India is often considered a nation of over-regulation. At the risk of policy overkill and stifling the vibrancy of the economy, companies continue to follow a long list of compliances in order to keep running their shops here.
The Legal Metrology Act, 2009 (LM Act) was enacted to “eliminate obsolete regulations” as well as “to protect the interests of consumers and at the same time keep the industry free from undue interference” (Multiplex Association of India v. The Controller of Legal Metrology). The interests of the consumers are adequately protected under the LM Act in the form of detailed declarations that manufacturers, importers and packers are required to make on their packages.
However, the regulator chooses to enforce these requirements quite aggressively. Minor deviations from the declaration norms are met with stringent action by the legal metrology department. Reiterating what has now already become public knowledge, the departments are too keen to seize packages and penalise business owners for the most trivial cases of non-compliance. However, the latest data suggests that companies found to be non-compliant with the provisions of the LM Act are not prone to recidivism.
Unaware of their transgressions, companies are often surprised to find themselves in this regulatory quagmire. Besides monetary penalties, the LM Act also criminalises the act of not making declarations in terms of the prescribed rules. Considering the scheme of things under the LM Act, one is given to wonder how it does not interfere with the ease of doing business.
Recently, the LM Act underwent a few changes that cause trouble to all stakeholders significantly. The Legal Metrology (Packaged Commodities) Rules, 2011 (LM Rules) were amended to change the declaration norms for manufacturers, packers and importers of packaged commodities. The key amendments are set out below:
One or more packages, grouped together to be sold as a single retail package, will be required to make all the declarations as per LM Rules.
It will not be mandatory to declare the month and year of ‘pre-packed or import’. However, the month and year of ‘manufacture’ are required to be declared on the packages.
The maximum retail price (MRP) inclusive of all taxes may be declared in ‘Indian currency’ without any strict requirements relating to the format.
In addition to the basic MRP, the manufacturer, importer or packer is also required to declare the unit sale price on the label.
In a welcome move, certain requirements will be relaxed by the above amendments. For example, importers will be saved from declaring the date of import of packages. Further, the stakeholder entities will be permitted to declare the retail price in any manner which suits the size of their labels. Under the extant norms, declaration of retail price can only be made as per specific formats which occupy sizeable portions on the label. Until now, these specific formats restricted the use of the rupee symbol for declaring the retail price, which not only takes up less space on the label but also declares the retail price more conspicuously. In the absence of these specific formats, stakeholder entities will be able to use the rupee symbol or any other format to declare the price.
However, these relaxations pale in comparison to the additional compliance obligations proposed by the government. To give an example, the declaration of unit sale price is required to be mentioned down to the gram or centimetre or millilitre or number (of units), as applicable on the type of product. Since companies are required to declare the unit sale price alongside the maximum retail price, they will be left with much lesser space on the principal display area of their packaged commodities. Scarce space on the label is a problem endemic to all types of consumer packages in India. In our experience, this requirement exacerbates difficulties, particularly for FMCG manufacturers, as these companies package small-sized commodities such as perfume bottles, food sachets and, beverages.
It is also clarified that unit sale price is not required to be declared on wholesale packages, e-commerce websites and advertisements or where retail sale price is equal to the unit sale price. However, this will not save companies from revamping their cost strategy and systems completely in order to comply with this requirement. We are of the opinion that declaration of unit sale price once notified will prove to be quite a daunting task for companies to fulfil. Companies already employ complex methods to arrive at a competitive price for their products. Now, expanding these cost methods to come up with granular levels of unit sale price will drastically increase their compliance expenditure.
In a world of cut-throat innovation, such extensive labelling requirements do not leave enough scope for companies to be creative with their labels as much as they would desire. Further, it has been felt that these changes attempt to provide such information to the consumers which they do not need.
Initially, majority of the companies scrambled to comply with the amendments while a few others opted to anticipate clarifications from the concerned regulator. The amendments were set to become effective on April 1, 2022. As per the latest official announcement, these amendments will now come into force from October 1, 2022. For now, the postponement of these amendments has given a breather to the stakeholders from undertaking a comprehensive compliance exercise.
Savar Mahajan is a Senior Associate and Ashu Bhargav is an Associate at Chandhiok & Mahajan Advocates and Solicitors.