Supreme Court Says States' Additional Sales Tax Question Is Now Academic: S. Kodar Ruling Still Holds
On 4 November 2026, a seven-judge Constitution Bench of the Supreme Court, headed by Chief Justice of India Surya Kant, unanimously held that a legal question referred to it about 27 years ago (in 1999) no longer needs to be decided. The Court called it "academic", meaning it has no practical effect now.
The reason: the law under challenge has since been changed, and the Goods and Services Tax (GST), in force since 2017, now governs the taxation of goods.
The Court clarified that the five-judge Bench ruling in S. Kodar v. State of Kerala (1974) continues to hold the field. That ruling said an additional tax or surcharge calculated as a percentage of sales tax is simply a higher rate of sales tax, and so falls within the states' power under Entry 54 of List II (as it then stood).
The case came from Section 5A of the Orissa Sales Tax Act, 1947, which charged an extra tax of 10% on dealers with yearly turnover between ₹10 lakh and ₹1 crore, and 15% on dealers with turnover above ₹1 crore.
The dealers argued this was really a tax on income (a Union subject under Entry 82 of List I), not a tax on sale of goods. S. Kodar (1974) and Hoechst Pharmaceuticals v. State of Bihar (1983) had upheld such levies, but a seven-judge Bench in India Cement v. State of Tamil Nadu (1989) had struck down a cess and surcharge in another context. Because of these differing views, the Court sent the matter to a seven-judge Bench on 6 October 1999 (the Arjun Flour Mills v. State of Orissa reference).
The other judges were Justices K.V. Viswanathan, S.V.N. Bhatti, Joymalya Bagchi, N.V. Anjaria, Arun Palli and V. Mohana. Justice Viswanathan wrote a separate concurring opinion (agreeing with the result, with his own reasons).
Seventh Schedule and Article 246: Distribution of Legislative Powers
India has two levels of government that make laws: Parliament for the whole country and the State Legislatures for each state. To avoid confusion over who can make which law, the Constitution divides all subjects into three lists in the Seventh Schedule. Article 246 gives the rule: the Union makes laws on the Union List, the states on the State List, and both on the Concurrent List.
The whole dispute was a Seventh Schedule question: was Orissa's extra levy a tax on the sale of goods (Entry 54, State List) or a tax on income (Entry 82, Union List)? The Court said the S. Kodar answer still stands: it was a higher sales tax rate, within state power. Because GST has since rewritten Entry 54, the larger question has lost its practical importance.
Constitution Benches and Article 145(3)
A Constitution Bench is a bench of at least five judges of the Supreme Court. Under Article 145(3), such a bench must hear any case that involves a substantial question of law about the interpretation of the Constitution, and any reference by the President under Article 143. Larger benches of seven, nine or more judges are formed when an earlier ruling of a five-judge bench needs to be reconsidered, or when two rulings conflict.
A seven-judge Bench was needed because the conflict involved a five-judge ruling (S. Kodar) and a seven-judge ruling (India Cement). Since only a larger bench could disturb that ruling, its decision to call the question academic leaves S. Kodar fully binding.
Goods and Services Tax (GST): Constitutional Framework and Structure
The Goods and Services Tax is a single tax on the supply of goods and services, charged at each stage but with credit for tax already paid, so that tax is finally paid only on the value added. It replaced many separate central and state taxes, including state sales tax and VAT. It was made possible by the 101st Constitution Amendment Act, 2016, and came into force on 1 July 2017.
The Solicitor General told the Court that GST had made the old sales tax dispute largely academic, with few cases still pending. The Court agreed: once GST replaced state sales tax on most goods, deciding whether a state could levy an "additional sales tax" had no real effect on the future.
- Judgment date: 4 November 2026; seven-judge Constitution Bench headed by CJI Surya Kant; unanimous; separate concurring opinion by Justice K.V. Viswanathan
- Reference made in 1999 (Arjun Flour Mills v. State of Orissa), about 27 years pending; hearing on 22 September 2026
- Law challenged: Section 5A, Orissa Sales Tax Act, 1947: 10% additional tax (turnover ₹10 lakh to ₹1 crore), 15% (above ₹1 crore)
- S. Kodar v. State of Kerala (1974), five-judge Bench: additional sales tax is an enhanced sales tax rate under Entry 54, List II, not a tax on income; still holds the field
- Hoechst Pharmaceuticals v. State of Bihar (1983) upheld a similar Bihar surcharge; India Cement (1989, seven judges) took a different line on a cess and surcharge; reference to seven judges made on 6 October 1999
- Entry 54, List II: tax on sale of goods (now limited to six petroleum and liquor items); Entry 82, List I: tax on income
- GST in force since 1 July 2017 under the 101st Amendment Act, 2016