Hotels, restaurants not prevented from selling mineral water above MRP: SC

In a judgment rendered this week, the Supreme Court has effectively held that action cannot be taken against hotels and restaurants for charging prices in excess of the Maximum Retail Price (MRP) for mineral water in their establishments..In an appeal filed by the Federation of Hotel and Restaurant Federations of India against orders of the Delhi High Court, a Division Bench of Justices Rohinton Fali Nariman and Navin Sinha held the same, after finding that the Legal Metrology Act, 2009 does not apply to establishments falling under the said Federation..The case can be traced to the move of the Controller of Weights and Measures to proceed against the appellant-Federation for charging prices higher than the printed MRP for supply of packaged water bottles in hotels and restaurants..The appellant federation had initially approached a single judge Bench of the Delhi High Court to declare that its establishments would not fall within the purview of the Standards of Weights and Measures Act, 1976, the Standards of Weights and Measures (Enforcement) Act, 1985 and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977. It was argued that the impugned transactions consisted predominantly of a service, and not of a sale attracting the provisions of the said Acts..In March 2007, the single judge ruled in favour of the Federation, holding that,.“… charging prices for mineral water in excess of MRP printed on the packaging, during the service of customers in hotels and restaurants does not violate any of the provisions of the SWM Act as this does not constitute a sale or transfer of these commodities by the hotelier or Restaurateur to its customers….…Can there be any justifiable reason for the Court or Commission to interdict the sale of bottled mineral water other than at a certain price, and ignore the relatively exorbitant charge for a cup of tea or coffee. The response to this rhetorical query cannot but be in the negative.”.The single judge’s order was rendered at a time when the aforementioned Acts governed the field. These Acts were however repealed later, following the introduction of the Legal Metrology Act of 2009..Thereafter, an appeal made against the single judge’s order was disposed of by the Delhi High Court with the observation that,.“… the question of law adjudicated by the learned Single Judge is left open for adjudication in any fresh proceeding under the new law and the judgment of the learned Single Judge shall not be a precedent in any such adjudication even if the concerned provisions of the old and the new law are identical/similar.”.Both parties had agreed that the case be disposed in such terms, given that a new law had now come into force. The High Court had also directed the appellate-state not to proceed against the hoteliers for any violations of the old law, even if notices for such violation were issued. A review petition against the High Court’s order was dismissed in 2015..In the appeal filed by the Federation before the Supreme Court, Senior Advocate KV Viswanathan argued that the appellants continued to be detrimentally affected following the ruling of the High Court..Viswanathan argued that the single judge’s original order in favour of the appellant-Federation was liable to be confirmed, if it is found that the old and new laws occupying the field are more or less identical. It was pointed out that the definition of ‘sale’ continues to be the same under the 2009 Act as it was under the 1976 Act..The Court agreed with the appellants in this regard, observing that the 2009 Act was only introduced to consolidate the provisions of the 1976 Act and the 1985 Act into a single Act..“As is clear from the statement of objects and reasons for the 2009 Act, the object of the said Act was only to do away with the 1976 and 1985 Acts so as to combine the said provisions into one enactment so as to make the law simple, ensure accountability, and bring in transparency….… On a reading of the said Act and the Rules made thereunder, it is clear that the position qua “sale” remains exactly the same as that contained in the 1976 Act, which now stands repealed.”.Further, it was noted that the definition of ‘sale’ as provided in the earlier Acts, as well as the in the prevailing new Act, does not take into account sale as part of composite contract. The Bench noted that,.“… Parliament has chosen to adopt the definition of sale which does not include or split up sales of goods from services in composite contracts. Also, a reading of the various penal provisions that are contained in the Act, starting with Section 50 would show that there is no penalty for selling above MRP in hotels and/or restaurants.”.The transactions entered into by establishments of the appellant however fell under the category of composite contracts. The Court referred to precedents, including the judgments in M/s. Associated Hotels of India Ltd. and the two Northern India Caterers (India) Ltd. cases to note that,.“…it is clear that when “sale” of food and drinks takes place in hotels and restaurants, there is really one indivisible contract of service coupled incidentally with sale of food and drinks. Since it is not possible to divide the “service element”, which is the dominant element, from the “sale element”, it is clear that such composite contracts cannot be the subject-matter of sales tax legislation, as was held in those judgments.”.On these grounds, the Court ruled in favour of the Federation, holding that,.“…we are of the view that the learned Single Judge was absolutely correct in his conclusion that despite the constitutional amendment having been passed, the definition of “sale” contained both in the 1976 Act and now in the 2009 Act would go to show that composite indivisible agreements for supply of services and food and drinks would not come within the purview of either enactment…”.The reason for such exclusion was because,.“… the object for both these enactments is something quite different – the object being, as has been pointed out above, to standardize weights and measures for defined goods so that quantities that are supplied are thus mentioned on the package and that MRPs are mentioned so that there is one uniform price at which such goods are sold.”.Therefore, the Court unequivocally held,.“… neither the Standards of Weights and Measures Act, 1976 read with the enactment of 1985, or the Legal Metrology Act, 2009, would apply so as to interdict the sale of mineral water in hotels and restaurants at prices which are above the MRP.”.Read the Judgement.