STATE OF RAJASTHAN AND ANR. versus RAJASTHAN CHEMIST ASSOCIATION

Citation: [2006] SUPP. 4 S.C.R. 1 · Decided: 24-07-2006 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Dismissed

Judgment (excerpt)

ST ATE OF RAJASTHAN AND ANR. 
A 
v. 
RAJASTHAN CHEMIST ASSOCIATION 
JULY 24, 2006 
[ARIJIT PASAYAT AND TARUN CHATTERJEE, JJ.] 
B 
Sales Tax: 
Rajasthan Sales Tax Act, 1994-Sections 4A, 4, 2(44) and (42)-S.4A C 
envisaged levy of sale tax on first point sale of notified drugs, medicines and 
formulations by wholesaler/distributor/manufacturer to retailer on the premise 
of subsequent sale by the retailer i.e. based upon the MRP declared on the 
package-Validity of-Held: Measure to which sales tax rate is to be applied 
must have a nexus to the taxable event and not divorced from it-If price is 
to be the basis for measuring tax, it must relate to the actual sale transaction D 
and not a transaction that may take place in future-If S. 4-A 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, List II of 
Seventh Schedule of the Constitution-Notification to the extent it intends to 
levy tax on first point sale with reference, to price which could be charged in 
respect of a subsequent sale which has not come intc existence at the time E 
liability to tax arises and is determined ex-hypothesi is unsustainable on that 
basis-Constitution of India, 1950-Vllth Schedule, List fl Entry 54-Sale of 
Goods Act, 1930-Drugs Price Control Order, 1995. 
Section 4A of the Rajasthan Sales Tax Act, 1994 envisaged levy of F 
sales tax on first point sale of notified drugs, medicines and formulations 
by wholesalerfdistributorfmanufacturer to retailer, not on the actual price 
of consideration, but on the premise of subsequent sale by the retailer i.e. 
based upon the MRP declared on the package. Respondent filed writ 
petition challenging constitutional validity of Section 4A on the ground 
that it takes into account an artificial amount as turnover for the purpose G 
of tax on 'sale of goods'. 
In appeal before this Court the question raised 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 
·~ 
I 
H 
2 
SUPREME COURT REPORTS [2006] SUPP. 4 S.C.R. 
A 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. 
B 
Dismissing the appeal, the Court 
HELD: I.I. Entry 54 in List II of Seventh Schedule of the 
Constitution 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 
C a nexus to taxable event of sale and not divorced from it. For the taxing 
event of sale, if the price is to be the basis for measuring tax, it must relate 
to actual transaction of sale that become subject of tax and not to a 
different transaction that may take place in future at a price. 
(17-E, F; 18-D] 
D 
1.2. Accepting the contention of Revenue that the retail sale price 
likely to be received when such transaction takes place is taken only as a 
basis to provide measure of levying tax on a completed transaction between 
wholesalers and retailer would make it suffer from basic fallacy of 
importing the composition of sale which has not come into existence to 
determine tax which is fixed as soon as the taxable sale is completed. 
E 
(18-E, F) 
2.1. The charging Section 4 under the Rajasthan Sales Tax Act, 1994 
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 
F shall be levied at such rates not exceeding fiity 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. (19-B, Cl 
G 
2.2. Section 4A of the Rajasthan Sales Tax Act, 1994 which projects 
itself as an exception to Secti!ln 4, creates a legal fiction in respect of price 
of subject sale, on which rate of tax is to be applied. But levy of tax remains 
single point levy in a series of sales. Point of taxable sale remains the first 
point sale i.e. from 

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