Supreme Court Upholds Government’s Policy on Diesel Pricing for Bulk Consumers

The Supreme Court of India delivered a crucial judgment in the case of Indian Oil Corporation Limited & Anr. vs. Kerala State Road Transport Corporation & Ors., addressing the legality of the Government of India’s policy on differential diesel pricing. The Court upheld the policy decision, ruling that the withdrawal of subsidies for bulk consumers such as State Road Transport Corporations (SRTCs) was neither arbitrary nor unconstitutional.

Background of the Case

The dispute arose when the Government of India, through the Ministry of Petroleum and Natural Gas, introduced a new policy on January 17, 2013. This policy eliminated the subsidy on diesel purchases for bulk consumers such as SRTCs, forcing them to purchase fuel at higher market-determined rates.

The Kerala State Road Transport Corporation (KSRTC) and other transport undertakings challenged this policy in the Kerala High Court, arguing that it was discriminatory and violated their constitutional rights under Articles 12 and 14. Several other SRTCs in different states also filed similar petitions in various High Courts.

Petitioners’ Arguments

The Kerala State Road Transport Corporation (KSRTC), supported by other state transport corporations, made the following arguments:

• The policy was discriminatory as it forced SRTCs to pay higher diesel prices while private consumers continued to receive subsidized rates.
• State transport corporations operated in the public interest and provided essential services; thus, they should be exempt from the new policy.
• The increased cost burden would lead to severe financial losses, impacting public transportation services.
• The government’s decision was taken arbitrarily without proper consultation with stakeholders.

Respondents’ Arguments

The Union of India, represented by the Ministry of Petroleum and Natural Gas and Oil Marketing Companies (OMCs), defended the policy with the following points:

• The government had a right to regulate subsidies based on economic policies and financial considerations.
• The subsidy on diesel had led to massive financial losses for Oil Marketing Companies (OMCs), forcing them to borrow extensively.
• The policy decision was taken after careful deliberation and was aimed at reducing the fiscal deficit.
• The policy did not target state transport corporations specifically; it applied to all bulk consumers, including industries and railway services.

Supreme Court’s Observations

The Supreme Court, led by Justices Arun Mishra and Mohan M. Shantanagoudar, upheld the government’s decision and dismissed the petitions. The key observations included:

• The grant of a subsidy is a privilege, not a fundamental right, and the government has the authority to withdraw it as part of fiscal policy.
• The government’s decision was based on economic necessity and aimed at reducing the subsidy burden on petroleum products.
• The policy applied to all bulk consumers uniformly and was not discriminatory against SRTCs.
• The courts should not interfere in economic policy decisions unless they are manifestly arbitrary or violate constitutional rights.

The Court stated:

“The withdrawal of subsidy for bulk consumers is a policy decision taken in the larger economic interest of the country. Courts cannot interfere in fiscal policies unless they are proven to be unconstitutional.”

Final Judgment

The Supreme Court ruled as follows:

• The withdrawal of the diesel subsidy for bulk consumers was valid and did not violate constitutional principles.
• State transport corporations were not entitled to claim subsidy benefits as a matter of right.
• The appeals by the transport corporations were dismissed.
• The Court also vacated any interim relief granted by High Courts in similar cases.

Implications of the Judgment

This judgment has significant implications for government subsidy policies and state-run enterprises:

1. Policy-Making Authority of the Government

The ruling affirms the government’s power to implement economic policies, particularly in subsidy regulation, without judicial interference unless there is clear arbitrariness or discrimination.

2. Financial Viability of SRTCs

State transport corporations now face higher operational costs due to increased fuel expenses. This may lead to fare hikes or the need for alternative funding mechanisms.

3. Precedent for Future Fiscal Policy Cases

The judgment sets a precedent for future disputes involving the withdrawal of subsidies and government economic policies.

4. Impact on Public Transport

The ruling may lead to financial restructuring within SRTCs, possibly affecting fare structures and service expansion.

Conclusion

The Supreme Court’s judgment in this case upholds the principle that subsidies are a matter of government policy and not a fundamental right. By backing the government’s decision, the Court reinforces the authority of economic policy-making while ensuring that such decisions adhere to constitutional principles.

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Download Judgment: Indian Oil Corporati vs Kerala State Road Tr Supreme Court of India Judgment Dated 07-11-2017.pdf

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