VAT – Levy of VAT on MRP – Not Permissible, Section 4(5) of The Karnataka Value Added Tax Act, 2004.

The Petitioner filed a Writ Petition before the Karnataka High Court challenging the constitutional validity of section 4(5) of the Act, inserted by Karnataka Value Added Tax (Amendment) Act, 2004 for levy of tax on sale of Cigars, Gutkha and other manufactured tobacco, on the maximum retail price (MRP) indicated on the label of the container or packing thereof.

HELD

The Supreme Court, in Rajasthan Chemist Association [2006] 147 STC 542, while considering the validity of a provision similar to the one impugned herein had upheld view of the Rajasthan High Court that it is not permissible for the legislature of a State to levy tax on sale of goods by adopting a notional price as a measure of tax; such a legislative measure has to be outside the ambit of entry 54 of List II of the Seventh Schedule to the Constitution of India. The same reasoning applies to the provision impugned herein as both are similar. Accordingly, the High Court allowed the writ petition filed by the company and sub-section (5) of section 4 of the Act providing levy of tax on sale of cigars, tobacco etc. on the MRP as unconstitutional on the ground that such a taxing provision is beyond the legislative competence of the State under entry 54 of List II of the seventh Schedule to the Constitution of India.