SC upholds states’ power to levy additional sales tax, surcharge under pre-GST regime

New Delhi: Settling a nearly three-decade-old issue, the Supreme Court on Wednesday upheld states' power to levy additional tax, surcharge or cess calculated on existing sales or purchase tax under the pre-GST regime.

A seven-judge Constitution Bench comprising Chief Justice Surya Kant and Justices KV Viswanathan, SVN Bhatti, Joymalya Bagchi, NV Anjaria, Arun Palli and V Mohana held that the long-pending reference on the legislative competence of state legislatures to impose a surcharge, additional tax, levy or cess computed on the basis of a validly levied sales or purchase tax had been rendered infructuous. It also ruled that the case, S. Kodar vs State of Kerala, was correctly decided and continued to be good law.

Justice Viswanathan wrote a separate judgment but concurring decision. However, the issue has now become "academic" and has no practical significance as sales tax has been subsumed into GST and the entry and state laws under which these levies were imposed have since been substituted or replaced, the apex court said, while deciding the issue which was referred to a larger bench nearly 27 years ago.


The Centre had asked the SC to settle the case as after 2017 there was a change in the tax regime and GST regime had been introduced.

While declining to consider the issue afresh, the court clarified that the five-judge Constitution Bench ruling in S Kodar vs State of Kerala in 1974 continued to apply. The top court had then upheld the constitutional validity of the Tamil Nadu Additional Sales Tax Act 1970.

"We have clarified that the case clearly held 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 seven-judge bench said on Wednesday.

The court also held that the question of whether state legislatures had the power to impose the surcharge would be governed by the law laid down in S Kodar. The detailed judgment is awaited.

The seven-judge Constitution Bench was hearing the case on whether the imposition of a surcharge, additional tax, levy or cess on sale or purchase, which is calculated on the basis of a validly levied sales or purchase tax, is beyond the competence of the state legislature.