DECEMBER 29, 2017

By Bipin K Verma

NEW Year ushers in new compliance requirements under Legal Metrology (Packaged Commodities) Rules, 2011 ("PC Rules") with substantial amendments. The proposed changes aim for enhanced consumer protection, but balanced with the requirements of ease of doing business. All importers, manufacturers, packers and e-commerce entities dealing in packaged commodities are expected to have analysed the implications of revised requirements which were notified in June this year. Salient points necessitating preparations and timely actions by the affected industry can be summarised as below:

++ Word ‘consumer' has been defined adopting thedefinition provided under the Consumer Protection Act, 1986.

++ The definition of ‘institutional consumer' has been substituted.

++ Declaration of different MRPs for identical products prohibited:MRP for identical commodity sold from different type of public places like cinema halls, airports, malls etc.cannot be different.

++ Declarations also mandatory on e-commerce platform: An E-Commerce entity has to ensure that the mandatory declarations, except the month and year in which the commodity is manufactured or packed, are displayed on the digital and electronic network used for e-commerce transactions

++ Increase in size of content to be displayed: The size of letters and numerals for making declaration and the area of principal display panel on the pre-packaged commodity has been increased.

++ Imported goods: In case of imported products, the name of the country of origin / manufacture / assembly required to be mentioned.

++ In case of package containing a commodity, which may become unfit for human consumption after a period, the ‘best before' or ‘use by the date, month and year' (as defined) shall also be mentioned on the label

++ Medical devices: Medical devices which are declared as drugs (e.g. stent, valve, orthopaedic implants, syringe, tools for operations etc.) must mandatorily adhere to the requirements under the PC Rules.

Though all the proposed amendments are important but in this article, I would like to elaborate the implications of the amendment made in the definition of expression ‘institutional consumer'. The provisions of PC Rules which mandate certain declarations to be made on pre-packaged commodities, do not apply to the such pre-packaged commodities which are meant for institutional consumers. Besides having impact on compliance requirements under the PC Rules the definition of this expression also affected the quantum of excise duty or CVD (in case of import), levied on specified packaged commodities, prior to introduction of GST. Post introduction of GST, the definition and its amendment has no implications from tax perspective . However, with respect to compliance requirements under PC Rules, the change in definition still merits analysis as it relates to waiver of requirement for making mandatory declarations on the packages.

The revised definition is as follows:

"institutional consumer” means the institution which buys packaged commodities bearing a declaration ‘not for retail sale', directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and not for commercial or trade purposes ;"

The definition prior to this amendment stood as below:

"institutional consumer” means the institution who hires or avails of the facilities or services in connection with transport, hotel, hospital or other organisation which buy packaged commodities directly from the manufacturer or from an importer or from wholesale dealer for use by that institution, and the package shall have declaration ‘not for retail sale'

If we compare the two definitions the amended definition is certainly simpler as it does away with any reference to the types of institutions (underlined part is now deleted). The expression ‘who hires or avails…' in the earlier definition was hard to comprehend and caused confusion as elaborated by me in my earlier article published on 17.3.2014.

After more than three years, now this gets resolved and is a positive step.

Another change in the definition is that the expression ‘for use by that institution' is now qualified with words ‘and not for commercial or trade purposes'.

This implies that the commodity should be for use by such institution but the use should not be for trade or commercial purpose. The provisions do not define the expression trade or commercial purpose.

The term ‘trade purpose' in general parlance connotes the action or activity of buying and selling goods and services. In other words, a resale activity will constitute "trade”. Thus, if any institution buys packaged commodities and thereafter, sells such packaged commodity, then it shall fall within the purview of ‘trade purpose' and consequently, such institution shall not qualify to be an institutional consumer.

As for another expression, i.e. ‘commercial' let us look for the normal dictionary meanings. "Commercial" denotes" pertaining to commerce" (Chamber's Twentieth Century Dictionary); it means" connected with, or engaged in commerce; mercantile; having profit as the main aim" (Collies English Dictionary) whereas the word "commerce" means "financial transactions especially buying and selling of merchandise, on a large scale" (Concise Oxford Dictionary).

For any commercial institution, which type of usages would fall under this category i.e. use for non-commercial purpose? For example: Use of a soap kept in the rooms by a hotel for their guests or packaged drinking water by a restaurant -will such use be commercial use or not? If the answer is ‘yes', then such hotel or restaurant would not qualify as an institutional consumer with respect to such commodities.

As per the Press Release from Ministry of Consumer Affairs, Food & Public Distribution on 29.6.2017 the definition of institutional consumer has been changed to prevent any scope for commercial transactions /retail sale of commodities sourced by the institution for their own use.

Though the intent behind the above discussed amendment in the definition of institutional consumer appears to be to prevent retail sale of such packaged commodities procured by these institutions without the mandatory declarations, the usage of expression ‘commercial purpose' is bound to create confusion and undesired litigation.

Timely clarification or suitable amendment in the definition explaining the scope of expression ‘commercial purpose' would save the industry from possible future litigation and would help in fulfilling the desired objective behind such amendments as enumerated in the above referred press release i.e. enhanced consumer protection, but balanced with the requirements of ease of doing business.

[The author is an Executive Partner, Lakshmikumaran& Sridharan, New Delhi and the views expressed in this article are strictly personal.]