Maximum retail price and its laws in India (2024)

Meaning of maximum retail price

Maximum Retail Price (MRP) is the highest possible price fixed by the manufacturer that can be charged for a product from a customer. Retailers may choose to sell products at the MRP or for less than the MRP.

Under the Consumer Goods (mandatory printing of cost of production and maximum retail price) Act,2006, consumers cannot be charged more than the MRP that is mentioned on the packing of the product.

Maximum Retail Price= Product’s actual cost+ Profit margin+ CnF margin+ Distributor margin+ Retailer margin + GST+ Transportation+ Advertisem*nt expense+ other expenses etc.

In India, it is compulsory for all sellers to mark the MRP price. The concept of MRP was introduced in India in 1990 post the amendment of the Standards of Weights and Measures Act, of 1997.[1]

Example of MRP:

The prices quoted shall not be more than the Trade Prices as per MRP (Maximum Retail Price) fixed by the Federal Government under the Drugs Act, 1976/DRAP Act, 2012.If the quoted or approved prices are found unreasonable at any stage of procurement, the procuring agency reserves the right to deduct the difference/overcharging besides initiation of legal proceedings.

Definition of the maximum retail price

As per section 2 (f) of Consumer Goods (mandatory printing of cost of Production and Maximum Retail Price) Act, 2006 M.R.P. is defined as follows “maximum retail price” means the such price at which the product shall be sold in retail and such price shall include all taxes levied on the product.” [2]

As the name itself says maximum retail price, therefore it is the maximum price the seller can charge the buyer.

The objective of maximum retail price

Maximum retail price ensures that the seller does not charge anything above the Maximum Retail Price from the customers. The seller’s scope to fool the customers by charging a higher price is restricted.

The MRP also ensures that commodities’ constancy is maintained for all the areas and sellers don’t charge the customers anything beyond the fixed price.

MRP maintains a great level of customer awareness of the price of commodities and avoid the sellers from selling commodities and quoting unjust prices. Since MRP is inclusive of taxes, therefore the customers will not have to bear tax implications for the products separately.

With MRP quoted on the product, increases the customer’s faith in the products and builds a strong foundation for the buyer-seller relationship.

Advantages and disadvantages of the maximum retail price

Advantages

1. The advantages of MRP are: it creates customer awareness, prevention of tax-evasion, elimination the probability of the suppliers fooling the buyers by quoting higher unjust price for products, no black-marketing, builds customer trust and strong buyer-seller relationship
2. MRP aims to create a single uniform price that is applicable all over the country. MRP fixed by a manufacturer is a fixed and legal rate.
3. MRP protects the rights of consumers, especially in remote or rural areas.
4. MRP inclusive of tax is printed on all the packaged goods thus, there is less number of complaints on the issue of over-charging from the customers.

Disadvantages

1. As the government has a minor role to play in deciding the MRP of a product, the manufacturers can determine an unfair amount as the MRP of that product.
2. MRP can create inefficiencies in the market. Since the manufacturers decide the MRP of their products, they get a chance to quote higher prices which ultimately impacts a lot of small-scale retailers and thus, that may result in them losing their customer faith because of such things that are not in their control.
3. Retailers in remote areas have to bear a high transportation cost and they cannot charge a higher price than MRP to cover that cost, they end up making losseses.
4. The manufacturer before fixing the MRP rate of any product considers the highest tax rate that is charged on the product by any state in India. Therefore, even if the tax rates in your state are low, you might end up paying a higher price because the tax rates in other states may be high.

Factors determining fixation of maximum retail price[3]

Cost production

The most important component of the price is the cost of production. Before deciding on a price, the date of production cost must be considered. There are two types of costs:

• A fixed price (e.g., rent of the building, the salary of staff etc.)
• Variable cost (e.g., material, labour etc.)

Demand for products

A study of the market demand for products and services should be conducted so that higher prices can be charged if demand is greater than the supply.

Price of competing firm

It is important to study the prices of other competitors’ products. It is preferable to fix the prices at a lower rate, in case of fierce competition.

Government regulation

The price of the item and services should be fixed according to government rules and regulations.

Marketing method used

Maximum retail price is also influenced by the marketing strategy used by the company. E.g., the commission paid to middlemen for the sale of goods is also added to the price. Similarly, if consumers are provided with “after-sales service”, then those expenses are also included in the price.

MRP laws and regulations in India

Under the Consumer Goods (Mandatory Printing of cost of production and Maximum Retail Price) Act, 2006, certain guidelines are provided so that the consumer cannot be charged anything more than the maximum price fixed by the manufacturer.[4]

The guidelines mentioned are:

1. Consumer goods are all the goods and items that are brought into the market for sale and consumption by consumers.
2. Cost of production means a cost that is incurred (directly and indirectly) by the manufacturer in the production process of the goods.
3. Printing means printing the cost of production and MRP on the packaged product in Hindi and English and the local language of the place it is sold.
4. MRP means a price at which the product shall be sold and this price is inclusive of all taxes levied on the product.

It is also important for the consumers to know the difference between MRP and the actual price of the goods. Sometimes, the printed MRP is fixed at such a high rate that the difference between the selling price and the MRP may be as much as 30-50 per cent. It is illegal to sell at a price that is more than the marked price.

The MRP is now governed by the Legal Metrology Rules (Pre-Packed Commodities) PCR,2011.

The rules state that:

• All packed products must contain a label that is clearly visible and such a label must also include the Maximum Retail Price.
• After the amendments made in the Pre-Packaged Commodities rules,2011 the goods related to e-commerce must mandatorily mention the name and address of the manufacturer, packer and importer, name of the commodity, net content, maximum retail price, consumer care numbers etc.
• It is mandatory for medical devices that are listed under the drugs like a valve, syringes etc., to mention the MRP and provide the declaration that is made compulsory under the PCR.
• It is prohibited to state two MRP on the same product.
• It is compulsory for the manufacturers to have a bigger font size for the labelling to ensure that consumers can easily read the details and the ‘best before date’ and the name of the manufacturing country must be mentioned.

After the concept of GST was introduced, the retailers started misusing it and charged more than the MRP stating that the price mentioned on the product does not include the tax.

Therefore, to save consumers from being cheated, MRP rules under the GST Act[5] were introduced.

They state:

• An advertisem*nt is to be compulsorily given in a minimum of two newspapers in case of an increase in the price of the commodity after the imposition of GST, informing the new price of the product.
• It is compulsory for the seller to put the new tag along with the old price tag for the goods stocked till the 30th of September and only the new price tag for the goods manufactured after the above date.
• If the seller is demanding a price that is more than the stated MRP in the name of GST, consumers can deny paying the higher price and they can file a complaint against the seller.[6]

With the introduction of the MRP 2011 rules amendment, the dual pricing system is abolished in order to save the consumers from being cheated by the shopkeepers or sellers.

MRP rules after the implementation of GST ensure that the sellers do not charge an amount that is more than the MRP in the name of GST.

In the case of M/S Cargo Tarpaulin Industries v. Sri Mallikarjun B. Kori, the state commission had posed exemplary compensation on a seller. This was fined because the seller filed an appeal against the state commission that was later dismissed declaring that if the old label on the product stated Rs.92 as the MRP, then charging anything more than what is stated on the packaging is prohibited and the seller’s conduct is an unfair commercial practice. The price was charged more than the MRP by the seller stating that the new stock had increased in price. The seller was ordered to pay the consumer punitive damages of Rs.10,000.

Forum for redressal of maximum retail price complaints in India

The aggrieved complainant can file a complaint with the appropriate forum and seek remedy. A number of significant acts and laws are announced by the legislation, like the Monopolies and Restrictive Trade Practices Act (MRTP Act) and the Essential Commodities Act, Environment Protection Act and the most significant one is the Consumer Protection Act.

The Consumer Protection Act establishes a hierarchy of courts, with one District Forum at the district level, a state commission at the state capital and National Commission at New Delhi. Under the act, the complaint can be filed by a consumer or any registered voluntary consumer association or any Central or State government.

Complaints can be made against:

1. Unfair trade practices that lead to complainants suffering loss or damage
2. Goods with one or more defects
3. Any deficiency in service.

Conclusion

MRP is the maximum price that can be charged for a product and it is fixed by the manufacturer. The government has no role to play in determining the MRP of a product.

It is debatable whether manufacturers should get the right to decide the price of a product. Despite the fact that shops are expected to modify their MRP according to the new GST rules, some sellers still continue to charge the old rate or charge GST separately on top of the MRP. Whereas, GST or any other tax is always included in the MRP of a product.

MRP maintains a great level of customer awareness of the price of commodities and avoid the sellers from selling the products by quoting unjust prices.

References

[1] Prerna Gupta, More on meaning of Maximum Retail Price, What is the Meaning of MOP, MRP? (July 21^st,2021), https://www.ppms.in/blog/what-is-the-meaning-of-mrp-mop-or-srp/.

[2] Ajay Bhambari, More on definition of Maximum Retail Price, Maximum Retail Price (MRP) under GST (12 Apr,2022), https://taxguru.in/goods-and-service-tax/maximum-retail-price-mrp-gst.html.

[3]More on factors determining fixation of Maximum Retail Price (9^th May,2022), https://www.toppr.com/ask/question/explain-any-four-factors-which-affect-the-fixation-of-price-of-a-product/.

[4] SAHARAY H K, Consumer Protection Law, 120-128(3ed.2017).

[5]The Central Goods and Services Act,2017, Acts of Parliament,2017(India).

[6] Ashish M.Shaji, More on MRP Laws and regulations in India, What are the MRP Rules under GST in India?(Jul 07,2017), https://enterslice.com/learning/mrp-rules-notified-under-gst/.

By: Jhanvi Shukla, a student at University of Mumbai Law Academy.