No VAT on free supply of medicines - State Govt. isn’t competent to levy tax on the basis of Maximum retail price or any other notional value
Mapra Laboratories Pvt. Ltd. Vs. Commercial Tax Officer [(2015) 63 taxmann.com 91 (Patna)]
Mapra Laboratories Pvt. Ltd. and others (“the Petitioners”) were engaged in manufacture and sale of medicines and had been regularly filing returns to the concerned Authorities. The Petitioners were claiming an exemption in respect of free of cost supply of medicines to its dealer under a scheme, which was in the nature of quantitative or trade discount on the purchase of certain quantity of medicines. The Department had denied the exemption claim on the ground that such transactions would be liable to VAT in terms of Section 15(5)(b) of Bihar Value Added Tax Act, 2005 (“the Bihar VAT Act”) which provides an option under Compounding Scheme to certain class of registered dealers to pay in lieu of the tax payable by them, tax at the rate specified in Section 14, on the maximum retail price of such goods in the manner prescribed.
Being aggrieved, the Petitioners had filed a writ petition before the Hon’ble High Court of Patna.
The Hon’ble High Court of Patna relied upon the judgment of Hon’ble Apex court in the case of State of Rajasthan & Anr. Vs. Rajasthan Chemist Association [(2006) 147 STC 542 (SC)] wherein it has been held that the Notification to the extent it intends to levy tax on first point sale with reference to price which could be charged in respect of a subsequent sale which has not come into existence at the time liability of tax arises and is determined ex hypothesis is unsustainable on that basis.
Relying upon the aforesaid judgment, the Hon’ble High Court held that the State Government isn’t competent to levy tax on the basis of Maximum retail price or any other notional value and further held that the State Government can’t provide an option to the concerned dealer to pay VAT in such manner. Accordingly, held that Section 15(5)(b) of the Bihar VAT Act is ultra vires.