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Arjun Flour Mills v. State of Orissa

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Arjun Flour Mills v. State of Orissa

This case would clarify whether the State Legislature is competent to impose a surcharge on the total sales tax payable by a dealer.

Petitioners Arguments
That the State Legislature was not competent to enact the provision as per Article 246 read with Entry 54 List II of Schedule VII . That even though Hoechst Pharmaceuticals Ltd. v. State of Bihar upheld a similar provision it was based on an assumption that the State Legislature was competent to enact such a provision rather than on deliberation of the matter. T hat the view of the seven-judge bench in India Cement Ltd v. State of Tamil Nadu , which takes a different view is relevant to decide the validity of the provision.
Responders Arguments
That the State Legislature was within its competence to enact the provision.
Last Listed On
2024-01-09
Start Date
1999-10-06
Card Stage Date
1999-10-06
Review Petition No
C.A. No. 8763/1994
Case Status
Pending
Bench Status
To be reconstituted
Subject Matter
Constitution
Pendency
26 years, 8 months, 24 days

7 Judge Bench

Awaiting bench reconstitution

Consider As Stage Of Pendency
true

Date of institution of case

Date of reference to 5 Judge Bench

Date of reference to 7 Judge Bench

The provision, Section 5-A of Orissa Sales Tax Act, 1947 which imposed a surcharge on total sales tax payable by a dealer was challenged in this case. The main issue to be decided by the court is whether or not the State Legislature can pass a law levying a surcharge on sales tax. The Seventh Schedule of the Constitution clearly demarcates the subject matters of laws that can be made by the Parliament and State Legislatures respectively. Accordingly, sales tax on the sale and purchase of most goods (with a few exceptions) is the subject of state legislation. However, the Supreme Court needs to clarify whether a surcharge on sales tax would also fall under the category of “sales tax”. Given that a surcharge levied on the basis of one’s gross turnover is in the nature of a tax on income, which is a subject matter of parliamentary legislation. A three-judge bench of the Supreme Court, in Hoechst Pharmaceuticals Ltd. v. State of Bihar , upheld a similar provision under the Bihar Finance Act, 1981 which levied a surcharge on sales tax. The Bench held that levying surcharge was within the State Legislature’s competence as it was in the nature of sales tax. Another seven-judge Constitutional Bench, in India Cement Ltd. v. State of Tamil Nadu , has dealt with a similar legal issue where a cess was imposed on royalty payable for land excavation by the State Legislature. The State’s argument was that the cess was in the nature of land revenue, which is the subject matter of State Legislation under the Constitution. The Seven Judge Constitutional Bench, however, held that a cess on royalty for land excavation was not a cess on the land in question, but on the royalty itself, and therefore, outside the competence of the State Legislature. On 13-08-1998, a Division Bench of the Supreme Court referred to a five-judge bench in light of the two conflicting judgements mentioned above. The five-judge bench took note of the judgement passed in S Kodar v. State of Kerala where the validity of the Tamil Nadu Additional Sales Tax Act, 1970 . Under the provisions of this Act, an additional sales tax was levied on dealers of goods whose total turnover for a particular year exceeded Rupees Ten Lakhs. The Court held that the State Legislature was competent to pass such legislation as additional tax is really a tax on sale of goods. On 6-10-1999, Arjun Flour Mills was referred to a larger bench of seven judges in light of the above judgement. The matter is now pending before the Seven-Judge Constitutional Bench.

Whether the State Legislature was within its competence to enact Section 5-A of the Orissa Sales Tax Act, 1947 ?

Section 5-A of the Orissa Sales Tax Act, 1947

In the referral order to the five-judge bench, the court accepted that the argument of the petitioner’s counsel that Hoechst Pharmaceuticals Ltd. v. State Of Bihar was based on an assumption that the State Legislature was competent to enact such a provision, was justified. However, the court also stated that in this judgment it was held that the surcharge was in the nature of a sales tax and therefore within the competence of the State Legislature. The court referred the case to a seven-judge bench because the five-judge bench decision in S. Kodar v. State of Kerala would also have to be considered. In this case, with respect to the competence of the State Legislature, it was held that since the additional tax was a tax on aggregate sales in a year, therefore the State Legislature is permissible to legislate on such a matter under Entry 54 , which relates to tax on the sale of goods.

Hoechst Pharmaceuticals Ltd. v. State Of Bihar [1983 AIR 1019]

India Cement Ltd v. State Of Tamil Nadu [1990 AIR 85]

S. Kodar v. State Of Kerala [1974 SCC (4) 422]

Ludhiana Spinners Association v. State of Punjab

Date Of Institution Start
2003-01-10
Case No
C.A. No. 99/2003

Surcharge under Orissa Sales Tax Act must be levied before deducting Amount of Entry Tax paid by a dealer: SC [Read Judgment]

Surcharge under Orissa Sales Tax Act must be levied before deducting Amount of Entry Tax paid by a dealer: SC [Read Judgment]
Source Of Info
TAXSCAN
Date Of Fr
2016-10-31

‘Royalty’: a Tax? : An Analysis of the Judicial Uncertainty and its Service Tax Implications

‘Royalty’: a Tax? : An Analysis of the Judicial Uncertainty and its Service Tax Implications
Source Of Info
India Corp Law
Date Of Fr
2018-07-17