2018 (1) TMI 1221 - SC - Indian Laws

Supreme Court: Legal Metrology Act doesn't apply to mineral water sales above MRP

The Supreme Court held that the Standards of Weights and Measures Act, 1976, and the Legal Metrology Act, 2009, do not apply to the sale of mineral water ... Composite contract of service coupled with incidental sale - definition of 'sale' in statutory enactments - Article 366(29-A)(f) deeming supply of food or drink as sale - scope and object of legal metrology legislation as consumer-protection of packaged commodities - institutional consumer exclusion under rules - non-application of weights and measures / legal metrology provisions to predominant service transactions in hotels/restaurantsComposite contract of service coupled with incidental sale - definition of 'sale' in statutory enactments - Whether transactions in hotels and restaurants consisting predominantly of service, though involving supply of packaged commodities (e.g., bottled water), fall within the statutory concept of 'sale' under the Standards of Weights and Measures Act, 1976 and the Legal Metrology Act, 2009. - HELD THAT: - The Court held that longstanding precedents establish that sales of food and drink in hotels and restaurants are ordinarily part of one indivisible contract of service with incidental sale elements, where the service element is dominant. The statutory definition of 'sale' in the 1976 Act, and identically in the 2009 Act, continues to mean transfer of property in goods for consideration and has not been amended to split composite contracts into discrete sales in contexts dominated by service. Given the object of the metrology statutes - to standardise packaged goods and protect consumers by mandating declaration of quantity and MRP - those enactments were not intended to apply to predominant service transactions where the sale element cannot be separated. [Paras 9, 10, 13]Composite service contracts in hotels/restaurants, where service is the dominant element, do not fall within the statutory 'sale' for purposes of the 1976 Act or the 2009 Act and thus are not caught by weights-and-measures / legal metrology provisions as regards charging above MRP.Article 366(29-A)(f) deeming supply of food or drink as sale - definition of 'sale' in statutory enactments - Whether the Constitution (Forty-sixth Amendment) inserting Article 366(29-A)(f) alters the applicability of the metrology enactments to hotel/restaurant transactions. - HELD THAT: - The Court noted that Article 366(29-A)(f) deems supply of food or drink by way of or as part of any service to be a sale. However, despite this constitutional amendment, Parliament did not alter the statutory definition of 'sale' in the 1976 Act nor in the 2009 Act. The 2009 Act's objects indicate consolidation and simplification rather than an expansion to capture composite service-dominated transactions. Consequently, the mere existence of the constitutional deeming provision did not change the statutory scope as applied to hotel/restaurant service transactions in this context. [Paras 11, 12, 13]The constitutional deeming provision in Article 366(29-A)(f) does not, in the absence of corresponding amendment to the statutory definition within the metrology enactments, operate to bring predominant hotel/restaurant service transactions within those Acts for the purpose contested in these appeals.Scope and object of legal metrology legislation as consumer-protection of packaged commodities - institutional consumer exclusion under rules - non-application of weights and measures / legal metrology provisions to predominant service transactions in hotels/restaurants - Whether provisions and rules (including the definition of 'pre-packaged commodity' and Rule 3 explanation regarding 'institutional consumer') of the Legal Metrology Act and Rules operate to subject hotels/restaurants to the Chapter dealing with packaged commodities for the purpose of prosecuting charges for selling above MRP. - HELD THAT: - The Court examined the objects of the metrology enactments and the definition of 'pre-packaged commodity', observing that the definition concerns predetermined quantity and is directed to labelling, packaging and standardisation. Rule 3 expressly exempts packaged commodities meant for institutional consumers such as hotels from the applicability of the Chapter. Even absent that specific exemption, the Court concluded that the Act and Rules are not designed to regulate composite service transactions in hotels/restaurants where the service element predominates and the metrology provisions would not be an appropriate instrument to interdict charging above MRP in that context. [Paras 8, 15, 16, 17]The definitions and rules within the Legal Metrology Act and its Rules do not bring predominant hotel/restaurant service transactions within the Chapter on packaged commodities for prosecution of sales above MRP; the Chapter's scope and Rule 3 further support non-applicability to hotels.Non-application of weights and measures / legal metrology provisions to predominant service transactions in hotels/restaurants - Whether the Division Bench's disposal by consent ought to preclude this Court from determining the legal question de novo. - HELD THAT: - The Court observed that a concession made by counsel before the Division Bench cannot bind the party on a jurisdictional point, particularly in matters akin to criminal prosecutions. The present appeals raise a substantive legal question about the reach of the metrology enactments, which the Court addressed on merits despite the earlier consent disposal in the High Court. [Paras 6, 14]The earlier consent/disposal did not prevent the Supreme Court from adjudicating the substantive legal question; the Court proceeded to decide the merits and held the metrology enactments inapplicable as above.Final Conclusion: The appeals are allowed; the Standards of Weights and Measures Act, 1976 (with the 1985 enactment) and the Legal Metrology Act, 2009, together with the relevant Rules, do not apply so as to interdict hotels and restaurants from charging prices above the printed MRP for bottled mineral water when such supply forms part of a composite service transaction where the service element predominates; the High Court orders under challenge are set aside. Issues Involved:1. Applicability of Standards of Weights and Measures Act, 1976, Standards of Weights and Measures (Enforcement) Act, 1985, and Standards of Weights and Measures (Packaged Commodities) Rules, 1977 to services rendered in hotels/restaurants.2. Legality of charging prices higher than the Maximum Retail Price (MRP) for packaged water bottles in hotels/restaurants.3. Interpretation of the definition of 'sale' under the 1976 Act and the Legal Metrology Act, 2009.4. Impact of the Constitution (forty-sixth Amendment) Act on the definition of 'sale.'5. Validity of the concession made by the counsel before the Division Bench of the High Court.Detailed Analysis:1. Applicability of Standards of Weights and Measures Act, 1976, and Related Provisions:The Federation of Hotel and Restaurant Associations of India filed a Writ Petition seeking a declaration that the provisions of the Standards of Weights and Measures Act, 1976, the Standards of Weights and Measures (Enforcement) Act, 1985, and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 are not applicable to services rendered in hotels/restaurants. The Single Judge held that charging prices for mineral water in excess of MRP during the service of customers in hotels and restaurants does not violate any provisions of the SWM Act, as it does not constitute a sale or transfer of these commodities by the hotelier or restaurateur to its customers.2. Legality of Charging Prices Higher than MRP:The Controller of Weights and Measures sought to proceed against hotels and restaurants for charging prices higher than the printed MRP for packaged water bottles. The Single Judge concluded that the transaction in hotels/restaurants is predominantly a service and not a sale of drinking water, thus not violating the SWM Act. The Division Bench, in a Letters Patent Appeal, left the question of law open for adjudication under the new Legal Metrology Act, 2009.3. Interpretation of the Definition of 'Sale':The definition of 'sale' under the 1976 Act and the Legal Metrology Act, 2009 was scrutinized. Both Acts define 'sale' as the transfer of property in goods for cash or other valuable consideration, excluding services. The Supreme Court held that composite contracts for services and goods in hotels/restaurants do not fall under the definition of 'sale' in these Acts, as they are indivisible contracts where the service element is dominant.4. Impact of the Constitution (forty-sixth Amendment) Act:The Constitution (forty-sixth Amendment) Act introduced Article 366 (29-A), which deems the supply of food or drinks as part of a service to be a sale. However, the Supreme Court noted that despite this amendment, the definition of 'sale' in the 1976 Act and the 2009 Act was not amended to include such composite contracts. Therefore, the constitutional amendment does not affect the interpretation of 'sale' under these Acts.5. Validity of the Concession Made by Counsel:The Division Bench's judgment was influenced by a concession made by the counsel for the writ petitioners. The Supreme Court emphasized that concessions on jurisdictional questions, particularly relating to criminal prosecutions, do not bind the parties. The Court held that the learned Single Judge's judgment, which was detailed and comprehensive, should not have been brushed aside based on such a concession.Conclusion:The Supreme Court concluded that neither the Standards of Weights and Measures Act, 1976, nor the Legal Metrology Act, 2009, applies to the sale of mineral water in hotels and restaurants at prices above the MRP. The appeals were allowed, and the judgments of the High Court dated 11.02.2015 and 15.05.2015 were set aside.