Appellant must pay compounded tax rate on drugs & medicines, court rules.

The court upheld the Commissioner's decision that the appellant is liable to pay tax at a compounded rate on all drugs and medicines sold, even without a formal application for compounding. The court emphasized that the appellant's adoption of the compounding scheme for tax payment constituted opting to pay tax under the scheme. The sale of drugs and medicines by the appellant should be assessed at four percent on the maximum retail price, with exemption entitlement for purchasing dealers. Other products are subject to normal provisions of the Act for tax assessment. The court dismissed the appeal, affirming the application of the compounded tax rate on drugs and medicines sold by the appellant.

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Issues: Appeal against clarification under section 94 of Kerala Value Added Tax Act, 2003 regarding the application of compounded tax rate on drugs and medicines sold by the appellant.

Analysis:
The appellant, a manufacturer and dealer in drugs and medicines, remitted tax at a compounded rate of four percent on the maximum retail price (MRP) under section 8(e) of the Act. However, when the assessing officer applied the same rate on medicines sold in other divisions of the company, the appellant contended that only the pharma division had paid tax at the compounded rate. The Commissioner held that the appellant is liable to pay tax at the compounded rate on all drugs and medicines sold, regardless of the filing of a formal application for compounding. The court affirmed the Commissioner's decision, stating that the appellant's adoption of the compounding scheme for payment of tax on drugs and medicines at four percent on MRP, even without a formal application, constituted opting to pay tax under the compounding scheme. The court emphasized that the appellant cannot deny opting for the compounded rate once billing is done in accordance with the scheme.

The court further highlighted that the proviso to section 8(e) of the Act entitles the purchasing dealer to exemption when tax is collected at the compounded rate on MRP by the seller. The court reasoned that the appellant's conduct of billing in accordance with the compounding scheme led to purchasers claiming exemption under the proviso. Therefore, the sale of drugs and medicines by the appellant should be assessed at four percent on MRP as per section 8(e) of the Act. For other products, compounding is not applicable, and normal provisions of the Act will apply for assessment and tax levy. Any remaining disputes are to be pursued by the appellant before the statutory authority in appeal. The court disposed of the appeal, upholding the Commissioner's order regarding the application of the compounded tax rate on drugs and medicines sold by the appellant.

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