Exemption Claims Under Kerala Building Tax Act Must Be Referred To Government: Kerala High Court

The Kerala High Court on 14 January held that when a claim for exemption under the Kerala Building Tax Act is raised, statutory authorities are obliged to refer the matter to the State Government and cannot independently reject the claim while completing assessment proceedings.

The ruling was delivered by Justice Ziyad Rahman A.A. while allowing a writ petition filed by M/s VPK Motors Pvt. Ltd., which runs a Toyota dealership at Kannur, challenging the levy of building tax on its premises housing a showroom, workshop, and service centre.

“As per Section 3(2) of the Building Tax Act, it is mandatory for the statutory authorities to refer the question of exemption to the Government, and it is for the Government to take a decision on the said question, after giving the interested parties an opportunity to present their case.”

The dispute arose after the Tahsildar assessed the building for tax and imposed a liability of over Rs. 31.5 lakh on the petitioner. The petitioner sought an exemption under Section 3(1)(b) of the Kerala Building Tax Act, arguing that the building was principally used as a factory or workshop, and filed an application before the Government seeking such exemption.

While the exemption application was pending, the assessment order was challenged, and an appeal was filed before the Revenue Divisional Officer, who rejected the claim on the ground that the plinth area of the showroom was larger than that of the workshop and, therefore, the building could not be treated as principally used as a factory or workshop.

A revision petition filed before the District Collector was also rejected, with the authority holding that the question of exemption could only be decided by the Government.

The Bench agreed with the petitioner that once an exemption claim is raised during the assessment process, it is the statutory authorities' obligation to refer the matter to the Government without taking any decision on it. The Court observed:

“The original authorities have rejected the claim of exemption without doing the said exercise. Here also, the revisional authority committed a mistake by not referring the matter to the Government, despite the fact that it was an obligation of the 2nd respondent (District Collector) by virtue of Sub-Section (2) of Section 3 of the Act, to refer the matter to the Government.”

The Court further noted that even though the revisional authority acknowledged that the exemption issue could only be decided by the Government, it erred by merely rejecting the revision petition instead of referring the matter as mandated under the Act. The Bench added:

“Since Sub-Section (2) of Section 3 specifically imposes an obligation upon the statutory authorities to refer the matter to the Government once the claim of exemption is made, it was obligatory for the said authority to furnish reasons if it decided not to refer the matter. No such reasoning is mentioned in any of the impugned orders, and for that reason alone, interference is required.”

Clarifying the scope of the exemption under Section 3(1)(b), the Court observed that the determining factor is the principal use of the building, which must be examined by the Government while deciding the exemption claim, after obtaining necessary reports from competent authorities. It said:

“The exemption is available to buildings used principally for religious, charitable, or educational purposes, or as factories, workshops, cattle/pig/poultry farms, or polyhouses. The relevant factor is the principal use of the building, and even while considering the exemption, the Government must specifically take this into account and obtain necessary reports from the authorities concerned.”

Accordingly, the High Court quashed the assessment, appellate, and revisional orders and directed the State Government to consider the petitioner's exemption application afresh.

For Petitioner: K.P. Pradeep, Hareesh M.R., Sanand Ramakrishnan, T.T. Biju, T. Thasmi, M.J. Anoopa

For Respondent: Arun Ajay Shankar