CA K. Jitendra Babu
The High Court of Patna has reaffirmed the legal position that State Governments are not competent to levy VAT on MRP in the case of M/s. Mapra Laboratories Pvt. Ltd., Vs. The Commercial Tax Officer. Number of Writ petitions were filed by various pharma companies which were allowed by the High Court.
Facts of the case are that the assessees are engaged in the business of manufacture and sale of medicines. They have filed returns by remitting tax on the sales price of medicines and claimed exemption in respect of medicines supplied free of cost to their dealer under the quantity discount schemes as per the trade practice. Since there is no receipt of consideration, the assessees claimed that such transactions would nto amount to sales and therefore not liable for VAT. Department had also accepted the claim of assessees, which was genuine and legal, and passed the assessment orders and the practice was going on. However, an audit objection raised by Accountant General that supplies made free of cost cannot be granted exemption for the reason that assessees have opted for scheme under Section 15(5) of Bihar VAT Act, which provides for levy of VAT on MRP. Consequent to audit objection, department has initiated revision proceedings and subjected the goods issued free of cost to tax, by setting aside the assessment order of the assessing authority. Revision proceedings have compelled the assessees to approach the High Court.
The High Court held that (i) State Legislature is not competent to provide for levy of tax on the first point of sale on the basis of MRP or any other notional value; (ii) The matter goes to the root of the competence of the State legislature under the Constitution to frame any such enactment; (iii) since the State 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.
The High Court followed the judgement of the Hon ‘ble Supreme court in the case of State of Rajasthan & Anr Vs. Rajasthan Chemist Association  147 STC 542 (SC).
In this context, it is to mention that many State Governments are resorting to levy of VAT on MRP, without having competence to do so. For ex., Mobile Handsets of MRP more than Rs.10,000/- are liable for VAT @12.5% plus additional tax in the State of Uttar Pradesh. Similarly, mobile handsets having MRP of more than Rs.15,000/- are
liable for VAT @13.5% in the State of Assam. Some other State Governments have also levied VAT on mobile handsets on the basis of MRP. All such entries are not legally valid and will be quashed by High Courts if the assessees contest the same.
It is in the interest of both industry and State Governments that VAT departments of all the States review the provisions relating to their VAT Acts and take immediate action to delete the provisions, if any, that levy VAT on MRP, which will help in enhancing the ease of doing business and reduce litigation.