The Supreme Court of India has reaffirmed that an earlier constitutional ruling recognising the power of States to impose additional sales tax or surcharge remains legally valid. However, a seven-judge Constitution Bench has declined to reconsider the issue, observing that the reference has become academic following amendments to the relevant tax provisions and the introduction of the Goods and Services Tax (GST) regime.
The Bench, headed by Chief Justice of India Surya Kant, delivered its unanimous decision on November 4, 2026. It held that the legal question referred to it nearly 27 years ago no longer required fresh adjudication because the statutory framework that gave rise to the dispute had since changed.
Earlier Supreme Court Ruling Continues to Apply
The Court clarified that the five-judge Constitution Bench judgment in S. Kodar vs State of Kerala (1974) continues to hold the field.
In that decision, the Supreme Court upheld the validity of additional sales tax calculated as a percentage of the sales tax payable. It rejected the argument that such a levy was effectively a tax on the income of dealers.
The latest Bench reiterated that an additional tax or surcharge calculated by reference to the sales tax payable was treated as an enhancement of the sales tax rate. Under the constitutional framework applicable at that time, the levy fell within Entry 54 of List II of the Seventh Schedule, which dealt with State taxation on the sale or purchase of goods.
The Court therefore stated that the earlier legal position remains applicable, while concluding that the present reference did not warrant another examination of the issue.
What Was the Original Dispute?
The reference arose from a challenge to Section 5A of the Orissa Sales Tax Act, 1947. The provision imposed additional tax on dealers based on their annual turnover.
Under the provision described in the case, dealers with an annual turnover between ₹10 lakh and ₹1 crore were subject to additional tax at 10%, while those with turnover exceeding ₹1 crore faced a 15% levy.
The appellants questioned whether the State legislature had the constitutional authority to impose this additional tax under Entry 54 of List II. They argued that the levy could effectively be treated as a tax on income, which falls within Parliament's legislative domain under Entry 82 of List I.
The earlier S. Kodar judgment had addressed this central issue by holding that a surcharge linked to the sales tax payable represented an increase in the sales tax rate rather than a tax on a dealer's income.
Why the Court Considered the Reference Academic
The seven-judge Bench observed that the statutory provisions under challenge had subsequently been amended or replaced. In addition, the GST framework, introduced in 2017, changed the indirect taxation structure governing the sale and supply of goods and services.
During the hearing on September 22, Solicitor General Tushar Mehta submitted that the controversy had largely become academic after GST came into force, with comparatively few related disputes remaining pending.
Accepting that the referred question no longer had practical significance requiring adjudication, the Court concluded that the reference did not survive for consideration by the larger Bench.
The judgment was written by Chief Justice Surya Kant on behalf of himself and five other judges. Justice K.V. Viswanathan delivered a separate concurring opinion. The other members of the Bench were Justices S.V.N. Bhatti, Joymalya Bagchi, N.V. Anjaria, Arun Palli and V. Mohana.
Implications for State Taxation and GST
The decision is significant for understanding the constitutional history of State taxation powers. It preserves the legal standing of the S. Kodar ruling while recognising that the specific dispute arose under an earlier tax framework.
The ruling should not be interpreted as a blanket confirmation that States can impose additional sales tax or surcharges outside the present GST framework. The judgment concerns the earlier constitutional and statutory provisions, and the detailed written verdict is awaited.
For businesses, dealers and tax professionals, the distinction between legacy sales tax disputes and current GST obligations remains important. Companies dealing with historical tax assessments or unresolved proceedings may need to examine the relevant legislation and judicial decisions carefully. Professional GST consultancy services in India can help businesses understand applicable compliance requirements and assess their tax-related obligations.
The Supreme Court's decision therefore closes the door on a fresh examination of this particular reference, while leaving the earlier constitutional precedent intact. Its detailed reasoning and the treatment of any remaining related disputes will become clearer once the full judgment is made available.