Fixation of MRP: Right or Wrong?

The Author, Bhanu Pratap Samantaray, is a 2nd year BA LLB student at National Law University, Odisha. He is currently interning with LatestLaws.com. 

INTRODUCTION

The Ministry of Civil Supplies, Department of Legal Metrology, introduced the maximum retail price (MRP) that is printed on all packaged commodities that consumers purchase in 1990 by amending the Standards of Weights and Measures Act (Packaged Commodities' Rules) (1976). Its goal was to prevent tax evasion and safeguard consumers from store profiteering. Earlier, manufacturers used to print either the maximum retail price (including all taxes) or the retail price, which was followed before the amendment (local taxes extra). When producers chose the latter method, it was discovered that retailers frequently charged more than the local taxes. As a result, an amendment was proposed to mandate the printing of MRP on all packaged goods.

In today's world, the prices of consumer goods traded on the open market are usually set arbitrarily by the manufacturers. Even though it is obvious that in a market where various products have varying tax rates within the same city, it is extremely difficult for customers to determine whether retailers are charging the correct amount of local taxes on the products they sell. As a result, buyers are naturally confused about the price of items, while manufacturers benefit handsomely because the actual manufacturing cost is quite low. Consumers are forced to buy items at greater prices because manufacturers unilaterally set the price.

FACTORS DETERMINING FIXATION OF MRP

• Cost Production: The fundamental component of price is the cost of production. No corporation may sell its goods or services for less than what it costs to make them. As a result, before deciding on a price, data on the cost of production must be compiled and kept in mind. There are two types of costs: one is financial and the other is non-financial.

1. Fixed Price (e.g., Rent of building, Salary of permanent staff, etc.)
2. Cost Variable (e.g., Material, Labour, etc.)

At the very least, the pricing should be able to recover the variable cost, given the fixed cost is incurred regardless of whether or not manufacturing occurs.

• Demand for Products: Before deciding on a pricing, a thorough assessment of market demand for products and services should be conducted. Higher prices can be fixed if demand is greater than supply.
• Price of Competing Firms: Prior to deciding on a pricing, it is vital to analyze the prices of other firms' products. When there is fierce competition, it is preferable to keep prices low.
• Purchasing Power of the Customer: What is the customer's purchasing power, and how much and at what price can they buy? It should be taken into account as well.
• Government Regulation: It should also be considered whether the price of the item and services is to be set according to government regulations.
• Objective: A specific amount of profit is usually added to the cost of manufacturing at the time of price fixation. If the company's goal is to make more money, it may increase the amount of money it invests.
• Marketing Method Used: Price is also determined by the company's marketing strategy; for example, commission paid to middlemen for the selling of items is factored into the price. Similarly, if consumers are to be supplied with "after-sale service," those costs are included in the price.

THE CONSUMERS ITEMS ACT 2006

Under the Weights and Measures (Packaged Commodities) Rules, all packaged goods must include certain essential information about their contents, such as the package's weight or volume, the manufacturer's name and address, the date of manufacture, and, in the case of food, the best before date, as well as the maximum retail price (MRP). Certain standards have been set under the Consumer Items (Mandatory Printing of Cost of Production and Maximum Retail Price) Act, 2006, so that the consumer cannot be charged more than the maximum price printed on the goods by the manufacturer.

The following are the guidelines:

1. All commodities and items delivered to the market for sale and intended for the use and consumption of consumers are referred to as consumer goods;
2. Cost of production refers to the costs incurred directly or indirectly by the manufacturer in the creation of goods;
3. Printing refers to the printing of the cost of production and retail price in Hindi and English, as well as the local language of the location where the product is sold; and
4. The maximum retail price is the price at which the product will be sold in retail stores, and it includes all applicable taxes.

MRP RULES AFTER IMPLEMENTATION OF GST

• If the price of a product has increased as a result of the GST, the manufacturer must place an advertisement in at least two newspapers announcing the new price.
• Only the manufacturer's stocked products are required to appear in the advertisement. The advertisement rule does not apply to new products introduced after July 1st.
• The advertisement rule was in effect for three months (from July 1 to September 30) following the implementation of GST.
• If the price of a product has decreased as a result of the application of GST, the manufacturer is not required to promote the lower price in the newspaper. 
• If the price of a product has increased or decreased, the manufacturer is obligated to place the new sticker alongside the old sticker for stocked products until 30^th September, and just the revised price for new products.  

MRP UNDER GST TURNS STRICT

The metrology department in Telangana has been scanning merchandise for any unnecessary MRP tagging. The administration has also said that a criminal will face severe consequences. The department has settled on a penalty range of 2000 to 25000 dollars for any malpractices. The major goal is to eliminate the practice of collecting GST on the product's price tag, or MRP.

“Customers should be made aware that GST is included in the MRP and should not be charged separately,” said CV Anand, the state's civil supplies commissioner and legal metrology department's controller. Several concerns have surfaced about extra GST being levied on packaged items over the MRP, and certain non-taxed commodities are also being taxed with GST. It's against the law.” The department has also established a grievance cell to address any complaints over GST collection exceeding the product's MRP.

PROBLEMS FACED BY THE CONSUMERS

Consumers must be aware of the difference between the maximum retail price and the actual price of items. The maximum retail price includes all taxes, and a retailer is allowed to offer at a lower price than the MRP. Consumers should constantly seek out shops who sell below the MRP because the MRP is the maximum retail price allowed for that commodity, not the real price, and a retailer can easily cut the margin built into the MRP. On the other hand, the actual price could be roughly 10% to 15% less than the MRP. The discrepancy between the selling price and the MRP can be as big as 30-50 percent depending on the printed MRP.  

Consumers have been observed going to the market and purchasing things without even looking at the MRP mentioned on the packing and carton of the products. In that case, the dealer informed the buyer of the product's pricing and stated, "I would give you the product at a discounted rate." When the consumer returns home after purchasing the item, he or she discovers that the price of the goods stated on the packing and carton is already less than the price on which he or she purchased after discount. Manufacturers must identify the MRP inclusive of all taxes on all pre-packed items intended for retail sale under the Standards of Weights and Measures (Packaged Commodities) Rules[1]. This is a requirement to ensure that consumers are not misled about the price of packaged goods by agents/dealers and shopkeepers. Overcharging is a crime for which the trader can be prosecuted, as well as the manufacturer if the packaged goods bear the altered price. In the situation mentioned above, the dealer took advantage of the fact that the customer couldn't see the packaging and charged a higher MRP.

In the case of M/S Cargo Tarpaulin Industries v. Sri Mallikarjun B.Kori, the Hon’ble Consumer Courts dismissed an appeal filed against the state commission by a seller declaring that if the old label on the product stated ₹92 as the MRP, then charging more than what is stated on the packaging is prohibited and the seller's behaviour constitutes an unfair commercial practice. As a result of the commission's application of a relatively new provision in the Consumer Protection Act to impose exemplary damages, the seller was ordered to pay the consumer punitive damages of ₹10,000.[2]   

FORUM FOR REDRESSAL

The aggrieved complainant has the right to register a complaint with the appropriate Forum and receive remedies. The legislation has announced a number of significant Acts and laws. The Monopolies and Restrictive Trade Practices Act (hereinafter "MRTP Act"), the Essential Commodities Acts, the Environmental Protection Act, and the most important Consumer Protection Act are the Acts in question. The Consumer Protection Act of 1986 is notable for its clarity and focus, the minimal technical and legalistic procedures, the provision of access to redressal channels, and the structure of courts, which includes a majority of non-legal background members.

The Consumer Protection Act creates a judicial hierarchy, with at least one District Forum at the district level, a State Commission in state capitals, and a National Commission in New Delhi. The District Forum's monetary jurisdiction is up to Rs. 1 lakh, whereas the State Commission's is between Rs. 1 lakh and Rs. 10 lakhs. All claims for more than Rs. 10 lakh must be lodged with the National Commission directly. Within thirty days of receiving notice of the order, appeals from the District Forum must be lodged with the State Commission, which will then appeal to the National Commission.[3]

A consumer, a registered voluntary consumer organization, or a Central or State Government can file a complaint under the Act. A "consumer" is a person who buys or hires things or services for a fee, whether paid or promised, partially paid or deferred. This includes anyone who uses such goods or services with the permission of the person who paid or partially paid for them. The Act does not apply to products obtained for business purposes or for resale.

There are many other laws to protect the rights of consumers-:

• Essential Commodities Act-: Any complaint of hoarding or unfair commercial practice involving the thirty-four essential commodities enumerated in this Act can be brought before the special tribunals established by the Act. [4]
• The Standards of Weights and Measures Act and rules: This Act establishes guidelines for the use of weights and measures in commerce. The Bureau of Indian Standards (BIS) should certify certain standards, and the ISI mark should appear on them. This also establishes guidelines for packaged goods. The guidelines specify what information should be included on a package, such as the maximum retail price (MRP), the weight of the item, the date of manufacturing, and the expiration date. [5]
• MTP Act-: This Act creates a Central Commission to take action on its own behalf against restrictive and unfair trade practices, as well as to hear and rule on complaints. The Act's goal is to prohibit any trade conduct that has the effect of impeding, distorting, or restricting competition, as well as causing consumer loss or injury. [6]
• Prevention of Food Adulteration Act-:  This Act imposes harsh penalties for food adulterators. The law also establishes a group of officers tasked with inspecting the quality and amount of food served in public facilities.[7]
• The Drugs and Cosmetics Act-: This Act mandates the appointment of officials to execute the Act's many sections, as well as the imposition of severe penalties on drug and cosmetics makers that violate it.[8]

DYSFUNCTIONAL SYSTEM

While the objective to safeguard consumers in a pre-liberalized India is admirable, the system's continuation now makes little sense. In India, MRP is a one-of-a-kind, outdated, and dysfunctional technique. India may be the only country in the world with a legal framework that makes charging a price higher than the printed maximum retail price illegal. The system of having a universally enforceable printed price is considered price fixing in most nations, and is hence forbidden as anti-competitive.

Rather of being followed, the MRP rule is frequently broken. To begin with, the MRP only applies to commodities, not services. Second, because most necessary items are not packaged, they are exempt from the MRP requirement. Fruits, vegetables, rice, pulses, and other such items are always sold ‘loose,' allowing the retailer to set his own pricing depending on his costs and the demand and availability for those commodities. Finally, even packaged goods are rarely sold at MRP. In movie theatres, high-end restaurants, tourist destinations, airports, and train stations, it is not uncommon to spend significantly more than the MRP. Fourth, many stores charge for ‘services' that are not included by the MRP; for example, when purchasing cold bottled water or soft drinks, you may be charged a premium, known as a ‘cooling tax.' Fifth, manufacturers may print an MRP that is so outrageously high that the product can be sold for up to 90% less than the printed MRP, rendering the printed MRP useless in terms of signalling value. The most apparent examples are fireworks and vehicle spare components.

Officials from the state legal metrology department are responsible for determining if products are being sold at a greater price than the printed MRP.

NOT SO FAIR

The MRP produces a de facto uniform price and encourages retail pricing collusion by providing a focus point for retailers. As a result, MRP frequently harms the exact people it was designed to protect. One of the most common defences of MRP is that it is intended to protect consumers in distant areas who do not have the option of shopping at numerous stores to get the best price. While the goal of MRP is to set uniform prices across the board, whether in a big city or a remote town in the Western Ghats, the end result is often detrimental to both retailers and customers. As a result, they wind up losing money. To avoid this, they chose not to stock a large number of products, limiting the options available to customers in these places. If they were given the freedom to choose their own price, they would factor in transportation expenses and charge a slightly higher price than the MRP now allows. More businesses will eventually set up in that region, seeing as there is a need for these things and a retailer is producing above-average profits. Wholesalers and manufacturers will build better distribution infrastructure as demand from retailers grows.

However, a major reason to keep the MRP system is that it minimizes information asymmetry and gives ignorant consumers a standard. But, with the growing use of Internet-enabled smart phones, it's not difficult to envisage an app that can compile various shop pricing from a certain place. To begin with, the government can use a part of the huge resources it’s now spending on enforcing MRP to build a platform for information distribution. Given its utility, numerous private firms will gradually develop apps that provide data on various retail pricing.

CONCLUSION

It is debatable whether manufacturers should have the right, or even the obligation, to set the price at which a product is sold to the end user. As a result, the manufacturer gets to decide the retailer's profit margins, which is fundamentally antithetical to a free market economy.

Despite the fact that shops are required to modify their MRPs in accordance with the new GST rules, some continue to charge the old rate or apply GST on top of the maximum retail price. In this instance, the consumer might submit a complaint with the authorized authorities set up for this reason against the manufacturer/seller. GST, or any other tax, is always included in the MRP of a product. In any scenario, a shop is prohibited from charging more than the MRP.

The Indian government has set up a dedicated organization called the National Anti-profiteering Authority to investigate cases where the advantages of the GST decrease are not being passed on to end customers.

However, a retailer should have the right to sell his goods at any price, just as a consumer has the right to buy a product at a specific price. The customer has the option to go to another store if he feels he is being charged a greater price. According to the OECD's 2007 Report on India, retail density in India is sufficient for the market mechanism to work successfully. Even in areas with low retail density, if businesses charge exorbitant prices in the absence of an MRP, other retailers will soon enter the market, and the consequent competition will drive down prices. For a long time, the MRP system has remained unquestioned in India. It's time to trust free markets.

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