Can states levy a tax on sales tax? The 30-year-old legal question SC has now settled, explained
Indian Express - Explained · Published 10 November 2026 · Last updated
The Supreme Court closed a three-decade-old reference by ruling that states have the legislative competence to levy a surcharge on sales tax as an additional rate calculation.
Key points
- A seven-judge Constitution Bench of the Supreme Court closed a reference pending for nearly three decades regarding state sales tax surcharges on November 10, 2026.
- The court held that states can levy a surcharge calculated as a percentage of sales tax payable by dealers, treating it as an additional sales tax.
- The legal dispute originated from a 1990 amendment to Odisha's Sales Tax Act requiring dealers with a gross turnover exceeding Rs 10 lakh to pay an additional 10% of their sales tax.
- Challenging dealers argued before the court that the surcharge constituted an impermissible tax on tax outside Entry 54 of List II in the Seventh Schedule.
- The state maintained that the surcharge represented an increase in the rate of sales tax for a specific class of dealers rather than a separate levy.
- The Chief Justice of India declared the reference infructuous because the legal question was already addressed in earlier rulings.
- The majority ruling left open individual challenges concerning exemptions for industrial units in Punjab and the transfer of Punjab Social Security Cess proceeds.
- Justice K V Viswanathan authored a separate opinion holding that the S. Kodar v. State of Kerala ruling remains good law.
Background
- In S. Kodar v. State of Kerala (1974), a five-judge Constitution Bench upheld a Tamil Nadu law imposing an additional 5% tax on sales tax payable by dealers with an annual turnover exceeding Rs 10 lakh.
- In Hoechst Pharmaceuticals (1983), a three-judge bench upheld a 10% surcharge on sales tax payable by dealers with an annual turnover exceeding Rs 5 lakh.
- In India Cement v. State of Tamil Nadu (1990), a seven-judge bench struck down a cess imposed on mineral royalty, stating that royalty is a tax beyond state legislative competence.
- The Orissa High Court bench referred the matter to a larger bench in 1998 due to an apparent conflict between the Hoechst and India Cement rulings.
- In State of West Bengal v. Kesoram Industries (2004), a five-judge bench suggested that the observation in India Cement classifying royalty as a tax was an inadvertent error.
- The nine-judge bench in the Mineral Area Development Authority ruling (2024) held that royalty is not a tax but a contractual consideration for mining rights.
Prelims facts and Mains angle for this issue are in the full SWAदेSH note.
Original report: Indian Express - Explained