Case: Glaxo SmithKline Pharmaceuticals Limited (Formerly known as SmithKline Beecham Pharmaceuticals (India) Limited) Vs. Union of India &amp; Others

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 (‘ECThis 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 asHaving 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 pricespecified in the current pricelist 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.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,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. Thecase is that Batch No.3104 is prior to Batch No.3115 mentioned as the effective batch number in theletter 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.

Reasoning:
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 prenotification 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 wordsprice not tocal taxessucceeding 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 definesThe 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 pricespecified in the current pricelist 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 pricespecified in the current pricelist or price indicated on the label of the container or pack thereof whichever is less, plus all taxes, if any payable. The expressions ‘current priceand ‘whichever isin 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 isfurther makes it an absolute obligation on all concerned not to sell any formulation to any consumer at a price exceeding pricespecified in the current pricelist 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 ofonly, is accepted, it may have effect of overriding the entire scheme of DPCO. In our view, this cannot be done.54. In Cynamide India Limited (Supra), 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 CourtWe 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 Industries (Supra), while dealing with exemption notification issued under the Central Excises and Salt Act, 1944, this Court in paragraphs 19 and 20 observed asNo 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 expedientthe purpose of uniformity in the classification of excisable goods or with respect to levy of duty excised on suchIt 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.In Indian Oil Corporation (Supra), 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) asAlthough 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.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.TABLESl. No.Name of the productName of the companyPeriod up to which the Exemption is granted12341.Pentazocine and its formulationsM/s Ranbaxy Laboratories Ltd.In paragraph 27 of the Report in Ranbaxy Laboratories (Supra), this Court held asThe 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.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 asagree with the submissions made by Mr. Ganesh that the Karnataka High Court decision did not consider Form 5 nor its reference toNor 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 Batchas 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 theBatch No. BTThe said seizure was, thus, in respect of tablets which had been manufactured prior to theBatch No. BT3115 which, we have explained above, is to be taken as the cut-off point insofar as the new prices are