Holding

The rounding‑off scheme is ultra vires; the State cannot levy such charges and the collection is an unauthorized tax.

Summary

The Central Government issued the Kerosene (Restriction of Use and Fixation of Ceiling Price) Order, 1993 fixing a "declared price" that may include charges, rates, duties and taxes prescribed by the State. Madhya Pradesh’s Director and district Collectors fixed wholesale and retail kerosene rates using a "rounding off" method, collected the excess as a fund purportedly for strengthening the public distribution system, and framed rules to administer this fund. Petitioners challenged the scheme as an unauthorized levy amounting to taxation in disguise, violating Article 265 of the Constitution and the Essential Commodities Act. The High Court dismissed the writ petitions. The Supreme Court held that the Kerosene Order does not empower the State to levy such rounding‑off charges; the collection is ultra vires and amounts to an illegal tax. The rounding‑off scheme was quashed, the High Court judgment set aside, the fund frozen, and an audit directed. The appeals were allowed.

Issues considered

Whether the State Government, Director and District Collectors can levy rounding‑off charges under the Kerosene Order and the Essential Commodities Act.
Whether such levy constitutes a tax prohibited by Article 265 of the Constitution.
Whether the term "charges" in the Kerosene Order includes the rounding‑off amount.
Whether the rules framed by the State Government are legally valid.

Legislation cited

Constitution of Indias. Article 265
Essential Commodities Act, 1955s. 3, s. 5

Subjects

Essential commoditiesPrice fixationKeroseneRounding offTaxationArticle 265Ultra viresPublic distribution systemState levy

Judgment

NAGRJK UPBHOKTA M. MANCH A
v.
UNION OF INDIA AND ORS.

MAY 2, 2002.

[R.C. LAHOTI AND BRIJESH KUMAR, JJ.] B

Essential Commodities Act, 1955: Sections 3 and 5.

Fixation of price of Kerosene oil, a controlled commodity-Central
Government notified Kerosene Order-State Government issuing a Scheme C
fixing the rates of Kerosene oil at wholesale/semi-wholesale/retail level-
lncluded Sales Tax, surcharge, profits and Transportation charges-Uniform
price by rounding off method-Challenge of-High Court dismissed writ
petitions-State Government framed Rules justifYing the Scheme-On appeal,
held, Kerosene Order does not empower the State Government to prescribe D
by themselves and levy any charges, rates, duties and taxes-The collection
so accrued due to such levy in the guise of rounding off, is wholly an
unauthorized collection and violative of Article 265 of the Constitution--
Accountant General of the State to carry out audit and submit report-Ti//
then the funds shall stand frozen-Constitution of India, Article 265.
E
Central Government has made the Kerosene (Restriction of Use and
Fixation of Ceiling Price) Order, 1993. In pursuance of the said Order,
Director, Department of Food, Civil Supplies and Consumer Rights, Madhya
Pradesh had informed all the District Collectors to fix the rate of Kerosene
for Retailers as per Scheme of rounding off and to receive the amount of F
~ . _. rounding off at the level of wholesalers and to utilise it for purchasing tankers,
• drums etc. for the purpose of distribution of Kerosene oil to the consumer.
Collector of Jabalpur district exercising the power conferred by Clause 2(d)(i)
of Kerosene Order issued an order fixing the rates of Kerosene at wholesale,
semi-wholesale and retail level; Ex depot price per kilo-litre, sales tax,
surcharge on sales tax and profit of wholesale per kilo litre was kept uniform G
throughout the district but transportation charges per kilo litre varied.
· Appellants filed writ petitions challenging the price so fixed by including
rounding off charges. The writ petitions "\\'ere dismissed by the High Court. In
the meanwhile, State Government framed rules justifying the issuing of Scheme
of rounding off, stating its purpose in ensuring supply of Kerosene at uniform H
735
736 SUPREME COURT REPORTS [2002] 3 S.C.R.

A rate after rounding off the rates and to utilise the amount of saving from
rounding off to strengthen the Public Distribution System. Hence these appeals. +
It was contended for the appellants that levy and recovery of any amount
over and above the price fixed after taking into consideration the relevant ,-
factors is without any authority of law and amounts to taxation in disguise which
B is ultravires the Constitution; and that it results in the increase of price of
kerosene by 5.13%. It was contended for the respondents that the purpose
sought to be achieved by rounding off is to maintain a uniform price of kerosene
throughout the State and the funds so available serves the laudable purpose of
maintaining and strengthening supply and availability of kerosene to
C consumers; and that levy of such rounding off charges is protected by the
powers of the State Government in terms of clause (d) of Para 2 of the Kerosene
Order.

Allowing the appeals, the Court

·D HELD : l. l. Kerosene Order defines the 'declared price' being the
maximum selling price by reference to an area. Apart from the cost of
production, what can be included therein are other charges, rates, duties, taxes
prescribed by the State Government/District Collector. The term 'prescribed'
contemplates the determination of charges, rates, duties and taxes which are
E leviable on kerosene under the law of the State or local legislation and are,
therefore, better known to the State Government or District Collectors and
would be available to be added to the maximum selling price declared by the
Central Government or by the State Government subject to the delegation of
power by the Central Government The definition of 'declared price' cannot be
so read as empowering the State Government, the Director or the District
F Collectors to prescribe by themselves any levy on kerosene, any charges rates,
duties and taxes in purported exercise of power under the Control Order. The
term 'charges' must be read ejusdem generis taking colour from the succeeding
terms-rates, duties and taxes. (748-D-E-F-G)

1.2. State Government, the Director and the Collectors have abrogated
G to themselves a power of levying a tax, as it were, and to collect an amount in
the name of rounding off for the purpose of building up a separate fund of their

H
own to be utilized for the purpose of administering public distribution system
of kerosene. This is wholly an unauthorized collection. (748-H; 749-A)

2.1. If the State Government undertakes to ensure distribution and
..,. .
NAGRJK UPilHOKTA M. MANCH v. U.0.1. 737

availability of an essential commodity by public distribution system, it has to A
provide for a system and make the commodity available. Provision has to be
made for maintaining the s:i:stem independent of the price of the essential
commodity sought to be distributed. Any tax or fee or levy, for the matter of
that, must satisfy the requirement of Article 265 of the Constitution apart from
the legislative competence. Not only the levy in the guise of rounding off is B
unlawful and unauthorized but the manner in which the fund has been operated
and utilized makes the position worst. The Rules framed by the State, during
the pendency of these petitions before this Court, are shocking. In the name
1 of rounding off, the sale price by wholesaler and the sale price by retailer have
been appointed so strategically as to generate a substantial fund. A huge fund
stands accumulated to the credit of several Collectors in several districts and C
the Director without even stipulating the purpose for its utilisation. Rules so
framed by executive go to show that the amount from the sale of condemned
vehicles and articles purchased out of the fund, the rerital amount of godowns,
shops, tankers, drums etc. generated out of the fund any other amount which
is receivable under the Rules shall be utilized for augmenting the fund. Para
6 of the Rules indicates works of permanent nature being constructed, vehicles D
purchased and several other activities such as information and training and

- giving away the awards being drawn out of the fund. All this is to be done from
the amount collected in the name ofrounding off from the poorest of the citizens
for whom kerosene is the cooking medium. [749-G; 750-E-F-G-H; 751-A]

2.2. It was understandable if the State Government had taken a policy ·
E
decision to sell kerosene at a uniform price at all the retail supply points within
a district or region or entire State and for that purpose it would have so
appointed the wholesale and the retail prices as to work out deficit somewhere
and surplus elsewhere but the deficit and the surplus being fully set off against
each other. Any fund devised for the purpose of collecting the surplus and F
• utilizing the amount so collected for compensating the deficit, would have
enable uniformity of fair price being maintained throughout the district or
region where it was sought to be so maintained. Then the State Government
could not have been accused of having brought into being a levy for its own
purpose. The beneficiary would have been the consumer by availing the G
kerosene at a uniform fair price. But it was not done. Instead, the Director,
the Collectors and the executive wing of the State have developed a local
administration, levy charges for developing a fund at their own level, being
administered by them for running a department or system of governance. Such
collection and fund has no sanctity in law and is violative of Article 265 of the
Constitution. [751-B-C-D] H
738 SUPREME COURT REPORTS [2002] 3 S.C.R.

A Shri Meenakshi Mills ltd. v. Union of India, (1974) 1SCC468; State of
Kera/a and Ors. v. KP. Govindan, Tapioca Exporter and Ors., (1975) l SCC ~
281 and Shara! Chandra Tiwari v. State of M.P., relied on.

2.3. The system of rounding off the price so as to build up a fund available
with the Director and the Collectors is quashed being ultra vires of Articles
B 265 of the Constitution and Section 3 of the Essential Commodities Act and
Para 2(d) of Kero~~::: aestriction on Use and Fixation of Sale Price Order,
1993. Accountable General of Madhya Pradesh is directed to carry out the
audit of the available fund. Till then the amount collected in the said fund by
the Director of Food and Civil Supplies and the Collectors of the Districts shall
C stand frozen. (751-E)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3249 of2002.

From the Judgment and Order dated 1.9.1999 of the Madhya Pradesh
High Court in W.P. No. 747 of 1999.
D
WITH

C.A. No. 3250 of2002.

G.L. Sanghi, Pramod B. Aggarwala, Ms. Praveena Gautam, Satish K.
E Agnihotri, K.C. Kaushik for B.V. Balaram Das and Prakash Shrivastava for the
appearing parties.

The Judgment of the Court was delivered by

R.C. LAHOTI, J. Challenge in the two writ petitions, to fixation of price
F of kerosene, a controlled commodity, wherein the Director of Food and Civil
Supplies of the State of Madhya Pradesh and the Collectors of districts have ..._ •
included an amount by way of rounding off charges, has been turned down
by the High Court of M.P .. The aggrieved petitioners have filed these petitions
for leave to appeal.

G Leave granted.

Admittedly, kerosene is a controlled commodity to which the Essential
Commodities Act 1955 (hereinafter 'the Act', for short) applies. Under sub-
section ( l) of Section 3, if the Central Government is of the opinion that it
is necessary or expedient so to do for maintaining or increasing supplies of
H any essential commodities or for securing their equitable distribution and
NAGRlK UPBHOKTA M. MANCH v. U.O.l. [R.C. LAHOTl, J.] 739

availability at fair prices, it may by order provide for regulating or prohibiting A
the production, supply and distribution thereof and trade and commerce
therein. Without prejudice to the generality of such power, under clause (c)
of sub-Section (2), the Central Government may by an order provide for
controlling the price at which essential commodity may be bought or sold.
Under Section 5, the Central Government may, by notified order, direct that B
the power to make orders or issue notifh:ations under Section 3 shall, in
relation to such matters and subject to such conditions, if any, as may be
specified in the direction, be exercised also by such State Government or such
officer or such authority subordinate to a State Government as may be
specified in the direction. By Central Government Order No. 682(E) dated the
30th November, 1974, the Central Government, exercising the power conferred C
by Section 5, directed that the powers conferred on it by sub-Section (I) of
Section 3 of the Act to make orders to provide for the matters specified in
clause (c) of sub-section (2) thereof shall, in relation to all essential
commodities, other than food stuffs and fertilizers, be exercisable also by a
State Government.
D
Under Section 3 of the Act the Central Government has made the
Kerosene (Restriction on Use and Fixation of Ceiling Price) Order, 1993
(hereinafter referred to as 'the Kerosene Order', for short). Clauses (d) and
G) define 'declared price' and 'public distribution system' as under:-
"(d) "declared price" in relation to kerosene sold under the public E
distribution system means the maximum selling price declared by the
Central Government, from time to time with reference to an area and
shall include such other charges, rates, duties and taxes, prescribed:-

(i) by the State Government or District Collector in the case of an
area in a State, or F
(ii) by the Administrator of the Union Territory, in the case of an area
in a Union Territory;
xxx xxx xxx xxx
xxx xxx xxx xxx G
G) "public distribution system" means the system of distribution,
marketing or selling of kerosene at declared price through a distribution
system approved by the Central or State Government;"

On 25.5.1998, the Director, Department of Food, Civil Supplies and H
740 SUPREME COURT REPORT.S [2002] 3 S.C.R.

A Consumer Rights, Madhya Pradesh issued a letter to all the Collectors of
districts in Madhya Pradesh which reads as under:-

"1. The rates of kerosene for Retailers in the rural areas have been
fixed for Rs. 3.20 per litre. The calculation of savings from rounding
off should be done in a manner that the amounts of savings from
B round off could be recovered from wholesalers. At first the Retailer's
commission, anrl PXµenses of transport from Semi-wholesaler to Retailer
should be deducted from the rates fixed for retailers and it will fix the
rates for Semi-Wholesalers. After deducting the semi-wholesaler's
commission and transport expenses from wholesaler to semi-wholesaler
C the rates for wholesaler will be fixed. The amount remaining after
deducting the amount to be paid to the Oil Company by wholesaler,
tax and transport expenses will be the round off amount. The amount
of rounding off should be received directly from wholesalers in the
Collector's account by operating an account at District level.

D 2. The above scheme was implemented in the Murena District and in
the last one and a half year approximately Rs. 62. 00 lacs were
receh;ed on this account. During the visits to Bilaspur and Raipur the
Food Officers informed that in both the Districts approx. Rs. I 0. 00
lacs are being received from each district in this account.

E 3. Therefore, in the interest of administration, you are required to
collect the amount of rounding off savings at the level of wholesalers
and deposit the same in Collector's Bank Account. The tankers and
drums, required for the distribution of kerosene oil to the District Co-
operative Bank's Institutions, be provided from this account.
F 4. The guidelines on the above mentioned subject are being issued
separately containing clear instructions regarding maintaining of
account. Till then please proceed with the above procedure."

[emphasis supplied]
G In the State of Madhya Pradesh, kerosene was being distributed and
made available for sale to consumers through public distribution system and
by appointing fair price shops/retailers. On 27 .1.99/1.2.99, the Collector, Jabalpur,
exercising the powers conferred by clause 2(d)(i) of kerosene order fixing the
rates of kerosene at wholesale, semi-wholesale and retail level in the Jabalpur
H district, as per the chart enclosed with the order, directed as under:-
NAGRIK UPBHOKTA M. MANCH v. U.O.l. [R.C. LAH OT!, J.] 741

"2. As per practice the Wholesalers will deposit the amount of A
difference in the bank account of Collector, Jabalpur upto the 7th of
every month. This amount will be used only for development of
structure regarding arrangements of kerosene oil

3. In the rural areas the wholesalers are supplying the kerosene to
Link Committees, therefore, it will be the responsibility of Link B
Committees that the commission of semi-wholesaler or concerned
Lead Institution at the rate of Rs. 12.60 per drum (200 Lt), which is
included in the retail sale price is transferred to the concerned Lead
Institution at the end of month.

4. As the maximum retail sale price includes the Retailers/Fair Price C
Shopkeeper's transport expenditure @ Rs. 20 per drum (200 Lt.),
therefore, it will be the responsibility of Link Institution to provide the
kerosene at the concerned Sale Centres (Fair Price Shops) according
to allotment."

[emphasis supplied] D
A perusal of the chart annexed with the order shows that an uniform
I
price of Rs. 650 per barrel and Rs. 3.25p. per litre for Fair Price Shop/Retailer
was appointed by the Collector, Jabalpur with respect to 62 supply points in
the district. The chart has 19 columns. It will suffice for our purpose to extract
and set out briefly the data relating to fixation of price in Jabalpur citY and E
one of the centres. Ex-depot price of producer per kilo litre, sales tax, surcharge
on sales tax and profit of wholesaler per kilo litre is uniform throughout the
district but transportation charges of wholesaler per kilo litre vary. These
transportation charges cause a variation in the price of wholesale price per
kilo litre and per barrel at the supply point. The Collector appointed selling F
price of wholesaler per barrel for Jabalpur city at Rs. 613.80p. The profit of
Fair Price Shop/Retailer per barrel is Rs. 36.20p. Thus, the price per barrel of
Fair Price Shop/Retailer comes to Rs. 650. Out of the centres, other than
Jabalpur city, we will take Sivni by way of illustration. For supply, selling price
of wholesaler per barrel is appointed at Rs. 58 l .20p. Wholesale price per barrel
after taking into consideration sales tax, surcharge, profit of wholesaler, G
transportation charges comes to Rs. 544.67p. Thus, there is a difference of Rs.
36.53p. between the wholesale price per barrel arrived at by taking into
consideration the permissible additions and selling price of wholesaler
appointed by the Collector at Rs. 581.20p. The price per barrel and per litre
of Fair Price Shop/Retailer remains the same, i.e. Rs. 650 and Rs. 3.2Sp. H
I

742 SUPREME COURT REPORTS [2002) 3 S.C.R.

A throughout the district. It is the difference of price per barrel between the
wholesale price arrived at by taking into account permissible additions and
the selling price appointed by the Collector which varies for different supply
points. For example, for Sivni it is Rs. 36.53p., for Sehanpuri it is Rs. 27.13p.,
for Mohas it is Rs. 32.53p. and so on.

B On 20.8.2001 the Court directed the State of Madhya Pradesh to file a
statement supported by an affidavit giving details of the amount collected
under the impugned orders of the Director, Food & Civil Supplies and the
Collectors showing how it has been utilized. On 22.11.2001, a statement has
been filed supported by an affidavit dated 20.11.2001 of the Director, Food,
C Civil Supplies & Consumer Protection, setting out details of the amount
collected upto 31.7.2001. In the 45 districts of Madhya Pradesh, an amount
of Rs. 50,00,61,083 was collected. Out of this an amount of Rs. 50,000 was
spent on constructing godown at Ratlam. An amount of Rs. 5,39,01,190 is said
to have been spent on tanks, drums, mobiie tankers under the head of
'storage kerosene oil infrastructure'. Substantial amount has been incurred on
D 'computers, office assets and miscellaneous', the exact details whereof cannot
be known. The total expenditure has been Rs. 6, 77,62,052 .An amount of Rs.
40,07,86,498 was available in Collectors' accounts of different districts and an
amount of Rs. 3,15,12,533 was available in Director's account. On 20/21.3.2001,
the State Government has framed rules and published the same in Government
E Gazette. The relevant part of the rules is extracted and reproduced hereunder:-

"No. F-8-125-2000-XXIX-1.-For the purpose of ensuring supply of
Kerosene at uniform rate to the consumers of the State, after rounding
off the rates to utilize the amount of saving from rounding off to
strengthen the Public Distribution System the State Government hereby
p makes the following rules, namely:-

xxx xxx xxx xxx
xxx xxx xxx xxx
(n) "Saving amount from rounding off' means the remaining balance
G amount, which comes after deduction of transport expenditure,
commission, and supplies price of distributor, tax, fee, transport
charges and commission from consumer price of kerosene.
(o) "Food Officer" means the Food Controller or Food Officer of the
district or any other officer who has been authorized by the
H Collector to work as Food Controller as Food Officer.
NAG RIK UPBHOKTA M. MANCH v. U.0.1. [R.C. LAHOTI, J.] 743

(p) "Assistant Registrar" means the Assistant Registrar of Co- A
operative Societies of the District who looks after the Work of
Public Distribution System .
.,

(q) "Deputy Registrar" means the Deputy Registrar of Co-operative B
Societies of the District who looks after the Work of Public
Distribution System.

(r) "Fund" means the receipts that are receivable under these rules
and accumulated interest thereon. C

(s) "Supplier" means the supplier of the oil company as declared by
the Government from time to time for any essential commodity.

3. Source of Income in the Fund.-The fund will consist of the D
following:-
(a) The balance amount from the savings from distribution of kerosene
on uniform consumer price.
(b) The amount from the sale of condemned vehicles and articles
purchased out of the fund. E
(c) The rental amount of godowns, shops, tankers drums etc. generated
out of the fund.
(d) any other amount which is receivable under the rule.

4. The Calculation of Amount of Saving from Rounding off and F
• Deposit-The calculation of amount of savings from rounding off
and deposit shall be done as specified below:-

•' (a) The Collector shall determine the price of kerosene to be distributed
under Public Distribution System as directed by Government.
G
• (b) The amount of savings accruing from the sale of kerosene at the
uniform consumer price shall be deposited in the fund.
(c) The amount of savings shall be deposited in the fund by the
wholesaler at the time of lifting kerosene from the Oil Company
but not later than seven days from the lifting.
H
744 'SUPREME COURT REPORTS [2002] 3 S.C.R.

A 5. Bank Account.-The amount of savings from rounding off shall be
deposited in the District Central Co-operative Bank in the saving
account and/or fixed deposit account in the name of the Collector.

6. Expenditure from fund:-The amount may be spent from the fund
fQr storage and distribution of kerosene under the Public Distribution
B System for the following purposes:

(I) The District Planning Committee may spent upto 80% amount
received in the financial year in the district as specified below:-

(a) To purchase drums and storage tankers or construction or drums/
C tankers for storage kerosene.
(b) For minor original works amounting to below Rs. 50,000 per godown
for the godowns of Lead and Link Societies in the rural areas
provided that any minor type of work has not been done from any
other sources for the last 3 years in such godowns.
D (c) Construction work of new godown of 50 MTs maximum capacity
provided that the amount is available and construction can be
completed within 12 months from the date of sanction. -~
I

(d) To reimburse the expenditure to the Lead and Link Societies to run
fair price shops in the rural areas.
E (e) To purchase replacement vehicle in case of condemned vehicle of
District Food Officer or Deputy Registrar or Assistant Registrar
or ifthere is no vehicle with the Food Officer on the recommendation
of Collector.
But vehicle for the Deputy Registrar or Assistant Registrar
F will be arranged only in case they are supervising the Fair Price
Shops.
But prior sanction of the State Government shall be necessary
if more than one vehicle is to be purchased.

G (2) The Committee constituted under rule 8 may spend I 0% amount
of the fund received in the concerning district during the year as
specified below:-

Expenditure below Rs. 50,000 at one time.

(One) For basic infrastructure facilities of the office.
H
NAGRIK UPBHOKTA M. MANCH v. U.O.l. [R.C. LAHOTI, J.] 745
(Two) For information and training. A
(Three) For audit expenses

• (Four) For encouraging outstanding activities or services
and rewards upto Rs. 50,000 in a year.
B
(3) The Collector shall make available 10% amount of the amount
deposited during the month in the Director by 10th of next month and
Director shall deposit such amount in the bank account to be opened
in the name of Director in Madhya Pradesh Co-operative Bank, Bhopal.

The Director may utilize this amount in the following manner:- C
(One) To reimburse losses in those districts where loss
occurred due to fixation of uniform selling price of
kerosene.

(Two) For works in any district as specified in sub-rule (I). D
(Three) For basic infrastructural facilities upto Rs. One lakh
at one time.

(Four) For information and training upto Rs. One lakh at one
time. E
(Five) For replacement of condemned vehicles in the
directorate and the districts.

(Six) For purchase of new vehicles for the districts with
the prior sanction of the State Government. F
(Seven) For encouragement and rewards upto Rs. One lakh in
the year, and,

(Eight) For audit expenses.
G
7. Maintenance of Properties.-{!) The drums, tankers, vehicles,
• instruments, constructed buildings, godowns etc. purchased/
constructed from the fund shall be property of the State Government.

'
. (2) The drums and tankers purchased/constructed under rule 6
shall be made available to the Bank for utilization. The Bank shall H
\

746 SUPREME COURT REPORTS [2002) 3 S.C.R.

A make them available to Lead and Link Societies with approval of the
Collector for strengthening the kerosene oil distribution system.

(3) The repairing expenses regarding tankers and drums shall be
borne by the concerning society. In case of tanker and drums becoming
unusable the Bank shall deposit the amount received from the sale of
B such articles in the Collector's Account.

(4) The Bank shall keep the account of tankers and drums and get
physical verification done as on 31st March and submit its report to
the Collector by 15th of April. )-

c (5) The godowns constructed from the fund shall remain under
the control of the Bank and Bank shall make them available to Lead
and Link Societies for the purpose of Public Distribution System. The
concerning societies shall be responsible for the ~aintenance of these
godowns.
__ ,
D (6) In the case of purchase of official instruments, c·ommunication
instruments or vehicle etc. the account of the a1ticle shall be maintained
by maintaining stock register by the District Food Officer at the
_._ 81
district level and by the establishment officer of the directorate at the
directorate level. -
E 8. Committee.-The Committee constituted under the Chairmanship
of the Collector shall take the decision regarding expenditure under
sub-rule (2) of Rule 6, District Food Co9-froller/Food Officer, Deputy
Registrar or Assistant Registrar of Co-operative Societies and Chief
Executive Officer of the Co-operative Bank shall be its ex-officio
members. Minister in charge of the District may nominate President of
F Zila Panchayat or any one member of the District Planning Committee
in this Committee."
~
.. L I-

Rule 9 provides for Food Controller/Food Officer to maintain the
accounts which the Collector shall have audited by a Chartered Accountant.
The Deputy Director (Accounts) shall maintain the accounts at the Directorate
G level and the Director shall have them audited. With the counter affidavit filed ..
I
on 17.2.2000, a chart has been annexed showing the saving and deficit available
<
to or to be borne by the fund by reference to consumer rate of Rs. 3.25p. per ~

litre. A perusal of the chart shows that in 35 out of 45 districts there is a (
)" (
saving, the minimum and maximum whereof varies by reference to supply "!-------
H points in different districts and this saving is available to augment the fund.
NAGRIK UPBHOKTA M. MANCH v. U.0.1. [R.C. LAHOTI, J.] 747

In I 0 districts there appears to be a minor, almost negligible deficit which will A
be liable to be borne by the fund. While the figures of saving vary from a
minimum of 1 paisa to a maximum of 51 paise per litre, the figure of deficit
varies from a minimum of 1 paise to a maximum of 21 paise per litre.

In the submission of the appellants, levy and recovery of any amount
over and above the price fixed by taking into consideration the relevant B
factors is without any authority of law and amounts to taxation in disguise
which is ultra vires the Constitution. According to the respondents, the
purpose sought to be achieved by rounding off is to maintain a uniform price
of kerosene throughout the State and the fund at the level of the Director or
the Collectors serves the laudable purpose of maintaining and strengthening C
supply and availability of kerosene to consumers, some of them situated in
far off and remote villages. It is pointed out that in appointing fair price shops
or retailers preference is given to co-operative societies which are not
possessed of transportation and stor~ge facilities. The fund is utilized for
making available storage tanks, drums and barrels to such outlets as do not
have them. The levy of such rounding off charges is protected by the power D
of the State Government to add charges prescribed by the State Government
or the District Collector within the meaning of clause {d) of para 2 of the
kerosene order. In C.A. arising out ofSLP (C) 14950of1999, in the counter
affidavit filed on I 7.2.2000, it is stated that the amount collected by way of
rounding off is only to be spent for strengthening of and ensuring proper E
functioning of public distribution system and to ensure adequate and continued
supply of kerosene in each and every corner of the State of Madhya Pradesh.
Such collection of fund commenced in May, 1998. However, how and in what
manner the amount shall be spent was not taken care of. The Writ Petitions
were filed in the High Court in the month of February, 1999. In the counter
affidavit, it was stated that the rules governing such rounding off and F
development were to be notified as early as possible. The rules, for whatever
worth they are, have been framed and promulgated only on 20/21.3.200 I.
Needless to say the rules are in the form of executive directions and cannot
have the force of law.

The challenge of the appellants is that the impugned action of the State G
Government, the Director and the Collectors has resulted in the prices of the
kerosene being increased by 5.13% in different areas in the garb of rounding
off. In the rejoinder affidavit dated 26.12.2001 (filed on 10.01.2002) on behalf
of the appellants, it is stated that the State of Madhya Pradesh has been able
to build up a fund of about 100 to 150 crores, oul of which a fraction of H
;

748 SUPREME COURT REPORTS [2002) 3 S.C.R.

A around Rs.6.77 crores is shown to have been spent in about 3 years and a
huge sum of money is still available with the State Government not utilized
for the purpose for which it purports to have been collected.

We are not, in these matters, !iO much concerned with the utilization of
the fund. Primarily we have to examine whether by an action of the executive,
B the State Government can build up a fund by including an amount in the sale
-
price of controlled commodity for the purpose of administering the public
distribution system of the controlled commodity. Section 3 of Essential
Commodities Act, wherefrom the power to fix price of an essential commodity
~ .....
originates spells out the object of fixing the fair price. Under sub-Section (1)
c of Section 3 the fair price has to be so appointed as would maintain or
increase the supply of any essential commodity or secure their equitable
distribution and availability at fair prices. Clause (c) of sub-Section (2) of
Section 3 contemplates the price being so fixed, as to control its being bought
or sold at an appointed price which obviously should be a fair price. Kerosene
Order defines the 'declared price' being the maximum selling price by reference
D to an area. Apart from the cost of production, what can be in~luded therein
are other charges, rates, duties, taxes prescribed by the State Govef!lment or
District Collector in the case of an area of a State. The term 'prescribed' A_
contemplates the determination of charges, rates, duties and taxes which are
leviable on kerosene under the law of the State or local legislation and are,
E therefore, better known to the State Government or District Collectors and
would be available to be added to the maximum selling price declared by the
Central Government or by the State Government subject to delegation of
power by the Central Government. The definition of 'declared price' cannot
be so read as empowering the State Government, the Director or the District
Collectors to prescribe by themselves and levy on the kerosene, any charges,
F rates, duties and taxes in purported exercise of power under the Control Order.
In other words, the charges, rates, duties and taxes must be pre-existing or ..c:_
. .....
originating from a lawful source other than the provisions of the Kerosene
Order and can only be quantified by the State Government or District Collector
so as to be prescribed for being added to the declared maximum selling price.
The term 'charges' must be read ejusdem generis taking colour from the
G
succeeding terms-rates, duties and taxes.

What the State Government, the Director and the Collectors have done
goes beyond the powers conferred by the Act and the Kerosene Order. They
have abrogated to themselves a power of levying a tax, as it were, and to )'

H collect an amount in the name of rounding off for the purpose of building up
NAGR!K UPBHOKTA M. MANCH v. U.0.L [R.C. LAHOT!, J.] 749
a separate fund of their own to be utilized for the purpose of administering A
> public distribution system of kerosene. This is wholly an unauthorized
collection. In Shri Meenakshi Mills ltd v. Union of India, [1974] I SCC 468,
the object of fixing control price under Section 3(1) read with Section 3(2) (c)
-,.
of the Act, has been stated as under:

"The control of prices may have effect either on maintaining or B
increasing supply of commodity or securing equitable distribution and
availability at fair prices. The controlled price has to retain this

- ""
equilibrium in the supply and demand of the commodity. The cost of
production, a reasonable return to the producer of the commodity are
to be taken into account. The producer must have an incentive to
produce. The fair price must be fair not only from the point of view
c
of the consumer but also from the point of view of the producer. In
fixing the prices, a price line has to be held in order to give preference
or pre-dominant consideration to the interest of the consumer or the
general public over that of the producers in respect of essential
commodities. The aspect of ensuring availability of the essential D
commodities to the consumer equitably and at fair price is the most
t important consideration."

In the State of Kera/a and Ors. v. K.P. Govindan, Tapioca Exporter and
Ors., [1975] I SCC 281, administrative surcharges were sought to be levied
under a Control Order issued in exercise of the powers conferred by sub- E
Sections (I) and (2) of Section 3 of the Essential Commodities Act, 1955. It
was held that such levy and realization were without the authority of law. A
tax or fee, as advised, could be levied in accordance with law if permissible,
but not the administrative charges, by exercising a power conferred by the
Control Order.
.,._ F
> If the State Government undertakes to ensure distribution and availability
of an essential commodity by public distribution system, it has to provide for
a system and make the commodity available. Provision has to be made for
maintaining the system independent of the price of the essential commodity
sought to be distributed. Any tax or fee or levy, for the matter of that, must G
satisfy the requirement of Article 265 of the Constitution apart from the
legislative competence.

It is interesting to note that in 1983, the Collector, Jabalpur based on
an order passed by the Director, Food and Civil Supplies had fixed the price
of kerosene at Rs.2.02 paise per litre at which the kerosene could be sold in H
750 SUPREME COURT REPORTS [2002) 3 S.C.R.

A retail. 2 paise coins were not available because of minting thereof having been
discontinued. The Collector directed the price to be fixed at Rs. 2.05 paise by
rounding it off and the difference of 3 paise per litre to be deposited with the
Collector to be utilized for the purpose of Samajik Suraksha (Social Security).
Such rounding off was challenged in M.P. No. 1944/83 Sharai Chandra
B Tiwari v. State of MP. By judgment dated 2.5.1984, a Division Bench of the
High Court of M.P. struck down the levy of 3 paise per litre and directed the
sale price of kerosene price to be re-fixed. During the course of its judgment
the High Court observed:

" ......... It is, therefore, a case where the persons needing care of the
c State are required to contribute for financing a scheme of general
welfare likely to be framed by the State. This cannot be done except
by the authority of law. The only law relevant for such charge, is the
Kerosene Control Order. The Order does not permit the Collector to
charge anything for the State. Its scope is limited only to fixation of
selling price. Various components of selling price are given in Rule 3
D of the order which does not include such a charge. Under the
circumstances, it is obvious that levy of excess amount of 03 paise
per litre is outside the authority of the Collector acting under the

E
Order. The impugned order, therefore, cannot be sustained."

Not only the levy in the guise of rounding off is unlawful and
-
unauthorized but on the stand taken by the respondents themselves showing
the manner in which the fund has been operated and utilized makes the
position worst. The Rules framed on 20/21-3-2001, during the pendency of
these petitions before this Court are shocking - to say the least. In the name
of rounding off, the sale price by wholesaler and the sale price by retailer have
F been appointed so strategically as to generate a substantial fund. An amount
of Rs. 9,97,817 has been spent for purchasing computers, an amount of Rs. •
A, '
98, 15,689 has been spent for procuring office assets and an amount of Rs.
29,97,J58 has been incurred by way of miscellaneous expenditure, the details
whereof are not known. A huge fund stands accumulated to the credit of
G several collectors in several districts and the director and it is not shown for
what purpose it is proposed to be utilized. March, 200 I executive instructions,
styled as Rules, go to show that the amount from the sale of condemned
vehicles and articles purchased out of the fund, the rental amount of godowns,
shops, tankers drums etc. generated out of the fund and any other amount
which is receivable under the Rules shall be utilized for augmenting the fund.
H Para 6 of March 200 I Rules indicates works of permanent nature being
NAGRIK UPBHOKTA M. MANCH v. U.0.1. [R.C. LAHOTI, I.] 751
constructed, vehicles purchased and several other activities such as A
> information and training and giving away the awards being drawn out of the
fund. All this is to be done from the amount collected in the name ofrounding
off from the poorest of the citizens for whom kerosene is the cooking medium.
It was understandable if the State Government had taken a policy decision
to sell the kerosene at a uniform price at all the retail supply points within
a district or region or entire State and for that purpose it would have so B
appointed the wholesale and the retail prices as to work out deficit somewhere
and surplus elsewhere but the deficit and the surplus being fully set off
. against each other. Any fund devised for the purpose of collecting the
surplus and utilizing the amount so collected for compensating the deficit,
would have enabled uniformity of fair price being maintained throughout the c
district or region where it was sought to be so maintained. Then the State
Government could not have been accused of having brought into being a
levy for its own pu~e. The beneficiary would have been the consumer by
availing the kerosene at a uniform fair price. But that is not what has been
done. The Director and the Collector and the executive wing of the State, what
they have done is to develop a local administration, levy charges for developing D
a fund at their own level, administered by them for running a department or

, " system of governance. Such collectio!Nmfl fund has no sanctity in law and
is violative of Article 265 of Constitution.'

For the foregoing reasons, the appeals are allowed. The impugned
E
judgment of the High Court is set aside. The system of rounding off the price
so as to build up a fund available with the Director and the Collectors is
directed to be quashed being ultra vires of Article 265 of Constitution and
Section 3 of the Essential Commodities Act and Para 2 ( d) of Kerosene
Restriction on Use and Fixation of Sale Price Order, 1993. The appeals stand
disposed of accordingly. F
1>
" However, on the facts brought to the notice of this Court, the matter
cannot be left at that alone. We have the figures of the collection and
utilization of the fund upto 31.7.200! brought to our notice. During the
pendency of these appeals, further amount must have been collected and also
spent. Some directions would be required to be made for utilizing the fund
G
so available with the officers of the State Government. This Court would also
like to know how and for what purpose the fund has been utilized and
whether timely audits of the fund were carried out. For this purpose we
request the Accountant General of Madhya Pradesh to carry out the audit of
the fund as available with the Director and the Collectors of the Districts in H
752 SUPREME COURT REPORTS [2002] 3 S.C.R.

A the States of Madhya Pradesh and Chhattisgarh, the latter State having been
carved out and formed during the pendency of these Special Leave Petitions.
Apart from carrying out the usual audit, we request the Accountant General

B
of Madhya Pradesh to compile the expenditure under different heads and sub-
heads so as to clearly indicate for what purpose the fund has been utilized.
We hope the audit will be completed in a period of 4 months from the date
of communication of this order to the Accountant General of Madhya Pradesh.
-
On receipt of the report of the Accountant General, the same shall be laid
before the Court soliciting further directions. Till then, the amount collected
in the said fund by the Director of Food & Civil Supplies and the Collectors
of the Districts shall stand frozen.
c S.K.S. Appeals allowed.

" -

y