Kerala High Court Upholds Constitutionality Of Luxury Tax Under Section 5A Kerala Building Tax Act | Sets Aside Demand Beyond Three Years | Reasonable Limitation Must Be Read In
Isabella Mariam
The High Court of Kerala Division Bench of Justice Dr. A.K. Jayasankaran Nambiar and Justice P.M. Manoj held that a demand for luxury tax under Section 5A of the Kerala Building Tax Act, 1975, extending beyond three years prior to the demand notice, cannot be legally sustained. The court directed partial setting aside of the impugned demand notice to the extent it pertained to assessment years 2007-2008 to 2015-2016 while upholding the validity of the charging section. The court allowed the appeal to this limited extent and clarified that the petitioner is not prevented from adducing evidence to prove the plinth area does not attract the levy in future assessments.
The appellant, aged 48 years, is the owner of a residential building with a plinth area of 289.22 sq.m situated in Chethipuzha Village, Changanassery Taluk. He challenged a demand notice dated 4.12.2019 issued under Section 5A of the Kerala Building Tax Act seeking recovery of luxury tax for assessment years from 2007-2008 to 2020-2021. This was the first demand notice served upon him for luxury tax under the said provision.
The appellant filed the writ petition seeking a declaration that Section 5A of the Kerala Building Tax Act was ultra vires, unconstitutional, and void, contending that the 101st Amendment to the Constitution had amended Entry 62 of List II of the 7th Schedule to exclude taxes on luxuries, thereby denuding the State Legislature of power to levy luxury tax thereafter. He also sought quashing of the impugned demand notice and a direction restraining recovery of any luxury tax under Section 5A based on the notice.
The learned Single Judge dismissed the writ petition, holding that the legislative competence to levy tax under Section 5A was not taken away merely because Entry 62 was amended.
In appeal, the appellant’s counsel stated that the State Legislature lacked competence to levy luxury tax after the constitutional amendment. Alternatively, it was argued that the demand for assessment years from 2007-2008 onwards was hit by limitation, as there was an unreasonable delay in issuance. The Government Pleader submitted that in the absence of any statutory limitation under the Kerala Building Tax Act, the State was entitled to recover all past dues.
The court examined Entry 49 of List II which deals with taxes on lands and buildings and noted that Section 5A, being a tax on residential buildings above 278.7 sq.m plinth area, is traceable to this entry rather than Entry 62. It recorded that the doctrine of pith and substance required the true nature of the levy to be ascertained from the statute, not merely from nomenclature.
The court also analysed the statutory framework of Section 5A, noting that luxury tax is an annual levy imposed based on plinth area thresholds. Though no specific limitation is prescribed, the court read a reasonable period into the provision to check arbitrary exercise of power.
The court recorded that the mere fact that Entry 62 of List II in the 7th Schedule to the Constitution had been amended to take away the field of taxes on luxuries from the ambit of the State Legislature’s legislative competence did not necessarily mean that the levy of tax under Section 5A of the Kerala Building Tax Act was unconstitutional.
It stated that the entries in the Lists under the 7th Schedule are only fields of legislation and if a legislative provision can trace its validity to any other field mentioned in List II, then the provision would satisfy the test of legislative competence.
The court recorded that in this case, Section 5A of the Kerala Building Tax Act is essentially a tax on residential buildings with a plinth area above 278.7 sq.m and that due to its nature as a tax on buildings, the provision is included under the Kerala Building Tax Act, 1975, and not elsewhere.
It further stated that Entry 49 of List II deals with taxes on lands and buildings and so long as the charge under Section 5A can be traced to the State Legislature’s power under Article 246 read with Entry 49 of List II, the argument against legislative competence must fail.
The court recorded that the doctrine of pith and substance has been extended to determine the true character of legislation even within the same legislative list.
It also stated that on the facts of this case, and considering the scheme of the levy under the Act, a demand extending to more than three years prior to the date of the demand notice could not be legally sustained.
The court stated that the appeal is partly allowed by setting aside Ext.P2 demand notice to the extent it relates to the assessment years from 2007-2008 to 2015-2016, and by necessary implication, the demands from 2016-2017 onwards would remain valid.
It clarified that nothing in the judgment would prevent the appellant from producing evidence before the Assessing Authority in any future years to show that the plinth area of the building is less than the threshold prescribed for attracting tax under Section 5A of the Kerala Building Tax Act.
The court concluded that the appeal is partly allowed by upholding the judgment of the learned Single Judge regarding the validity of the charging section, but setting aside the demand notice for the assessment years 2007-2008 to 2015-2016.
Advocates Representing the Parties
For the Petitioners: Sri. Raju K. Mathews, Advocate
For the Respondents: Sri. V.K. Shamsudheen, Senior Government Pleader
Case Title: Ison George v. State of Kerala & Ors.
Neutral Citation: 2025: KER:41697
Case Number: WA No. 753 of 2020
Bench: Justice Dr. A.K. Jayasankaran Nambiar, Justice P.M. Manoj
