TaxTMI 
TaxTMI 
2014 (3) TMI 113
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....under the Drugs (Prices Control) Order (for short, 'DPCO') in respect of drugs/formulations would be operative in respect of all sales subsequent to 15 days from the date of the notification by the Government in the official gazette/receipt of the price fixation order by the manufacturer. 4. The Drugs (Prices Control) Order,1995 (for short, 'DPCO,1995') was under consideration before the Karnataka High Court whereas the Drugs (Prices Control) Order, 1987 (for short, 'DPCO,1987') fell for consideration before the Delhi High Court. Although, the sequence of the relevant paragraphs in the two DPCOs differ but the relevant provisions are almost identical. The view of the Karnataka High Court has not been accepted expressly by the Delhi High Court. Since the common arguments have been advanced in this group of matters and the question of law is identical, all these six appeals were heard together and are disposed of by the common order. 5. The facts in civil appeals from Karnataka High Court are these: The appellant, in the year 1998, was manufacturer of Furoxene Tablets and was also the sole distributor for Dependal-M Tablets and Dependal Suspension manufactured by Kanpha Labs, B....
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.... judgment which reads as follows: "9. Having regard to the provisions of para 14 of DPC Order, petitioner who is a manufacturer of Furoxene tablets, ought to carry into effect the revised price fixed as per Notification dated 09.03.1998 within 15 days from the date of the said Notification or receipt of the Order of the Government. There is no dispute that the Notification dated 09.03.1998 was published in the Gazette of India on the same date. While sub-para (2) of para 14 requires the retail price of the formulation as notified by the Government being displayed on the label of the container of the formulation and the minimum pack offered for retail sale, sub-para (3) thereof requires the manufacturer to issue a price list and supplementary price list to the dealers and other persons specified therein indicating reference to price fixation/revision from time to time. Para 16 of DPC Order prohibits all persons including manufacturers/distributors/retailers from selling any formulation at the price exceeding the price specified in the current price list indicated on the label of the pack whichever is less. Thus, a combined reading of these provisions make it clear that ever....
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....on expiry of 15 days from 21.03.1988, i.e., the date of receipt of the price fixation order dated 17.03.1988). 17. On 23.05.1988, seizures were made of 300 mg Zinetac tablets from Batch No.3104. The respondent's case is that Batch No.3104 is prior to Batch No.3115 mentioned as the effective batch number in the manufacturer's letter dated 04.04.1988. 18. The respondent-Company challenged the seizure of goods by filing a writ petition before the Delhi High Court. The writ petition was contested by the Central Government before the Delhi High Court and the judgment of the Karnataka High Court was also cited. However, Delhi High Court did not agree with the view adopted by the Karnataka High Court. The Delhi High Court heavily relied upon a circular dated 28.04.1979 issued by the Ministry of Petroleum, Chemicals and Fertilizers, Department of Chemicals and Fertilizers, Government of India. The said circular though was issued in the context of paragraph 19(2) of DPCO,1979 but the Delhi High Court was of the view that the said circular was identical to paragraph 16(3) of DPCO,1987, and, therefore, the position explained in respect of the DPCO,1979 would continue to hold the field i....
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....with the words "retail price not to exceed" preceding it, "local taxes extra" succeeding it, and "under Government Prices Control" on a red strip, in the case of scheduled formulations: Provided that in the case of a container consisting of smaller saleable packs, the retail price of such smaller pack shall also be displayed on the label of each smaller pack and such price shall not be more than the pro-rata retail price of the main pack rounded off to the nearest paisa. 21. Prices to the traders:- (1) A manufacturer, distributor or wholesaler shall sell a formulation to a retailer, unless otherwise permitted under the provisions of this Order or any other made thereunder, at a price equal to the retail price (excluding excise duty, if any) minus 16% thereof in the case of price controlled drug. (2) Notwithstanding anything contained in sub-paragraph (1), the Government may by a general or special Order fix, in public interest, the price to the wholesaler or retailer in respect of any formulation the price of which has been fixed or revised under this Order. 14(3) Every manufacturer or importer shall issue a price list and supplementary price list....
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....CO,1995 is identical to para 16(3) of DPCO,1987 and para 15(1) of DPCO,1995 is identical to para 17 of DPCO,1987. 22. In light of the similarity of the above provisions, for the sake of convenience, we shall refer henceforth to the provisions contained in DPCO,1995. 23. Mr. S. Ganesh, learned senior counsel for the manufacturer/distributor argues that on a plain reading of para 14(1) of the DPCO,1995, a manufacturer is given fifteen days from the date of notification of a price fixation by the Government in the official gazette or receipt of the price fixation order by the manufacturer for carrying into effect the price of the bulk drug or formulation. Under para 14(2) of the DPCO,1995, the manufacturer is required to print indelibly the retail price of the formulation on the label of the container of the formulation with the words "retail price not to exceed" preceding it and "local taxes extra" succeeding it. Therefore, upto the expiry of the fifteenth day from the date of the notification, the price fixation order in the official gazette or receipt of the price fixation order by the manufacturer, the manufacturer is at liberty to manufacture the formulations and print on t....
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....trary to and in fact destructive of the provisions of para 19 of the DPCO,1995. 26. Mr. S. Ganesh, heavily relied upon the judgment of this Court in Ranbaxy Laboratories Limited (2008) 7 SCC 502 which interpreted an exemption notification. Drawing analogy from that judgment, it is argued that just as the exemption notification which was issued under para 25 of the DPCO,1995 was addressed to the manufacturer, similarly, price fixation/revision notification is also addressed to the manufacturer who is required to effectuate the same by printing the revised price on all products manufactured and cleared by him from the 15th day after the date of notification/receipt of the order, and also issuing the revised price list declaring the effective batch number from which revised price will operate. 27. Mr. S. Ganesh, learned senior counsel submits that the manufacturer/distributor having acted as per circular dated 28.04.1979, cannot be lawfully prosecuted/penalized since the circular constitutes the contemporanea expositio of the Central Government which framed the DPCO. In this regard, learned senior counsel places reliance upon the decision of this Court in Desh Bandhu Gupta (1979....
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.... been stated in the circular must be summarily rejected. 31. Ms. Indira Jaising, learned Additional Solicitor General, on the other hand, argues that the scheme of the two DPCOs, 1987 and 1995 is very clear and that scheme is that once the price is notified for a formulation, the sale to the consumer can only be at the notified price. Learned Additional Solicitor General submits that para 16 of the DPCO,1995 imposes an absolute obligation on all persons not to sell any formulation to any consumer at a price exceeding the price specified in the "current price list" or price indicated on the label of the container or back thereof, "whichever is less". 32. With reference to the definition of the expression 'price list' in para 2(u) of DPCO,1995 learned Additional Solicitor General submits that the price specified in the current list is nothing but the currently notified price of the bulk drug or formulation under the DPCO. For purpose of interpreting the expression "price specified in the current price list", it is essential that the manufacturer has not defaulted in its obligation to issue price list or supplementary price list. The 'current price list' is, therefore, simply th....
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....e India Limited (1987) 2 SCC 720. 35. It is also argued by the learned Additional Solicitor General that no prejudice is caused to the manufacturer/distributor as the revised price is also based on a cost plus methodology. The reduction in the price is only to reflect reduced cost and it simply prevents the manufacturers from making windfall gains by charging high prices even though costs have reduced. As regards distributors or others in the distribution chain, it is submitted that it is possible that certain stock has been purchased at the higher and revised price and is lying with the distributor or wholesaler or retailer but once the revised price comes into effect, this stock becomes unsellable at the higher price, and the losses or reductions need to be absorbed somewhere in the distribution chain. How the manufacturers/distributors and dealers, inter-se, make arrangements for these losses to be absorbed, depends on the specific contractual and credit arrangements. It is possible to work out an arrangement where the stock is recalled or necessary adjustments are made to reflect the lower price. The fact that the Chemists and Druggists Federation advocates such a mechanism ....
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....hus, the appellant can hardly rely on the circular once the respondent has put forward a certain interpretation in 1998. The appellant was fully aware of the interpretation taken by the respondent and willfully elected to act in contravention of the DPCO. That being the case, the appellant cannot now act oblivious of correspondence in 1988 and place reliance on 1979 circular. 39. It is the submission of the learned Additional Solicitor General that the relabeling is permitted under law. Earlier, issue of printing prices was governed by the Standards of Weights and Measures Act, 1976. Now it is governed by Legal Metrology Act, 2009. Legal Metrology (Packaged Commodities) Rules, 2011 (for short, '2011 Rules') contains an exemption for pharmaceuticals being cognizant of the fact that Government can fix prices at any time and such prices would need to be given effect to within the statutorily prescribed period. Therefore, relabeling may be required where there is a revision in price, and prevailing law specifically permits that by exempting price from the rigors of 2011 Rules. 40. The Central Government is empowered by Section 3 of EC Act to make an order providing for controllin....
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....eans a dealer carrying on the retail business of sale of drugs to customers; (u) "scheduled bulk drug" means a bulk drug specified in the First Schedule; . . . . . . . . . . . (y) "wholesaler" means a dealer or his agent or a stockist appointed by a manufacturer or an importer for the sale of his drugs to a retailer, hospital, dispensary, medical, educational or research institution purchasing bulk quantities of drugs. . . . . . . . .. ." 44. Under paragraph 3, the Central Government is empowered to fix price of the bulk drugs for regulating the equitable distribution of indigenously manufactured bulk drugs and the maximum price at which the bulk drug shall be sold. Such fixation of maximum sale price of bulk drugs specified in the First Schedule has to be done by notification in the official gazette. Once the Government exercises the power and fixes maximum sale price of bulk drugs specified in the First Schedule, there is ban to sell a bulk drug at a price exceeding the maximum sale price so fixed plus local taxes, if any. It is the obligation of the manufacturer, if he commences production of the bulk drug after the commencement of the order, to fur....
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....d Form V. 48. Paragraph 14 of DPCO,1995 makes provision for carrying out the effect of the price fixed or revised by the Government. Sub-paragraph (1) of paragraph 14 provides that every manufacturer or importer shall carry into effect the price of a bulk drug or formulation, as fixed by the Government, within fifteen days from the date of notification in the official gazette or receipt of the order of the Government by such manufacturer or importer. Does it mean that during this period of 15 days, it is open to the manufacturer to manufacture and clear the bulk drug or formulation at prenotification prices? We do not think so. In our view, sub-paragraph (1) of paragraph 14 does not deserve to be given a construction which is derogatory to the object and scheme of DPCO,1995. It is important to bear in mind that under paragraph 14(2), the manufacturer is required to print the retail price of the formulation on the label of the container of the formulation. This is expressed by the words "retail price not to exceed" preceding it "local taxes extra" succeeding it. In our view, sub-para (2) of para 14 does not, in any manner, support the contention of the manufacturer/distributor th....
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....PCO effectively covers the chain from manufacture of the bulk drug by the manufacturer to sale of formulation to consumer though there may be several persons in the distribution chain. The ultimate object of the DPCO is that there is no deception to a consumer and he is sold the formulation at a price not exceeding the price specified in the current price list or price indicated on the label of the container or pack thereof, whichever is less. Logically it follows that there cannot be two prices at the end point of the distribution chain depending on the batch number. A consumer approaching a chemist/retailer can hardly be offered two prices for the very same product based only on the difference in batch numbers. Consumer must get the benefit of the notified price. That is the ultimate objective of DPCO. The batch number cannot override the benefit to which a consumer is entitled on price reduction of a formulation. A fair reading of DPCO leaves no manner of doubt that a formulation cannot be sold to the consumer at the higher price (for earlier batch numbers). In this view of the matter, we find merit in the submission of the learned Additional Solicitor General that the provision....
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....as to be fettered and curbed. One of the principal objectives of the Essential Commodities Act, 1955 is precisely that. It must be remembered that Article 39(b) enjoins a duty on the State towards securing 'that the ownership and control of the material resources of the community are so distributed as best to subserve the common good'". 55. We are of the considered view that if an interpretation of paragraph 14(1),(2)(3), paragraph 16(3) and paragraph 19 of DPCO,1995 results in frustrating its object and leads to denial of the benefit of current notified price to the consumer, then such interpretation must be avoided. We, therefore, find it difficult to accept the construction put to the above provisions by Mr. S. Ganesh. 56. We may now deal with the circular dated 28.04.1979 upon which heavy reliance has been placed by Mr. S. Ganesh, learned senior counsel for the manufacturer/distributor. It is true that the principle of contemporanea expositio guides that contemporaneous administrative construction, unless clearly wrong, should be given considerable weight and should not be lightly overturned but in light of the construction of the relevant provisions indicated by us above....
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.... 59. The above legal position culled out in Indian Oil Corporation8 has been followed in Arviva Industries [2007(209) E.L.T. 5 (S.C.)]. 60. In our view, it is well settled that if the departmental circular provides an interpretation which runs contrary to the provisions of law, such interpretation cannot bind the Court. 1979 circular falls in such category. Moreover, the 1979 circular is with reference to the DPCO,1979 whereas we are concerned with DPCO, 1987 and DPCO,1995. We are not impressed by the argument of Mr. S. Ganesh that in view of the saving clause in DPCO,1987, the circular is saved which is further saved by the saving clause in DPCO,1995. 61. Mr. S. Ganesh, learned senior counsel for the manufacturer/distributor also relied upon a decision of this Court in Ranbaxy Laboratories1, wherein this Court had an occasion to interpret an exemption notification issued under paragraph 25 of the DPCO,1995. By the notification dated 29.08.1995, the exemption was granted to Ranbaxy in respect of Pentazocine and its formulations upto 31.10.1999. This Court held that the said exemption was available in respect of such products manufactured upto 31.10.1999, even though the same....
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....ly a pragmatic view is required to be taken but also the practical aspect of it. A manufacturer would not know as to when the drug would be sold. It has no control over it. Its control over the drug would end when it is dispatched to the distributor. The distributor may dispatch it to the wholeseller. A few others may deal with the same before it reaches the hands of the retailer. The manufacturer cannot supervise or oversee as to how others would be dealing with its product. All statutes have to be considered in light of the object and purport of the Act. Thus, the decisions relied upon by the learned Additional Solicitor General in Union of India v. Cynamide India Ltd.; Prag Ice & Oil Mills v. Union of India, Shree Meenakshi Mills Ltd. v. Union of India and Panipat Coop. Sugar Mills v. Union of India will have no application." 64. The issue before us is quite different and, in our view, the judgment of this Court in Ranbaxy Laboratories1 does not apply to the present controversy for more than one reason. First, in Ranbaxy Laboratories1, the Court was concerned with the exemption notification issued under paragraph 25 of the DPCO,1995 whereas in the present matters, the issue c....