TMI Blog2014 (3) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactured within 15 days from the date of notification 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. - The view of Delhi HC are not acceptable. The above view of the Delhi High Court is fundamentally flawed and clearly wrong. The Karnataka High Court has taken the correct view and the same is upheld. - Decided against the manufacturer/distributor and in favor of Union of India. - Civil Appeal No. 1939 of 2004, Civil Appeal No. 1940 of 2004, Civil Appeal No. 1941 of 2004, Civil Appeal No. 1942 of 2004, Civil Appeal Nos. 10901-10902 of 2013 (Arising Out of SLP (Civil) Nos. 27241-27242 of 2010) - - - Dated:- 9-12-2013 - R. M. Lodha And Kurian Joseph,JJ. JUDGMENT R. M. Lodha,J. Leave granted in SLP(C) Nos.27241-27242 of 2010. 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 whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. 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. 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade 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 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 reassessed. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Another 1994 Supp.(1) SCC 310 is relied upon. 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 Industries (2008) 13 SCC 1 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 consume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether issued before December 1985 or thereafter should have the same binding effect on the Department. 58. In Indian Oil Corporation [(2004) 3 SCC 488] , 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 Industries [2007(209) E.L.T. 5 (S.C.)]. 60. In our view, it is well settled th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. TABLE Sl. No. Name of the product Name of the company Period up to which the Exemption is granted 1 2 3 4 1. Pentazocine and its formulations M/s Ranbaxy Laboratories Ltd. 31-10-1999 63. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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