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National Pharmaceutical Pricing Authority (NPCA) under the DPCO,1995, – the Drugs (Prices Control) Order (for short, ‘DPCO’) – Fixation of prices /Revised prices of the drugs manufactured & stocked by company by notification – Whether 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 – Karnataka High court held that it applies from the date of notification -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. – Delhi high court held that it applies only after 15 days of notification – Apex court held that Karnataka High court view is correct and Delhi High court view is incorrect – held that it applies only from the date of Notification to all sales & stocks = GlaxoSmithKline Pharmaceuticals Limited (Formerly known as SmithKline Beecham Pharmaceuticals (India) Limited) … Appellant Versus Union of India & Ors. … Respondents = published in http://judis.nic.in/supremecourt/imgst.aspx?filename=41053

National  Pharmaceutical Pricing Authority (NPCA) under the DPCO,1995, – the  Drugs

 

English: The supreme court of india. Taken abo...

English: The supreme court of india. Taken about 170 m from the main building outside the perimeter wall (Photo credit: Wikipedia)

 

 (Prices  Control)  Order  (for  short,  ‘DPCO’)  – Fixation of prices /Revised prices of the drugs manufactured & stocked by company by notification – Whether 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 – Karnataka High court held that it applies from the date of notification –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. – Delhi high court held that it applies only after 15 days of notification – Apex court held that Karnataka High court view is correct and Delhi High court view is incorrect – held that it applies only from the date of Notification to all sales & stocks =

 

 

 

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.

 

The  two  High  Courts,  Karnataka  and   Delhi,   have   taken

 

diametrical opposite view on the question 

 

 

 

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.

 

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. On rejection of their plea-

 

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.”

 

  =

 

 

 

  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. 

 

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. =

 

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.

 

 

 

REPORTABLE
IN THE SUPREME COURT OF INDIA

 
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. … Respondents

 
WITH

 
CIVIL APPEAL NO.1940 OF 2004
WITH
CIVIL APPEAL NO.1941 OF 2004
WITH
CIVIL APPEAL NO.1942 OF 2004
AND
CIVIL APPEAL NOS._10901-10902_OF 2013
(ARISING OUT OF SLP (CIVIL) NOS.27241-27242 OF 2010)

 
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 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 |DPCO, 1995 |
|16(3) Every manufacturer |14(1) Every manufacturer or |
|or importer shall give |importer shall carry into |
|effect to the price of a |effect the price of a bulk drug|
|bulk drug or formulation, |or formulation, as the case may|
|as the case may be, as |be, as fixed by the Government |
|fixed by the government |from time to time, within |
|from time to time within |fifteen days from the date of |
|15 days from the receipt |notification in the Official |
|by such manufacturer or |Gazette or receipt of the order|
|importer of the |of the Government in this |
|communication in this |behalf by such manufacturer or |
|behalf from the government|importer. |
|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 |14(2) Every manufacturer, |
|importer or distributor of|importer or distributor of a |
|a formulation intended for|formulation intended for sale |
|sale shall display in |shall display in indelible |
|indelible print mark, on |print mark, on the label of |
|the label of container of |container of the formulation |
|the formulation and the |and the minimum pack thereof |
|minimum pack thereof |offered for retail sale, the |
|offered for retail sale, |retail price of that |
|the maximum retail price |formulation notified in the |
|of that formulation with |Official Gazette or ordered by |
|the words “retail price |the Government in this behalf, |
|not to exceed” preceding |with the words “retail price |
|it, and “local taxes |not to exceed” preceding it, |
|extra” succeeding it. |“local taxes extra” succeeding |
|Provided that in the case |it, and “under Government |
|of a container consisting |Prices Control” on a red strip,|
|of smaller saleable packs,|in the case of scheduled |
|the retail price of such |formulations: |
|smaller pack shall also be| |
|displayed on the label of |Provided that in the case of a |
|each smaller pack and such|container consisting of smaller|
|price shall not be more |saleable packs, the retail |
|than the pro-rata price of|price of such smaller pack |
|the main pack rounded off |shall also be displayed on the |
|to the nearest paisa. |label of each smaller pack and |
| |such price shall not be more |
| |than the pro-rata retail price |
| |of the main pack rounded off to|
| |the nearest paisa. |
|21. Prices to the |14(3) Every manufacturer or |
|traders:- |importer shall issue a price |
|(1) A manufacturer, |list and supplementary price |
|distributor or wholesaler |list, if required, in form V to|
|shall sell a formulation |the dealers, State Drugs |
|to a retailer, unless |Controllers and the Government |
|otherwise permitted under |indicating reference to such |
|the provisions of this |price fixation or revision as |
|Order or any other made |covered by the order or Gazette|
|thereunder, at a price |notification issued by the |
|equal to the retail price |Government from time to time. |
|(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. | |
| |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
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 Limited[1] which interpreted an exemption
notification. Drawing analogy from that judgment, it is argued that just
as the exemption notification which was issued under para 25 of the
DPCO,1995 was addressed to the manufacturer, similarly, price
fixation/revision notification is also addressed to the manufacturer who is
required to effectuate the same by printing the revised price on all
products manufactured and cleared by him from the 15th day after the date
of notification/receipt of the order, and also issuing the revised price
list declaring the effective batch number from which revised price will
operate.
27. Mr. S. Ganesh, learned senior counsel submits that the
manufacturer/distributor having acted as per circular dated 28.04.1979,
cannot be lawfully prosecuted/penalized since the circular constitutes the
contemporanea expositio of the Central Government which framed the DPCO. In
this regard, learned senior counsel places reliance upon the decision of
this Court in Desh Bandhu Gupta[2]. 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 Martin[3], 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 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 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 Limited[4].
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 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 Mills[5], 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 Another[6] 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[7] 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 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:
“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:
“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 Corporation[8], 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[9].
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 15th 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.

 
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 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)

 
…. …………………..J.
(Kurian Joseph)
New Delhi,
December 09, 2013

 

———————–
[1] Union of India v. Ranbaxy Laboratories Limited and Others; [(2008)
7 SCC 502]
[2] Desh Bandhu Gupta and Company and Others v. Delhi Stock Exchange
Association Ltd.;
[(1979) 4 SCC 565]
[3] Collector of Central Excise, Patna v. Usha Martin Industries;
[(1997) 7 SCC 47]
[4] Union of India and Another v. Cynamide India Limited and Another;
[(1987) 2 SCC 720]
[5] State of Madhya Pradesh and another v. M/s. G.S. Dall and Flour
Mills;[1992 Supp.(1) SCC 150]
[6] Bengal Iron Corporation and another v. Commercial Tax Officer and
Others; [1994 Supp.(1) SCC 310]
[7] Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire
Industries; [(2008) 13 SCC 1]
[8] 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.)]

 

———————–
34

 

 

 

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