2010 (8) TMI 855 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Disallowance of exemption claim for returned medicines due to expiry, damage, and breakage.
2. Treatment of medicines distributed as free samples as intra-State sales.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption Claim for Returned Medicines:

The petitioner, a consignment agent of M/s. Wyeth Limited, filed returns for the period 2004-05. The Deputy Commissioner of Commercial Taxes added back Rs. 11,54,872 to the gross turnover, treating it as intra-State sales. This amount included Rs. 10,38,542 for expired medicines and Rs. 1,16,320 for damaged and broken medicines. The petitioner argued that these should be deducted from the turnover as per section 2(40) of the West Bengal Sales Tax Act, 1994, and rule 159 of the Rules, 1995. The petitioner claimed that the credit notes were issued against sales for 2003-04 and that all relevant documents were produced, but the authorities failed to appreciate them.

The Tribunal recognized the peculiar nature of the medicinal business, where medicines have a specific life period and are often returned upon expiry. It noted that the assessing authority disallowed the adjustment of credit notes due to non-production of relevant documents. The Tribunal emphasized the necessity of producing a Chartered Accountant's certificate as per rule 159 and cross-verifying the records with invoices issued 2-3 years back. The Tribunal directed the assessing authority to reassess the matter, considering the peculiarities of the medicinal business and the directions given in a previous similar case (Case No. RN-650 of 2009).

2. Treatment of Medicines Distributed as Free Samples:

The petitioner also contested the addition of Rs. 32,81,050 to the gross turnover, which represented the value of medicines distributed as free samples. The petitioner argued that these medicines were imported for distribution as free samples for sales promotion and not for sale. The authorities treated this amount as intra-State sales due to the lack of sufficient reasons and relevant certificates from the principal company.

The Tribunal noted that the petitioner admitted the non-production of relevant certificates during the assessment hearing but later provided free goods approval forms from the principal company. The Tribunal acknowledged the explanation that distributing free samples is a common practice in the medicinal trade for sales promotion and market building. It found that the assessing and revisional authorities erred in treating the distribution of free samples as intra-State sales without considering the provided explanations and documents.

The Tribunal directed the assessing authority to reassess this matter as well, considering the explanations and documents provided by the petitioner and issuing a reasoned and speaking order.

Conclusion:

The Tribunal set aside the impugned orders and remanded the case back to the assessing authority for reassessment of the returns for the year 2004-05. The petitioner was directed to appear before the assessing authority by August 30, 2010, and the reassessment was to be completed by October 31, 2010. The application was disposed of with no order as to costs.