The Central Finance
Minister had compelled the States to levy tax on Maximum Retail Price (MRP) of
the Drugs even at the first point of sale under the VAT. This was probably done
under the pressure put by the Drugs Associations in India. The States, including
the State of Maharashtra, in their unusual enthusiasm introduced the definition
of sale price with a deeming clause to include MRP therein as regards sale of
Drugs.
Such artificial
system of taxation gave rise to numerous difficulties in implementing the VAT.
The Commissioner of Sales Tax, Maharashtra State had to issue as many as three
circulars to make the system workable. In the first circular (1T of 2005) he
permitted the wholesalers, retailers etc. to exclude the turnover of Drugs from
their returns. Normally, the chemists pay tax under the composition scheme. They
were allowed to pay tax under composition only on non-medical products. In
second circular (7T of 2005) he permitted the bulk suppliers to Government and
hospitals to pay tax ignoring the deeming provision. On one hand he gave the
concession, on other he made the non sale transactions the subject matter of
sale. The free supplies or bonus schemes, as are popularly known, were made
liable to tax in the hands of the manufacturers and importers. Set off vis-a-vis
inter State stock transfers was denied though the same was legally permissible.
Then came the third circular (28T of 2005). It was in the nature of
clarification. The Commissioner realized the legal position as regards set off
vis-ŕ-vis branch transfers and allowed the same to be claimed.
Thus, somehow the
balance was maintained between the legal provisions and the revenue collection.
The industry was also under impression that everything was going well. But we
have ‘legal pandits’ in the Department . They advised the Government to
introduce retrospective amendment in the definition of ‘Purchase Price’ which
should include therein the MRP right since 1st April, 2005. This was done to
disentitle the set-off vis-ŕ-vis branch transfers. This was done to nullify the
effect of the Commissioner’s circular permitting such set off. Knowing the
nature and working style of the present Commissioner it is unbelievable that
such retrospective amendment was suggested with his knowledge. Anyway, the fact
remains that the industry was put to loss retrospectively. We would like to
bring to the notice of the law makers and administrators that the pharma
companies had continued to maintain their ‘Hubs’ in this State only due to the
allowance of such set off and a firm commitment from the State Finance Minister
that the same would not be disturbed. But the crave for the revenue made the
king forget his promises and resultantly the industry had also started moving
the Hubs outside the State.
But, now, the apex
court has given a big blow to these dishonest law makers. It has declared any
such law which introduces levy de hors the sale of goods as contemplated
under the Sale of Goods Act, 1930, unconstitutional. No tax can be levied either
on ‘likely sales’ or on ‘likely prices’.
May we now expect the
Commissioner to come out with the fourth circular permitting the dealers to
follow the apex court’s judgment in State of Rajasthan and Another vs.
Rajasthan Chemists Association reported in 147 STC page 542
"retrospectively". It is now the law of the land and the Commissioner need not
wait for the law makers to remove the deeming provisions from our enactment. If
it is not done immediately the same shall lead to many more difficulties in
administration.
