Akums Drugs & Pharmaceuticals Ltd.

Akums Drugs & Pharmaceuticals Ltd. D. C . JAIN dcj@akums.net 9811056056 304, Mohan Place, LSC, Block-C, Saraswati Vihar, New Delhi – 110034 Ph- 011-47511000

Refixing the New Ceiling Price onFormulations available in market Within 45 days of Notification

Provision to Para 24(I) of DPCO 2013 “Provided that in the case of Scheduled formulations produced or available in the market before the date of notification of ceiling price, the manufacturers shall ensure within a period of forty five days of the date of notification that the maximum retail price of such scheduled formulation does not exceed the ceiling price (plus local taxes as applicable)”

1. Loss on account of Excise Duty & Income Tax (1) Higher Excise Duty paid on higher MRP shall not be refunded. (2) Ceiling Price will not be increased for differential excise duty paid on higher MRP.

1. Loss on account of Excise Duty & Income Tax (3) Any loss booked in respect of previous year by a company due to reduction in price due to DPCO will be disallowed under Income Tax Act.

2. Regulatory Compliance (1) Relabeling or stickering is treated as a manufacturing activity. If stickering or stamping is done at depot level or at C&F level, the manufacturing license will be required. (2) The goods so repacked / relabeled will be treated as goods manufactured. Excise Duty on new MRP will again be leviable.

2. Regulatory Compliance (3) Exemption for Excise Registration and payment of excise now granted is for limited period only; not thereafter

3. Smaller Packs & Labels (1) Labels of small packs like ampoules, eye drops, vial upto 10 ml, Lami tubes etc. hardly have any space for stickering and therefore stickering is not possible on such packs. (2) Temper evident primary & secondary pack have to be relabeled and repacked only after opening, e.g laminated labels, shrink packed packings.

(3) Label of small packs cannot be removed and relabeled. (4) Label over label is not allowed – Panacea Case.

(5) NPPA has now orally stated – • Sticker for lower price on outer pack of Injections, ampoules, tube etc. is sufficient instead on individual packs. • Cold Storage vaccines etc. cannot be relabeled without tampering the packs – more time will be allowed

4. Retrospectivity of Notification 1. Ceiling Price Notification shall have Retrospective Effect. 2.Changing the MRP for batches manufactured prior to the notification date means giving effect of the notification on Batches manufactured 2-3 years back.

(3) Giving retrospective effect to price notification is bad at law. (4) Supreme Court has in its various decisions held that Price cannot be given effect to from retrospective effect and sometime after the notification has to be given for implementation of price (prospectively)

5. Effects of Price Revision every year (1) Under Para 16(1) the Government shall revise the ceiling prices of scheduled formulations as per the annual wholesale price index (WPI) for preceding calendar year on or before 1stApril of every year and notify the same on the 1st of April every year.

(2) In case of any negative effect on WPI, the revision in prices of scheduled formulation shall be ensured by the manufacturer for products available in the market. (3) Similar exercise of stickering has to be done. (4) Manufacturers will not be allowed to increase MRP on existing stocks lying in market every 1st April, based on positive WPI.

6. Replenishment (1) Those who have purchased the medicines on cash payment would not return the medicines before receiving payment. (2) No one would like to return the material unless new stocks are given to him for fear of loss of sales and in the interest of consumers for goods being out of stocks.

(3) After having new stocks as replenishment, retailers would be reluctant to take back the stickered stock till new stocks are sold, because it would require additional financing for business. • (4) Retailers may also refuse to accept the old stickered stocks for fear of non acceptance by the consumer for goods being old or near expiry.

(5) Few retailers would like to sell higher MRP stocks rather replacing with Lower MRP products with low margin of profit and may not return the goods but responsibility of MRP implementation remains with manufacturer.

7. Logistics Problems (1) For change of New MRP Reverse Logistic Distribution Channel (RLDC) has to be adopted i.e Chemists, Wholesalers, Stockiest, Distributors, C&F Agents, manufacturers. At each RLDC goods have to be cleared, reopened, segregated according to its own purchase & to be repacked for upstream channel at all stages. (2) Additional competent manpower required.

(3) Inter mixing unavoidable. (4) Time consuming process. (5) Impossible to get returns from 6 Lacs chemists. (6) Goods will not reach manufacturer, if any intermediary has closed business.

8. Financial Accounting & Loss Bearing (1) Return of Material will be in reverse order. (2) Every link in the channel will lose profit already earned and taxes paid. (3)Manufacturer will lose excise difference. (4) It will be difficult for all channels to take refund form sales tax department

(5) Who will bear the cost of transportation, wastage of material, cost of repacking the material, cost of relabeling, cost of labour. (6) There will be huge accounting mess up on account of debit / credit notes for price difference. (7) Many firms may have to wind up.

9. Burden of Manufacturers & Label Printers (1) Manufacturing units will get converted into Relabeling houses – QA, QC, Manufacturing Heads will do relabeling. Manufacturing activities will come to grinding halt. (2) Considering the number of units required to be pasted with stickers for revised MRP, it will also be a big challenge to get those stickers printed from existing limited suppliers without affecting the quality.

10. Human Error & Complexity of scale (1) In case the stickers are given to traders like whole sellers and retailers, it may have other multiple problems; since everything is by human; and there are always chances of human errors including wrong placing of stickers

(2) Hundreds of companies would be giving crores of stickers to over lacs of chemists and others for lacs of products/brands. Scale is mammoth and time line is so short. (3) It may lead to significant non-compliance and confusions.

11. Average Inventory in Distribution Network (1) If Government has considered 45 days as general inventory holding norms of industry then it is beyond the ground reality. Even 30 days relaxation for first few notifications will also not be sufficient to accomplish the task of implementing MRP at about 6.0L retailers.

(2) Normal inventory holding time at manufacturer or marketing level alone is 60 to 90 days. Subsequently, a wholesaler also maintains an inventory of about 30 to 45 days and then stockists and retailers for 30 to 45 days leading to average inventory holding in the distribution channel to 120 to 180 days.

12. Fixation of ceiling price of Existing Stocks beyond the Policy (1) Revision of Price of existing stocks was never discussed nor decided in NPPP – 2012; nor DPCO 2013 (2) At least the issues need to have been placed before the Govt. and to stakeholders instead of taking a unilateral decision in this manner which could actually cause shortage of medicines which are essential and life saving where availability is more important than the cost.

(3) The question of cut off date for implementing of prices was considered in great depth in consultation with the Ministry of Law, Department of Legal Affairs on 28th April, 1979 Details reproduced -----

“A question has been raised whether the reduction in prices is applicable to all the stocks of such formulations, whether lying with the manufacturers, distributors, dealers etc. or only to such of the stocks as are cleared after the date of effectuation of reduction. This matter has been examined in consultation with the Ministry of Law, Justice and Company Affairs (Dept. of Legal Affairs) based on which it is clarified that all reductions in the prices of formulations effected from time to time by the Central Govt. would be applicable to the stocks cleared on and after the date of effectuation of reduction.”

(4) Based on which it is clarified that all reductions in the prices of formulations effected from time to time by the Central Govt. would be applicable to the stocks cleared on and after the date of effectuation of reduction, provided however that - The batch numbers from which the reduction is effective, are clearly indicated on the price list issued in pursuance to the reduction

(5) The same policy was adopted in DPCO - 1979, DPCO -1987 & DPCO – 1995. (6) Govt. is now finding faults with the established system instead of going deep into practical aspects of the matter.

(7) It was also observed by the Supreme Court that it cannot lose sight of the ground realities including the process of marketing and sale. Both pragmatic view and practical aspects have to be taken into consideration.

13. Legal Aspects Supreme Court observations (1) DPCO cannot have retrospective effect while fixing MRP (2) The following observations of the Supreme Court on this aspect are very important:- 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 it to the wholesaler. 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 will be dealing with its product.

All statues have to be considered in light of the object and purport of the Act. Thus the decision relied upon by the learned Additional Solicitor General in Union of India vs Cynamide India Ltd.: 1987) 2 SCC 720; Prag Ice and Oil Mills vs Union of India: 1978) 3 SCC 459 and Sree Meenakshi Mill vs Union of India: (1973) 1 SCC 129 will have no applicability.”

(3) The Supreme Court in Civil Appeal No. 3497 of 2008 (Arising out of SLP(C)No8362 of 2006) also observed that not only in terms of the Essential Commodities Act, 1955 but also under various other laws, for example, Customs and Central Excise Act and Weights and Measures Act (if applicable) several information are required to be furnished.

(4) If the price has to come into effect from the date it is notified or received by the manufacturer as the case may be, the same would lead to absurdity. Such an anomaly and absurdity must be avoided. (5) It is clear that price cannot be given effect to from retrospective effect and some time after the notification has to be given for implementation of price.

(6) Retrospectively in DPCO, 2013 as given above is bad, retrograde and lacks practicability. (7) Neither NPPA nor the Ministry were authorized to take a unilateral decision on this issue by any authority.

14. Legal Aspects: Deviation from Existing Practice (1) The existing practice of NPPA has been that the price is effective 15 days after the notification. (2) It is a deviation from existing practice. (3) Government must fix prices for being applicable on the batches to be manufactured immediately after the notification.

(4) Those selling at a price lower than the New Ceiling Price fixed have to sell at lower price only is against article 19 of the constitution. Para 13(2) is contrary to Para 4(v) (5) Recoveries envisaged under Paragraph 14(2) and Paragraph 15(5) need be to the extent to accrual to the manufacturer as nobody is supposed to pay what it has not overcharged or what has not accrued to him.

15. Who has gone to the court and what effect Relief granted upto 23-9-13 accept Allembic

16. What is extension of 30 days Relabling is manufacture, if you relable a product, you have to pay excise duty on relabled product, as if it is newly manufactured product. Relabeling or manufacturing can be done at a place which is registered with Excise Department

If relabeling is done at depot, then you have to get the place registered with excise department and pay excise duty once again because relable product is a new manufactured product. Excise duty has given exemption from payment of excise and also for the registration

Excise Deptt. has given exemption from payment of excise and also for the registration • Such exemption is available for specified price orders issued under DPCO 2013; and not for orders to be issued. • Such exemption is available for 75 days from the date of notification(s) i.e 45 days specified period as further extended by 30 days

c. The extension of time for 30 days is only allowing the manufacturer(s) for stickering / relabeling. d. There is no time extension of 30 days under DPCO. DPCO compliance must be done within 45 days. That means any one selling the product at a price higher than notified price after 45 days, he has to pay overcharging etc. However, no action will be taken if the goods are available with old MRP within 30 days of notification for relabeling (but not for sale)

e. Exemption from excise upto 30 days extended time. Thereafter, you have to pay excise duty and take excise registration as aforesaid.

17. How to comply with DPCO • Marketer should not keep the price of a scheduled product higher than prices notified under DPCO 2013 • 2. Issue price list under Form – V; and retain proper proof of its despatch

3. Consensus shown by all departments like – NPPA, CDSCO, FDA to IDMA is that the intent of the manufacturer in complying with the Rules & Regulations is most important aspect that will be considered; and once it is established, no untowards action will be taken against the manufacturer if there is delay in compliance

4. NPPA, CDSCO, FDA has orally stated that a sticker on the outer pack of each unit is sufficient to indicate that the price has been lowered as notified; and it is not necessary that the injection, ampoule, tube etc also be stickered.

Akums Drugs & Pharmaceuticals Ltd.