2015 (9) TMI 1274 - HC - VAT and Sales Tax

Levy of VAT on MRP - deduction of discount - Levy of VAT on supply of medicines free of costs - manufacture and sale of medicines - validity of the provisions contained in Section 15(5) of the Bihar Value Added Tax Act, 2005 - Held that - providing for measure of tax on the subject of tax by substituting any notional value like the MRP or otherwise, is beyond the legislative competence of the State legislature. - Decision in the case of State of Rajasthan & Anr. Vs. Rajasthan Chemist Association 2006 (7) TMI 17 - SUPREME COURT OF INDIA followed. The State Legislature not being competent to provide for levy of tax on the first point of sale on the basis of MRP or any other notional value, there could be no question of the legislature providing for the same even by way of exercise of option by the dealer concerned. The matter goes to the root of the competence of the State Legislature under the Constitution to frame any such enactment and if it is not competent to enact such a measure then it is equally not competent to do the same by way of providing option for levy of tax upon the dealer in such matter. Thus, in the light of the aforesaid discussion Sub-section (5) of Section 15 of the Bihar Value Added Tax, 2005 is declared ultra vires. Consequently, the impugned orders passed by the Commissioner in the revision application as also by the Assessing authority in accordance with the same cannot be sustained and, are accordingly, quashed. - Decided in favor of assessee.

Summary

Issues:
Validity of provisions in Section 15(5) of Bihar Value Added Tax Act, 2005 and Notification S.O. 47 dated 05.04.2006 disallowing trade discounts in assessments.

Analysis:
The judgment addressed multiple writ petitions challenging the validity of Section 15(5) of the Bihar Value Added Tax Act, 2005 and a related Notification. The petitioners contested disallowance of trade discounts by the Competent Authority due to opting to pay tax at the rate specified in Section 14 on the maximum retail price (M.R.P.) of goods. The case involved a petitioner engaged in medicine manufacture and sale, providing free medicines to dealers under a discount scheme. The Tax Authorities initially accepted this practice but revised their stance following an audit objection. The Commissioner of Commercial Taxes ruled that free medicine supplies were taxable under Section 15(5)(b) of the Act, leading to assessment disputes.

The judgment delved into the legal framework of the Bihar VAT Act, emphasizing Section 3 as the charging provision and Section 15(5) as an exception allowing dealers to pay tax on M.R.P. of goods. The petitioners argued that tax should only apply to actual sale transactions, not future prices, citing constitutional provisions and definitions under the Act. They referenced a Supreme Court case (State of Rajasthan vs. Rajasthan Chemist Association) where a similar provision was deemed ultra vires due to taxing future prices unrelated to the sale event.

The State contended that the Bihar Act's optional nature distinguished it from the Rajasthan case, but the Court rejected this argument. It upheld the Supreme Court's position that taxing based on future prices is beyond legislative competence, irrespective of dealer choice. Consequently, Section 15(5) of the Bihar VAT Act was declared ultra vires, rendering related orders invalid. However, finalized assessments under Section 15(5) were not to be reopened due to the judgment's retroactive effect.

In conclusion, the judgment declared Section 15(5) of the Bihar VAT Act unconstitutional, emphasizing the need for tax measures to align with actual sale events. It highlighted the limits of legislative competence in imposing taxes based on future prices and upheld the petitioners' challenge against the disputed assessments.