New SC Ruling: Hotels, Restaurants Can Sell Bottled Water Above MRP

The Supreme Court has allowed hotels and restaurants to sell bottled water and other packaged products above the maximum retail price (MRP), saying that they also render a service and cannot be governed by the Legal Metrology Act, said a report by The Economic Times.

In a judgement passed on Tuesday on a special leave petition filed by the Federation of Hotel and Restaurant Associations of India (FHRAI) against the Union of India, the apex court said when hotels and restaurants sell food and drinks, they also render a service, making it a composite transaction with a composite billing and MRP rates cannot be insisted upon for such entities.

“The court in its judgement said there are a whole lot of other services that go with being served in hotels and restaurants and prosecution under Legal Metrology Act for alleged breach of MRP prices cannot be launched,” said a lawyer who was present at the hearing.

Ruling by the apex court

A bench led by Justice Rohinton F Nariman held that provisions of Legal Metrology Act will not be applicable in selling bottled water in hotels and restaurants and therefore, no prosecution can be launched against them for selling above MRP. The court noted that composite elements of sale and services are there in hotels and restaurants where consumers also enjoy the ambience, invested into by these commercial establishments. “It is not a simple case of sale. Nobody goes to a hotel to buy or take away a bottle of mineral water,” the bench observed, according to a report by the News18.

It rejected the government’s argument that even a sale in a hotel would require mandatory compliance with the provision of the Act and that there would be a jail term and fine for selling above MRP. Earlier in its affidavit in response to a petition filed by the FHRAI, the Ministry of Consumer Affairs said that overcharging for pre-packed pr prepackaged products was an offence under the Legal Metrology Act.

Arguments put forth by the government and FHRAI

The government had said, “Sale of packaged water over MRP by hotels and restaurants may have implications regarding tax evasion as a bottle purchased by a hotel at cost price, which should be sold at MRP or less, is being sold at much higher prices, leading to possible loss of additional revenue by the government in the form of tax or excise duty.”

The authorities, under the erstwhile Standards of Weights and Measures Act, has threatened to prosecute hotels and restaurants, saying that they should charge only the MRP on products such as bottled mineral water.

The FHRAI filed a writ petition in the Delhi High Court, challenging notices issued to them. A single-judge bench of the court held in March 2007 that charging in excess of the MRP printed on the bottles of mineral water while serving customers in hotels and restaurants does not violate any provision of the Standards of Weights and Measures Act.

The government filed an appeal in the division bench of the court, after which the Standards of Weight and Measures Act was repealed by the Legal Metrology Act in 2010. The court then disposed of the matter and said the parties could examine if the new act was being implemented in a wrong manner.

The SC’s judgement on Tuesday has been based on the special leave petition filed by the FHRAI, which argued that the definition of sale in both the new and old acts was the same. Girish Oberoi, President of FHRAI said, “We had moved the SC and had said that nobody comes to hotels just for bottled water or a cold drink – there are other costs involved. So, we cannot sell at the printed price. There is a service which is being rendered. Our stand has been accepted by the court and the act doesn’t cover us and we are not bound to sell our items on MRP.” Thus the earlier take on the MRP issue became redundant after the act changed.

Also read,

Understanding The ‘Dual MRP’ Issue And The Confusion Around It