GLAXO SMITHKLINE PHARMACEUTICALS LTD. & ANR.versusUNION OF INDIA & ORS.

                           (2017] 7 S.C.R. 894


A    GLAXO SMITHKLINE PHARMACEUTICALS LTD. & ANR.
                                    v.
                       UNION OF INDIA & ORS.
                     (Civil Appeal No. 6178 of 2009)
B                            JULYl8,2017
        [R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.)
         Drugs (Prices Control) Order, 1987:
         Para 28 r/w Exemption Notification dated 28'" Febntary, 1992
C   - Exemption Notification issued to appellant (manufacturer of a
  bulk drug) for the period upto 31.12.1994 - Demand notice by
  revenue to the appellant finding that there was differential in the
  price charged for the goods manufactured during exemption period
  - Writ petition challenging the demand, dismissed by High Court -
D On appeal, held: The exemption only relates to manufacture and
  has no reference to sale - Therefore, demand is not justified.
          Allowing the appeal, the Court
          HELD: 1. In view of paragraph 28 of the Drugs (Price
    Control) Order, 1987 (DPCO), the exemption relates to drug
E   manufacturing units or classes of such units. The very exemption
    order refers only to bulk drugs and formulations based thereupon
    which are "manufactured" by the company. Further, a reading of
    the Central Government Guidelines of 1989 also makes it clear
    that the exemption only relates to manufacture and has no
    reference to sale whatsoever. [Para 8) (899-C-D)
F
         2. It is not correct that in view of sub-clause (viii) of the
  1989 Guidelines, after the expiry of the period of exemption, the
  manufacturer has to submit an application for fixation of the price
  of a bulk drug under the provisions of the DPCO. Sub-clause
  (viii) cannot be read in isolation, but must be read as a part of the
G entire scheme of the Guidelines. All that sub-clause (viii) says is
  that after the period of exemption, which is after the period which
  has reference to manufacture and not sale of goods, such goods
  as are manufactured after the exemption will be subject to the
  drill of sub-clause (viii). [Paras 9, 10] (901-C-E]
H
                                    894
GLAXO SMITHKLTNE PHARMACEUTICALS LTD. & ANR. v.                           895
             UNION OF INDIA & ORS.

      3. It is not correct to say that the period of 15 days is A
mentioned in paragraph 16(3) of the DPCO to give effect to the
price of bulk drug or formulation, so that one price may be fixed
by the Government for each bulk drug and formulation from time
to time, as there cannot be two prices for the same bulk drugs or
formulation. There will only be one price that is fixed for all goods
                                                                      B .
that are manufactured by the appellant upto 31'' December, 1994,
and that price will be a price unilaterally determined by the
appellant and will not be fixed under the DPCO. [Para 14) [904-
D-E]
       Union of India v. Ranbaxy Laboratories Limited and
       Ors. (2008) 7 SCC 502 : [2008) 8 SCR 315 - relied                  c
       on.
       Glaxosmithkline Pharmaceuticals Ltd. v. Union of
       India and Ors. (2014) 2 SCC 753 : (2013] 12 SCR
       1120 - distinguished.
                                                                          D
                        Case Law Reference
       (2008) 8 SCR 315         relied on               Para6
       [2013) 12 SCR 1120       distinguished           Para 7
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6178                 E
of 2009.
     From the Judgment and Order dated 16.02.2004 of the High Court
of Bombay in Writ Petition No. 1266of1999.
     S. Ganesh, Sr. Adv., U. A. Rana, Himanshu Mehta (for Gagrat
and Co.), Advs. for the Appellants.                                       F
       Rana Mukherjee, Sr. Adv., Merusagar Samantary, Prateek Jalan,
Lhingneirah, Ms. Viddusshi, Ms. Anu Singh, B. Krishna Prasad, Advs.
for the Respondents.
       The Judgment of the Court was delivered by
                                                                          G
       R. F. NARIMAN, J. I. The present appeal arises on the true
construction of paragraph 28 of the Drugs (Prices Control) Order, 1987,
read with exemption notification dated 28'h February, 1992. Paragraph
28 of the DPCO, 1987, reads as under:
         "28. Power to exempt- (I) The Government may, having regard      H
896            SUPREME COURT REPORTS                             [2017] 7 S.C.R.


A           to the factors mentioned in sub-paragraph (2) and subject to such
            conditions, if any, as it may specify, by order in the Official Gazette,
            exempt any drug manufacturing unit or a class of such units from
            the operation of all or any of the provisions of this order and may,
            as often as may be, revoke or modify such order.
B           (2) While granting exemption under sub-paragraph (1), the
            Government shall have regard to all or any of the following factors
            relating to the drug manufacturing unit or a class of such units,
            namely;
            a) Number of workers employed;
c           b) Amount of capi ta! invested;
            c) Range and type of products manufactured;
            d) Sales turnover;
            e) Production of bulk drug basic stage by process developed
D           through indigenous Research and Development".
             2. Under paragraph 28, an exemption notification was issued for
      the period mentioned to Glaxo India a manufacturer of a bulk drug which
      is Betamethasone Disodium Phosphate. The exemption notification with
      which we are directly concerned is set out hereunder:
 E          "S.0. 166 (E) - In exercise of the powers conferred by sub-
            paragraph ( 1) of Paragraph 28 of the Drugs (Prices Control) Order,
            1987, the Central Government, having regard to the factors
            specified in clause (e) of sub-paragraph (2) of paragraph 28 of
            the said Order and also having been satisfied for the need to do so
 F          in public interest, hereby exempts the bulk drugs and formulations
            based, thereupon specified in column 2 of the Table below which
            is manufactured by the company specified in the corresponding
            entry in column 3 from the operation of price control stipulated in
            sub-paragraph (1) of Paragraph 3 and sub-paragraph (1) of
            paragraph 9 of the said Order, upto the period as indicated in
 G          column 4 thereof."




 H
  GLAXO SMITHKLINE PHARMACEUTICALS LTD. & ANR. v.                                  897
       UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

                                                                                   A
                                    TABLE

         SI        Name of the          Name of       Period    upto
        No          bulk drug           Company       which      the
                                                      exemption    JS
                                                      granted                      B

         1.          Povidone          Wockhardt          31.12.1995
                      Iodine             Ltd.

         2.       Betamethasone        Glaxo India         31.12.1994
                    Disodium              Ltd.
                                                                                   c
                    Phosphate



         3. A lot of correspondence took place between the appellant before
  us and the Union oflndia which ultimately culminated in a show cause             D
. notice dated 1Q•h June, 1997. The said show cause notice referred to an
  earlier letter written by the appellant, finding that there was a differential
  in the price charged for the goods manufactured during the exemption
  period stated thereunder. A sum of Rs.1.90 crores was payable in the
  following terms:                                                                 E
        "2. Government had exempted Betamethasone disodium
        Phosphate based formulations of your company for only the period
        28.2.92 to 31.12.94 vide notification SO No. 166 dated 28.2.92.
        Accordingly, you were required to follow the prices fixed by the
        Government for the formulation pack immediately on expiry of F
        the exemption period i.e. from 1. 1.95. Your contention that an
        application for fresh cost study had been made in October 1994
        itself, merely did not give the right to the company to charge own
        prices, a Government fixed price was prevailing as on that date.
        A case of violation of the provisions of the para 9(3) of the DPCO
        '87 has accordingly been established and it has been decided to G
        invoke the provisibns of para 13 of the DPC0'95, for recovery of
        overcharged amount as assessed below:



                                                                                   H
898             SUPREME COURT REPORTS                         [2017] 7 S.C.R.


A
          Period     of     Tentative       Overcharging      Tentative
          overcharging      sales (no.      per               amount      of
                            of packs)                         overcharging

           U.95             19,20,6         Rs. 1.52         Rs. 29,19,34S
B           to              24
           24.1.95
           25.1.95          1,39,24,524     Rs. 1.16         Rs.1,61,52,447
           to
           17'7.95

c                                               Total          Rs.
                                                               1,90,71,795


             4. This was replied to by the appellant, after which an order was
      passed on 9'h April, 1999, by which the said show cause notice was
 D    confirmed, and.a sum ofRs.2.04 crores including interest was demanded.
      Since the appellants were aggrieved by the said demand, they filed a
      Writ Petition No.1266of1999 before the High Court at Bombay, which
      culminated in the impugned judgment dated 16'h February, 2004, dismissing
      the aforesaid writ petition.
 E          5. Shri S.Ganesh, learned senior counsel, appearing on behalf of
      the appellant, has placed great emphasis on the fact that both paragraph
      28 as well as the exemption order, read with the Central Government
      Guidelines of 14'h February, 1989, lead to only one conclusion that it is
      "manufacture" and not sale that is relevant. According to the learned
      counsel, since the period of exemption ends on 31 ''December, 1994, it
 F    is open to the appellants to charge a price which is not a price under the
      DPCO at any subsequent point of time. According to. him this has not
      been correctly appreciated by the High Court, as a result of which the
      High Court, in going into various other provisions of the DPCO and
      reading them along with the exemption provision, has gone wrong and
 G    mixed up price with manufacture.
            6. The sheet anchor of Shri Ganesh 's case is a judgment delivered
      by this Hon'ble Court in Union of India vs. Ranbaxy Laboratories
      Limited and Others, (2008) 7 SCC 502 in which the selfsame problem
      arose before this Court under pari materia provisions of the DPCO of
      1995. This Court has unequivocally held in favour of the construction
 H
 GLAXO SMITHKLINE PHARMACEUTICALS LTD. & ANR. v.                               899
      UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

suggested by Shri Ganesh, namely that all manufacturers of exempted            A
goods, upto the last date of exemption, would be entitled, at any subsequent
point of time, to charge a price.which is not controlled by the DPCO.
      7. Shri Rana Mukherjee, learned senior counsel appearing on
behalf of the Union of India, has tried to support the High Court's
judgment, and has referred us to Guideline No.(viii) of the Central B
Government Guidelines, and paragraph 16(3) of the DPCO of 1987 ..
According to him, a subsequent judgment of this Court in
Glaxosmithkline Pharmaceuticals Ltd. vs. Union of India and Others
(2014) 2 sec 753 has correctly distinguished the earlier judgment in
Ranbaxy's case, and would therefore, squarely cover the present facts.
                                                                               c
       8. Having heard learned counsel for the parties, the point with
which we are concerned is in a very narrow compass. If paragraph 28,
which is set out hereinabove is perused, it is clear that the exemption
relates to drug manufacturing units or classes of such units. The very
exemption order which has also been set out by us (supra) again refers
only to bulk drugs and formulations based thereupon which are                  D
"manufactured" by the company. Further, a reading of the guidelines of
1989 also makes it clear that the exemption only relates to manufacture
and has no reference to sale whatsoever. The Guidelines of 1989 are
set out hereunder:
                      GOVERNMENT OF INDIA                                      E
                 MINISTRY OF INDUSTRY
    DEPARTMENT OF CHEMICALS & PETROCHEMICALS
     (OFFICE OF THE DEVELOPMENT COMMISSIONER)
                                      New Delhi, the 14'h February, 1989
                                                                               F
                       GUIDELINES NO. I/ 1989
       In exercise of the powers conferred by Paragraph 25 of the Drugs
       (Price Control) Order, 1987, (hereinafter called the "said Order"),
       the Central Government hereby issue guidelines for the purpose
       of grant of exemption under Para 28 of the Order to such bulk G
       drug manufacturing unit from the provisions of Para 3 of the said
       Order, in respect of such bulk drugs) as is/are produced by that
       unit from the basic stage by a process of manufacture developed
       through its own Research and Development effort, for a specified
       period not exceeding five years reckoned from the date of
                                                                           H
900      SUPREME COURT REPORTS                          [2017] 7 S.C.R.


A     commencement of commercial production of such bulk drug(s)
      subject to the following, namely:-
      (i) The process development activities are registered with the
      Department of Scientific and Industrial Research (hereinafter
      referred to as DSIR) and a certificate is issued by DSIR to the
B     effect that the manufacture has developed the process of
      manufacture through its own R&D efforts.
      (ii) The process so developed is significantly different from the
      known/available technology in the country leading to import
      substitutions/cost reduction, etc.
c     (iii) The manufacturer shall make an application to the Government
      within 30 days of commencement of commercial production of
      such bulk drug or within 30 days of the date of issue of these
      guidelines in the case of bulk drugs already under production, as
      the case may be, along with the information as per the Annexure,
D     and such other information as may be required by the Government
      and/or such additional information as the company may voluntarily
      furnish.
      (iv) The Government if satisfied with the application mentioned
      above, may by a Notification in the official Gazette, exempt a
 E    manufacturer from fixation of price or compliance with the price
      already fixed if any for 'such a bulk drug under the provisions of
      the said Order.
      (v) In case of bulk drugs which are already being produced from
      the basic stage by a process of manufacture developed through
      indigenous Research and Development, the period which has
 F
      already elapsed since it came into commercial production by this
      process, shall count towards determining the said limit of five years
      prescribed under this Order.
      (vi) In case of processes developed by National Laboratories and
      purchased and actually made use of by a manufacturer, such
 G
      activity shall also be taken into consideration for the purpose of
      granting exemption.
      (vii) The Government shall have the liberty to withdraw the
      exemption so granted at any time.

 H
GLAXO SMITHKLINE PHARMACEUTICALS LTD. & ANR. v.                                 901
     UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

      (viii) After expiry of the period of exemption, the manufacturer          A
      shall submit application(s) in Form I of the Drugs (Prices Control)
      Order, 1987 for fixation of price of such a bulk drug(s)under the
      provisions of the said Order.


                                                              Sd/-              B


                                                       (R.S. Mathur)
                                   Joint Secretary to the Govt. of India
       9. It will be noticed that the reference is to the date of
commencement of commercial production of a bulk drug which has c
reference to manufacture alone. However, Shri Mukherjee, referred us
to sub-clause (viii) of the aforesaid guidelines in order to argue that after
the expiry of the period of exemption, the manufacturer has to submit an
application for fixation of the price of a bulk drug under the provisions of
the DPCO.                                                                     D
        10. Sub-clause (viii) cannot be read in isolation but must be read
as a part of the entire scheme of the guidelines. All that sub-clause (viii)
says is that after the period of exemption, which is after the period which
has reference to manufacture and not sale of goods, such goods as are
manufactured after the exemption will be subject to the drill of sub-           E
clause (viii). Read in this light, we do not find any difficulty in rejecting
Shri Mukherjee's arguments based on this sub-clause.
       11. We are of the view that the matter is no longer res-integra. In
Ranbaxy's case, cited by Shri Ganesh, the relevant exemption provision
under the DPCO ofl 995, referred to in paragraph 19 of the judgment, is
                                                                                F
almost a verbatim reproduction of the earlier exemption provision i.e.
paragraph No.28 of the DPCO of 1987, with which we are directly
concerned. Even the exemption.notification mentioned in paragraph 20
of the aforesaid judgment, like the exemption notification in the present
case, refers only to bulk drugs and formulations "manufactured" by the
company. After hearing arguments from both sets of counsel, the Court           G
answered the question that was before it thus:
       "25. The short question which arises for our consideration is as
       to whether the exemption notification would apply in respect of
       drugs which were manufactured up to 31-10-1999 or
                                                                                H
902      SUPREME COURT REPORTS                           [2017] 7 S.C.R.


A     manufactured and sold up to the said date. The exemption granted
      is in respect of what? It is in respect ofa drug manufactured by
      a company. What is marketed for sale is the drug manufactured.
      Manufacture of a drug is controlled by a different statute, namely,
      the Drugs and Cosmetics Act, 1940. Process of marketing the
      drug as also the maximum price which can be charged have direct
B
      relation with manufacture and also the date thereof. The wrapper/
      foil/containers in which the drug is marketed contains several
      informations for the general public; one of them being the date of
      manufacture and the retail price. Various other informations are
      also required to be furnished.
c       26. The contention of the learned Additional Solicitor General
      that the drug could be manufactured up to 3 1I I 01 I 999 but on and
      from 1/11/1999 it could be sold only at the price specified in the
      Order, in our opinion, cannot be accepted. If the first respondent
      was entitled to avail the benefit of the exemption notification till
D     the midnight of3 l-10-1999, some time would be necessary for it
      to market the same. There must be some time-lag between the
      period the drug is manufactured and the actual sale by a retail
      dealer to the customer.
        27. The court while construing an exemption notification cannot
 E    lose sight of the ground realities including the process of marketing
      and sale. The exemption order dated 29-8-1995 is clear and
      unambiguous. By reason thereof what has been exempted is the
      drug which was manufactured by the Company and the area of
      exemption is from the operation of the price control. They have a
      direct nexus. They are correlated with each other. While
 F    construing an exemption notification not only a pragmatic view is
      required to be taken but also the practical aspect of it. A
      manufacturer would not know as to when the drug would be sold.
      It has no control over it. Its control over the drug would end
      when it is dispatched to the distributor. The distributor may dispatch
 G    it to the wholeseller. A few others may deal with the same before
      it reaches the hands of the retailer. The manufacturer cannot
      supervise or oversee as to how others would be dealing with its
      product. All statutes have to be considered in the light of the
      object and purport of the Act. Thus, the decisions relied upon by
      the learned Additional Solicitor General in Union of India v.
 H
GLAXO SMITHKLINE PHARMACEUTICALS LTD. & ANR. v.                               903
     UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

      Cynamide India Ltd.; Prag Ice & Oil Mills v. Union of India,            A
      Shree Meenakshi Mills Ltd. v. Union of India and Panipal
      Coop. Sugar Mills v. Union of India will have no application.
        28. It is true that the 1995 Order was to control the price and
      not the manufacture. But there cannot be any doubt that the
      price is. that of a manufactured drug.                                  B
        29. Not only in terms of the Essential Commodities Act, 1955
      but also under various others, for example, Customs and Central
      Excise Act and the Weights and Measures Act (if applicable)
      several informations are required to be furnished. If the submission
      of Mr. Gopal Subramanium that the first respondent was bound            c
      not only to manufacture but also to sell at a price up to 31-10-
      1999 is correct, the same in our opinion would lead to an absurdity.
      Such an anomaly and absurdity must be avoided."
      12. Not to be deterred by the plain language of the aforesaid
judgment, Shri Mukherjee referred us to a later judgment in the               D
Glaxosmithkl.ine case, referred to hereinabove. The issue in that case
concerns a price notification issued under the later DPCO of 1995. In
the course of arguments, counsel for the appellants relied upon the
Ranbaxy Laboratories case, in order to buttress his submission on the
facts of that case. However, the Court distinguished the Ranbaxy
judgment in paragraph-60 thereof as follows:                                  E

      "60. The issue before us is quite different and, in our view, the
      judgment of this Court in Ranbaxy Laboratories does not apply
      to the present controversy for more than one reason. First, in
      Ranbaxy Laboratories, the Court was concerned with the
      exemption notification issued under Para 25 of the 1995 DPCO            F
      whereas in the present matters, the issue centres around Paras
       14, 16 and 19 of that DPCO. Second, the notification under
      consideration in Ranbaxy Laboratories was an exemption
      notification and not a notification for fixation of price. Third, the
      exemption notification is relatable to the manufacturer of the drugs    G
      whereas price fixation notification is related to sale of drug/
       formulation at a given price."
      13. It can be seen that the issue that arose in the Glaxosmithkline
case was completely different from the issue that arose in Ranbaxy's
case and the present case .. Ranbaxy's case and the present case are          H
904             SUPREME COURT REPORTS                           [2017] 7 S.C.R.


A     directly concerned only with an exemption notification, and not a
      notification for fixation of price. Also, what is relevant for an exemption
      notification is the manufacture of drugs, whereas what is relevant for a
      price fixation notification relates to sale and not manufacture. Obviously,
      therefore, the Glaxo- smithkline decision would have no relevance to the
      facts of the present case. Coming to Shri Mukherjee's arguments based
B
      on paragraph 16(3) of the DPCO of 1987, we first set out the said
      provision:
               "16(3)- Every manufacturer or importer shall give effect to the
             price of a bulk drug or formulation, as the case may be, as fixed
             by the government from time to time within 15 days from the
c            receipt by such manufacturer or importer of the communication
             in this behalf from the government and issue a supplementary
             price list in this regard to the dealers, state drugs controllers and
             the government and indicate necessary reference to such price
             fixation."
D            14. Shri Mukherjee has based his argument on the fact that there
      cannot be two prices for the same bulk drugs or formulation, which is
      why the period of 15 days is mentioned in paragraph 16(3) so that one
      price may be fixed by the Government for each bulk drug and formulation
      from time to time. This argument also need not deter us, for the simple
 E    reason that there will only be one price that is fixed for all goods that are
      manufactured by the appellant upto 31 ~December, 1994, and that price
      will be a price unilaterally determined by the appellant and will not be
      fixed under the DPCO.
             15. This being the case, we allow the present appeal and set aside
 F    the judgment of the High Court.


      Kalpana K. Tripathy                                            Appeal allowed.