TaxTMI 
TaxTMI 
2006 (7) TMI 17
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....this regard. Writ application filed by the respondent-Association was allowed to that extent. 2. The controversy arose in the following background: 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-Section (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-section (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 s....
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....h 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 ....
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....t 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 Section 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....
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....provincial legislature in terms of the legislative power conferred under the Government of India Act, 1936 under Entry 48 in List II of the Schedule Seventh of the said Act. Under Section 2(h) of the U.P. Act, a sale was defined to include forward contracts. This Court upheld the challenge by holding that the power conferred under Entry 48 to impose tax on the sale of goods can be exercised only when there is a sale under which there is a transfer of property in the goods, and not when there is a mere agreement to sell. The State Legislature cannot, by enlarging the definition of "sale" by including forward contracts arrogate to itself a power which is not conferred upon it by the Constitution, and the definition of "sale" in Section 2(h) of the Act XV of 1948 must, to that extent, be declared ultra vires. 11. It was inter alia held as follows: "It would be proper to interpret the expression "sale of goods" in Entry 48 in the sense in which it was used in legislation both in England and India and to hold that it authorizes the imposition of a tax only when there is a completed sale involving transfer of title". 12. Significantly, the Court observed about substance of the levy as....
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....nt: "that it must be supported by money consideration, and that as a result of the transaction property must actually passed on the goods unless all these elements are present, there can be no sale" 17. Following conclusions were arrived approving the view in Budh Prakash's case (supra):- "A power to enact a law with respect to tax on sale of goods under Entry 48 must, to be intra vires, be once relating in fact to sale of goods, and accordingly, the Provincial Legislature cannot, in the purported exercise of its power to tax sales, tax transactions which are not sales by merely enacting that they shall be deemed to be sales;…… sale" in Entry 48 must be construed as having the same meaning which it has in the Sale of Goods Act, 1930……. It is of the essence of this concept that both the agreement and the sale should relate to the same subject matter". Summing up the conclusions it was held:- "the expression "sale of goods" in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell moveable for a price and property passing therein pursuant to that agreement" 18. The State Legislature does not have legislative competence to give the expression "sa....
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.... its nature which transpires attracting the levy. The second is a clear communication of the person on whom the levy is imposed and which is obliged to pay the tax. The third is rate at which the tax is imposed and the fourth is the measure or value to which the rate is applied for computing the tax liability". Obviously, all the four components of a particular concept of tax has to be inter related having nexus with each other. Having identified tax event, tax cannot be levied on a person unconnected with event, nor the measure or value to which rate of tax can be applied can be altogether unconnected with the subject of tax, though the contours of the same may not be identified. 24. In Union of India v. Bombay Tyre International Ltd. 1(AIR 1984 SC 420) the expressions subject of tax, the measure of tax and nexus between the two have been succinctly analysed. The decision arose in the context of Central Excise and Salt Act, 1944 (in short 'Excise Act'). The controversy was what should be included in the measure of computation of liability and what fell outside the scope of measure to be excluded from consideration. Referring to a large number of decisions of different courts, in....
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....t of tax. As noticed above tax on sale of goods, is tax on vendor in respect of his sales and is substantially a tax on sale price. The vendor or buyer cannot be taxed de hors the subject of tax that is sale by the vendor or purchase by the buyer. four essential ingredients of any transaction of sale of goods include the price of the goods sold, therefore, in any taxing event of sale, which become subject matter of tax price component of such sale, is an essential part of the taxing event. Therefore, the question does arise whether a particular taxing event of sale could be subjected to tax at the prescribed rate to be measured with such price which is not the component of the transaction of sale, which has attracted the sales tax. 29. Andhra Sugars's case (supra) concerned the challenge to levy of sales tax under Andhra Pradesh Sugarcane Regulation of Supply and Purchase Act. The tax was levied on the purchase of sugarcane as per the weights of the goods purchased. One of the contentions raised before this Court challenging its validity was that the tax must be levied with reference to the turnover only and it cannot be levied with reference to the weight of the goods purchased. ....
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....egislature can levy it in such mode or in such manner as it things appropriate". In this connection, it is relevant for the present purpose to notice that in upholding the validity of additional purchase tax on goods, when the goods manufactured by the buyer are sold outside State as that the tax was related to purchase price, which was part of transaction of purchase and not payable on price at which he shall be selling his goods. Therefore, it retained its character on tax on purchase otherwise it would have become Duty of excise on value of goods determined in terms of price charged by manufacturer, when such sale was not subject of tax levied by State Legislature. 35. In Ganga Sugar's case (supra) the court emphasized the tax on sale or purchase must be on occurrence of taxing event of sale transaction. While accepting that, price of the sale transaction is not necessarily the only criterion which may form the basis of levy of tax but it opined that price as basis not only usual but also safe to avoid unequal, uneven burdens. The Court also stated that it is common sense that the reliable standard is the price although in regard to custom duties there are still items on which....
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....sent or as regulated by statutes. 40. These cases give a clear picture that Entry 54 in List II of Seventh Schedule empowers the State Legislature to impose and collect taxes on sale of goods. The measure to which tax rate is to be applied must have a nexus to taxable event of sale and not divorced from it. 41. The pivotal question, therefore, which needs to be considered is whether the measure to which rate of tax is to be applied on single point transaction of sale of any formulation by the wholesaler to the retailer can be something notional which is not related to subject of tax or to say in other words, whether MRP to be chargeable subsequent to taxing event by a retailer when he sells the same goods to consumer can provide a basis which has a nexus with taxable event to provide a valid measure to which rate of tax can be applied. 42. The principal contention about the invalidating of the basis of the measure of tax envisaged under Section 4A of the Act as inserted vide Finance Act, 2004 is that while it levies taxes on the sale transaction carried on by the manufacturer or wholesalers or distributor the measure with which total turn over is to be determined is not part of ....
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....e Control Order, nor which flows from buyer to seller under the contract but is relatable to a transaction of sale by a retailer which may not have come into existence. For the present, the price to which rate of tax is sought to be applied to a sale by a wholesaler to a retailer is neither the price agreed upon by the parties to the contract of taxable sale to which charge is attracted nor flows from the Control Order under which also, it is the price of formulation before end sale is to be determined within prescribed limits. 46. The charging Section 4 stipulates that the tax payable by a dealer under the Act shall be at single point in the series of sales by successive dealers, as may be prescribed and shall be levied at such rates not exceeding fifty per cent on the taxable turnover, as may be notified by the State Government in the Official Gazette. This shows that there is no scope for multi point levy of tax and the tax is levied on the first point sale within the State in a series of sales and tax is leviable at rate applied to aggregate of price received or receivable by the dealer on such sales. 47. Section 4A does not become workable unless read along with definition o....
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.... of sale is independent and can be subject to levy of tax and the components and the measure which can make the tax levy effective must have nexus with the taxable event. 51. By devising a methodology in the matter of levy of tax on sale of 'goods, law prohibits taxing of a transaction which is not a completed sale and also confine sale of goods to mean sale as defined under the Act. This cannot be overridden by devising a measure of tax which relates to an event which has not come into existence when tax is ex-hypothesi determined, much less which can be said a completed sale and which cannot be subject of legislation providing tax on 'sale of goods' by transplanting a sum related to as "likely price" to be charged for subsequent sale to be taxed by the devise of measuring tax for the completed transaction which has become subject of tax. 52. It may be relevant to recall here that this Court in Hotel Balaji's case (supra) held that where a tax was levied as a purchase tax and was confined to the purchase price paid by the buyer, and was not chargeable at the price at which the end produce was sold later, it had retained its character as a tax on purchase. 53. If the legislation....
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....unt paid or payable by the buyer as increased by a surcharge for the purpose of Union". 55. Interpretation of the two sections came up before Andhra Pradesh High Court. The said Court while the validity of the Act read down the Section 44AC of the Act and held it only to be an adjunct to Section 206C and to explain provision of Section 206C and not to dispense with the regular assessment in accordance with the provisions of the I.T. Act. It was held that the subject matter of tax vis. 'income' cannot be determined notionally by making such specific provisions when in all other cases only the real income to be computed in accordance with provision of Section 28 to Section 43C. This Court noted that one of the contentions raised in the petition was that 'tax is levied on "hypothetical income" and not on "real income". In other words, the determination of "real income" was held to be the statutory mandate. 56. If Section 4A is designed to bring a levy into existence which is divorced from the "sale" subject to tax under the Act, it is beyond legislative competence under Entry 54 of List II of Seventh Schedule. The notification to the extent it intends to levy tax on first point sale....
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....parate contract by the contractor of the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and conditions incorporated in Article 286 of the Constitution. If that was the position can be States contend after the 46th Amendment under which by a legal fiction the transfer of property in goods involved in a works con tract was made liable to payment of sales tax that they are not governed by Article 286 while levying sales tax on sale of goods involved in a works contract? They cannot do so. When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. If the power to tax a sale in an ordinary sense is subject to certain conditions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under Article 366(29A) of the Constitution should also be subject to the same restrictions and conditions. Ordinarily, unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the buildin....
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....ntry 54 thereof. As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the "deemed" sales and purchases of goods under clause (29A) of Article 366 is to be found only in Entry 54 and not outside it. We " may recapitulate here with observations of the Constitution Bench in the case of Bengal Immunity Comp Ltd. v. State of Bihar (1955 (2) SCR 603) in which this Court has held that the operative provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List." 59. In Bhopal Sugar Industries v. D.B. Dube (AIR 1964 SC 1037) it was noted as follows: "5. In Gannon Dunkerley & Company's case ([1959] SCR 379), this Court was called upon to consider whether in a building contract which is one, entire and indivisible; there is sale of goods. It was held by the Court that the Provincial Legislature was not competent under Entry 48, List II, Sch. VII of the Government of India Act, 1935, to ....