Sales Tax Surcharge: Supreme Court Backs States, Calls Reference Academic

A seven-judge Constitution Bench of the Supreme Court, led by Chief Justice Surya Kant, ruled on 4 November that state legislatures can levy an additional tax or surcharge calculated as a percentage of sales tax, and closed a reference that had been pending since 1999. The bench said the question put to it was “of no practical significance and now academic”, because the state laws under challenge have been replaced and GST has been in force since 2017. The judgment was unanimous, according to reports by Bar & Bench and ThePrint.

No New Burden on Dealers Under GST

For traders and consumers the ruling changes little today. Sales tax on most goods has been subsumed into GST, so the surcharge provisions in dispute no longer collect revenue in the form they once did. Where a state still has a levy built as a percentage of sales tax, such as on goods outside GST, the bench said its validity will be tested against the 1974 ruling in S Kodar vs State of Kerala, which “continues to hold the field”.

A Dispute Over Orissa’s Section 5A

The reference arose from a challenge to Section 5A of the Orissa Sales Tax Act, 1947. It imposed an additional tax of 10 per cent on dealers with turnover between Rs 10 lakh and Rs 1 crore, and 15 per cent above Rs 1 crore. The question was whether this fell under Entry 54 of the State List (tax on sale of goods) or Entry 82 of the Union List (taxes on income other than agricultural income).

Also read Child Labour Act: Supreme Court Orders Centre to Set Up Special Cell

Chief Justice Kant held that an additional tax “computed as a percentage of the sales tax payable is an enhancement of the rate of sales tax” and is traceable to Entry 54 of List II, Bar & Bench reported. Justice K V Viswanathan wrote a separate concurring opinion. The bench also noted that India Cement vs State of Tamil Nadu, a seven-judge ruling on a cess linked to mining royalty, is no longer good law after the nine-judge decision in Mineral Area Development Authority vs Steel Authority of India.

Full Judgment Still to Be Uploaded

The bench also included Justices S V N Bhatti, Joymalya Bagchi, N V Anjaria, Arun Palli and V Mohana. Solicitor General Tushar Mehta had told the court at the 22 September hearing that the issue had largely become academic after GST. The detailed judgment text was not yet available on the court’s website at the time of writing, so the reasoning of the separate opinion remains to be read in full.

Earlier on 4 November the court also sent the two-child norm for panchayat polls to a larger bench. More court stories are in Daily Updates.

Source: Based on reporting by Bar & Bench, ThePrint (PTI) and LiveLaw.

Image: The Supreme Court of India building, New Delhi / Wikimedia Commons.