Supreme Court: sales tax measured by tax already payable is valid under Entry 54, List II

A Supreme Court bench led by Chief Justice Surya Kant answered a long-pending reference on whether a State Legislature can validly levy additional sales tax on a dealer measured by the quantum of sales tax the dealer already owes, rather than directly on turnover — a levy challenged as an impermissible 'tax on tax'. The batch covered appeals under the Orissa Sales Tax Act, 1947, the Punjab General Sales Tax Act, 1948, and the Punjab Social Security Act, 2000. A Constitution Bench of five judges in S. Kodar v. State of Kerala had earlier upheld such a levy as a tax on the sale of goods, within Entry 54 of List II of the Seventh Schedule, and not a tax on income.

Doubt had arisen because a seven-judge bench in India Cement Ltd. v. State of Tamil Nadu once held mining royalty to be a tax, a view a nine-judge bench in Mineral Area Development Authority v. Steel Authority of India later overruled, holding royalty to be contractual consideration, not a tax. The Court held that India Cements concerned a different legislative entry and different reasoning, and had no real bearing on S. Kodar. It accordingly held S. Kodar correctly decided and still good law, needing no reconsideration, and sent the individual appeals back to be decided on that basis.