized by the Deputy Commissioner of the respective Districts. The delivery of foodgrains to distribution points in off-route locations were duly certified by the Circle Officers and members of the Vigilance Committees constituted at the FPS level. 4. It was observed from the position explained by the State Government's representatives that the entire cost of transportation from the Base Depots of FC1 to the FP Ss was being claimed as reimbursement under the HTS Scheme without strictly applying the condition imposed vide the 28.11.1995 circular. This was perhaps also not being checked by the Regional Office. FC1 while scrutinising and passing the bills for payment. As a result excess payments under the scheme could not be ruled out. 5. After discussion, the representatives of the State Government and the FCI agreed as under: (i)... ... (ii)... ... (iii) The Deputy Commissioners shall scrutinize the bills keeping in view the circular of Government of India dated 28.11.1995 and certify that the bills have been passed only after obtaining the certificate by the concerned Circle Officer and verification by representatives of the Vigilance Committees. (iv) All the HTS payments made in Arunachal Pradesh since 2003-04 would be scrutinized afresh and subject to a special audit by the FCI. specifically keeping in the mind the conditions imposed in the circular dated 28.11.1995. Any excess payments shall be adjusted against pending and future bills. The FCI would not release any funds till this scrutiny and audit was completed. The entire work relating to the special audit, scrutiny pf bills etc. would be completed within a period of two months. Responsibility would be fixed on the officers responsible for the excess payments and disciplinary action initiated, (v) It was reiterated that the advance of Rs. 10 crore to be given by the FCI was only in the form of a 'rolling' advance and all advances beyond Rs. 10 crore at any one point of time was irregular and should be stopped forthwith. (Emphasis supplied) 24. The meeting held on 22.03.2005 was followed up by the Government of India through its letter dated 29.03.2005 and this letter is reproduced below, since it has been challenged by Arunachal Pradesh in this writ petition. 10 crore at any one point of time was irregular and should be stopped forthwith. (Emphasis supplied) 24. The meeting held on 22.03.2005 was followed up by the Government of India through its letter dated 29.03.2005 and this letter is reproduced below, since it has been challenged by Arunachal Pradesh in this writ petition. The challenge to the letter dated 29.03.2005 is with reference to the instruction to process the bills for payment in terms of the letter dated 28.11.1995. The letter dated 29.03.2005 reads as follows: Confidential Joint Secretary Government of India, Ministry of Consumers Affairs, Food & Public Distribution, Department of Food and Public Distribution Krishi Bhawan, New Delhi-110001 Sanjay Kaul Tel: 23381177(O) 26881251(R) D.O. No. 2/LS/6/2004-Py.III 29.03.2005 Dear Sir, I invite your kind attention to this Departments' letter of even number dated 14.2.2005 addressed to Secretary, Food & Civil Supplies Deptt., Government of Arunachal Pradesh and copied to FCI, on the subject of Reimbursement of HYS claims to Arunachal Pradesh. A reply dated 17.02.2005 has since been received from the Government of Arunachal Pradesh (Annexure-I) and from the Zonal Manager (NE), FCI dated 24.02.2005 (Annexure-II). A meeting to review the system of settlement of bills was held in the Ministry on 22.03.2005 with representatives of the FCI and the State Government of Arunachal Pradesh. A copy of the minutes (Annexure-III) is enclosed to this letter. The decisions agreed upon in the meeting may kindly be implemented. 3. It has also been decided that the FCI shall undertake a special audit of all HTS bills settled in the case of Arunachal Pradesh relating to the period 2003-04 and onwards and confirm that only bills strictly in accordance with the Government and FCI's instructions on the subject have been fully complied with. The bills may be specifically scrutinized with reference to this conditions imposed in this Department's letter No. 179 (1)/90-Py. I dated 28.11.1995 which provide that the reimbursement of HTS in the case of off-route distribution points should not exceed the amount that would have become reimbursable had the stocks been moved to the PDCs. The entire work relating to the special audit, scrutiny of bills etc. may kindly be completed within a period of two weeks. 4. I dated 28.11.1995 which provide that the reimbursement of HTS in the case of off-route distribution points should not exceed the amount that would have become reimbursable had the stocks been moved to the PDCs. The entire work relating to the special audit, scrutiny of bills etc. may kindly be completed within a period of two weeks. 4. It may also kindly be ensured that no further funds are released to the State Government under the HTS scheme till all the payments have been scrutinized and the special audit completed. Any excess payments should be adjusted against pending and future bills and disciplinary action initiated against the officers responsible for irregular/excess payments and advances made. 5. During the meeting it was reiterated that the advance of Rs. 10 crore to be given by the FCI was only in the form of 'rolling' advance and all advances beyond Rs. 10 crore at any point of time was irregular and should be stopped forthwith. Suitable instructions should be issued on this accordingly. It is further requested that the Sr. Regional Manager, FCI, Assam region may be made personally responsible for the correct scrutiny/accountal of HTS bills of Arunachal Pradesh. 6. Action taken in the matter may kindly be intimated to the Ministry at an early date. With kind regards, Yours sincerely, Enclo: As above Sd/-Illegible (Sanjay Kaul) ShriV.K. Malhotra, Chairman, Food Corporation of India, 16-20, Barakhamba Lane, New Delhi-110001. 25. As mentioned above, Arunachal Pradesh objected to the "decision" to hold a special audit as stated in the Minutes of the meeting held on 22.03.2005. The objection of Arunachal Pradesh is recorded in its letter dated 11.04.2005 addressed to the Government of India in which it is written, inter alia, that "the points noted at para 5, sub paras (iv) and (v) were not discussed and at no point of time, we insisted for special audit, though it is your prerogative to institute audit." 26. It seems that for quite some time, no steps were taken to verify the HTS claims through a special audit and consequently no reimbursements were made to the transporters. It seems that for quite some time, no steps were taken to verify the HTS claims through a special audit and consequently no reimbursements were made to the transporters. This situation continued till about April, 2007 when a meeting was held by the Cabinet Secretariat of the Committee of Secretaries which included, inter alia, the Secretary in the Department of Food and Public Distribution of the Government of India and the Secretary in the Ministry of Food and Civil Supplies of the State Government. The entire issue relating to HTS in Arunachal Pradesh was discussed and it was decided, inter alia, that a committee would be appointed to verify the rate of transportation of food grains as fixed by the Deputy Commissioners in Arunachal Pradesh and, more importantly, the actual receipt and lifting of food grains at designated PDCs. The question of verification of rates arose because it appears that the transporters were overcharging Arunachal Pradesh (and therefore the FCI) and the question of actual lifting and receipt arose, we are told, because there was alleged falsification of quantities of food grains transported; that is to say that much larger quantities were shown to have been transported than the actual deliveries. 27. The relevant extracts of the Minutes of the meeting held by the Cabinet Secretariat on 27.04.2007 are reproduced hereinbelow since they give a rather clear picture of the controversy before us: CABINET SECRETARIAT Doc. No. 35/2007-CA-III MINUTES OF THE MEETING OF COMMITTEE OF SECRETARIES Venue: Committee Room, Cabinet Secretariat Rashtrapati Bhavan Date of meeting: 27.04.2007 Time of meeting: 12.00 Noon PRESENT ... ... ... Hill Transport Subsidy in Arunachal Pradesh to operationalize PDS. A meeting of the Committee of Secretaries, under the Chairmanship of Cabinet Secretary, was held on 27th April, 2007 at 12.00 Noon in the Committee Room, Cabinet Secretariat, Rashtrapati Bhavan, to consider the note dated 26.04.2007 received from the Department of Food & Public Distribution on die subject mentioned above. 2. Secretary, Department of Food & Public Distribution stated that in Arunachal Pradesh, 12 Principal Distribution Centres were approved in the year 1986 by the Government of India for the purposes of reimbursement of Hill Transport Subsidy (HTS). Foodgrains are released to Government of Arunachal Pradesh by FCI from 7 base depots, 4 of which are located in Arunachal Pradesh. 2. Secretary, Department of Food & Public Distribution stated that in Arunachal Pradesh, 12 Principal Distribution Centres were approved in the year 1986 by the Government of India for the purposes of reimbursement of Hill Transport Subsidy (HTS). Foodgrains are released to Government of Arunachal Pradesh by FCI from 7 base depots, 4 of which are located in Arunachal Pradesh. In November, 1995, it was decided that reimbursement of HTS would be allowed to State Government in such cases where foodgrains were off loaded at distribution centres, FPS or en-route of PDCs. The payments under HTS to Arunachal Pradesh had increased disproportionately from 2001-02 to 2003-04. Some complaints were also received about misutilization of funds under the scheme. Subsequently, in September, 2004 payments to the State Government were stopped until further orders. The State Government contended that the head-load system was extended to all the 16 districts of the State to reach PDS foodgrains to beneficiaries in in accessible and remote locations. The transport charges for head-load carriage is about Rs. 125.00 per quintal per km. The average yearly off-take of food grains for Arunachal Pradesh is about 80.000 MT. The State Government claims transportation rate @Rs. 2.25 per quintal per km by road. The State Government has represented to allow these rates for average road distance from base depots to PDCs which is 333 km. The State Government has suggested HTS payment of Rs. 135 crore annually as per the existing approved tender rates. The system of movement of PDS foodgrains to the State can be improved by FCI opening 6 new base depots within the State, for which the cooperation and administrative support of State Government is required by way of providing staff on deputation, identifying suitable premises etc. 3. The rates being claimed by the State Government are very high compared to other States with similar terrain. Out of existing 13 PDCs, 11 are connected by motorable roads except two PDCs at Damin and Vijaynagar. Head-load transportation to and from these centres would be necessary and the possibility of air dropping the foodgrains may be considered. There is no dispute on the rate of head-load transportation. For road transportation, FCI has offered the rate of Rs. 1.15 per quintal per km whereas, the State Government has requested for Rs. 2.25 per quintal per km. Head-load transportation to and from these centres would be necessary and the possibility of air dropping the foodgrains may be considered. There is no dispute on the rate of head-load transportation. For road transportation, FCI has offered the rate of Rs. 1.15 per quintal per km whereas, the State Government has requested for Rs. 2.25 per quintal per km. There is also some difference in the average distance calculated by FCI and the State Government which needs to be reconciled. 4. ... ... 5. Secretary, Food & Civil Supplies, Government of Arunachal Pradesh informed that the State Government had constituted a Committee to look into the details of variation in transportation rates in different districts. The Committee recommended that any rate below Rs. 1.15 per quintal per km. is not workable. In view of this, the rate of Rs. 1.15 per quintal per km. should be taken as the minimum floor, rather than the average. He also requested that the past payments for the years after 2004 should be released so that payments to the contractors could be made. 6. ... ... 7. ... ... 8. ... ... 9. After detailed deliberations, the following decisions were taken: (i) ... ... (ii) ... ... (iii) ... ... (iv) ... ... (v) ... ... (vi) For the past pending claims, Secretary, Department of Food & Public Distribution would constitute a Committee to verify rates fixed by the D Cs and actual receipt and lifting of foodgrains at designated PDCs. This Committee would submit a report in two months' time. Based on the recommendations of the Committee, Secretary, Department of Food & PD would take further action for making payments to the State Government for past-dues. (vi) ... ... (vii) ... ... (viii)... ... REPORT OF THE HIGH POWERED COMMITTEE: 28. In accordance with the above decision taken on 27.04.2007 (and duly communicated to Arunachal Pradesh) a committee was constituted by an order dated 15.05.2007 cosisting of senior and experienced officers with the terms of reference specified as below: