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

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • 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

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