- (1.) Challenge in this appeal is to the legality of the judgement rendered by a Division Bench of the Rajasthan High Court, Jodhpur holding that 4A of the Rajasthan Sales Tax Act, 1994 (in short the 'Act') as introduced by the State Finance Act, 2004 was not legally sustainable to the extent that tax on first point sale of drugs, medicines or any formulation or for that matter any other commodity by a manufacturer/wholesaler/distributor to retailer where "Minimum Retail Price" (in short 'MRP') is published on package, measure to which rate of tax is to be applied cannot be with reference to such published MRP which is neither charged nor chargeable by the wholesaler from the retailer whether the tax is charged on sales or on purchase by the parties to sale under Section 4A and the concerned Notification in this regard. Writ application filed by the respondent-Association was allowed to that extent.
(2.) The controversy arose in the following background: 2.1 By the Finance Act, 2004 Section 4A was introduced which reads as follows: "4A. Levy of tax on retail sale price:- (1) Notwithstanding anything contained in any other provision of this Act or the rules made thereunder, tax on sale of such goods, as may be specified by the State Government by notification in the official Gazette, shall be levied and collected on the retail sale price of such goods abated by the rate specified in the said notification. (2) The goods to be specified under Sub-Sec. (1) shall be those in relation to which it is required under the provisions of the Standards of Weights and Measures Act, 1976 or the rules made thereunder or under any other law for the time being in force, to declare on the package hereof the retail sale price of such goods. (3) The State Government may, for the purpose of fixing the rate of abatement under sub-sec. (1), take into account the amount of sales tax and other local taxes, if any, payable on such goods. Explanation: (i) Where on the package of any goods different retail sale prices are declared with reference to different areas, the retail sale price declared with reference to the area with the State in which, it is sold shall be deemed to be the retail sale price for the purpose of this Section. (ii) Where on the package of any goods different retail sale prices are declared with reference to different areas and none of the areas fall within the State, the maximum of such retail sale prices shall be deemed to be the retail price for the purpose of this Section." 2.2 Writ Petition was filed by the present respondent questioning constitutional validity of the aforesaid provision. Section 4A in terms envisaged levy of sales tax on any transaction of sale of notified goods not on the actual price of consideration which is paid or becomes payable by the buyer to seller on such sales as have taken place, but on the MRP of the goods declared on the package as per the provisions of the Standards of weights and Measures Act, 1976 (in short 'Weight and Measures Act') or the Rules framed thereunder or any other law for the time being in force which is chargeable only at the last point sale by the retailer. The provision is not extended generally to all commodities sold in package and in relation to which it is required to print retail price thereon, but only to such goods as may be specified by the State Government by the Notification in the official Gazette as may be abated by the rates specified in the said Notification. 2.3 Primary challenge before the High Court was on the ground that it takes into account an artificial amount as turnover for the purpose of tax on "sales of goods". The tax on sale must be leviable with reference to something related to taxing event, the sale or purchase of goods which becomes subject of charge and not de hors it. With reference to Entry 54 of the Second List of Seventh Schedule to the Constitution of India, 1950 (in short the 'Constitution') it was submitted that expression "tax on sale of goods" used in said Entry means tax on the sale of goods as defined under the Sales of Goods Act, 1930 (in short the 'Sales Act') as modified/extended by Cl. 29-A of Art. 366 of the Constitution, inserted by 42nd Amendment Act, 1982. Single point tax is leviable on sale of medicines as per Notification issued under the Act. 2.4 Factually, the first point of sale in the State of Rajasthan in most cases which attracts levy of sales tax is by the wholesale distributors to the retailers and not by retailers to end consumers when alone MRP can be charged. Under the Weights and Measures Act and the provisions of Drug Price Control Order, 1995 (in short 'Control Order), issued by the Central Government under Section 3 of the Essential Commodities Act, 1955 (in short the 'Essential Commodities Act'), the maximum retail price is determined in the case of Scheduled Formulations only. On the other hand, MRP is required to be displayed on the label of container as well as package in respect of all drugs whether scheduled or non scheduled formulations. Mention of price on the package under the concerned provisions is the MRP and not the price necessarily or actually charged at the end sale for any transaction of sale of medicines in the State. The first sale within the State which alone is taxable is in reality at much lesser price than the MRP printed and the same is paid or payable on contractual basis. Under the Control Order the margin at which the medicines are to be sold to retailer has been fixed at a minimum level, that is to say, unless otherwise permitted, a formulation has to be sold to a retailer keeping at least 16% margin in the case of scheduled drugs. Thus by devising aforesaid legal fiction for deeming an artificial sale price for levy of tax having no nexus to the taxable event i.e. transactions of sale of goods at a money consideration paid or payable as defined under the Sales Act, is beyond the legislative competence of the legislature in the State, and therefore the provision is ultra-vires. 2.5 The State on the other hand took the stand that what is to be the measure of tax on a sale is within the domain of the State Legislature. Under the impugned provision, tax is levied on a completed sale within the meaning of Sec. 4 of the Sales Act. However, in what manner the charge is to be levied is a matter of details which can be worked out by Legislation. The fact that maximum retail price is to be determined statutorily and the State Legislature has taken into account the fact that the actual consideration at the first point tax may be lesser than the maximum retail price that may be charged ultimately from the consumer at the last point sale as provided for abatement of MRP by reducing therefrom the sum at prescribed rates of abatement for the purpose of levy of tax, it provides sound basis for uniform liability in the State on such transaction. The levy of tax cannot be said to be wanting in nexus with the taxing event. Therefore, the impugned provisions and the Notifications cannot be said to be ultra vires any provision of the Constitution. It was however not disputed that but for taking the MRP as a basis to provide measure of tax, no fictional price can be fixed as a measure of tax on sale of goods. The High Court on analyzing the provision in great detail came to hold as follows: "If Sec. 4A is designed to bring a levy into existence which is divorced from the sale subject to tax under the Act, it falls foul with the legislative competence under Entry 54 of List II of Schedule VII so also notification- Annex. 3 to the extent it is intended 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 to tax arise and is determined ex-hypothesi. However, the perusal of the language of Section 4A and the notification issued thereunder by itself does not show that it applies only in case of sales to be taxed at first point. In case the levy is on the last point and the maximum retail price is to be fixed and published under any Statute, whether instead of determining price actually charged in each case fixed formula is provided by the enactment which has correlation with determining price by keeping in view the provisions of Sec. 9 of the Sale of Goods Act whether the provision still falls beyond the scope of Entry 54 has not been the subject matter of contention. In this case and therefore, we have not been called upon to decide. In absence of any contention having been raised, it will be hazardous to comment upon the validity of provisions of Section 4A in isolation and the notification issued thereunder in its entirety. In view thereof, we confine our conclusion and hold that to the extent that tax on first point sale of drugs, medicines or any formulation or for that matter any other commodities by a manufacturer/wholesaler/distributor to retailer where MRP is published on package, measure to which rate of tax is to be applied cannot be with reference to such published MRP, which is neither charge nor chargeable by the wholesaler from the retailer whether the tax is charged on sales or on purchase by the parties to sale u/s. 4A and notification. The additional tax collected with reference to measure provided u/s. 4A by the wholesalers to retailers at first point sale shall not be refunded to the dealers. In case the additional tax charged has not been transmitted to buyers, the excess tax paid may be adjusted against future liability under the Act of 1994 or any other dues to the Revenue under Rajasthan Sales Tax Act."
(3.) In support of the appeal, learned counsel for the appellants submitted that there is a source of power of the State to levy tax under Article 246 read with Entry 54 of List II of Schedule VII of the Constitution. A plain reading of the Entry clearly demonstrates that tax under the said Entry can be levied on the event of sale or purchase of goods. The said Entry nowhere requires or mandates that the same can only be on the sale price of goods. Strong reliance is placed on decisions in Andhra Sugars Ltd. V/s. State of A.P. and Ganga Sugar Corpn. Ltd. V/s. State of U.P. to contend that the Constitution empowers the States to levy and collect tax on the happening of the taxable event and thereafter the quantum of tax to be levied and the measure on which the same can be levied is necessarily left for the State to decide.;