Tuesday, August 20, 2013

Legal Metrology: Clarity on Institutional and Retail Consumers – Part 1

[The following post is contributed by Sunayna Jaimini, who is an Associate at Singhania and Partners, New Delhi and can be contacted at s.jaimini@singhania.in. The post contains research inputs from Kriti Kaushik, Associate at Singhania & Partners, New Delhi who can be contacted at kriti@singhania.in]

Introduction

As consumers, we all are aware that every manufacturer affixes declarations on the package of the product. These declarations include maximum retail price, name and address of the manufacturer etc. Every manufacturing company ensures that all retail packages of its products provide such statutory declarations. Companies are also aware that these declarations are not required to be affixed on packages sold to institutional and industrial consumers. These requirements and exemptions are provided under the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011 (hereinafter referred to as the “Packaged Commodities Rules”).

However, until recently manufacturing Companies were not sure whether packages sold to institutional and industrial consumers through stockiest or distributors were exempt from the requirement of affixing declarations under the Packaged Commodity Rules. It was ambiguous as to whether these products sold through distributors or stockiest would be considered retail packages. If these packages were considered retail packages then statutory declarations would be required to be affixed on these packages.

The most affected were the companies whose products by their very nature were meant for industrial and institutional consumers. Such companies would have different maximum retail prices for different industrial and institutional consumers. If such packages, when sold through distributors, were considered retail packages then MRP would have to be printed on the package. This created practical difficulties for manufacturing companies, apart from the fact that if declarations were not provided on the package the same would be considered a violation of the Packaged Commodity Rules.

Recently, on June 6, 2013, an amendment was made to the Packaged Commodity Rules wherein the definition of retail package was modified and the definition of industrial and institutional consumers was added to the definition clause. This amendment is significant as it clarified whether the packages sold to institutional and industrial consumers through distributors would be considered retail packages or not. In the post we have analyzed the Rules and judicial decisions to appreciate the intent and purpose behind the amendment.  

Analysis of the Rules

The Packaged Commodities Rules provide for the compliances required to be adhered to for the sale and distribution of packaged commodities by the manufacturer, packer or importer. Chapter II of the Package Commodity Rule details the requirements to be complied with regarding the packages intended for ‘retail sale’.  

The term ‘retail sale’ as defined under the Packaged Commodities Rules, in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales shops, agencies or other instrumentalities for consumption by an individual or a group of individuals or any other consumer. As per the definition, every sale of a commodity to a consumer through retail sale shops, agencies or other instrumentalities constitutes a ‘retail sale’.

The term ‘retail package’ was defined under the Packaged Commodities Rules, which prior to its recent amendment the definition read as-

“the packages which are intended for retail sale to the ultimate consumer for the purpose of consumption of the commodity contained therein.”

It was further provided that the expression ‘ultimate consumer’ shall not include industrial or institutional consumers. The effect being that the packages sold to industrial or institutional consumers shall not be considered as packages intended for retail sale. Therefore, any package meant for industrial or institutional consumers was not considered a retail package meant for retail sale.

Prior to the recent amendment, Rule 3 of the Packaged Commodities Rules specifically excluded the applicability of the Chapter II to packaged commodities meant to be sold to industrial or institutional consumers. The explanation to Rule 3 above defines institutional and industrial consumers as:

- “Institutional consumer” means the institutional consumer like transportation, Airways, Railways, Hotels, Hospitals or any other service institutions who buy packaged commodities directly from the manufacturer for use by that institution.

- “Industrial consumer” means the industrial consumer who buy packaged commodities directly from the manufacturer for use by that industry.

As a result of this exclusion, all packages intended to be sold to industrial or institutional consumer weere not required to comply with the requirements of Chapter II. This includes the declarations required to be made on the packages regarding Maximum Retail Price, details of manufacturer, importer and packer etc under Rule 6.

The combined reading of the definition of retail package and retail sale creates a confusion regarding the sale of packaged commodities to institutional and industrial consumers through stockiest or distributor. In the above situation, as the sale is made to an institutional or industrial consumer it is excluded from the definition of a retail package. However, as the package is not directly sold to institutional and industrial consumers the sale is covered in the definition of retail sale. This led to the confusion as to whether Chapter II applied to sale of packaged commodities meant for industrial and institutional consumer though through a distributor or stockiest.

The worst hit due to the above confusion were companies whose product by their very nature were meant for industrial or institutional consumption, and the supply chain adopted by such companies included sales through distributors. Such manufacturers were under a dilemma of whether they should provide the declarations under Rule 6 amongst other compliances under Chapter II.  Not providing the declarations and compliances under Chapter II left such manufacturers vulnerable to inspections and charges for violations of the Legal Metrology, by the Inspector, who may take the view that such packages required declarations under Rule 6. 

(to be continued)


- Sunayna Jaimini

1 comment:

Sunil Nalavade said...

I can understand railways , airlines using Institutional MRP, but its unfair to use the same in Malls and food courts. I have noticed in Bangalore Malls like Orion Mall a bottle of water costs Rs 50/- and the MRP declared on the bottle is RS.50/- also its says For Institutional Sales Only, now I don’t understand, how can the cost of the water becomes more then double in Institutional sales then what is sold outside same water bottle with retail price of MRP of Rs.20/-

This should not be allowed