Cess levied on sales tax falls within State’s ambit, says SC, Pg10

 Key Highlights:

• The Supreme Court affirmed the competence of State legislatures to levy additional tax (cess/surcharge) on the sale or purchase of goods.
• This additional tax, computed as a percentage of existing sales tax, is considered an enhancement of the sales tax rate.
• The ruling confirms the 1975 judgment in S. Kodar versus State of Kerala.
• Such levies fall under Entry 54 of List II of the Seventh Schedule of the Constitution.
• The Court rejected arguments that such a levy constitutes a "tax on tax" or a tax on income.

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Detailed Insights:

• A seven-judge Bench of the Supreme Court delivered the judgment, based on petitions filed as early as 1994.
• The assessees contended that a tax measured by the quantum of tax already payable does not fall upon the 'sale' or 'purchase of goods'.
• They argued that such an additional tax was a charge on the dealer's 'income' or 'fiscal burden', placing it outside the State's legislative domain.
• States maintained that the surcharge was merely an enhancement of the sales tax rate for certain dealers, with its computation method not altering its core character.
• The S. Kodar case (1975) had previously upheld similar additional sales taxes, ruling they were not taxes on dealer income but an enhancement of sales tax.
• The issue has largely become academic following the implementation of the Goods and Services Tax (GST) regime in 2017, which subsumed most sales taxes.
• The ruling reinforces the fiscal autonomy of states within their constitutionally defined taxation powers.

Key Concepts Involved:

• Entry 54 of List II: Grants State legislatures the power to levy taxes on the sale or purchase of goods other than newspapers.
• Seventh Schedule: Divides legislative powers between the Union and State governments into three lists: Union List, State List, and Concurrent List.
• Cess: A tax on tax levied by the government for a specific purpose, which must be used only for that purpose.
• Surcharge: An additional charge on tax, usually levied on higher income groups, and its proceeds can be used for any government purpose.