UPSC Prelims Practice Questions — Cess levied on sales tax falls within State’s ambit, says SC

Q1. With reference to the power of a State Legislature under Entry 54 of the State List, as that entry stands after the Constitution (101st Amendment) Act, 2016, consider the following levies: Which of the levies given above can a State impose under that entry?

  1. A tax on the sale of aviation turbine fuel by a dealer to an airline within the State
  2. A tax on the sale of petrol in the course of inter-State trade or commerce
  3. A tax on the sale of cigarettes by a wholesaler to a retailer within the State
  4. A tax on the sale of natural gas to an industrial consumer within the State
  • A. 1, 2, 3 and 4
  • B. 3 and 4 only
  • C. 1 and 4 only
  • D. 1, 2 and 4 only

Q2. With reference to how petroleum products and alcoholic liquor for human consumption are treated under India's GST framework, consider the following statements: Which of the statements given above is/are correct?

  1. GST can be levied on alcoholic liquor for human consumption on the recommendation of the GST Council, without any amendment of the Constitution.
  2. GST can be levied on petrol from a date recommended by the GST Council, without any amendment of the Constitution.
  3. The States' power to tax the sale of alcoholic liquor for human consumption within the State survived the 101st Amendment.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 3 only
  • D. 2 and 3 only

Q3. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. Even after the introduction of GST, States continue to levy sales tax or VAT on the intra-State sale of aviation turbine fuel.
  2. The Constitution's definition of the Goods and Services Tax excludes taxes on the supply of aviation turbine fuel.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q4. In the context of deciding legislative competence in taxation, consider the following statements about the 'subject' of a tax (the taxable event) and its 'measure' (the base used to compute the amount): Which of the statements given above is/are correct?

  1. The measure adopted for computing a tax may differ from its subject without changing the legislative entry under which the tax falls.
  2. A levy on the sale of goods ceases to be a tax on sale if it is computed on the sales tax payable instead of on the turnover.
  3. A levy computed on the sales tax already payable by a dealer is, in substance, a tax on the dealer's income.
  • A. 1 only
  • B. 1 and 2 only
  • C. 1, 2 and 3
  • D. 2 and 3 only

Q5. A State Legislature imposes a 'Fuel Development Cess' computed at 10 per cent of the VAT payable on every intra-State sale of diesel. A dealer argues the levy is invalid because no entry in the State List mentions a cess on an existing tax. Applying the approach of the Supreme Court's recent seven-judge ruling, the validity of the levy would turn primarily on which one of the following?

  • A. Whether the proceeds collected on each sale are kept in a fund outside the State's Consolidated Fund
  • B. Whether the levy, judged by its true nature and character, is a tax on the transaction of sale itself
  • C. Whether an entry of the State List expressly names a cess or surcharge as a permissible levy
  • D. Whether the President has given prior assent to the State Bill that imposes the levy

Q6. A seven-judge Constitution Bench of the Supreme Court affirmed, rather than overruled, its earlier ruling in S. Kodar v. State of Kerala on State additional levies on sales tax. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. A Bench of fewer than seven judges of the Supreme Court cannot depart from the principle so affirmed.
  2. A High Court deciding a pending dispute over a pre-2016 additional sales-tax levy must apply the principle so affirmed.
  3. The principle binds courts even in cases involving levies of a State that was not a party before the Supreme Court.
  • A. 1, 2 and 3
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1 only

Q7. Consider the following facts: I. The Supreme Court's seven-judge Bench decided the validity of State additional levies on sales tax under Entry 54 of the State List 'as it then stood', that is, before 2016. II. After the Constitution (101st Amendment) Act, 2016, Entry 54 covers taxes on the sale of only petroleum crude, high speed diesel, petrol, natural gas, aviation turbine fuel and alcoholic liquor for human consumption. III. The same Amendment gave Parliament and State Legislatures concurrent power to levy GST. Which of the following inferences can validly be drawn from the above?

  1. States have lost all power to tax the supply of goods other than the six listed in the present Entry 54.
  2. For new levies under the present Entry 54, the ruling's practical relevance lies mainly with fuels and liquor.
  3. The Amendment converted Entry 54 into a field in which Parliament and the States legislate concurrently.
  4. The ruling does not, by itself, enlarge the range of goods on which States may now levy tax under Entry 54.
  • A. 1, 2 and 4 only
  • B. 2, 3 and 4 only
  • C. 1 and 3 only
  • D. 2 and 4 only

Q8. Consider the following assertion: An additional tax that a State levies as a percentage of the sales tax payable by a dealer is a tax on the sale or purchase of goods. Which of the following statements support/supports the above assertion?

  1. The additional levy becomes payable only when a sale takes place on which sales tax is itself payable.
  2. The additional levy is computed on the amount of sales tax payable and not on the dealer's turnover.
  3. The additional levy is, in substance, an enhancement of the rate at which sales tax is charged on that sale.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 1 and 3 only
  • D. 3 only