Judgment : H.G. Ramesh, J. 1. In this writ petition, the petitioner has challenged the constitutional validity of Sub Section (5) of Section 4 of the Karnataka Value Added Tax Act, 2003 (the KVAT Act’ for short) which is inserted by the Karnataka Value Added Tax (Amendment) Act, 2010 (Karnataka Act No.4 of 2010) with effect from the First day of April 2010. 2. By consent of the learned Counsel on both sides, the writ petition is heard on merits. I have heard Shri K.G. Raghavan, learned Senior Counsel appearing for the petitioner and Shri K.M. Shivayogiswamy, learned Additional Government Advocate appearing for the respondents. 3. The impugned provision reads as follows: “4. Liability to tax thereof ………………………………… (5) Notwithstanding anything contained in sub-section (1), a registered dealer shall be liable to pay tax on the sale of cigarettes, cigars, gutkha and other manufactured tobacco, on the maximum retail price indicated on the label of the container or pack thereof after reducing from such maximum retail price an amount equal to the tax payable, where the total amount payable to the dealer as the consideration for sale of such goods exceeds five hundred rupees or any other higher amount as may be notified by the Commissioner. (6) …………………………..” The petitioner is a manufacturer of Tobacco products and a dealer registered under the KVAT Act. As per the impugned provision, a registered dealer shall be liable to pay tax on the sale of tobacco products, on the maximum retail price indicated on the label of the container or pack thereof, after reducing from such maximum retail price an amount equal to the tax payable, where the total amount payable to the dealer as the consideration for sale of such goods exceeds five hundred rupees or any other higher amount as may be notified by the Commissioner. 4. 4. Shri K.G. Raghavan, learned Senior Counsel submitted that the impugned provision provides for levy of tax on the sale of tobacco products by taking the maximum retail price (which is not the actual price) indicated on the label of the container or pack thereof as the measure of tax and as held by the Supreme Court in State of Rajasthan Chemists Association [ (2006) 6 SCC 773 ], such a taxing provision is beyond the Legislative competence of the State, Legislature has no competence to levy tax on the sale or purchase of goods on any notional measure of tax i.e. on the basis of a notional price as a measure of tax. He further submitted that a similar provision had come up for consideration before the Rajasthan High Court in Rajasthan Chemists Association vs. State of Rajasthan [ (2006) 147 STC 476 (RAJ)] which held the said provision as beyond the Legislative competence of the State as being outside the scope of Entry 54 of List II of the Seventh Schedule of the Constitution of India. The said judgment is affirmed by the Supreme Court in State of Rajasthan v. Rajasthan Chemists Association [ (2006) 6 SCC 773 ]. 5. On the Contrary, Shri Shivayogiswamy, learned Additional Government Advocate argued supporting the validity of the impugned provision. He relied on two judgments of the Supreme Court in Hotel Balaji v. State of A.P. [1993 Supp(4) SCC 536] and in Ganga Sugar Corpn. Ltd. V. State of U.P [1980) 1 SCC 223]. By referring to Sub Section (6) (1) of Section 4 of the KVAT Act, he submitted that if a registered dealer is not liable to pay tax under Sub Section (5), it is open to him to apply for refund of the tax collected on his purchase. 6. It is relevant to refer to the provision of law which was considered by the Rajasthan High Court; it reads as follows: “4-A. Levy of tax on retail sale price:- (1) Notwithstanding anything contained in any other provisions of this Act or the rule made there under, tax on sale of such goods, as may be specified by the State Government by notification in 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 provision of the Standards of Weights and Measures Act, 1976 (Central Act 60 of 1976) or the rule made being thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale 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 sale prices are declared with reference to different areas, the retail sale price declared with reference to the area within the State in which, it is sold shall be deemed to be the retail sale price for the purchase of this section. (ii) Where on the package of any goods different retail prices are declared with reference to different areas and none of the areas fail within, the State, the maximum of such retail sale prices shall be deemed to be the retail price for the purchase of this section.” As stated above, the validity of the above provision was considered by the Rajasthan High Court in Rajasthan Chemists Association vs. State of Rajasthan [ (2006) 147 STC 476 (RAJ)]. It is useful to refer to the following reasoning therein: “192 .......................................... .......................................... The measure to which rate of tax is applied must have integral connection with the transaction that is the subject of tax. It cannot be said that once sale has taken place which attracts tax, it can be levied and measured on any standard divorced from the subject of sale. 193. Permitting this means permitting legislation to insert one or other of the essential ingredients of sale by creating legal fiction, which in fact is not ingredient of sale which may become subject of tax. This in turn will result in extending the meaning of “sale” beyond what is meant by sale within the meaning of Act of 1930. As discussed above, it is not permissible for the State Legislature to enlarge the definition of “sale” beyond what is meant under the Indian Sale of Goods Act for taxing purposes under entry 54 of list II of the Seventh Schedule. ............................................................ 207. As discussed above, it is not permissible for the State Legislature to enlarge the definition of “sale” beyond what is meant under the Indian Sale of Goods Act for taxing purposes under entry 54 of list II of the Seventh Schedule. ............................................................ 207. If the tax on sale of gods under entry 54 is tax on sale as defined in the Sale of Goods Act, 1930, the Price ......................remains an integral part of sale which becomes subjects of tax and the levy cannot be divorced therefrom where price and not the weight of goods is the measure of tax. 208. If sections 4A is designed to bring a levy into existence which is divorced from the sale subject to tax under the Act, it falls foul with the legislative competence under entry 54 of List II of the Seventh Schedule so also notification, annexure 3, to the extent it is intended 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 into existence at the time liability to tax arises and is determined ex hypothesi”. (Underlining supplied) The aforesaid judgment of the Rajasthan High Court holding that the provision providing for levy of tax on retail sale price was beyond the legislative competence of the State is upheld by the Supreme Court is Rajasthan Chemists Association [ (2006) 6 SCC 773 ]. 7. The judgments relied on by the learned Additional Government Advocate and sub Section (6) referred to by him are of no assistance to the State as the provision referred to in para 6 above, which is similar to the one impugned herein, is held to the unconstitutional by the Supreme Court in Rajasthan Chemists Association. 8. As stated above, the Supreme Court in Rajasthan Chemists Association [ (2006) 6 SCC 773 ] while considering the validity of a provision similar to the one impugned herein, has upheld the view of the Rajasthan High Court that it is not permissible for the Legislature of a State to levy tax on the sale of goods by adopting a notional price as a measure of tax; such a legislative measure is held to be outside the ambit of Entry 54 of List II of the Seventh Schedule of the Constitution of India. In my opinion, the same reasoning applies to the provision impugned herein as both are similar. 9. In view of the above, sub Section (5) of Section 4 of the KVAT Act, 2003 which provides for levy of tax on the maximum Retail Price indicated on the label of the container or pack thereof, is declared 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 of the Constitution of India. Petition allowed.