Notional MRP-based sales tax on bonus goods struck down for lacking nexus with the actual taxable sale event.

A levy under the Bihar Value Added Tax Act that taxed bonus or free-supply goods on their maximum retail price was beyond legislative competence because the tax measure had no nexus with the actual taxable sale event. The court applied the principle that, under Entry 54 of List II and Article 366(29-A), the measure of tax on sale of goods must be connected to a completed sale and cannot rest on a notional or hypothetical value. Section 15(5) and the related notification were therefore ultra vires, and assessment and revisional orders founded on them could not stand.

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Issues: Whether Section 15(5) of the Bihar Value Added Tax Act, 2005 and Notification No. S.O. 47 dated 05.04.2006 were valid to the extent they permitted levy of tax on maximum retail price in respect of bonus goods or free supply goods, and whether reassessment or revision orders based on that provision could be sustained.

Analysis: The charging scheme under the Act taxed sale and purchase, and the impugned provision sought to measure tax on a notional basis by reference to maximum retail price even where the relevant transaction did not involve consideration for the extra quantity supplied. The Court relied on the principle that, under Entry 54 of List II and Article 366(29-A) of the Constitution of India, the measure of tax must bear a nexus to the actual taxable event of sale and cannot be divorced from it by adopting a future or hypothetical value. The reasoning followed the settled rule that legislative competence to tax sales does not extend to a levy founded on a notional value unrelated to a completed sale.

Conclusion: Section 15(5) of the Bihar Value Added Tax Act, 2005 was held ultra vires, the notification issued under it could not survive, and the assessment and revisional orders founded on that provision were quashed.

Final Conclusion: The petitioners succeeded, and the impugned MRP-based levy on bonus or free supply goods was struck down for want of legislative competence.

Ratio Decidendi: A tax on the sale of goods must be measured by a value connected to the actual taxable sale event, and a levy based on a notional maximum retail price divorced from that event is beyond legislative competence.

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