Document Fragment View

Matching Fragments

2. BLPL is registered as a small-scale industrial unit. BLPL claims that it is entitled to exemption by an order dated 2nd March 1995 issued by the Ministry of Chemicals and Fertilisers under Para 25 of the DPCO 1995. BLPL states that in terms of the above exemption order every Drug Manufacturing Unit was entitled to exemption from the operation of Para 8 of the DPCO 1995 relating to the fixation of retail price of Scheduled Formulation, if it was not covered under a notification issued by NPPA under Para 9 of the DPCO 1995. BLPL was, inter alia, manufacturing and marketing Riconia tablet under its own brand name under a valid drug licence. By an order dated 25th August 1999 issued under Paras 9(1) and (2) of the DPCO 1995, the NPPA fixed the ceiling prices of certain Scheduled Formulations, which were at Serial Nos. 1 and 2 of the said order. The ceiling price would not apply to those formulations having compositions different from those at Serial Nos. 1 and 2 of the said order and the Note thereunder. According to BLPL, in view of the exemption available to it as a small-scale industrial unit the tablet Riconia was entitled for exemption in terms of exemption application No.23985. Orders dated 24th December 2002, 7th February 2006 and 11th July 2006 were issued under Paras 9(1) and 9(2) of the DPCO 1995 fixing the ceiling prices of formulations at Serial Nos. 1 and 2 of the Order. Note IV was also inserted. By orders dated 7th February 2006 and 11th July 2006, the NPPA fixed the ceiling prices of formulations to cover more bulk drugs. Note IV was inserted to the order dated 7th February 2006. Note IV envisaged that for different/compositions and packing material used or any specific feature claimed, the drug manufacturing companies had to approach the NPPA for approval of the fixation of specific prices. BLPL contends that the order dated 7th February 2006 and the subsequent order dated 11th July 2006 were not applicable to BLPL in view of the exemption to small scale industrial units. Further, tablet Riconia contained Vitamin K which was not an ingredient mentioned in the Order dated 7th February 2006 including the Note thereunder.

3. BLPL states that it was surprised to receive a notice dated 6th November 2006 from the NPPA stating that Riconia was covered under the Notification dated 7th February 2006 read with Note I to IV thereunder, and that therefore there was a price ceiling applicable to it. BLPL replied on 24th November 2006 clarifying that it was not producing any formulation with the composition specified in the Notification dated 7th February 2006 and was therefore not covered by the said Notification. By a letter dated 3rd January 2007 the NPPA directed BLPL to furnish all the requisite information and documents. BLPL replied on 15th January 2007 and requested for a personal hearing. A personal hearing was thereafter given to BLPL and written submissions were also filed by it. By an order dated 16th April 2008 the NPPA raised a demand in the sum of Rs. 1,07,03,216/- on the alleged ground of overcharging by BLPL in terms of the DPCO 1995. BLPL protested against the demand by its letter dated 6th May 2008. Thereafter various demands were sent by the NPPA to BLPL reiterating the demand alongwith interest. By the impugned demand dated 27th November 2008 NPPA required BLPL to deposit a sum of Rs. 1,41,57,104/-. This was followed by the Respondents sending a request to the Assistant Collector, New Delhi who in turn sent a notice to BLPL asking it to deposit Rs. 1,43,57,790/- within seven days failing which it would be recovered as arrears of land revenue. BLPL thereafter filed the present Petition challenging the demand dated 27th November 2008 and the Notification/Order dated 7th February 2006 issued under Paras 9(1) and 9(2) of the DPCO 1995.

Trade margin

8. As regards the trade margin, and the consequent computation of the overcharged amount, a reference may be made to Para 7 of the DPCO 1995 which gives the formula for calculating the retail prices of formulations. Retail price = (marginal cost + conversion cost + cost of packing) x (1+MAPE/100) + excise duty (where MAPE is Maximum Allowable Post-manufacturing expenses). MAPE has been defined to mean "all costs incurred by a manufacturer from the stage of ex-factory cost to retailing and includes trade margin and margin for the manufacturer and it shall not exceed one hundred per cent for indigenously manufactured Scheduled formulations." Under Para 13 of the DPCO 1995, the Government can require the manufacturers to deposit the amount accrued due to charging of prices higher than those fixed or notified by the Government under DPCO 1987 or under the DPCO 1995. Para 19 of the DPCO 1995 which is relevant for the present case reads as under:

10. It has not been shown by the Respondents how vis-à-vis the manufacturer, the overcharged amount can be calculated with reference to the printed MRP when Para 19 (1) DPCO 1995 makes it incumbent on the manufacturer or the wholesaler as the case may be to sell the product to the retailer at the retail price minus 18%. This is plain from the wording of Para 19(1) that a manufacturer, distributor or wholesaler "shall sell a formulation to a retailer" at a price "excluding excise duty, if any, as specified by an order or notified by the Government, minus sixteen percent thereof in the case of Scheduled drugs." By definition under the DPCO 1995 the "retail price" includes the ceiling price. Likewise, under Para 19(2) DPCO 1995, the central government can fix the price at which the formulation can be sold to the retailer. Mr. Ganesh pointed out that the trade margin to be provided to the retailer was determined at 8% which was exclusive of the 16% margin to be allowed to the wholesaler under Para 19(1) DPCO 1995. Merely stating, as the Respondents have in their written submissions, that the trade margin is already included in the 100% MAPE which is factored in the ceiling price fails to explain whether in the calculation of the overcharged amount the trade margins mandated in terms of Paras 19 (1) and 19 (2) DPCO 1995 have been accounted for. The statement by the Respondents in their written submissions that: "If the manufacturers are not made to pay for the higher MRP there will be a definite attempt on the part of the manufacturers to provide higher MRP on the label with higher trade margins than permitted" is based on conjecture and fails to explain the statutory requirement of the manufacturer having to allow trade margins in terms of Paras 19 (1) and 19 (2) DPCO 1995. In fact there is no reply to the assertion by BLPL that the MRP less the mandated trade margins have alone accrued to it as the manufacturer.