2009 (3) TMI 919 - HC - VAT and Sales Tax

Valuation - compounded rate - The appellant s case is that only in the pharma division they have paid tax at compounded rate and so far as other divisions are concerned drugs and medicines sold cannot be subjected to assessment at compounded rate under section 8(e) of the Act - Held that - even without a formal application for compounding the appellant adopted the scheme of compounding for payment of tax in respect of drugs and medicines which is at four per cent on MRP. Proviso (b) to Explanation to section 8(e) makes it clear that when tax is collected at the compounded rate on MRP by the seller the purchasing dealer is entitled to exemption. Going by the collection of tax in the pharma division the appellant cannot deny that they have not opted for payment of tax at compounded rate under section 8(e) of the Act. All what the Commissioner has stated is that once the appellant has started billing in accordance with compounding scheme then the same itself amounts to opting to pay tax under the compounding scheme and the appellant cannot therefore back out of the same. Appeal dismissed - decided against appellant.

Summary

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.