Supreme Court upholds States’ power to levy additional sales tax, says case has become academic

**Apex Court Closes 27-Year-Old Reference**

A seven-judge Constitution Bench of the Supreme Court, headed by Chief Justice of India Surya Kant, has declined to freshly adjudicate a long-pending reference on whether States can levy an additional sales tax or surcharge computed as a percentage of sales tax already payable. Delivering a unanimous view, the Bench held that the question referred roughly 27 years ago had turned academic because the provisions under challenge had since been amended or replaced, and the Goods and Services Tax framework now governs the field.

The reference had arisen from a challenge to Section 5A of the Orissa Sales Tax Act, 1947, which imposed an additional levy of 10% on dealers with turnover between ₹10 lakh and ₹1 crore, and 15% on those above ₹1 crore. Appellants argued that such a charge effectively taxed a dealer's income, a subject reserved for Parliament, rather than the sale or purchase of goods, which falls within the States' legislative domain.

**Kodar Ruling Retains Its Force**

Although the Bench refused a fresh hearing on the merits, it clarified that the five-judge ruling in S. Kodar vs State of Kerala (1974) continues to hold the field. That decision had upheld additional sales tax, reasoning that a levy calculated with reference to the sales tax payable amounts to an enhancement of the sales tax rate and remains a tax on the sale or purchase of goods, rather than a tax on the dealer's income. The Court stated that questions of State legislative competence over such a surcharge will continue to be governed by that precedent.

The Bench comprised Justices K.V. Viswanathan, S.V.N. Bhatti, Joymalya Bagchi, N.V. Anjaria, Arun Palli and V. Mohana, with the Chief Justice authoring the judgment for himself and five other judges. During earlier hearings, Solicitor General Tushar Mehta had submitted that the dispute had largely become academic after GST's introduction in 2017, with few matters still pending.

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