1995 (9) TMI 348 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the notification dated December 15, 1982, and the circular dated October 15, 1987.
2. Interpretation of the Drugs (Price Control) Orders of 1987 and 1995 concerning sales tax reimbursement.
3. Applicability of the Central Sales Tax Act, 1956, and the Assam Finance (Sales Tax) Act, 1956, on subsequent sales.

Detailed Analysis:

1. Legality of the Notification and Circular:
The petitioner, an association of drug dealers in Assam, challenged the notification dated December 15, 1982, and the circular dated October 15, 1987, issued by the Commissioner and Assistant Commissioner of Taxes, respectively. The notification clarified that suppliers should include sales tax in the price of goods and not show it separately in the bill. The circular stated that Assam finance sales tax is not leviable on sales of goods purchased within Assam, and any contravention is a criminal offense. The petitioner argued that these notifications were illegal and contrary to the Drugs (Price Control) Orders of 1987 and 1995, which allow reimbursement of sales tax paid by intermediaries and retailers.

2. Interpretation of the Drugs (Price Control) Orders of 1987 and 1995:
The Drugs (Price Control) Orders of 1987 and 1995 were issued under Section 3 of the Essential Commodities Act. Clause 17 of the 1987 Order and Clauses 14 and 15 of the 1995 Order stipulate that manufacturers, importers, or distributors must display the retail price of formulations with the words "retail price not to exceed" and "local taxes extra" for Scheduled formulations, and "maximum retail price" and "inclusive of all taxes" for non-Scheduled formulations. The petitioner argued that these provisions permit the realization of local taxes, including sales tax, as part of the sale price, thus allowing intermediaries and retailers to reimburse themselves for the tax paid at the first point of sale.

3. Applicability of the Central Sales Tax Act, 1956, and the Assam Finance (Sales Tax) Act, 1956:
The petitioner contended that under the Central Sales Tax Act, 1956, and the Assam Finance (Sales Tax) Act, 1956, sales tax is a one-point tax payable by the wholesale dealer or manufacturer on the first sale. Subsequent sales are not liable to sales tax, but the amount charged as tax in cash memos by intermediaries and retailers is merely a reimbursement of the tax paid at the first point. The Supreme Court's observation in Central Wines v. Special Commercial Tax Officer supported this view, stating that the sales tax component charged by the dealer is part of the sale price and not tax collected as an agent of the State.

Judgment:
The court held that the notifications dated December 15, 1982, and October 15, 1987, were contrary to the provisions of the Drugs (Price Control) Orders of 1987 and 1995, which allow the realization of local taxes as part of the sale price. The court observed that the sales tax component charged by intermediaries and retailers is a reimbursement of the tax paid at the first point and not a separate tax. Therefore, the sales tax authorities cannot levy additional tax on subsequent sales. The petition was allowed, and the notifications were quashed.

Conclusion:
The judgment clarified that under the Drugs (Price Control) Orders and relevant sales tax laws, intermediaries and retailers are entitled to reimburse themselves for the sales tax paid at the first point of sale. The notifications issued by the tax authorities were found to be illegal and were quashed, ensuring that the tax burden does not unfairly fall on the last seller.

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