Introduction

The Legal Metrology Act, 2009 ("LMA Act") was enacted to establish and enforce standards of weights and measures, regulate trade and commerce in weights, measures and other goods which are sold or distributed by weight, measure or number and for matters connected therewith or incidental thereto. The LMA Act repealed the Standards of Weight and Measures Act, 1976 and the Standards of Weights and Measures (Enforcement) Act, 1985.

In the recent past, in view of the advancement in technology necessitating a review of the LMA Act and the Legal Metrology (Packaged Commodities) Rules, 2011 ("LMA Rules, 2011"), several amendments have been made to the said enactments. One such key amendment is the introduction of Rule 18(2A) into LMA Rules, 2011 vide Legal Metrology (Packaged Commodities) Amendment Rules, 20171. Rule 18(2A) provides that no manufacturer or packer or importer shall declare a different Maximum Retail Price ("MRP") on an identical pre-packaged commodity by adopting restrictive trade practices or unfair trade practices as defined under the Consumer Protection Act, 2019 ("CPA")2.

The purpose of this article is to analyse the legal position pertaining to dual pricing under the extant regime. The article also delves into the necessity of bringing a fundamental change in the approach/mindset of the regulators under the LMA Act, who generally have the tendency to enforce Rule 18(2A) of LMA Rules, 2011 in a mechanical and perfunctory manner, without appreciating the finer niceties of changing market conditions and multiplicity of platforms available for sale of products involving multiple variables including different geographical locations and associated costs.

Legal Position on Dual Pricing

Dual pricing refers to the practice of selling identical pre-packaged commodities at different MRPs by manufacturer/ importer/ packer. The LMA Act did not regulate dual pricing of the commodities as the Act was intended to primarily deal with standards of weights and measures and goods sold/distributed by weight and measure as evident on a perusal of the preamble and the object of the Act.

Subsequently, however, the Legal Metrology (Packaged Commodities) Amendment Rules, 2017 introduced Rule 18(2A) into the LMA Rules, 2011, which specifically provides that no manufacturer/packer/importer shall declare different MRPs on an identical pre-packaged commodity by adopting:

  1. restrictive trade practices, which is defined under Section 2(41) of the CPA as trade practice that tends to bring about manipulation of price or conditions of delivery or to affect the flow of supplies in the market relating to goods or services in such a manner so as to impose on the consumers, unjustified costs or restrictions and includes:
    1. delay beyond the period agreed to by a trader in the supply of such goods or in providing the services which have led or are likely to lead to a rise in the price.
    2. any trade practice which requires a consumer to buy, hire or avail of any goods or services, as the case may be, as a condition precedent for buying, hiring or availing of other goods or services.
  2. unfair trade practices, which is defined under Section 2(47) of CPA as any statement, whether orally or in writing by visible representation which has the potential to mislead the public about the concerned price at which products or goods are generally sold in the relevant market.

Before analysing the scope and ambit of Rule 18(2A) of the LMA Rules, 2011, it is also apposite to refer to relevant provisions of the LMA Act, , which have been set out hereinbelow:

  1. Section 2 (l) of the LMA Act defines "pre- packaged commodity" as 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.
  2.  Section 18 of the LMA Act provides for "Declarations on pre-packaged commodities" by prescribing that (1) No person shall manufacture, pack, sell, import, distribute, deliver, offer, expose or possess for sale any pre-packaged commodity unless such package is in such standard quantities or number and bears such declarations and particulars in such manner as may be prescribed. (2) Any advertisement mentioning the retail sale price of a pre-packaged commodity shall contain a declaration as to the net quantity or number of the commodity contained in the package in such form and manner as may be prescribed.

A consideration of the LMA Rules, 2011 prescribed under the LMA Act are also relevant for the purpose of the present analysis and have been set out hereinbelow:

  1. Rule 2 (aa) of the LMA Rules 2011 prescribes that "Consumer" shall have the same meaning as assigned to it in clause (d) of sub-section (1) of section 2 of the CPA

           *As per the CPA, a "consumer" means any person who—

  1. buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or
  2. hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who 'hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purposes;

Explanation— For the purposes of this clause, "commercial purpose" does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment.

  1. Rule 2 (b) of the LMA Rules,  2011 defines a "dealer" in relation to any commodity in packaged form, as a person who, or a firm which carries on directly or otherwise, the business of buying, selling, supplying or distributing any such commodity whether for cash or for deferred payment or for commission, remuneration or other valuable consideration, and includes a commission agent who carries on such business on behalf of any principal, but does not include a manufacturer who manufactures any commodity which is sold by such manufacturer to any other person other than a dealer.
  2. Rule 2(d) of the LMA Rules, 2011 defines "manufacturer" in relation to any commodity in packaged form, as a person who, or a firm which, produces, makes or manufactures such commodity and includes a person, firm which puts, or causes to be put, any mark on any packaged commodity, not produced, made or manufactured by him or it, and the mark claims the commodity in the package to be a commodity produced, made or manufactured by such person or firm, as the case may be.
  3. Rule 6 of the LMA Rules, 2011 provides for declaration to be made on every package as to the name and address of manufacturer and packer, common or generic names of commodities contained in package along with net quantity in terms of standard unit of weight or measure, the month and year in which the commodity was manufactured or pre-packed, the retail sale price of the package, etc.

On a perusal and careful consideration of the aforementioned provisions, it is evident that

  • Rule 18(2A) is applicable only when the pre-packaged commodities are identical:-

On a reading of Rule 18 (2A) of the LMA Rules, 2011, it becomes evident that for the prohibition contained thereunder to come into play, the pre-packaged commodity must be "identical". The word "identical" is defined in the Law Lexicon, 6th Edition as something that is "the very same". As per the Oxford Dictionary, the expression "identical" means similar in every detail and exactly alike. Thus, to attract the prohibition under Rule 18 (2A) of the LMA Rules 2011, the two commodities in question must be identical, i.e., the two commodities in question must be exactly the same in very detail including weight, colour, ingredients, packaging etc. 3

As a corollary, in case, there is a distinction between the pre-packaged products, the maximum retail price may differ. For instance, if there is a difference in quality and quantity of the pre-packaged product sold by the Company in one of the regions of Delhi in comparison to the other regions of the city, the Company may maintain a different MRP for the said product in that region.

Having said the above, it is important to keep in mind that the LMA Act is a consumer-centric Act. Therefore, in case the difference between the two pre-packaged commodities appears to be minor in terms of weight, colour, ingredients etc, the commodities in question may be considered to be "identical". Consequently, fixing different MRPs in respect of commodities with slight modifications may attract vice of Rule 18(2A) of the LMA Rules, 2011.

  • Rule 18 (2A) does not prohibit dual pricing

Prior to the introduction of Rule 18(2A) of LMA Rules, 2011, the Hon'ble Supreme Court in Pallavi Refractories v. Sangarenni Collieries Company Limited4, while upholding the legality of dual pricing held that there is no such law that a particular commodity cannot have a dual fixation of price. Dual fixation of price based on reasonable classification from different types of customers has met with approval from the courts.

It is pertinent to note that there is also no absolute bar under the LMA Act or LMA Rules, 2011 to have different MRPs in respect of identical pre-packaged commodity. While Rule 18 (2A) prohibits manufacturers, packers or importers from declaring different prices on identical products., the prohibition is subject to the pricing being arrived at by adopting restrictive or unfair trade practices as have been set out in the CPA.

Accordingly, a manufacturer, packer or importer has been prohibited from using a dual/ differential maximum retail sale price in relation to an identical commodity only if the same leads to restrictive or unfair trade practices as per the stipulations contained in the CPA. Consequently, a manufacturer, packer or importer may continue to use differential MRP in relation to an identical commodity, if sufficient justification for the same is accompanied along with such differential pricing, provided the same is not colored by unfair or restrictive trade practices.

In this background, it would be apposite to refer to a recent order of the Karnataka State Consumer Disputes Redressal Commission in Pepsico India Holdings Pvt. Ltd. v. Adithya Banavar & Ors5, where the Karnataka State Consumer Dispute Redressal Commission analysed provisions of the LMA Rules, 2011 in light of the Central Excise Act, 1944 ("CE Act"). This case, however, dealt with different MRPs of the same product within the same State. In this case, appellants argued that different pricing of products was permissible under Section 4A of the CE Act. However, the Respondents contended that different MRPs based on excise duties would only be permissible based on different geographical area and would constitute unfair trade practice when products are priced differently within the same State. The Court, after considering the submissions of both the parties, observed:

"The Respondents/complainants in their written arguments contended that the Central Excise Act, 1944 cannot in any manner govern unfair trade practice and does not permit manufacturers to mark different MRPs for the same quantity and quality of goods, nor does it make it legal. It is also contended that, the Law governs only what would be the price on which excise duty would be calculated should there be different retail prices marked, defendant on different geographical area and in the present case, marking of different MRPs is being done in the same city, being Bangalore, and not in different geographical area and without any relevance to excise duty, which amounts to unfair trade practice [....].

  [...] it is clear that the said provision cannot in any manner permit manufacturers to mark different MRPs for the same quantity and quality of goods. No doubt it only governs what would be the price on which excise duty would be calculated should there be different retail prices marked, dependent on different geographical areas."

Recently, the Central Government has, by way of Notification Numbers 06/2022-Central Tax (Rate) and 07/2022-Central Tax (Rate), both dated 13 July 2022, has now caused a food product placed in a package of any nature, irrespective of any sealing, to qualify as pre-packaged and pre-labelled and thus exigible to GST with effect from 18 July 2022. However, on reading of the aforementioned decision, it appears that selling identical pre-packaged commodities at different MRPs within the same State is likely to fall within the ambit of unfair trade practice than selling products at different MRPs in different States. This is because selling pre-packaged commodities in different States at different rates may be reasonably justified considering that different States have varying tax slabs and logistical costs to justify the price difference. 

Penalty for contravention of Rule 18(2A) of LMA Rules, 2011

The LMA Act does not explicitly provide punishment/penalty for violation of Rules 18(2) of LMA Rules, 2011. Similarly, the LMA Rules, 2011 also do not prescribe any punishment/penalty for violating 18(2) of LMA Rules, 2011. It is thus apposite to refer to Rule 32 of LMA Rules 2011, which stipulates that whoever contravenes any provisions of these rules, for which no punishment is provided, shall be punished with a fine of INR 5000-ndian Rupees Five Thousand).

 Further,  even though the LMA Act and LMA Rules, 2011 do not explicitly provide any penalty in the event of continuous contravention of Rule 18(2A), the fine of INR 5,000 (Indian Rupees Five Thousand) may be extended to INR 1,00,000 (Indian Rupees One Lakh), keeping in view the penalty provided for continuous contravention of other provisions of the LMA Act and LMA Rules, 2011.6

It is also apposite to refer Section 49 of the LMA Act, which specifically provides penalty for any offence committed by the Company.  According to Section 49, the penalty for a company who is in breach of the provisions of the LMA Act  is to publish an advertising such lapse, at its own expense or as the court may direct. This carries long-term reputational risk for the Company, particularly, in the light of the social media era that we live in.7

Moreover, if the consumer approaches the consumer forum/concerned authority, an additional compensation and litigation cost may also be imposed by the consumer forum/authority at its 

discretion. In addition to the compensation and litigation costs that may be awarded by the consumer forum/authority at its discretion, the CPA also provides penalties for offences. While the CPA does not explicitly provide a penalty for dual pricing,  however, the maximum penalty that may be imposed by the consumer forum/ authority in event of continuous contravention of any offence under the CPA is INR 50,00,000 (Indian Rupees Fifty Lakh).

Further, the CPA has now also established a Central Consumer Protection Authority ("CCPA"). The CCPA is a regulatory authority under the Act with powers of investigation, inquiry and injunctive actions. The primary objective of the CCPA is to regulate matters pertaining to violation of rights of consumers, unfair trade practices and false or misleading advertisements that are prejudicial to the interests of the public and consumers. According to Section 20(c) of the CPA, the CCPA has also been empowered to direct the discontinuation of practices that are unfair and prejudicial to consumers' interests.8

Summing up

In view of the increasing competition in the market,  Companies invest substantially in building their reputation in the market and amongst their customers. Accordingly, any form of penalty, as mentioned hereinabove, can cause significant and irreparable damage to the goodwill and reputation of the Companies. It is thus imperative for the legal metrology officers under the LMA Act to examine and analyse: (a) firstly, whether the products in question are pre-packaged commodities (b) secondly, whether the pre-packaged products in question are identical to each other; and (c) thirdly, if sufficient justification is accompanied along with such differential pricing before imposing penalties on the Companies. However, it is generally seen that the officers under the LMA Act chose to enforce Rule 18(2A) of the LMA Rules, 2011 in a mechanical and perfunctory manner without considering as to whether the said products are identical to one another or if there, is in fact, sufficient justification for maintaining different MRPs in respect of such products. By doing so, the authorities under the LMA Act are embroiling the Companies in the regulatory quagmire, thereby frustrating the whole objective of the LMA Act, which is to eliminate obsolete regulations and keep the industry and the trade business free from undue regulatory interference.

Considering that the authorities under the LMA Act are functioning in a mechanical manner, it is advisable for the manufacturer/ packer/importer to err on the side of caution and ensure that variability between the pre-packaged commodities (in form of weight, size, quality and quantity etc) is highlighted on the packaging of the products so that an average consumer can identify and differentiate between the products and thereupon dual pricing in respect of the said products can be justified.

Footnotes

1. Inserted by the Legal Metrology (Packaged Commodities) Amendment Rules, 2017 vide Notification No. GSR629(E) dated 23.06.2017 w.e.f. 01.01.2018.

2. Consumer Protection Act, 2019 has replaced the Consumer Protection Act, 1986

3. Natural Remedies Private Limited v. Indian Herbs Research & Supply Co. Ltd, O.S. No. 1 of 2004, Karnataka High Court.

4. Pallavi Refractories v Sangarenni Collieries Company Limited (2005) 2 SCC 277

5. Pepsico India Holdings Pvt. Ltd. vs. Adithya Banavar & Ors, Appeal No. 1478/2011

6. Section 36 - Penalty for selling, etc., of non-standard packages (1) Whoever manufactures, packs, imports, sells, distributes, delivers or otherwise transfers, offers, exposes or possesses for sale, or causes to be sold, distributed, delivered or otherwise transferred, offered, exposed for sale any pre-packaged commodity which does not conform to the declarations on the package as provided in this Act, shall be punished with fine which may extend to twenty-five thousand rupees, for the second offence, with fine which may extend to fifty thousand rupees and for the subsequent offence, with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees or with imprisonment for a term which may extend to one year or with both. (2) Whoever manufactures or packs or imports or causes to be manufactured or packed or imported, any pre-packaged commodity, with error in net quantity as may be prescribed shall be punished with fine which shall not be less than ten

7.  49. Offences by companies and power of court to publish name, place of business, etc., for companies convicted.—(1) Where an offence under this Act has been committed by a company,— (a) (i) the person, if any, who has been nominated under sub-section (2) to be in charge of, and responsible to, the company for the conduct of the business of the company (hereinafter in this section referred to as a person responsible); or (ii) where no person has been nominated, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company; and 14 (b) the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent the commission of such offence.

(2) Any company may, by order in writing, authorise any of its directors to exercise all such powers and take all such steps as may be necessary or expedient to prevent the commission by the company of any offence under this Act and may give notice to the Director or the concerned Controller or any legal metrology officer authorised in this behalf by such Controller (hereinafter in this section referred to as the authorised officer) in such form and in such manner as may be prescribed, that it has nominated such director as the person responsible, along with the written consent of such director for being so nominated. Explanation.—Where a company has different establishments or branches or different units in any establishment or branch, different persons may be nominated under this sub-section in relation to different establishments or branches or units and the person nominated in relation to any establishment, branch or unit shall be deemed to be the person responsible in respect of such establishment, branch or unit.

(3) The person nominated under sub-section (2) shall, until— (i) further notice cancelling such nomination is received from the company by the Director or the concerned Controller or the authorised officer; or (ii) he ceases to be a director of the company; or (iii) he makes a request in writing to the Director or the concerned Controller or the legal metrology officer under intimation to the company, to cancel the nomination, which request shall be complied with by the Director or the concerned Controller or the legal metrology officer, whichever is the earliest, continue to be the person responsible: Provided that where such person ceases to be a director of the company, he shall intimate the fact of such cessation to the Director or the concerned Controller or the authorised officer: Provided further that where such person makes a request under clause (iii) the Director or the concerned Controller or the authorised officer shall not cancel such nomination with effect from a date earlier than the date on which the request is made.

(4) Notwithstanding anything contained in the foregoing sub-sections, where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to the neglect on the part of, any director, manager, secretary or other officer, not being a person nominated under sub-section (2), such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

(5) Where any company is convicted under this Act for contravention of any of the provisions thereof, it shall be competent for the court convicting the company to cause the name and place of business of the company, nature of the contravention, the fact that the company has been so convicted and such other particulars as the court may consider to be appropriate in the circumstances of the case, to be published at the expense of the company in such newspaper or in such other manner as the court may direct. (6) No publication under sub-section (5) shall be made until the period for preferring an appeal against the orders of the court has expired without any appeal having been preferred, or such an appeal, having been preferred, has been disposed of. (7) The expenses of any publication under sub-section (5) shall be recoverable from the company as if it were a fine imposed by the court. 15 Explanation.—For the purposes of this section,— (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm but excludes nominated directors, honorary directors, Government nominated directors.

8. Section 20: Power of Central Authority to recall goods etc: Where the Central Authority is satisfied on the basis of investigation that there is sufficient evidence to show violation of consumer rights or unfair tradepractice by a person, it may pass such order as may be necessary, including-- (a) recalling of goods or withdrawal of services which are dangerous, hazardous or unsafe; (b) reimbursement of the prices of goods or services so recalled to purchasers of such goods or services; and (c) discontinuation of practices which are unfair and prejudicial to consumers' interest: Provided that the Central Authority shall give the person an opportunity of being heard before passing an order under this section.

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