The Supreme Court's reaffirmation of *S. Kodar* (1975) strengthens the fiscal autonomy of States in the post-GST era. Critically examine.

On 4 November 2026, a seven-judge Constitution Bench reaffirmed S. Kodar v. State of Kerala (1975). It held that a cess charged as a percentage of the sales tax payable is only an enhancement of the sales-tax rate, so it falls under Entry 54, List II [1]. The ruling protects the States' tax tools in law, but it does so inside a tax base that GST has sharply narrowed.

How the ruling strengthens State fiscal autonomy

• Legal certainty: The Court rejected the "tax on tax" objection. This settles petitions pending since 1994 [1].
• Protects the remaining tax base: After the 101st Amendment, Entry 54 covers only crude, diesel, petrol, natural gas, ATF and alcoholic liquor [2]. Sales tax still yields ~20% and State excise ~14% of States' own tax revenue (2025-26) [3].
• Freedom to set rates: The GST Council sets GST rates for all States together. On fuel and liquor, a State can still set its own rate and add cesses.
• Parity with the Centre: Union cesses and surcharges are kept out of the divisible pool [4]. Because of this, the States' 41% share works out to only about 32% of gross tax revenue (2024-25 BE) [5]. The ruling gives States a matching add-on tool.

Limits of this autonomy

• Narrow scope: The ruling read Entry 54 "as it then stood", meaning before 2016 [1]. The current entry covers only six goods and excludes inter-State and international sales [2].
• Reliance on two goods: State revenue now depends on fuel and liquor, which swing with prices and policy changes.
• Cost to consumers and business: In Delhi, the effective tax on petroleum products was about 62% (Nov 2022) [6]. Fuel tax cannot be offset against GST (no input tax credit), so costs pile up down the supply chain.
• Harder to bring petroleum into GST: The Constitution leaves the date for this to the GST Council [2]. The 2016 draft compensation law left out old Entry 54 revenue from its base year [7]. States now have more to lose by joining.
• Hidden tax rates: Cesses stacked on the base rate make the true rate hard for buyers to see.

Overall, the verdict gives States legal autonomy, but over a shrinking tax field and at some cost to transparency. Three steps would help turn this into cooperative fiscal federalism:

• a GST Council roadmap for petroleum with a time-bound revenue guarantee;
• limits on Union cesses kept outside the divisible pool;
• publication of the combined effective rate on fuel and liquor.