India: E-Commerce Entities - Legal Metrology (Packaged Commodities) Amendment Rules, 2017

Last Updated: 10 January 2018
Article by Rajiv Khaitan, Vinay Joy and K A Alakiri

Most Read Contributor in India, December 2017

The Central Government in exercise of its powers provided under the Legal Metrology Act, 2009 (Act) issued the Legal Metrology (Packaged Commodities) Rules, 2011 (Rules) which lays down provisions in relation to pre-packaged commodities meant for wholesale and retail sale in India. The Legal Metrology (Packaged Commodities) Amendment Rules, 2017 (Amendment Rules) issued on 23 June 2017 had introduced important amendments to the Rules, especially in relation to e-commerce entities. The Amendment Rules came into force from 1 January 2018.

Some of the important amendments in relation to e-commerce entities introduced vide the Amendment Rules are as follows:

Definitions

The following definitions have been introduced:

"E-commerce" means buying and selling of goods and services including digital products over digital and electronic network;

"E-commerce entity" means a company incorporated under the Companies Act, 1956 or the companies Act, 2013 or a foreign company covered under clause (42) of Section 2 of the Companies Act, 2013, or an office, branch or agency in India covered under sub-clause (ii) of clause (v) of Section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999) owned or controlled by a person resident outside India and conducting e-commerce business;

"Marketplace based model of e-commerce" means providing of an information technology platform by an e commerce entity on a digital and electronic network to act as a facilitator between buyer and seller;

Comment

We note that while the Amendment Rules defines e-commerce entities to mean companies incorporated under the Companies Act, 1956 or the companies Act, 2013 or a foreign company or an office, branch or agency in India owned or controlled by a person resident outside India and conducting e-commerce business, the same doesn't include other prevalent entity models in India, example - a Limited Liability Partnership (LLP). We believe an explanation / amendment will soon be issued to clarify the above ambiguity.

Declarations to be made on the Portal

Rule 10 of the Amendment Rules require e-commerce entities to display certain declarations (as printed on the label of a packaged commodity) on the digital and electronic network used for e-commerce transactions. These declarations include the name and address of the manufacturer, name of the country of origin, common/ generic name of the product, net quantity, best before / use by date (if applicable), maximum retail price, dimensions of the commodity and such other declarations as provided for in the Rules (except the date of manufacture/packing of the product).

As a result of the above amendment, e-commerce entities are now required to mandatorily make declarations, similar to the declarations made on the label of the product, for all applicable pre-packaged commodities sold on their portal latest by 1 January 2018.

Pre-packaged commodity means a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre-determined quantity. Considering that nearly all products sold on the digital and electronic network are packed without the purchaser being present at the time of packing, products sold by e-commerce entities would be pre-packaged commodities and will squarely fall within the purview of the Act and the Rules.

The following products are exempt from the provisions of the Amendment Rules:

  1. packages containing food articles, which are governed by similar provisions that are present in the Food Safety and Standards Act, 2006 and the rules made thereunder;
  2. packages of commodities containing quantity of more than 25 kilogram or 25 litre;
  3. cement, fertilizer and agricultural farm produce sold in bags above 50 kilograms; and
  4. packaged commodities meant for industrial consumers or institutional consumers.

Correctness of the Declarations

The responsibility of the correctness of the declarations made on market place model e-commerce portals lie with the manufacturer/seller/dealer/importer as applicable and not the e-commerce entity, provided:

  1. the e-commerce entity's function is limited to providing access to a communication system over which information made available by the manufacturer or seller or dealer or importer is transmitted or temporarily stored or hosted;
  2. the e-commerce entity does not initiate the transmission, select the receiver of the transmission and select or modify the information contained in the transmission; and
  3. the e-commerce entity observes due diligence while discharging its duty as an intermediary under the Information Technology Act, 2000 and observes guidelines issued by the Central Government.

Comment

While we note that the responsibility as to the correctness of the declarations made on market place model e-commerce portal lies with the manufacturer/seller/dealer/importer of the product, the responsibility to make the declaration per se lies with the e-commerce entities. Thus, while the manufacturer/seller/dealer/importer, as applicable, shall be punishable under the Act and the Rules for incorrect information being declared on a market place model e-commerce portal, the e-commerce entity itself will be liable and punishable for failure to make relevant declarations as required under the Act and the Rules.

Observations

While we are of the opinion that the above amendments will require e-commerce entities to make exhaustive changes to their portals to ensure that relevant declarations as required under the Act and the Rules are duly declared, we believe that the same is essential as consumers purchasing products from e-commerce portals do not have access to the details and declarations made on the label of pre-packaged commodities, at the time of purchase.

Similar obligations were imposed on e-commerce food business operators vide Guidelines for Operations issued by the Food Safety and Standards Authority of India on 2 February 2017 effective the same day. With the Amendment Rules coming into effect, e-commerce entities including entities that sell products both using brick and mortar stores and online portals (such as grocery stores, hotels, aggregators, etc.) will now need to make relevant declarations on their portals for all pre-packaged commodities including food packages, clothing, electronic items, etc.

It is also important to note that while certain items do not otherwise qualify as pre-packaged commodities while sold in a brick and mortar store, the same items may qualify as pre-packaged commodities when sold online. For example, rice/sugar taken from a larger pack/sack, packed in small quantities in front of customers and sold to the customer in a brick or mortar grocery store do not qualify as a pre-packaged commodity. Hence, declarations as required under the Act and the Rules need not be printed on the said products. However, the same product, i.e. rice/sugar taken from a larger pack/sack in the present case, will qualify as pre-packaged commodities when sold online as the product is packed in the absence of the customer. Hence, online grocery stores who do not make declarations both on the label of their packages and on their online portal will now be required to make declarations on both the label of the product and on their online portal.

While the Rules did provide a transition period of nearly 6 months (i.e. June 2017 to Jan 2018) for implementing the requirements of the Amendment Rules, we observe that several e-commerce entities are yet to comply with the obligations imposed on them by the Amendment Rules. Kindly note that failure to make declarations as required under the Rules will amount to selling non-standard packages and will invite penalty under the Legal Metrology Act 2009 which includes fine or imprisonment or both. Hence, we suggest that e-commerce entities comply with the above requirements immediately.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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