TaxTMI 
TaxTMI 
TaxTMI 
2003 (8) TMI 541
X X X X Extracts X X X X
X X X X Extracts X X X X
....Control) Order, 1995 (hereinafter referred to as 'the DPCO'). Though the fixation of price pursuant to the provisions of the said order was also challenged in some of the writ petitions, that issue was not gone into by the High Court and at any rate, the mechanics of price fixation is not the contentious issue before us. However, it may be noted that the remedy by way of review is available under paragraph 22 of the DPCO to seek reconsideration of price fixation. The immediate provocation for filing the writ petitions in the High Court seems to be the notices issued by the National Pharmaceutical Pricing Authority, calling upon some of the respondent-companies to deposit the overcharged amounts in relation to the formulations of scheduled drugs. The High Court held that the concerned drugs should not have been brought within the purview of the DPCO, 1995 and consequently, there could be no fixation of price in relation to those drugs. The notices demanding overcharged amounts were quashed. The writ petitions were thus allowed by the Division Bench of High Court. The DPCO, 1995 which came into force on 6th January, 1995, was promulgated by the Central Government in exercis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e international market as a dependable exporter of bulk drugs. The drug policy with regard to pricing has been stated thus in paragraph 9 of the policy paper "9. Pricing - The aberrations which have come to notice, in the listing of drugs and their categorization for the purpose of price control, need to be eliminated by the use of transparent criteria applied across the board on all the drugs with the minimum use of subjectivity. The high turnover of a drug is an index of its extent of usage and is considered to meet the requirements of objectivity justifiable on economic considerations. However, the monopoly situation in cases of drugs with comparatively lower turnover has also to be kept in view. Also, as an experimental measure, drugs having adequate competition may not be kept under price control and if this proves successful it would pave the way for further liberalization. In the event, however, of prices of these drugs not remaining within reasonable limits, the Government would reclamp price control." In paragraph 11, it is stated - "In the light of the apprehensions expressed in the Parliament on the likely spurt in the prices of medicines, it has been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7.4(i). The central theme of the arguments is that the norms set out in sub-paras (i), (ii) and (iii) have not been adhered to by the Government while framing the first schedule to DPCO in purported implementation of the drug policy. There was either deviation from the criteria set out or there was no scientific or rational assessment of the factors relevant to the norms. Most of the arguments centered round the interpretation of the three clauses in para 22.7.2 - an exercise which is usually associated with the construction of statutes. The sum and substance of the arguments on behalf of the respondents is that the seven bulk drugs get excluded from the span of control under one or more norms spelt out in para 22.7.2, whereas the stand of the appellants is that the concerned bulk drugs were included in the schedule only after being satisfied that they came within the ambit of price control criteria. It is also the contention of the appellant that the Government's decision to bring these important bulk drugs within price control is in accordance with the objectives underlying in S. 3 of the Essential Commodities Act, particularly, the interests of consumers. Every attempt was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rliament never intended authority to make such rules. They are unreasonable and ultra vires." True, the breach of policy decision by itself is not a ground to invalidate delegated legislation. But, in a case like this, the inevitable fallout of the breach of policy decision which the Government itself treated as a charter for the resultant legislation is to leave an imprint of arbitrariness on the legislation. When the selection or classification of certain drugs is involved for the purpose of price control, such selection or classification should be on rational basis and cannot be strikingly arbitrary. No doubt, in such matters, wide latitude is conceded to the legislature or its delegate. Broadly, the subordinate law making authority is guided by the policy and objectives of primary legislation disclosed by preamble and other provisions. The delegated legislation need not be modelled on a set pattern or pre-fixed guidelines. However, where the delegate goes a step further, draws up and announces a rational policy in keeping with the purposes of enabling legislation and even lays down specific criteria to promote the policy, the criteria so evolved become the guide posts for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laid down. It is not the case of the Union of India that any different criteria had been applied while promulgating the DPCO of 1995. The controversy revolves round its actual application or methodology of working out the criteria. What is the annual turnover made up of ? In other words, how to work out the turnover figures ? Is there sufficient market competition as contemplated by Cl. (iii) ? It is with reference to these two aspects that the Government's stand has not been accepted and the writ petitioner's contention found its acceptance by the High Court. First, we shall take up the issue of 'annual turnover'. The stand of the appellant, as discernible from the affidavits on record sworn to by the officials of the Department of Chemicals and Petrochemicals, Government of India is that the turnover of bulk drug ought not to be mixed up with retail sale data of the formulations of that bulk drug; in other words, the retail sale data pertains to formulations of a bulk drug and not to the bulk drug itself. The broad manner in which the turnover has been assessed is indicated in paragraph 8 of the rejoinder affidavit filed in S.L.Ps. It is stated that the expert gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the expression 'turnover' occurring in Drugs Policy can only mean domestic sales figures and nothing else. Export sales cannot be included within the ambit of turnover. The High Court observed that the concepts of 'turnover' and 'market share' are interrelated and inter-dependent. The expression 'turnover', if interpreted in a contextual and purposive manner, would not include exports. The extent of usage of the bulk drug in the country would be determinative of turnover. By taking the export sale figures and the value of entire production of bulk drugs into account, the Central Government had acted contrary to its own guidelines contained in Drug Policy, 1994. The High Court then proceeded to discuss whether each of the drugs concerned could be brought within the purview of DCPO, 1995 and answered that question in favour of the writ petitioners. Before proceeding further, we may notice that the National Pharmaceutical Pricing Authority (NPPA) constituted by the Government of India considered the representation of Bulk Drugs Manufacturers Association (BDMA) on the subject to inclusion/exclusion of drugs under DPCO. The NPPA passed a reasoned order....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lation to a particular bulk drug, cannot be accepted. It is only what is sold out and marketed that could be legitimately regarded as turnover of the specified drug. It may be that in the absence of availability of reliable data regarding sales, the import value and production value could be the basis to estimate the sale value after giving due allowance to various factors such as wastage, unsold stocks etc. But, treating the turnover as nothing but the value of stock produced or imported during a given period will be doing violence to the ordinarily accepted meaning of the expression 'turnover'. There can be no presumption that the entire stock of bulk drug produced or imported during the year had been sold out during that year either in the form of formulations or otherwise. However, we would like to make it clear that the production and import statistics are not altogether irrelevant. They are relevant in the sense that they furnish some basis for estimating the sales when there is no other reliable and comprehensive data of sales available. The question whether export sales should also be taken into account in computing the annual turnover needs to be discussed now. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he "Modifications in Drug Policy, 1986." The principle of covering only single ingredient formulations, for purposes of calculating market share is a transparent, objective and verifiable principle and hence suitable for policy issues. Formulations of a bulk drug, containing one or more other bulk drug are not comparable in terms of their sales values. Therefore, it is practically not possible to apply the criteria relating to market share of a formulator of a bulk drug on the basis of data of its combination formulations, across the board, in a transparent, objective and verifiable manner as required for policy issues." It is, therefore, contended by the Union of India that only single ingredient formulations have to be taken into account for the purpose of working out the criterion in Cl. (iii) and that the number of single ingredient formulators of the concerned bulk drug is not discernible from ORG data. Of course, it is the contention of the respondents that no such distinction can be drawn. It is contended that such distinction is irrational. In our view, the clarification given by the Government of India reflects a reasonable view point and it cannot be said....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 11.50 crores based on the value of domestic production and imports. Moreover, there were only seven known formulators of the bulk drug. Therefore, it is contended that the drug Salbutamol does not qualify for exclusion either under clause (i) or (iii). The High Court accepted the claim of the petitioner-Company on the ground that in the counter-affidavit filed by the Union of India, there was only a bald denial and the details given by the writ petitioners were not controverted. Theophylline The writ petitioners claimed exclusion under clause (iii). The names of six bulk drug producers and 31 formulators were given in the writ petition. In the counter-affidavit, it was merely stated that there were less than five known manufacturers of bulk drug and less than 10 known formulators of the bulk drug and therefore the drug Theophylline did not qualify for exclusion under clause (iii). The High Court observed that the particulars furnished by the petitioner were not effectively controverted, there being only a bald denial. It was therefore held that the drug ought not to have been brought under price control. As per the statement furnished by the learned Solicitor General at the time....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ran both in India and foreign countries. The petitioner in W.P. No. 1974 of 2000 is Cipla Ltd. Inter alia, it is engaged in the manufacture and sale of formulations of the drug Cyproflaxacin. According to Ranbaxy Ltd., the annual domestic turnover of the drug for the year ending March, 1990 was ₹ 238 lacs and according to the Cipla Ltd., it was ₹ 243 lacs excluding the hospital and institutional sales to the extend of 15%. It is therefore contended that the drug stands excluded under clause (i) of para 22.7.2 of the Drugs Policy. It is their further contention that there was no monopoly situation as contemplated by clause (ii) inasmuch as there was no single formulator having 90% or more market share in the retail trade as per ORG data. The said turnover was calculated on the basis of estimated consumption purportedly arrived at with reference to the data relating to sales formulations given in ORG publication. The quantum of consumption was then multiplied by the then prevailing market price. However, a different method of calculation of turnover was spelt out in the representation dated 7-3-1995 submitted by Ranbaxy Ltd., to Government of India (vide Ext. B in W.P. No....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The High Court accepted the plea of the writ petitioner on the ground that there was only a bald denial in the counter-affidavit and no specific particulars were given to controvert the contention of the petitioner. In the order passed by NPPA in response to the representation of Bulk Drug Manufacturers' Association, it is stated that as per the records available, there were only three bulk drug manufacturers in the country during 1989-90. However, the names were not furnished either in this document or the counter-affidavit. As per the ORG data, the market share of the formulation sold by the petitioner-Company was 39.56% (vide annexure at page 38 of the original writ petition record) which, as pointed out by NPPA, is technically lower than 40%. We may add that it is perilously close to 40%. It should also be noted that the writ petitioner did not furnish any details of production to show that the bulk drug manufacturers mentioned by it or at least five amongst them actually produced the bulk drug. Doxycycline It is the case of the writ petitioner that it manufactures and sells single ingredient formulation containing the bulk drug Doxycycline in a concentration of 100 mg ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....petitioner - USV Limited is a manufacturer of the bulk drug 'Glipizide' which is sold under the brand name of Glynase. It does not appear that there was any other producer of bulk drug during the relevant period. It is the case of the writ petitioner that the annual turnover for the year ending 31st March, 1990 was only ₹ 82 lacs and that clause (ii) is not therefore attracted. The writ petitioner estimated the turnover figure by arriving at the consumption of the bulk drug in various formulations and by multiplying the same by the MRP (Maximum Retail Price). The ORG data relating to sales of formulations was furnished. The stand of the Central Government is that production data was not available for the year 1989-90 and the turnover of the bulk drug was determined by the expert group on the basis of the landed cost of imports during the year to the tune of ₹ 322.50 lacs. As there was only one formulator as reported in ORG survey of March, 1990, monopoly situation was considered to be existing "since one formulator was having 100% market share as on 31-3-1990". Disputing the assertion of the writ petitioner that as per ORG data furnished in Ext. F to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Retail Pharma Market in India contributes to 86% of the total market and the remaining 14% towards Hospital and Institutional sales. I would like to confirm that out of this 86% of Retail Pharma Market, ORG-MARG covers around 90% through the Retail Store Audit (RSA)." One more aspect which deserves notice is that from the ORG data, it may not be possible to ascertain whether the formulation is made up of single ingredient of the bulk drug or it has multi-ingredients. We have held that the Government of India's view that single ingredient formulators alone should be taken into account for the purpose of the criteria in clause (iii) of para 22.7.2 of Drugs Policy cannot be said to be against the policy or otherwise unreasonable. Sales of bulk drugs effected during the year by bulk drug producers including some of the respondents herein would have furnished the best indicia of domestic sale turnover of bulk drug. But, those details were not disclosed. Secondly, if the bulk drug produced was consumed by any bulk drug producer or importer and the drug was sold in the form of formulations, the statistics regarding the quantum of bulk drug utilized in such formulations and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the alleged infraction of Article 14 depends, in the ultimate analysis, on facts and figures. As already observed, ORG data is neither comprehensive nor conclusive and moreover in regard to some of the drugs, the data does not in unequivocal terms, support the case of the writ petitioners. In such a situation, further probe and analysis was required which the High Court failed to do. The version of writ petitioners regarding the quantum of turnover was accepted to be correct on its face value. That apart, in the light of the clarification given by us that single ingredient formulators alone could be legitimately taken into account in the context of clause (iii), the need for reconsideration by the High Court becomes inevitable. We are, therefore, of the view that the crucial issues regarding the applicability of criteria laid down in para 22.7.2 of the Drugs Policy require reconsideration by the High Court from various angles indicated supra in the light of the legal position enunciated and the observations made in this judgment. We have broadly indicated the aspects on which the High Court could have focused its attention before reaching the conclusion it did. Nothing precludes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oducers and formulators and their market share. Evidently, the petitioner made only a halfhearted attempt to put forward a plea of discrimination, but, it succeeded in its attempt. Coming to the other drug Amikacin Sulphate, even according to the petitioner, the import value of the drug in 1989-90 was ₹ 3.5 crores, which is much below the limit of ₹ 4 crores and even if there was a single formulator having a market share in excess of 40%, that does not make any difference. That apart, the Government of India clarified in one of the counter-affidavits filed in the High Court that on the scrutiny and verification of details submitted by the manufacturers, these two drugs were subsequently deleted from the First Schedule having regard to the criteria laid down in the policy. We have, therefore, no hesitation in reversing the conclusion of the High Court that the exclusion of the said two drugs from DPCO amounted to hostile discrimination. Regarding 'Glipizide', the plea of discrimination between this drug and another anti-diabetic drug known as insulin, found favour with the High Court. The High Court, in paragraph 90 of the judgment referred to the argument that....