Pith and substance and the 'tax on tax' objection: explain how courts decide legislative competence in taxation, with recent examples.

Article 246, read with the Seventh Schedule, gives the Union and the States separate taxing entries. When a levy is challenged, courts ask what the tax really is, not what it is called. The seven-judge Bench's 2026 reaffirmation of S. Kodar v. State of Kerala (1975) shows this test at work [1].

How courts decide competence in taxation

• Pith and substance: courts find the levy's true nature and place it in the matching entry. An incidental overlap with another List does not make it invalid.
• Taxable event vs measure: the event that triggers the tax decides the entry. How the tax is computed is only its measure, and the measure does not change what is taxed [1].
• Text as it stood: courts read an entry as it existed when the law was made. The 2026 ruling read Entry 54, List II "as it then stood", i.e. before 2016 [1].

The 'tax on tax' objection

• The claim: the assessees argued that a cess computed on sales tax payable, not on turnover, taxes a tax rather than a sale. On that view it falls outside Entry 54 [1].
• The Court's answer: there is no cess without sales tax, and no sales tax without a sale. The add-on is therefore an enhancement of the sales-tax rate of the same character as the principal tax [1].
• Illustration: 10% sales tax plus a cess of 10% of that tax is simply an 11% tax on the sale.

Recent examples

• Kodar reaffirmed (Nov 2026): the lead opinion was by CJI Surya Kant, with a concurrence by Justice K.V. Viswanathan. The ruling settles petitions pending since 1994 [1].
• Mineral Area Development Authority v. SAIL (2024): a nine-judge Bench held that royalty is not a tax. States can tax mineral rights, subject to limits that Parliament may impose [4].
• 101st Amendment (2016): Entry 54 now covers only six goods, i.e. petroleum products and alcoholic liquor. Alcohol lies outside the GST definition itself [2]. Petroleum stays outside GST until the GST Council recommends a date [3]. Future disputes over State competence will centre on these goods.

Taken together, courts look past labels to the taxable event and the text of the entry, so a levy's form cannot override its substance. This brings tax certainty and protects States' fiscal autonomy. Going forward, States should publish combined effective rates and Constitution Bench tax references need time-bound hearings. Both steps would support the cooperative fiscal federalism that Articles 246 and 279A intend.