New Delhi, November 4: A seven-judge Constitution Bench of the Supreme Court on Wednesday disposed of a nearly 27-year-old reference on states' power to impose additional tax or surcharge on sales tax, holding that the question has become academic after the Goods and Services Tax (GST) regime replaced the old levies, Bar and Bench and LiveLaw reported.

Source: Bar and Bench

The bench — Chief Justice of India Surya Kant with Justices K.V. Viswanathan, S.V.N. Bhatti, Joymalya Bagchi, N.V. Anjaria, Arun Palli and V. Mohana — was answering a reference made in 1999 in Arjun Flour Mills v. State of Odisha, which challenged Section 5A of the Orissa Sales Tax Act, 1947: an additional tax of 10 per cent on dealers with annual turnover between Rs 10 lakh and Rs 1 crore, and 15 per cent above Rs 1 crore.

The Court held that S. Kodar v. State of Kerala (1974), in which a five-judge bench upheld additional sales tax, was correctly decided and continues to be good law, and that there is no conflict between Kodar and Hoechst Pharmaceuticals v. State of Bihar. A surcharge computed as a percentage of the sales tax payable is an enhancement of the rate of sales tax itself, falling within Entry 54 of List II as it then stood, the Court said, according to LiveLaw.

Source: LiveLaw

"The question referred is of no practical significance and now academic. Consequently, the question referred does not survive for adjudication by a seven-judge bench, and the reference has to be answered accordingly," the Court held, noting that the constitutional entry and the state enactments behind the levies have since been substituted or replaced. Justice Viswanathan delivered a separate concurring opinion.

The bench left open two Punjab-linked questions — the validity of Section 30AA of the Punjab sales tax law, which required even exempt industrial units to pay the surcharge, and whether cess proceeds under the Punjab Social Security Act, 2000 could go directly to the Social Security Fund without first forming part of the state's Consolidated Fund — and sent those matters to regular benches, Verdictum reported.

Source: Verdictum

The verdict, reserved on September 22, closes one of the longest-pending tax references before the Court. Because GST subsumed sales tax in 2017, the ruling changes nothing for today's taxpayers — but it settles the constitutional record on how state surcharges were treated for decades under the old regime.