Taxes Must Be Lawful, Transparent, and Justified: Kerala High Court Quashes Property Tax Demands Issued Without Following Mandatory Procedure

“No Taxation Without Due Process, Else It’s an Unconstitutional Extortion”: In a landmark ruling Kerala High Court delivered a decisive verdict safeguarding the rights of taxpayers against arbitrary municipal actions. The Division Bench comprising Dr. Justice A.K. Jayasankaran Nambiar and Justice P.M. Manoj, while dismissing a batch of writ appeals filed by the Perinthalmanna Municipality, declared that the impugned demand notices for property tax arrears were illegal, void, and violative of Article 265 of the Constitution of India.

The Court observed emphatically, “Without complying with the statutory procedures to bring the rate and measure of tax to the knowledge of the assessees, the levy of property tax cannot be seen as having come into existence vis-a-vis those assessees.”

The appeals arose out of a common judgment of the Single Judge quashing the Municipality’s tax demands for failing to comply with Sections 233, 539 of the Kerala Municipality Act, 1994, and the Kerala Municipality (Property Tax, Service Cess and Surcharge) Rules, 2011. The High Court's judgment reaffirms the constitutional promise that taxation must be anchored in lawful authority and procedural fairness.

Perinthalmanna Municipality had served numerous property tax demand notices to local residents, purporting to recover arrears allegedly due. Aggrieved citizens approached the High Court claiming that the Municipality had issued the demands without adhering to statutory procedures for determining tax rates and without any valid legal foundation.

The Single Judge of the Kerala High Court, after a detailed evaluation of the records, quashed the demands noting blatant non-compliance with the statutory rules. The Municipality challenged this ruling through multiple writ appeals, all of which stood dismissed by the Division Bench in this significant verdict.

The Division Bench identified the gravamen of the dispute as an issue of “taxation without lawful authority.” The Court forcefully observed, “Taxes are compulsory exactions, but even such exactions must be sanctified by legal authority and adherence to due process; otherwise, it is no less than extortion under the cloak of legality.”

The Court scrutinised the non-compliance with Rule 4 and Rule 10 of the Kerala Municipality (Property Tax, Service Cess, and Surcharge) Rules, 2011, declaring the demand notices as illegal for three clear reasons.

Firstly, the Court ruled, “The Municipality failed to issue and properly publish the mandatory notifications fixing the basic property tax rates in accordance with Rule 4(4) of the 2011 Rules.” It underlined that the absence of properly notified tax rates nullified the very foundation of the tax demands.

Secondly, the Court noted that the Municipality had violated Rule 10 of the 2011 Rules, which mandates publication of a public notice calling for self-assessment returns from the taxpayers. The Court unequivocally stated, “The procedure for assessment of property tax begins only with the filing of a return pursuant to the publication of a notice under Rule 10. This procedural omission is fatal and renders the tax collection illegal.”

Thirdly, addressing the Municipality’s contention regarding the existence of alternative statutory remedies, the Court held, “When the levy itself is non-est in law, the appellate remedy under Rule 16 of the Rules becomes irrelevant. There is no obligation on the citizens to pursue appellate remedies against something that has no legal existence.”

The High Court highlighted the cardinal principle of constitutional law, quoting, “Article 265 of the Constitution is not merely ornamental; it is a living guarantee that no tax shall be levied or collected except by authority of law.”

The Court eloquently stressed the transformation in modern tax jurisprudence, stating, “Gone are the days when State action was viewed through the lens of authority alone. Our constitutional system demands a culture of justification where every demand on a citizen must be explained and justified, not merely ordered.”

The Bench invoked the celebrated principle from Govind Saran Ganga Saran v. Commissioner of Sales Tax, (1985 Supp SCC 205), where the Supreme Court warned, “Any uncertainty or vagueness in the legislative scheme defining the components of a tax is fatal to its validity.”

Upholding the Single Judge’s findings, the Division Bench concluded, “In the absence of a validly notified levy, there could not have been any lawful assessment or collection of tax. The levy is void, the assessments are void, and consequently, the demand notices are void.”

The Court categorically dismissed the appeals stating, “The upshot of our discussion is clear. These writ appeals are devoid of merit and are dismissed accordingly.”

Furthermore, it directed the Municipality that any future tax assessment must be carried out strictly in accordance with the Kerala Municipality Act and the 2011 Rules after issuing proper public notifications and inviting returns from taxpayers.

This judgment is a towering affirmation of constitutional supremacy and procedural sanctity in matters of taxation. By striking down arbitrary tax demands, the Kerala High Court has robustly reaffirmed that in a democratic polity, “taxation must flow not from authority alone but from legality, transparency, and fairness.”

Date of Decision: 9th July 2025