Sealord Hotels (P) Ltd. v. State of Kerala and Kumily Grama Panchayat

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 19TH DAY OF FEBRUARY 2018 / 30TH MAGHA, 1939 WA.No. 65 of 2017 IN WPC. 8888/2007 ----------------------------------- AGAINST THE ORDER/JUDGMENT IN WP(C) 8888/2007 of HIGH COURT OF KERALA DATED 08-04-2016 APPELLANT(S)/PETITIONER: ----------------------- SEALORD HOTELS (P) LTD., HAVING ITS REGISTERED OFFICE AT KUREETHADOM BUILDINGS, ST.ALBERTS COLLEGE LANE, BANERJEE ROAD, KOCHI - 18, REPRESENTED BY ITS MANAGING DIRECTOR, ISSAC PETER. BY ADVS.SRI.BECHU KURIAN THOMAS (SR.) SRI.PAUL JACOB (P) RESPONDENT(S)/RESPONDENTS: -------------------------- 1. STATE OF KERALA REPRESENTED BY ITS CHIEF SECRETARY, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 2. SECRETARY, DEPARTMENT OF LOCAL ADMINISTRATION, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 3. KUMILY GRAMA PANCHAYATH KUMILY, THEKKADY, IDUKKI DISTRICT R1-R2 BY SR.GOVERNMENT PLEADER SRI.MOHAMMED RAFEEQ. R3 BY ADV. SRI. LIJI J. VADAKKEDOM, SC, KUMILY GRAMA PANCHAYAT R3 BY SRI.JOICE GEORGE,SC,KUMILY G.PANCHAYATH THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 19-02-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WA.No. 65 of 2017 ------------------ ## APPENDIX ---------- APPELLANT(S)' ANNEXURES: ---------------------- ANNEXURE A1: COPY OF THE NOTICE DATED NIL. RESPONDENT(S)' ANNEXURES: ------------------------ NIL /TRUE COPY/ PA TO JUDGE _dkr_ ## K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- W.A. No. 65 of 2017 ------------------------------------------Dated this the 19[th] day of February, 2018 ## J U D G M E N T Vinod Chandran, J. The appellant is aggrieved with the judgment of the learned Single Judge. The controversy revolves around the amendment to the provision in the Kerala Panchayat Raj Act,1994, empowering levy of tax on the buildings and the existence or absence of prescribed rules; in accordance with the mandate of the provision. The facts to be noticed are that the appellant was paying tax at the rate of Rs.12,960/- for the building, which is said to have been assessed on the basis of the residential use to which it was intended. The appellant, however, converted the same into a resort and had been renting out the premises. The appellant denies such allegation and asserts that the building was constructed for commercial purpose. 2. Be that as it may, the appellant admittedly was paying Rs.12,960/-, as property tax and library cess. In the assessment year 2006-07, there was a notice issued to the appellant as per _WA.65/2017_ 2 Ext.P3 by the Special Grade Secretary. The notice at Ext.P3 indicated that the Standing Committee (Finance) had taken a decision to revise the property tax levied on the various buildings in accordance with the Kerala Panchayat Raj (Building Tax and Surcharge Thereon) Rules, 1996. The appellant filed an appeal, in which some reduction was made and eventually Ext.P5 was issued levying a total tax of Rs.2,02,100/- and a library cess of Rs.10,120/-. The appellant was before this Court challenging the said assessment made, as confirmed in appeal. There was a conditional stay granted on the appellant remitting an amount at three times of the original assessment and the appellant had been continuing to pay the same. 3. A counter-affidavit was placed on record and the learned Single Judge found that Section 203 of the Kerala Panchayat Raj Act was amended in the year 1999 and there were no rules made to effectuate an assessment on the basis of determination of net annual rental value, as introduced by the amendment. The learned Single Judge also found that the Rules of 1996 could not have been applied. The learned Single Judge, but, relied on a subsequent rule; viz: Kerala Panchayat Raj (Property Tax, Service Tax, Surcharge) _WA.65/2017_ 3 Rules, 2011 and directed the assessments to be revised in accordance with the said Rules. 4. In 2009, there was a further amendment brought to Section 203 and the Rules of 2011 was in accordance with the said amendment. The appellant's contention in the appeal, is that the Rules of 2011 cannot be applied to the prior period when the Section itself was otherwise and there were no Rules provided to determine the net annual rental value, on which alone could the assessment be made. The State as also the local authority contend that even if there is no rule available, the Panchayat could have revised the rates in accordance with the amended provision and in that event this Court can only look at whether there was an arbitrary revision made. Section 203 employed the words “shall in accordance the rules prescribed” but, if such rules are not provided, the Panchayat could by itself arrive at a measure of determination of annual rental value and the percentage of tax, as has been laid down in AIR 1985 SC 883 (UPSEB v. City Board) and AIR 1986 SC 2166 (Surinder Singh v. Central Government) . As for the lack of guidelines, AIR 1971 SC 2100 (Gulabchand Bapalal Modi v. _WA.65/2017_ 4 Municipal Corporation of the City of Ahmedabad) , is pressed into service to contend that the provision itself provides sufficient guideline. When the delegation being to an elected body and the purposes for taxation being evident from the enactment and there being sufficient checks provided by the Courts of law, there could be an assessment made by the Panchayat itself, argues the learned Counsel. 5. The learned Counsel for the appellant would contend that the reliance placed on UPSEB and Surinder Singh cannot be countenanced, since under Article 265 tax can be levied only in accordance with law and the law herein provide the prescription by the rule, which is absent. It is also contended that Gulabchand Bapalal Modi would not be applicable, since there is no determination made by the Panchayat at all. 6. Section 203 as it existed in 1999 is as follows: “ 203. Building tax.- (1) Every village panchayat shall, in accordance with the rules prescribed for the purpose, levy a tax on all buildings other than huts and buildings exempted by the provisions of this Act in the panchayat area, at such percentage of the net annual rental value of the building as may be fixed by the panchayat by resolution, subject to a maximum of ten per cent and a minimum of six per cent. _WA.65/2017_ 5 (2) The building tax shall be levied annually and be payable in two equal half yearly installments. (3) The building tax, and the surcharge on building tax, if any levied under section 208, shall subject to the prior payment of the land revenue, if any, due to the Government in respect of the site of the building, be a first charge upon the building and upon the movable property, if any, found within or upon the same and belonging to the person liable to such tax. (4) The Government may make rules providing for,- (i) the manner of ascertaining the net annual rental value of building on the categories into which they fall for the purposes of taxation; (ii) the person who shall be liable to pay tax and the giving of notices of transfer of buildings; (iii) the grant of exemption from tax on the ground of poverty; (iv) the grant of vacancy and other remissions; and (v) the circumstances in which and the conditions subject to which buildings constructed, reconstructed or demolished or situated in areas included in, or excluded from, the panchayat area during any half year, shall be liable or cease to be liable to the whole or any portion of the tax. (5) If the occupier of a building pays the building tax on behalf of, the owner thereof, such occupier shall be entitled to recover the same from the owner and may deduct the same from the rent then or thereafter due by him to the owner.” _WA.65/2017_ 6 Section 203 as it existed after its amendment in 1999 is as follows:- 203. Property tax.- (1) Every village panchayat, shall in accordance with the rules prescribed for the purpose, levy a property tax on all buildings and land appurtenant thereto situated within the panchayat area and not exempted under this Act at such percentage as may be determined by the Village Panchayat on the net annual value determined on the basis of the plinth area and considering the site of the building, its use, type of construction and other determined factors: Provided that in the case of buildings given on rent, tax shall be levied by adding twenty five percentage also for the net annual value calculated according to plinth area. (2) The building tax shall be levied annually and be payable in two equal half yearly installments. (3) The building tax, and the surcharge on building tax, if any levied under section 208, shall subject to the prior payment of the land revenue, if any, due to the Government in respect of the site of the building, be a first charge upon the building and upon the movable property, if any, found within or upon the same and belonging to the person liable to such tax. (4) The Government may make rules providing for,- (i) the manner of ascertaining the net annual rental value of building or the categories into which they fall for the purposes of taxation; (ii) the person who shall be liable to pay tax and the giving of notices of transfer of buildings; (iii) the grant of exemption from tax on the ground of poverty; _WA.65/2017_ 7 (iv) the grant of vacancy and other remissions; and (v) the circumstances in which the conditions subject to which buildings constructed, reconstructed or demolished or situated in areas included in, or excluded from, the panchayat area during any half year, shall be liable or cease to be liable to the whole or any portion of the tax. (vi) method of fixing the annual value of property based on the plinth area of the building; (vii) Maximum tax to be paid by the assessee; (viii) Returns to be filed by the owners of the buildings; (ix) Rate of deduction to be allowed based on the age and use of the buildings. (5) If the occupier of a building pays the building tax on behalf of, the owner thereof, such occupier shall be entitled to recover the same from the owner and may deduct the same from the rent then or thereafter due by him to the owner.” Section 203 as it existed after its amendment in 2009, to the extent it is relevant, is as follows:- 203. Property Tax.- (1) Any Village Panchayat shall in accordance with the provisions of this Act and the rules as may be prescribed, levy property tax on every building (including the land appurtenant thereto) situated within the area of the respective Village Panchayat and not exempted under the provisions of this Act. _WA.65/2017_ 8 (2) (a) For the purpose of levying property tax, the Government shall, by notification, fix the minimum and maximum limits of rates of basic property tax applicable to one square meter plinth area of the following categories of building in accordance with the use and the date on which they shall come into force, namely:- (i) used for residential purpose; (ii) used for industrial purpose; (iii) used for Schools and Hospitals; (iv) used for amusement parks, mobile telephone tower etc.; (v) used for commercial purpose; (vi) used for other purposes; (vii) Any other category of buildings notified by the Government. (b) The Government may, by notification, fix the sub-categories of each category of building from (i) to (vii) above and the minimum and the maximum limits of rates of basic property tax applicable to them. Note:- For the purpose of this section “plinth area” means, in the case of a single storeyed building, the area of its floor level (including the thickness of the wall) of the portion having roof and in the case of a multistoreyed building with or without cellar-storey, the total area of such floor level (including the thickness of the wall but excluding the open terrace portion) of each storey of the building. xx xx xx” 7. Before looking into the provisions, we have to understand the law as laid down in the decisions cited. UPSEB was in the context of a special tariff termed a grid tariff, which was _WA.65/2017_ 9 challenged by the City Board, a licensee of the Board, as being excessive and without a corresponding increase in the levy the licensee could impose on the consumer. The ground was that the grid tariff was to be fixed 'in accordance with any regulations made in this behalf' and admittedly no regulations were framed. The question was whether the State Electricity Board could decide on the grid tariff without a regulation. It was held by the Honourable Supreme Court in para 7 as follows: “... But S.46(1) of the Act does not say that no Grid Tariff can be fixed until such regulations are made. It only provides that the Grid Tariff shall be in accordance with any regulations made in this behalf. That means that if there were any regulations, the Grid Tariff should be fixed in accordance with such regulations and nothing more. We are of the view that the framing of regulations under S.79(h) of the Act cannot be a condition precedent for fixing the Grid Tariff.” (sic.) 8. The appellant would argue that the charges were upheld since it was a recovery for the electricity already used. We do not think that any distinction can be drawn on the principle as laid down in the aforesaid judgment. In the present case also, the levy is of a tax on property, which is permitted to be levied and recovered by the local authority and the Government has been _WA.65/2017_ 10 conferred with the power to prescribe the manner in which such levy has to be made. In the absence of a prescription the local authority would be entitled to determine the measure and decide on the percentage of levy; subject only to the vitiating factors of arbitrariness and discrimination being eschewed. 9. The learned Counsel for the appellant has placed reliance on AIR 1979 SC 321 (Avinder Singh v. State of Punjab) , to distinguish the present case from the applicability of the principles as laid down in Gulabchand Bapalal Modi's case. As to the guidelines for levy of tax, we are of the opinion that this need not be gone into for reason of the Panchayat having never determined the measure, of the annual rental value or the percentage on which tax has to be levied. 10. Section 203 as it originally stood permitted every village panchayat, in accordance with the rules prescribed, to levy a tax on all buildings at such percentage of the net annual rental value of the building as may be fixed by the Panchayat by resolution, subject to a maximum and minimum. As has been held in UPSEB, if there are no rules made by the Government the Panchayath could determine _WA.65/2017_ 11 the measure, being the annual rental value. The percentage levied as tax as per Section 203, prior to 1999, could be decided by a resolution of the Panchayath, as conferred by the statute, subject only to it being within 6% & 10%. The Rules of 1996 were brought out and then definitely the local authority had to comply with the prescription in the Rules. 11. The section underwent a change in the year 1999, when substantially the same procedure was adopted, but fixation of net annual rental value was to be on the basis of the plinth area, the situs of the building, its use, type of construction and other determined factors. An additional 25% could be added in the case of buildings given on rent. After the amendment was made in 1999, there were no rules prescribed. The Rules of 1996 could not have been applied, since the basis of assessment of annual rental value had undergone a change in Section 203, as amended in the year 1999. As was noticed, the Panchayat by resolution, did not decide on how the measure of tax, the annual rental value, could be determined on the basis of the plinth area, situs of the building, use _WA.65/2017_ 12 and other factors, nor was a percentage of the annual rental value fixed. 12. It was the Standing Committee for Finance, which adopted the Rules of 1996 in the year 2006-07 to effect a revision of the tax levied on the appellant. This could not have been, since the rules were no more relevant by reason of the amendment made to Section 203. In such circumstances, we do not think that there could have been made a revision in the year 2006-07, in the manner it was done by the Standing Committee and not the Panchayath, by a resolution. 13. We see from the judgment in appeal, that there was a direction to the Panchayat to make a revision in accordance with the Rules of 2011, which with due respect, we cannot agree to. The Rules of 2011 was on the basis of Section 203, as it stood amended in the year 2009. The construction of the said provision had again undergone considerable change. The net annual value aspect has been taken away and is no more the measure of tax. The fixation of percentage, as conferred on the local authority prior to 2009 has also been taken away. The Government was to prescribe the _WA.65/2017_ 13 maximum and minimum and determine the property tax leviable in accordance with the rules framed by the Government. The said procedure could be adopted only after 2011. We find from the records of the appeal that the Panchayat had been given liberty to make the assessments in accordance the Rules of 2011, subsequent to its introduction. Definitely the same can be done. 14. However, the revision of tax as has been made in the present case in the year 2006-2007 has to be set aside and we do so. The appellant having not challenged the original assessment, would be liable to tax to the extent of Rs.12,960/- and the library cess. If at all, any further amounts have been paid on the basis of the interim order passed in the Writ Petition, the same shall be adjusted in the future years for the tax liability as imposed as per the amended provision of Section 203 and the Rules of 2011. The Writ Appeal is allowed. No costs. ## K.VINOD CHANDRAN Judge ASHOK MENON Judge dkr