Page 1 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

1

Page 2 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

2

Page 3 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

3

Page 4 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

4

Page 5 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

5

Page 6 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

6

Page 7 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 or

importer shall give effect to

the price of a bulk drug or

formulation, as the case may

be, as fixed by the

government from time to time

within 15 days from the

receipt by such manufacturer

or importer of the

communication in this behalf

from the government and

issue a supplementary price

list in this regard to the

dealers, state drugs

controllers and the

government and indicate

necessary reference to such

price fixation.

14(1) Every manufacturer or

importer shall carry into effect

the price of a bulk drug or

formulation, as the case may be,

as fixed by the Government

from time to time, within fifteen

days from the date of

notification in the Official

Gazette or receipt of the order

of the Government in this behalf

by such manufacturer or

importer.

17. Every manufacturer

importer or distributor of a

formulation intended for sale

shall display in indelible print

mark, on the label of container

of the formulation and the

minimum pack thereof offered

for retail sale, the maximum

retail price of that formulation

with the words “retail price not

to exceed” preceding it, and

“local taxes extra” succeeding

it.

14(2) Every manufacturer,

importer or distributor of a

formulation intended for sale

shall display in indelible print

mark, on the label of container

of the formulation and the

minimum pack thereof offered

for retail sale, the retail price of

that formulation notified in the

Official Gazette or ordered by

the Government in this behalf,

with the words “retail price not to

exceed” preceding it, “local

7

Page 8 Provided that in the case of a

container consisting of smaller

saleable packs, the retail

price of such smaller pack

shall also be displayed on the

label of each smaller pack

and such price shall not be

more than the pro-rata price of

the main pack rounded off to

the nearest paisa.

taxes extra” succeeding it, and

“under Government Prices

Control” on a red strip, in the

case of scheduled formulations:

Provided that in the case of a

container consisting of smaller

saleable packs, the retail price

of such smaller pack shall also

be displayed on the label of

each smaller pack and such

price shall not be more than the

pro-rata retail price of the main

pack rounded off to the nearest

paisa.

21. Prices to the traders:-

(1) A manufacturer,

distributor or wholesaler shall

sell a formulation to a retailer,

unless otherwise permitted

under the provisions of this

Order or any other made

thereunder, at a price equal to

the retail price (excluding

excise duty, if any) minus 16%

thereof in the case of price

controlled drug.

(2) Notwithstanding anything

contained in sub-paragraph

(1), the Government may by a

general or special Order fix, in

public interest, the price to the

wholesaler or retailer in

respect of any formulation the

price of which has been fixed

or revised under this Order.

14(3) Every manufacturer or

importer shall issue a price list

and supplementary price list, if

required, in form V to the

dealers, State Drugs Controllers

and the Government indicating

reference to such price fixation

or revision as covered by the

order or Gazette notification

issued by the Government from

time to time.

15(1) Every manufacturer,

importer or distributor of a non-

scheduled formulation intended

for sale shall display in indelible

print mark, on the label of

container of the formulation and

the minimum pack thereof

offered for retail sale, the retail

price of that formulation with the

words “retail price not to

exceed” preceding it and the

words “local taxes extra”

8

Page 9 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

9

Page 10 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

10

Page 11 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 15

th

day after the date of

notification in the official gazette or the date of receipt of price

fixation/reduction order) are not subject to the price reduction and,

accordingly, the said pre-effective batch products can be sold at the

previously existing and operating prices which would be printed on them.

25. It is argued by Mr. S. Ganesh that the said circular has not

been withdrawn and it has been continuously observed by the trade as well

as by the Central Government for several decades. It is his submission that

if the interpretation as above is not accepted, the consequence will be that

the period of 15 days expressly allowed by para 14(1) of the DPCO,1995

and the specific provision in Form V regarding the effective batch number

11

Page 12 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 15

th

day after the date of

1

Union of India v. Ranbaxy Laboratories Limited and Others; [(2008) 7 SCC 502]

12

Page 13 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

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]

13

Page 14 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

14

Page 15 very clear and that scheme is that once the price is notified for a

formulation, the sale to the consumer can only be at the notified price.

Learned Additional Solicitor General submits that para 16 of the

DPCO,1995 imposes an absolute obligation on all persons not to sell any

formulation to any consumer at a price exceeding the price specified in the

“current price list” or price indicated on the label of the container or back

thereof, “whichever is less”.

32. With reference to the definition of the expression ‘price list’ in

para 2(u) of DPCO,1995 learned Additional Solicitor General submits that

the price specified in the current list is nothing but the currently notified

price of the bulk drug or formulation under the DPCO. For purpose of

interpreting the expression “price specified in the current price list”, it is

essential that the manufacturer has not defaulted in its obligation to issue

price list or supplementary price list. The ‘current price list’ is, therefore,

simply the price list reflecting the currently operating notified price under

the DPCO. Moreover, price specified in the current price list is nothing but

the MRP reflected in column 11 of Form V. Thus, regardless of the entry in

column 11, “effective batch number” the price specified in column 11 is the

price specified in the current price list, for the purposes of para 16. Batch

number is not relevant for the purpose of identifying this price. It is the

submission of the learned Additional Solicitor General that batch number is

altogether different concept which may be traced to Rule 96 of the Drugs

and Cosmetics Rules, and the reference to effective batch number in Form

15

Page 16 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

16

Page 17 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

4

Union of India and Another v. Cynamide India Limited and Another; [(1987) 2 SCC 720]

17

Page 18 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.

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]

18

Page 19 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

7

Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries; [(2008) 13 SCC 1]

19

Page 20 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. ………

20

Page 21 (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

21

Page 22 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

22

Page 23 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

23

Page 24 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

24

Page 25 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

25

Page 26 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

26

Page 27 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 Limited

4

, though the Court was concerned

with challenge to the notifications issued by the Central Government fixing

the maximum prices at which various indigenously manufactured bulk

drugs could be sold under the DPCO,1979 but the prefatory statement

made by this Court in paragraph 2 is worth noticing. In paragraph 2

(Pg. 733) of the Report, the Court observed:

27

Page 28 “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 Industries

3

, while dealing with exemption

notification issued under the Central Excises and Salt Act, 1944, this Court

in paragraphs19 and 20 observed as follows:

28

Page 29 “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 Corporation

8

has been followed in Arviva Industries

9

.

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.)]

29

Page 30 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 Laboratories

1

, wherein this Court had an occasion to interpret an

exemption notification issued under paragraph 25 of the DPCO,1995. By

the notification dated 29.08.1995, the exemption was granted to Ranbaxy

in respect of Pentazocine and its formulations upto 31.10.1999. This Court

held that the said exemption was available in respect of such products

manufactured upto 31.10.1999, even though the same might be sold

afterwards. It is argued that just as the exemption notification issued under

Section 25 of the DPCO,1995 was addressed to the manufacturer,

similarly, a price fixation/revision notification is also addressed to the

manufacturer who is required to effectuate the same by printing the revised

price on all products manufactured and cleared by him from the 15

th

day

after the date of the notification/receipt of the order, and also issuing a

revised price list declaring the effective batch number from which the

30

Page 31 revised price will operate. It is submitted that the reasoning of the Court in

Ranbaxy Laboratories

1

is directly applicable to the present situation

because the conceptual issue arising in both the cases is same.

62. In Ranbaxy Laboratories

1

, 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 Laboratories

1

, 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

31

Page 32 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 Laboratories

1

does not apply to the

present controversy for more than one reason. First, in Ranbaxy

Laboratories

1

, 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 Laboratories

1

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

32

Page 33 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.

33

Page 34 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

34