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Tuesday, December 10, 2013

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  (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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