27-Year-Old Sales Tax Reference Is Academic After GST, Rules Supreme Court in Arjun Flour Mills v. State of Odisha
Case: Arjun Flour Mills v. State of Odisha
Date of Judgment: 04 November 2026
Court: Supreme Court of India
Coram: Chief Justice Surya Kant, Justice K. V. Viswanathan, Justice S. V. N. Bhatti, Justice Joymalya Bagchi, Justice N. V. Anjaria, Justice Arun Palli and Justice V. Mohana
Proceedings: Civil Appeal No. 8763 of 1994 with connected matters
Court Observation
“The constitutional entry and the state enactments under which the impugned levies were imposed have since been substituted or replaced, and the question referred to is of no prospective significance. Consequently, the question referred does not survive for adjudication by a 7-judge bench, and the reference has been rendered academic.”
Summary
A seven-judge Constitution Bench of the Supreme Court has answered a reference pending since 1999 as infructuous, holding that the question whether states could impose an additional sales tax or surcharge calculated on the sales tax payable by a dealer no longer requires adjudication after the introduction of the Goods and Services Tax in 2017. The constitutional entry and the state enactments under which the levies were imposed have since been substituted or replaced.
At the same time, the Court clarified that such a levy was an enhancement of the rate of sales tax and fell within the states’ power under the erstwhile Entry 54 of List II of the Seventh Schedule, and that the legal position in S. Kodar v. State of Kerala continues to govern the legislative competence of states to impose the impugned surcharges. Justice K. V. Viswanathan wrote a separate concurring opinion holding that Kodar remains good law and does not conflict with Hoechst Pharmaceuticals.
Key Holdings
- A surcharge or additional tax computed as a percentage of the sales tax payable is an enhancement of the rate of sales tax, and was a tax on the sale or purchase of goods under the erstwhile Entry 54 of List II.
- The reference on states’ power to impose such levies has been rendered academic and infructuous after the GST regime replaced the earlier constitutional framework and state laws.
- The legal position established in S. Kodar v. State of Kerala continues to govern the legislative competence of states to impose such surcharges.
- Two questions were left open, including whether Section 30AA of the Punjab General Sales Tax Act, 1948, could require otherwise exempt industrial units to pay a surcharge.
Background
The reference arose from a challenge to Section 5A of the Odisha Sales Tax Act, 1947, introduced in 1997, which required dealers whose gross turnover exceeded Rs. 10 lakh to pay an additional surcharge of 10 per cent of the total sales tax payable. The question was referred to a larger bench in 1999 following earlier rulings in Hoechst Pharmaceuticals Ltd. v. State of Bihar, S. Kodar v. State of Kerala and India Cement Ltd. v. State of Tamil Nadu. The seven-judge bench reserved its verdict on 22 September 2026 and has now disposed of the reference as academic.
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Judgment Link: Read the full judgment (PDF)
Disclaimer: This is a summary prepared for informational purposes only and does not constitute legal advice. Readers should refer to the official judgment for the authoritative text.
