Supreme Court Rules 1974 Sales Tax Verdict Valid But Academic Under GST

The Supreme Court on Wednesday held that a 1974 Constitution Bench ruling which upholds the power of States to impose an additional sales tax or surcharge remains valid, even though a reference on the issue has now become academic. A seven-judge Constitution Bench led by Chief Justice of India Surya Kant unanimously decided that the legal question referred to it nearly 27 years ago does not need a fresh decision, because the challenged laws have changed and the Goods and Services Tax regime has since come into force.

Details of the Case

The reference started from a challenge against Section 5A of the Orissa Sales Tax Act of 1947. That section charged an extra tax of 10 percent on dealers with a yearly turnover between 10 lakh and 1 crore rupees, and 15 percent on dealers with a turnover above 1 crore rupees. Appellants questioned whether State legislatures had the power to make such a levy under Entry 54 of List II in the Constitution, or if it was actually a tax on income which falls under Parliament's domain.

Court Observations

The Court made it clear that the 1974 five-judge ruling in S. Kodar versus State of Kerala continues to hold the field. That earlier judgment stated that an extra tax computed as a percentage of sales tax is just a higher rate of sales tax on goods, and not a tax on a dealer's income. Solicitor General Tushar Mehta told the Court during the hearing on September 22 that the dispute had become academic due to the GST regime. Justice K.V. Viswanathan wrote a separate concurring verdict, while Justices S.V.N. Bhatti, Joymalya Bagchi, N.V. Anjaria, Arun Palli and V. Mohana also partook in the Bench alongside the Chief Justice.

Context

The Goods and Services Tax replaced many indirect taxes levied by both the Centre and the States to create a unified national market. Matters arising from older tax laws from the pre-GST era occasionally come up for legal review even after the new tax regime takes over.