New Delhi: The Supreme Court has reaffirmed the legal position held in a 1974 Constitution bench ruling that states have the power to impose additional sales tax or surcharge calculated as a percentage of the existing sales tax.




A seven-judge Constitution bench headed by Chief Justice Surya Kant held that such a levy constitutes an enhancement of the rate of sales tax and does not amount to an independent tax on the dealer's income.




The CJI, who wrote for himself and Justices S V N Bhatti, Joymalya Bagchi, N V Anjaria, Arun Palli and V Mohana, held that the legal question referred to it nearly 27 years ago no longer required adjudication, as the statutory provisions under challenge had since been replaced or amended and the Goods and Services Tax (GST) law had come into force.




The CJI, in his 47-page verdict, held controversy raised in a reference pending no longer required adjudication, as the legal position had already been settled by the earlier Constitution bench ruling in in 1974.




"S. Kodar squarely holds 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 CJI said.




"The constitutional entry and the State enactments under which the impugned levies were imposed have since been substituted or replaced, and the question referred is of no prospective significance," the verdict said.




It said that consequently, the question referred does not survive for adjudication by the seven-judge bench, and the "reference has been rendered academic"




Justice K V Viswanathan wrote a separate concurring verdict running into 46-pages.




"For the reasons stated..., it is held that, S. Kodar has been correctly decided, continues to be a good law and needs no reconsideration," Justice Viswanathan said.




The matter arose from a batch of appeals led by Arjun Flour Mills, challenging the validity of provisions under the Orissa Sales Tax Act, 1947, and the Punjab General Sales Tax Act, 1948, which provided for additional levies calculated at 10 per cent of the sales tax payable by dealers meeting specified turnover thresholds.




The assessees had said that a levy calculated on the basis of tax already payable amounted to a 'tax on tax' and fell outside the legislative competence of state legislatures under Entry 54 of List II of the Seventh Schedule to the Constitution.




Rejecting the basis of this challenge, the bench explained that the subject matter of a tax and the measure adopted to calculate it are two distinct concepts.




The mere fact that a surcharge is computed with reference to the amount of sales tax payable does not change its essential character as a tax on the sale or purchase of goods.




The verdict said that the Constitution bench in S. Kodar case had already held that an additional tax calculated as a percentage of sales tax was, in substance, an enhancement of the sales tax rate for a particular class of dealers.




The principle also stood reaffirmed in the subsequent decision, it said.




Another significant development was the constitutional transition brought about by the 101st Amendment, which introduced the GST framework and substantially altered the distribution of taxing powers between the Centre and the states, it said.




The earlier sales tax enactments involved in the present litigation had also been replaced by VAT legislation and subsequently by the GST regime, it said.