The Supreme Court’s seven-judge Constitution Bench has disposed of a long-pending reference concerning the legislative competence of State legislatures to impose additional sales tax or surcharge under Entry 54 of List II of the Seventh Schedule, holding that the question has become academic following the introduction of the GST regime.
The reference was heard by Chief Justice Surya Kant and Justices K.V. Viswanathan, S.V.N. Bhatti, Joymalya Bagchi, N.V. Anjaria, Arun Palli and V. Mohana.
The reference arose from conflicting views in the five-judge Bench judgment in S. Kodar v. State of Kerala, 1974 AIR 2272 and the three-judge Bench judgment in Hoechst Pharmaceuticals Ltd. v. State of Bihar, (1983) 4 SCC 45, as well as observations made by the seven-judge Bench in India Cements Ltd. v. State of Tamil Nadu, (1990) 1 SCC 12. The reference asked whether a State legislature can impose a surcharge, additional tax, levy or cess on sale or purchase when it is calculated on the basis of a validly levied sales or purchase tax.
Pronouncing the judgment on behalf of himself and five other judges, Chief Justice Surya Kant held that S. Kodar v. State of Kerala continues to be good law and there is no conflict between the principles laid down in Kodar and Hoechst Pharmaceuticals. The Bench also clarified that India Cement dealt with a different issue concerning cess on mining royalty, and that its underlying premise had subsequently been overruled by the nine-judge Bench in Mineral Area Development Authority v. Steel Authority of India.
The Court held that Kodar had correctly recognised the State legislature’s competence to impose additional sales tax calculated with reference to the sales tax payable by a dealer. It further noted that the relevant constitutional entry and State enactments had since been substituted or replaced, and the question referred had no prospective significance. The reference was therefore answered as having become academic.
Justice K.V. Viswanathan delivered a separate concurring opinion, agreeing with the conclusion that Kodar remains good law and that there was no conflict between Kodar and Hoechst. He independently examined the line of precedents, including India Cement and Mineral Area Development Authority. The Court left open certain issues arising under the Punjab General Sales Tax Act, 1948, and the Punjab Social Security Act, 2000, as well as other contentions in the individual matters. Those matters have been directed to be placed before the appropriate regular Benches for disposal on their merits.