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.
IN THE SUPREME COURT OF INDIA
REPORTABLE
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1939 OF 2004
GlaxoSmithKline Pharmaceuticals Limited
(Formerly known as SmithKline Beecham
Pharmaceuticals (India) Limited)
... Appellant
Versus
Union of India & Ors.
R.M. LODHA,J.
Citation;AIR2014 SC410
2.
This is a group of six appeals, by special leave, four arising
from the judgment of the Karnataka High Court and two from the Delhi High
Court.
3.
The two High Courts, Karnataka and Delhi, have taken
diametrical opposite view on the question whether the prices fixed 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,
Bangalore.
Dependal-M and Dependal Suspension and Furoxene are formulations of
Furozolidine and Metronidazole. On 09.03.1998, a notification was issued
by the National Pharmaceutical Pricing Authority (NPCA) under the
DPCO,1995, whereby the ceiling price in regard to several formulations
consisting of Furozolidine and/or Metronidazole was fixed exclusive of
excise duty and local taxes. The notification was gazetted on 09.03.1998
itself.
6.
On 10.03.1998, NPCA issued an explanatory notice clarifying
that the notification reduces the existing prices and the manufacturers must
make effective the prices so fixed/revised, within 15 days (from the date of
the notification in the official gazette or receipt of the order of the NPCA) as
required under para 14(1) of the DPCO,1995 and also issue necessary
revised price lists as required under para 14(3) of that Order.
7.
On 14.07.1998, the Inspector of Drugs, Varanasi issued a
letter addressed to the appellant-Company that it has not given the effect to
the notification dated 09.03.1998.
8.
On 22.07.1998, the appellant-Company responded to the letter
received from the Inspector of Drugs and brought to his notice that the
notification dated 09.03.1998 has been given effect to from the first batch
manufactured on the expiry of 15 days from the date of the notification
which is permissible under para 14 of the DPCO,1995.
9.
On 30.07.1998, Inspector of Drugs sent another letter to the
appellant-Company stating therein that under paragraph 16 of DPCO,1995,
all sales of the subject formulations would have to be made at the new
ceiling price fixed on 09.03.1998 irrespective of the date of manufacture of
the subject formulations. The plea of the appellant-Company was,
accordingly, rejected by the Inspector of Drugs and he proposed to initiate
the prosecution against the appellant-Company under the Essential
Commodities Act,1955 (‘EC Act’). This was reiterated by the Inspector of
Drugs in his further communication dated 16.11.1998.
10.
The appellant-Company then challenged the notices/letters
dated 14.07.1998, 30.07.1998 and 16.11.1998 by filing a writ petition
before the High Court. The writ petition was contested by the Central
Government and its functionaries.
11.
The Karnataka High Court by its judgment dated 12.11.2002
dismissed the writ petition. The principal reasoning is reflected in
paragraph 9 of the 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 every
manufacturer and distributor is duty bound to issue a revised price
list within 15 days from the date of the notification issued by the
Government under para 9 of the DPC Order. It is also clear that
manufacturers, distributors and retailers will be liable to sell
formulations from the date of such revised price list (which is
required to publish within 15 days from the date of notification) at
the revised prices and not the prices mentioned on the label of the
container or pack. In view of it, the contention of the Petitioner that
revised prices will not apply to the existing stocks but only to new
batches of drugs and formulations to be manufactured after 15
days of the notification cannot be accepted. The provisions of the
DPC Order are clear that prices should be revised within 15 days
even in regard to the formulations which were manufactured prior
to the date of notification or those manufactured within 15 days
from the date of notification.”
12.
It is from the above judgment that four appeals arise at the
instance of the manufacturer/distributor.
13.
The two appeals from the judgment of the Delhi High Court are
at the instance of the Central Government. The facts in these two appeals
in brief are these: For the period 01.04.1979 to 25.08.1987, Drugs (Prices
Control) Order,1979 (for short, ‘DPCO,1979’) was in operation. The bulk
drug Ranitidine and its formulation were not subject to price control under
DPCO,1979, and, consequently, there was no price fixation at all in respect
of Zinetac tablets.
14.
On 26.08.1987, DPCO,1987 came into force whereby the bulk
drug Ranitidine was included and, accordingly, Zinetac tablets (its
formulations) were subjected to price control.
15.
On 17.03.1988, the price fixation order was issued under para
9(1) of the DPCO,1987 fixing the retail price of Zinetac tablets. The price
fixation order is said to have been received by the manufacturer (Biotech
Pharma) on 21.03.1988.
16.
The respondent is distributor of the Zinetac tablets in the
strength of 150 mg and 300 mg per tablet manufactured by Biotech
Pharma. Zinetac is a formulation of the bulk drug Ranitidine. On
04.04.1988, the Biotech Pharma sent the supplementary price list effective
from 04.04.1988 in form V. It is the case of the respondent that the price
fixed by the price fixation order dated 17.03.1988 is applicable with effect
from 04.04.1988 (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 in respect of the very same
provisions in DPCO,1987. The Delhi High Court, accordingly, by its
judgment dated 22.10.2009 allowed the writ petition and quashed the
seizure memo whereby the goods were seized. The Union of India is
aggrieved by the judgment and the two appeals arise therefrom.
19.
We have heard Mr. S. Ganesh, learned senior counsel for the
manufacturer/distributor and Ms. Indira Jaising, learned Additional Solicitor
General for the Union of India.
20.
It is appropriate at this stage to reproduce the few relevant
paragraphs of DPCO,1987 and DPCO,1995 side by side.
DPCO, 1987
16(3) Every manufacturer or
importer shall give effect to
the price of a bulk drug or
formulation, as the case may
be,
as
fixed
by
the
government from time to time
within 15 days from the
receipt by such manufacturer
or
importer
of
the
communication in this behalf
from the government and
issue a supplementary price
list in this regard to the
dealers,
state
drugs
controllers
and
the
government
and
indicate
necessary reference to such
price fixation.
17.
Every manufacturer
importer or distributor of a
formulation intended for sale
shall display in indelible print
mark, on the label of container
of the formulation and the
minimum pack thereof offered
for retail sale, the maximum
retail price of that formulation
with the words “retail price not
to exceed” preceding it, and
“local taxes extra” succeeding
it.
DPCO, 1995
14(1) Every manufacturer or
importer shall carry into effect
the price of a bulk drug or
formulation, as the case may be,
as fixed by the Government
from time to time, within fifteen
days
from
the
date
of
notification in the Official
Gazette or receipt of the order
of the Government in this behalf
by
such
manufacturer
or
importer.
14(2)
Every manufacturer,
importer or distributor of a
formulation intended for sale
shall display in indelible print
mark, on the label of container
of the formulation and the
minimum pack thereof offered
for retail sale, the retail price of
that formulation notified in the
Official Gazette or ordered by
the Government in this behalf,
with the words “retail price not to
exceed” preceding it, “local
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 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.
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.
14(3) Every manufacturer or
importer shall issue a price list
and supplementary price list, if
required, in form V to the
dealers, State Drugs Controllers
and the Government indicating
reference to such price fixation
or revision as covered by the
order or Gazette notification
issued by the Government from
time to time.
15(1)
Every
manufacturer,
importer or distributor of a non-
scheduled formulation intended
for sale shall display in indelible
print mark, on the label of
container of the formulation and
the minimum pack thereof
offered for retail sale, the retail
price of that formulation with the
words “retail price not to
exceed” preceding it and the
words
“local
taxes
extra”
succeeding it, and the words
“Not under Price Control” on a
green strip:
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.
(2) Every manufacturer or
importer shall issue a price list
and supplementary price list, if
required of the non-scheduled
formulation in Form V to the
dealers, State Drugs Controllers
and the Government indicating
changes from time to time.
(3) Every retailer and dealer
shall display the price list and
the supplementary price list, if
any, as furnished by the
manufacturer or importer, on a
conspicuous
part
of
the
premises where he carries on
business in a manner so as to
be easily accessible to any
person wishing to consult the
same.
19(1) A manufacturer, distributor
or wholesaler shall sell a
formulation to a retailer, unless
otherwise permitted under the
provisions of this Order or any
order made thereunder, at a
price equal to the retail price, as
specified by an order or notified
by the Government (excluding
excise duty, if any), minus
sixteen per cent thereof in the
case of scheduled drugs.
(2) Notwithstanding anything
contained in sub-paragraph (1),
the Government may by a
general or special order fix, in
public interest, the price of
formulation
sold
to
the
wholesaler or retailer in respect
of any formulation the price of
which has been fixed or revised
under this Order.
21.
The comparative statement of the above provisions indicates
that para 14(1) of DPCO,1995 is identical to para 16(3) of DPCO,1987.
Para 14(2) of DPCO,1995 is identical to para 17 of DPCO,1987. Para 14(3)
of DPCO,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 them the pre-notification prices
and clear the same from his factory after paying excise duty on the basis of
such provided price.
24.
Mr. S. Ganesh, learned senior counsel relies upon the Circular
dated 28.04.1979 issued by the Central Government wherein it was
clarified that all reductions in the prices of formulations effected from time
to time by the Central Government would be applicable to the stocks
cleared on and after the date of effectuation of reduction. The clarificatory
Circular further says that price list shall state clearly the batch numbers
from which the reduction is effective. It is, thus, the submission of Mr. S.
Ganesh that the formulations which are manufactured and cleared prior to
the date of effectuation of reduction (the 15th day after the date of
notification in the official gazette or the date of receipt of price
fixation/reduction order) are not subject to the price reduction and,
accordingly, the said pre-effective batch products can be sold at the
previously existing and operating prices which would be printed on them.
25.
It is argued by Mr. S. Ganesh that the said circular has not
been withdrawn and it has been continuously observed by the trade as well
as by the Central Government for several decades. It is his submission that
if the interpretation as above is not accepted, the consequence will be that
the period of 15 days expressly allowed by para 14(1) of the DPCO,1995
and the specific provision in Form V regarding the effective batch number
11
Page 11
to which the price reduction/fixation would apply, will all be rendered
completely meaningless and otiose. With reference to practical problems, it
is submitted that the manufacturer pays excise duty on the basis of the
printed price at the time of the manufacture and clearance from his factory
and also on the payment of sales tax on the sale price charged by the
manufacturer to the distributor/wholesalers, which again will be on the
basis of the printed price. The payment of excise duty and sales tax having
become final, the differential amount cannot possibly be refunded and re-
assessed. Moreover, if a distributor/wholesaler/retailer has already paid a
higher price on the basis of the previously prevailing price, he cannot
possibly be required to sell the formulation at the newly reduced price.
According to Mr. S. Ganesh, learned senior counsel such an interpretation
will be contrary 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 Limited1 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
1
Union of India v. Ranbaxy Laboratories Limited and Others; [(2008) 7 SCC 502]
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 Gupta2.
His submission is that
under the DPCOs, every price list is in respect of “effective batch number”.
The clarification made with regard to DPCO,1979 is equally applicable for
interpretation of 1995, DPCO, since para 14(1) and 14(3) of DPCO, 1995 is
identical to DPCO,1979.
28.
Mr. S. Ganesh, learned senior counsel argues that there is no
allegation of any act or omission by the manufacturer/distributor during the
period of 15 days allowed by para 14 of DPCO,1995. He further submits
that the interpretation of DPCO,1979, DPCO,1987 and DPCO,1995 is no
more a relevant issue as with effect from June, 2013, DPCO, 2013 has
come into operation and its scheme and provisions are entirely different
from the earlier DPCOs.
29.
Relying upon the decision of this Court in Usha Martin3, it is
submitted by the learned senior counsel that the issuance of 1979 circular
shows that two views are possible and, therefore, the view beneficial to the
2
3
Desh Bandhu Gupta and Company and Others v. Delhi Stock Exchange Association Ltd.;
[(1979) 4 SCC 565]
Collector of Central Excise, Patna v. Usha Martin Industries; [(1997) 7 SCC 47]
subject
must
be
adopted,
particularly,
to
a
case
of
criminal
prosecution/penalty.
30.
It is argued by Mr. S. Ganesh that there is no provision in
DPCO or in the EC Act which nullifies or sets aside past lawfully completed
transaction for sale of goods by the manufacturer to the distributor or by the
distributor to the retailer. There is also no provision which requires the
manufacturer to reprint products already in the market with the new price.
The printing of the price is covered by Section 3(f) of the Drugs and
Cosmetics Act, 1940 and, therefore, the reprinting of the price can be done
only by the manufacturer in his licence manufacturing premises. The
manufacturer has no privity whatsoever with the retailer and may not even
know his identity. It is absolutely impossible for the manufacturer to get
possession of the goods from large number of retailers, bring them back to
his factory, reprint the lower price and then send them back to the retailer
with a lower price printed on it, so that the retailer who paid the higher price
to the distributor is then compelled to sell the goods at a loss at the lower
price. The retailer who has already paid for the goods would never part with
them; especially only for having them reprinted with a much lower price. He
submits that such an interpretation of the DPCO will be utterly unworkable
and impossible to comply with and any interpretation other than what has
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 the price list reflecting the currently operating notified price under
the DPCO. Moreover, price specified in the current price list is nothing but
the MRP reflected in column 11 of Form V. Thus, regardless of the entry in
column 11, “effective batch number” the price specified in column 11 is the
price specified in the current price list, for the purposes of para 16. Batch
number is not relevant for the purpose of identifying this price. It is the
submission of the learned Additional Solicitor General that batch number is
altogether different concept which may be traced to Rule 96 of the Drugs
and Cosmetics Rules, and the reference to effective batch number in Form
15
Page 15
V is only for internal record related purposes. There is no reference to
batch numbers in either, DPCO, 1987 or DPCO, 1995. Such reference can
only be found in Form V and Form V does not give any definition of
effective batch number.
33.
Learned Additional Solicitor General submits that the plain
meaning suggests that revised price must be carried into effect within 15
days. The words “carried into effect” read with “within 15 days” mean that
the prices of the drugs are fixed “with effect from” fifteen days from the date
of notification. The expression “within 15 days” indicates the outer limit.
34.
The contention of the learned Additional Solicitor General is
that there cannot be two different prices in the distribution chain. Each of
the DPCOs, i.e., DPCO,1979, DPCO, 1987 and DPCO,1995 contains a
provision where the benefit of the price reduction will mandatorily have to
be passed on to the consumer from the moment the reduction became
operative. While there may be several persons in the distribution chain,
there is an embargo in the DPCO preventing any person from selling to the
end-point consumer at anything above the notified price (once such price
became operative). That being the position, there cannot be one price that
is operational at the end-point of the distribution chain and another price
upstream in the distribution chain. The emphasis by the learned Additional
Solicitor General is that DPCOs ensure that consumer is given the benefit
of the notified price, upon its notification. The consumer gets the benefit of
the notified price, irrespective of batch numbers since the formulation be
interpreted with the object of the DPCO as the guiding principle. Reliance
is placed on Cynamide India Limited4.
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 shows that it is entirely within the realm of possibility. It is
emphasised that paramount consideration of the Central Government is
that the revised price must be carried into effect insofar as the consumer is
4
Union of India and Another v. Cynamide India Limited and Another; [(1987) 2 SCC 720]
17
Page 17
concerned. It is for the manufacturers and distributors to make appropriate
arrangements how the unsold stock is dealt with.
36.
As regards the circular of 28.04.1979, the submission of the
learned Additional Solicitor General is that DPCO,1979 stands repealed
and the so-called circular is not saved by the saving clause as it is not a
thing done or action taken under the DPCO. Rather it is clarification of the
DPCO itself and it cannot survive once the DPCO is repealed. The circular
of 28.04.1979 was in the context of interpretation of DPCO,1970 and
DPCO,1979 whereas the present matters are concerned with DPCO,1987
and DPCO,1995. Relying upon a decision of this Court in M/s. G.S. Dall
and Flour Mills5, it is argued that an executive instruction issued in a certain
context cannot govern a later notification. Moreover, it is submitted that if a
circular provides an interpretation that runs contrary to the provisions of
DPCO, the Court may examine the provisions and interpret them in their
proper perspective. The circular is not binding on the court. The circular is
not issued under any statutory authority and cannot be used to interpret the
provisions of the statute.
37.
It is submitted that the circular is, in any event, inconsistent
with the provisions of DPCO,1987 and DPCO,1995. It only represents the
department’s view at the time which may have been erroneous. There is
no estoppel against statute. In this regard, the decision of this Court in
Bengal Iron Corporation and Another6 is relied upon.
5
6
State of Madhya Pradesh and another v. M/s. G.S. Dall and Flour Mills;[1992 Supp.(1) SCC 150]
Bengal Iron Corporation and another v. Commercial Tax Officer and Others; [1994 Supp.(1) SCC 310]
38.
It is also argued by the learned Additional Solicitor General
that a circular which is contrary to the statutory provisions has no existence
in law. Ratan Melting & Wire Industries7 is pressed into service in this
regard. In any case, it is submitted that the manufacturer/distributor have
not relied on the circular in good faith. In 1988, there is correspondence in
the Glaxo between appellant and respondent where appellant was clearly
put to notice that it was required to comply with notified price. Despite this
correspondence, the appellant elected not to comply with the notified price.
Thus, 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
7
Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries; [(2008) 13 SCC 1]
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 controlling the price at which the essential
commodity may be bought or sold.
41.
A Committee on Drugs and Pharmaceuticals Industry (known
as the Hathi Committee) was appointed by the Central Government to
examine the various facets of the drug industry in India including the
measures taken so far to reduce prices of drugs for the consumer, and to
recommend such further measures as may be necessary to rationalize the
prices of basic drugs and formulations. The Hathi Committee in its Report
observed that there was no justification for the drug industry charging
prices and having a production pattern which is based not upon the needs
of the community but on aggressive marketing tactics and create demand.
42.
Following the Hathi Committee Report, the Government first
framed the statement on drug policy and then issued DPCO,1979. The
DPCO,1970 was accordingly repealed. DPCO,1979 is repealed by
DPCO,1987 and DPCO,1987 is repealed by DPCO,1995.
43.
In order to have the proper perspective of the matter, it is
necessary that certain provisions of the DPCO,1995 are surveyed.
Paragraph 2 is an interpretation clause, it defines certain expressions
occurring in DPCO as under:
“2. .........
(a)
“bulk drug” means any pharmaceutical, chemical, biological
or plant product including its salts, esters, stereo-isomers and
derivatives, conforming to pharmacopoeial or other standards
specified in the Second Schedule to the Drugs and Cosmetics Act,
1940(23 of 1940), and which is used as such or as an ingredient in
any formulation;
.......... ...
(d) “dealer” means a person carrying on the business of purchase
or sale of drugs, whether as a wholesaler or retailer and whether or
not in conjunction with any other business and includes his agent;
(e) “distributor” means a distributor of drugs or his agent or a
stockist appointed by a manufacturer or an importer for stocking his
drugs for sale to a dealer;
.............
(m) “manufacturer” means any person who manufactures a drug;
.............
(r) “price list” means a price list referred to in paras 14 and 15 and
includes a supplementary price list;
(s) “retail price” means the retail price of a drug arrived at or fixed
in accordance with the provisions of this Order and includes a
ceiling price;
(t) “retailer” means 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 furnish
the details to the Government in Form I and any such additional information
as may be required by the Government within 15 days of the
commencement of the production of such bulk drug. If any manufacturer
desires revision of the maximum sale price of a bulk drug fixed under sub-
paragraph (1) or (4) or as permissible under sub-paragraph (3), it is
permitted to make an application to the Government in Form I.
45.
Insofar as a retail price of scheduled formulations is
concerned, under paragraph 7, the Central Government is empowered to
fix the same in accordance with the formula laid down therein. The method
of calculation of retail price of formulation is clearly provided in paragraph
7. With a view to enable the manufacturers of similar formulations to sell
those formulations in pack size different to the pack size for which ceiling
price has been notified under sub-paragraphs (1) and (2) of paragraph 9,
manufacturers have to work out the price for their respective formulation
packs in accordance with such norms as may be notified by the
Government from time to time. The manufacturer is required to intimate the
price of formulation pack, so worked out, to the Government and such
formulation pack can be released for sale only after the expiry of 60 days
after such intimation. However, Government may, within its power, revise
the price so intimated by the manufacturer and upon such revision the
manufacturer is not permitted to sell such formulation at a price exceeding
the price so revised.
46.
Under paragraph 13, the Government has been conferred with
the overriding power requiring the manufacturers, importers or distributors
to deposit the amount accrued due to charging of prices higher than those
fixed or notified by the Government under the DPCO,1987 and so also
under DPCO,1995.
47.
One finds, therefore, that the price fixation by the Central
Government under DPCO is in the nature of legislative measure and the
dominant object and purpose of such price fixation is the equitable
distribution and availability of commodities at fair price. The whole idea
behind such price fixation is to control hoarding, cornering or artificial short
supply and give benefit to the consumer. The regulation of drug price being
ultimately for the benefit of the consumer, we must now consider the effect
of paragraph 14(1),(2) and (3), paragraph 16 (3), paragraph 19 and 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 pre-
notification 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 that upto to the expiry of the fifteenth day from the
date of notification of 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 formulation and print on them the pre-notification prices.
49.
The true import of paragraph 14(1) is that once the price
notification is gazetted, it takes effect immediately though its enforcement
is postponed by fifteen days to enable the manufacturers and others to
make suitable arrangements with regard to unsold stocks. We agree with
learned Additional Solicitor General that the period of 15 days is simply
a grace period or cooling period allowed to manufacturers to adjust
their business in a manner where appropriate arrangements are
made with regard to the unsold stocks in the distribution chain. The
argument of the manufacturer or distributor, if accepted, that the stocks
cleared by the manufacturer before the fifteenth day can be sold to the
consumer at the higher unrevised price then, in our view, that may result in
same formulation being offered for sale to a consumer at two different
prices. This must be avoided and, therefore, we do not think that the
interpretation put forth by Mr. S. Ganesh is reasonable. It does not deserve
acceptance.
50.
Then, the interpretation to sub-paragraph (1) of paragraph 14
urged on behalf of the manufacturer/distributor may also result in misuse by
the manufacturer inasmuch as the manufacturer may increase manufacture
of the bulk drugs during fifteen-day period of notified price and clear that
stock at the unrevised/higher price. We are afraid, this interpretation will
also lead to frustrating the regulatory regime which is sought to be put in
place by DPCO.
51.
The senior counsel for the manufacturer contends that under
paragraph 15 of DPCO,1995, it is incumbent to print the maximum retail
price on the product and that too indelibly. There is no provision for
reprinting of the labels or of return of drugs once they leave the factory
premises. Thus, the batches which have been manufactured and stamped
with old prices can continue to be sold at those prices. We do not find any
merit
in the argument. The DPCO defines ‘dealer’,
‘distributor’,
‘manufacturer’, ‘retailer’ and ‘wholesaler’. The provisions contained in
paragraphs 3,8, 9 and other relevant provisions clearly show that DPCO
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 provisions of DPCO requires not just the end point sale to
be at the notified price, but also every sale within the distribution chain
must be at the notified price, if such sale is made after the date on which
sale price is operative.
52.
Paragraph 16 of DPCO,1995 bans sale of bulk drug or
formulation to a consumer at a price exceeding the price specified in the
current price list or price indicated on the label of the container or pack
thereof whichever is less, plus all taxes, if any payable. The expressions
‘current price list’ and ‘whichever is less’ in paragraph 16 are significant
expressions. We find ourselves in agreement with the submission of the
learned Additional Solicitor General that the current price list is simply the
price reflecting the currently operating notified price under the DPCO. Once
a price is notified for a formulation, it takes effect immediately and sale of
the formulation to the consumer has only to be at the notified price. This is
the plain and ordinary meaning of paragraph 16. The expression,
‘whichever is less’ further makes it an absolute obligation on all concerned
not to sell any formulation to any consumer at a price exceeding price
specified in the current price list or price indicated on the label of the
container or pack thereof whichever is less.
53.
The requirement of issuance of a price list in Form V by the
manufacturer to the dealers, State Drugs Controllers and the Government
which mentions mandatorily effective batch number and the date thereof is
of no real help in construction of paragraph 14. Moreover, if the argument
of Mr. S. Ganesh with reference to Form V that every price list is in respect
of “effective batch number” only, is accepted, it may have effect of
overriding the entire scheme of DPCO. In our view, this cannot be done.
54.
In Cynamide India Limited4, though the Court was concerned
with challenge to the notifications issued by the Central Government fixing
the maximum prices at which various indigenously manufactured bulk
drugs could be sold under the DPCO,1979 but the prefatory statement
made by this Court in paragraph 2 is worth noticing. In paragraph 2
(Pg. 733) of the Report, the Court observed:
27
Page 27
“2. Profiteering, by itself, is evil. Profiteering in the scarce
resources of the community, much needed life-sustaining
foodstuffs and life-saving drugs is diabolic. It is a menace
which has 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, the view in the circular cannot
be followed and upheld.
57.
In Usha Martin Industries3, while dealing with exemption
notification issued under the Central Excises and Salt Act, 1944, this Court
in paragraphs19 and 20 observed as follows:
28
Page 28
“19. No doubt the court has to interpret statutory provisions
and notifications thereunder as they are with emphasis to
the intention of the legislature. But when the Board made all
others to understand a notification in a particular manner
and when the latter have acted accordingly, is it open to the
Revenue to turn against such persons on a premise contrary
to such instructions?
20. Section 37-B of the Act enjoins on the Board a duty to
issue such instructions and directions to the excise officers
as the Board considers necessary or expedient “for the
purpose of uniformity in the classification of excisable goods
or with respect to levy of duty excised on such goods”. It is
true that Section 37-B was inserted in the Act only in
December 1985 but that fact cannot whittle down the binding
effect of the circulars or instructions issued by the Board
earlier. Such instructions were not issued earlier for fancy or
as rituals. Even the pre-amendment circulars were issued
for the same purpose of achieving uniformity in imposing
excise duty on excisable goods. So the circular, whether
issued before December 1985 or thereafter should have the
same binding effect on the Department.”
58.
In Indian Oil Corporation8, this Court culled out the following
principles in relation to the circulars issued by the Government under the
fiscal laws (Income Tax Act and Central Excise Act) as follows:
“1.Although a circular is not binding on a court or an
assessee, it
is not open to the Revenue to raise a
contention that is contrary to a binding circular by the Board.
When a circular remains in operation, the Revenue is bound
by it and cannot be allowed to plead that is not valid nor that
it is contrary to the terms of the statute.
2. Despite the decision of this Court, the Department cannot
be permitted to take a stand contrary to the instructions
issued by the Board.
3. A show-cause notice and demand contrary to the existing
circulars of the Board are ab initio bad.
4. It is not open to the Revenue to advance an argument or
file an appeal contrary to the circulars.”
59.
The above legal position culled out in Indian Oil Corporation8
has been followed in Arviva Industries9.
Commissioner of Customs, Calcutta and others v. Indian Oil Corporation Limited and Anr;
[(2004) 3 SCC 488]
9
Union of India v. Arviva Industries (I) Ltd.; [2007(209) E.L.T. 5 (S.C.)]
8
29
Page 29
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 might be sold
afterwards. It is argued that just as the exemption notification issued under
Section 25 of the DPCO,1995 was addressed to the manufacturer,
similarly, a 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 15 th day
after the date of the notification/receipt of the order, and also issuing a
revised price list declaring the effective batch number from which the
revised price will operate. It is submitted that the reasoning of the Court in
Ranbaxy Laboratories1 is directly applicable to the present situation
because the conceptual issue arising in both the cases is same.
62.
In Ranbaxy Laboratories1, the exemption notification dated
29.08.1995 is reproduced in paragraph 20 of the Report which reads as
follows:
“S.O. No. 7153 (E), in exercise of the powers conferred by
sub-para (1) of Para 25 of the Drugs (Prices Control) Order,
1995, the Central Government having regard to the factors
specified in clause (e) of sub-para (2) of Para 25 of the said
Order and also having been satisfied for the need to do so
in the public interest hereby exempts the bulk drug and
formulations based thereupon specified in Column 2 of the
Table below which is manufactured by the Company
specified in the corresponding entry in Column 3 from the
operation of price control stipulated in sub-para (1) of Para
3, sub-para (1) of Para 8 and sub-para (1) of Para 9 of the
said Order, up to the period as indicated in Column 4
thereof.
Sl. No. Name of the product
1.
63.
TABLE
Name of the company Period up to which the
Exemption is granted
3
Pentazocine and its formulations M/s Ranbaxy Laboratories Ltd.
4
31-10-1999”
In paragraph 27 of the Report in Ranbaxy Laboratories1, this Court
held as under:
“27. The court while construing an exemption notification
cannot lose sight of the ground realities including the
process of marketing and sale. The exemption order dated
29-8-1995 is clear and unambiguous. By reason thereof
what has been exempted is the drug which was
manufactured by the Company and the area of exemption is
from the operation of the price control. They have a direct
nexus. They are correlated with each other. While
construing an exemption notification not only 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 centres around paragraphs 14,16 and 19 of that DPCO.
Second, the notification under consideration in Ranbaxy Laboratories1 was
an exemption notification and not a notification for fixation of price. Third,
the exemption notification is relatable to the manufacturer to the drugs
whereas price fixation notification is related to sale of drug/formulation at a
given price.
65.
The Delhi High Court in the impugned order has relied upon
1979 circular and further held that 1979 circular was in the context of
paragraph 19(1) of DPCO,1979, which is almost identical to paragraph
16(3) of DPCO,1987 and, therefore, the circular explaining the position in
respect of the DPCO,1979 would continue to hold the field in respect of the
very same provisions in DPCO,1987. We are unable to accept the view of
the Delhi High Court for the reasons which we have already discussed
above. Moreover, the Delhi High Court has gone more by practical
difficulties which a manufacturer may suffer and completely overlooked the
scheme of the DPCO which is intended to give benefit to the consumer of
the reduced current price of the formulation. It is pertinent to notice that
Delhi High Court distinguished the view of the Karnataka High Court and
observed as follows:
“We agree with the submissions made by Mr. Ganesh
that the Karnataka High Court decision did not consider
Form 5 nor its reference to “Effective Batch No.”. Nor
did the said decision refer to the Circular of 1979 which
we have already indicated to be applicable to the DPCO
1987 also. We, therefore, do not agree with the view
adopted by the Karnataka High Court. In fact, the
Supreme Court decision cited by Mr. Ganesh clearly
recognizes the practical aspects of pricing in the context
of time lags. Once the reality of time lags in the process
of manufacture, clearance, distribution and sale is
recognised, the importance of ‘Effective Batch Nos.’ as
mentioned in Form 5 comes to the fore. The Effective
Batch No. represents the cut-off for the new pricing. The
seizure memo which is impugned herein relates to Batch
No. BT 3104 (for 300mg tablets) which is prior to the
“Effective Batch No. BT 3115”. The said seizure was,
thus, in respect of tablets which had been manufactured
prior to the “effective” Batch No. BT 3115 which, we
have explained above, is to be taken as the cut-off point
insofar as the new prices are concerned.”
66.
The above view of the Delhi High Court is fundamentally
flawed and clearly wrong in light of our foregoing discussion.
The
Karnataka High Court has taken the correct view and the same is upheld.
67.
We, accordingly, dismiss the appeals preferred by the
manufacturer/distributor and allow the appeals of the Union of India. The
parties shall bear their own costs.
..........................J.
(R.M. Lodha)
New Delhi,
December 09, 2013
.... .......................J.
(Kurian Joseph)
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