The Supreme Court closed a 27-year-old reference on states' additional sales tax powers. The decision leaves the 1974 S Kodar precedent governing such levies.Stock photo used for illustrationNewdelhi,Nov 4, 2026 12:22 ISTThe Supreme Court on Wednesday ruled that its 1974 Constitution Bench judgment upholding the power of states to impose additional sales tax or a surcharge calculated as a percentage of the existing sales tax remains valid, news agency Press Trust of India reported.A seven-judge Constitution Bench headed by Chief Justice of India Surya Kant unanimously said the legal question referred to it nearly 27 years ago no longer required a decision.
The provisions under challenge had since been replaced or amended, while the Goods and Services Tax law had come into force.“The question referred to is of no practical significance and now academic. Consequently, the question referred to does not survive for adjudication by a seven-judge Bench, and the reference has to be answered accordingly,” the Chief Justice said in the judgment written on behalf of himself and five other judges.The Bench also comprised Justices K V Viswanathan, S V N Bhatti, Joymalya Bagchi, N V Anjaria, Arun Palli and V Mohana.
Justice Viswanathan wrote a separate judgment agreeing with the decision. While declining to consider the issue afresh, the court clarified that the five-judge Constitution Bench ruling in S Kodar vs State of Kerala in 1974 continued to apply.
That judgment had upheld additional sales tax and rejected the argument that such a levy amounted to a tax on dealers' income.“We have clarified that the case clearly held that an additional tax or surcharge computed as a percentage of the sales tax payable is an enhancement of the rate of sales tax and a tax on the sale or purchase of goods within Entry 54 of List II, as it then stood. That decision continues to hold the field,” the Chief Justice said.
According to PTI, the court also held that the question of whether state legislatures had the power to impose the surcharge would be governed by the law laid down in S Kodar. The detailed judgment is awaited.The reference arose from a challenge to Section 5A of the Orissa Sales Tax Act, 1947.
The provision imposed an additional tax of 10 per cent on dealers with an annual turnover between Rs 10 lakh and Rs 1 crore, and 15 per cent on dealers whose turnover exceeded Rs 1 crore.The appellants questioned whether the state legislature could impose the levy under Entry 54 of List II of the Seventh Schedule to the Constitution, which empowered states to tax the sale or purchase of goods. They argued that it effectively amounted to a tax on income, which fell within Parliament's powers under Entry 82 of List I.The dispute arose from differing interpretations in earlier Supreme Court judgments.
In S Kodar vs State of Kerala, a five-judge Bench had ruled that an additional levy calculated with reference to the sales tax payable amounted to an increase in the sales tax rate and was not a tax on a dealer's income.During the hearing on September 22, Solicitor General Tushar Mehta submitted that the dispute had largely become academic after the GST regime was introduced in 2017, with relatively few cases still pending.The Supreme Court has now closed the nearly 27-year-old reference without reconsidering the legal question, while affirming that the 1974 ruling on states' power to impose additional sales tax or a surcharge continues to apply.- Ends