The Rajasthan High Court has on March 29, 2005 quashed the state government decision to levy sales tax on maximum retail price of drugs. The court ruling is to bring down the drug prices in the state. Rajasthan is among the BJP ruled states that have decided against the implementation of Value Added Tax system from April 1, 2005.

The court order has raised doubts about the legality of the system of levying VAT on MRP (from the first point of drug sale), a model mooted by All India Organisation of Chemists and Druggists (AIOCD). Speaking to pharmabiz.com, R B Puri, president, AIOCD said that the organisation is to seek legal opinion on the implications of the court ruling under the VAT regime.

The High Court verdict was in favour of the chemists of the state who had approached the court against the government decision to introduce 9 per cent tax on drug MRP. The HC said that the MRP should be levied on the first sale price and not on MRP.

Though the chemists associations in several northern states have expressed their solidarity with the other traders who are engaged in the nationwide strike against implementation of VAT from April 1, 2005, they are not actively involved in the agitation. "The AIOCD has not called for a countrywide strike. While some of the traders in the business hubs of the city have closed shutters, chemist shops in general are functioning in Delhi." Sandeep Nangia, President Retailers and Distributors Chemists Association of National Capital Territory of Delhi (RDCA) said.

According to him, Delhi chemists are not in favour of the general formula seeking VAT on MRP levied at first point of sale until VAT is uniformly implemented in the country. "From April 1, we drug trade in the state will come under 4 per cent VAT system that is levied at every point of sale. Being a state with less manufacturing activity, we prefer this system than the practice of MRP at first point. We would not press for the Kerala model", Nangia said.

While drug sales continues in its normal pace in the states where VAT implementation has been delayed, in other states, where the stockists have been procuring less medicines in the recent weeks are known to resume the normal stocks from April 1, 2005.

"There will be no scarcity for drugs. The purchase will be normal everywhere. The states bodies that are seeking VAT on MRP at first point of sale may have to continue their discussions with respective state governments in the coming weeks." Puri explained. It should be noted that states like West Bengal, Kerala, Maharashtra, Orissa and Assam have already amended their VAT rules to ensure that VAT on drugs are levied at the first point of sale and not at every level, as envisaged originally.