Kerala HC: doubled court fee on tax appeals applies only where the dispute began after 1 April 2016
Deciding twelve VAT writ petitions together, Justice Bechu Kurian Thomas held that the right of appeal, and the fee it carries, vests when the assessing officer first questions a return, and that the 2016 notification raising the Legal Benefit Fund levy from 0.5% to 1% has no retrospective reach.
The Kerala High Court has held that the State's 2016 decision to double the additional court fee charged on appeals and revisions before tax tribunals and appellate authorities, from 0.5% to 1% of the amount in dispute, cannot be applied to disputes that had already begun when the notification took effect on 1 April 2016. Deciding twelve writ petitions by VAT assessees in a single judgment, Justice Bechu Kurian Thomas held that a tax dispute commences when the assessing officer, not satisfied with a return, calls for evidence, and that the right of appeal which vests at that moment, fee included, can be taken away only by an express or necessarily implied retrospective provision. The notification contains none. The lead case was Mohammed Rafi v. State of Kerala, W.P.(C) No. 819 of 2017; the other petitioners included Sobha Ltd, Hindustan Coca-Cola Beverages, Aagaz Properties and Manappuram Jewellers.
A fund created in 1962 that took forty years to collect
Section 76 of the Kerala Court Fees and Suits Valuation Act, 1959 has provided since 1962 for a legal benefit fund to be built from an additional court fee. For decades nothing was collected. Rules under Section 76(4) were framed only in 1991, and the Kerala Legal Benefit Fund Trust Committee was constituted under Section 76(2) only in 2002. A notification then directed collection of the additional fee from 5 April 2002 on every appeal or revision filed before tribunals and appellate or revisional authorities, other than in the civil and criminal courts. The statute permitted up to 1% of the amount in dispute, or ₹100 where the dispute could not be valued; the Government fixed the levy at half that, 0.5% or ₹50.
The 2002 levy was challenged at once, including on the constitutional validity of Section 76. In Ismail v. State of Kerala, 2005 KHC 1169, a single judge upheld the provision but declared that the fee was payable only on appeals or revisions against orders from the assessment year in which the notification was issued, 2002-03, onwards. A Division Bench affirmed that in Chackolas Spinning and Weaving Mills Ltd v. State of Kerala, 2006 (1) KLT 989. The Trust Committee then obtained leave and appealed, arguing that the assessment-year limitation had never actually been considered. In Kerala Legal Benefit Fund Trustee Committee v. Cheeran Structurals, 2012 (1) KLT 430, the Division Bench agreed with the Committee that neither the section nor the Government orders tied the levy to any assessment year, so that on their own terms the fee was payable on every appeal or revision filed on or after 5 April 2002. It nonetheless dismissed the appeals, because the Supreme Court had held in State of Bombay v. Supreme General Films Exchange Ltd, AIR 1960 SC 980, that putting a new restriction or a more onerous condition on an appeal impairs a substantive right and is not retrospective unless the enactment says so expressly or by necessary intendment.
The 2016 notification
On 7 April 2016 the Law Department issued S.R.O. No. 315/2016 under Section 76(1), which the Kerala Finance Bill, 2016 had amended. It superseded the 2002 notification and authorised civil courts, tribunals and appellate authorities constituted under any special or local law to levy an additional court fee on every original suit, original petition, original application, appeal or revision at 1% of the amount involved in the dispute, or ₹100 where the dispute could not be valued, the proceeds to be credited to the Legal Benefit Fund. The notification was deemed to have come into force on 1 April 2016. Its explanatory note records that the amended Section 76(1) permits a levy of up to 1%, or ₹100, and that the Government had decided to levy the maximum. Nothing in the notification addressed pending disputes, earlier assessment years or orders already passed.
What the assessees and the State argued
The petitioners were all assessees under the Kerala Value Added Tax Act, 2003 with appeals or revisions pending before departmental appellate authorities or the VAT Appellate Tribunal. Each had been told to pay the additional fee at the enhanced rate because the appeal or revision was filed after the notification. Mr A. Kumar, Senior Counsel, instructed by Ms G. Mini, led the argument for the petitioners, with Mr K.N. Sreekumaran, Mr S. Anil Kumar, Mr N. Muraleedharan Nair, Mr Rahul A. and Advocate Krishna appearing in the individual petitions. Their case was that the enhancement impaired a vested right of appeal and, on the authority of Supreme General Films, Procurator, R.G. Diocese, Calicut v. State of Kerala, 2003 (1) KLT 618, and Ismail, could apply only from the assessment year in which it was notified, 2016-17.
The State filed a counter-affidavit in Sobha Ltd's petition, W.P.(C) No. 1710 of 2017. It contended that the fee prescribed by Section 76 is payable from the date of notification on all proceedings, so that any appeal or revision filed after 7 April 2016 must carry the enhanced fee even if it challenges an order passed earlier. It added that the money funds legal services for the people of the State and social security for the profession through the Advocates Welfare Fund and the Advocates Clerk Welfare Fund, and that the levy ought not to be interfered with. Ms Harima Hariharan, Special Government Pleader, relied on the Supreme Court's decision in K. Raveendranathan Nair v. Commissioner of Income Tax, (2017) 9 SCC 355, to argue that the relevant date for the court fee is the date on which the lis commenced; that the orders under appeal in these cases were all passed after the notification; and that in any event the levy had existed since 2002 and only the rate had changed, so Ismail had no application.
Two Constitution Benches, and a precedent the later one missed
Justice Thomas acknowledged that the three Kerala decisions would ordinarily have settled the matter by the ordinary rule of precedent. The State's reliance on Raveendranathan Nair invoked the same rule to reach a different answer, which obliged him to go further.
Raveendranathan Nair arose after Section 260A of the Income Tax Act was amended and court fee became payable on income-tax appeals under Section 52A of the Kerala Act from 6 March 2003. The Supreme Court there held that the appeal provisions governing an assessee are those in force on the date of the assessment order, not those in force during the assessment period, while for the revenue the relevant date is when the appellate authority negatives the disputed demand. It reached that conclusion by relying on the Constitution Bench in Hardeodas Jagannath v. State of Assam, AIR 1970 SC 724.
Against that stood an older line. Hoosein Kasam Dada (India) Ltd v. State of Madhya Pradesh, AIR 1953 SC 221, held that once a lis commences all rights crystallise and no clog can be placed on a likely appeal unless the law is made retrospective expressly or by clear implication. A three-judge bench followed it in Supreme General Films, and the Constitution Bench decision in Garikapati Veeraya v. N. Subbiah Choudhry, AIR 1957 SC 540, was relied on for the same proposition. Then, in Vitthalbhai Naranbhai Patel v. Commissioner of Sales Tax, Madhya Pradesh, AIR 1967 SC 344, another Constitution Bench referred to and approved Hoosein Kasam Dada, although on the facts it could not tell whether the lis had commenced before the amendment.
The judge found himself with what he called a “cleavage of opinion” between decisions of the Supreme Court. The Constitution Bench in Hardeodas Jagannath, the foundation of Raveendranathan Nair, had not noted the earlier Constitution Bench's approval of Hoosein Kasam Dada in Vitthalbhai Patel.
For what a High Court should do in that situation he turned to IVECO Magirus Brandschutztechnik GmbH v. Nirmal Kishore Bhartiya, (2024) 2 SCC 86. The options, as the judgment sets them out, are three. Where two irreconcilable decisions exist and the later one did not consider the earlier, the later decision is per incuriam. Where the later decision noted, considered and explained the earlier one, the High Court must follow the later. Where the earlier decision was noted but not explained, the High Court may try to reconcile the two. The Supreme Court in IVECO put the first of those directly: if a previous decision has not been noticed, considered and explained in the subsequent one, “the earlier decision continues to remain binding”.
On that footing the earlier Constitution Bench judgment in Vitthalbhai Patel, approving Hoosein Kasam Dada, remained binding. The enhanced court fee, the judge held, applies only to cases where the lis commenced after the notification's effective date of 1 April 2016.
When does a tax dispute begin?
That left the question of when a lis commences, which in turn decided each petition. The judge went back to paragraphs 32 and 33 of Hoosein Kasam Dada. A lis arises whenever one party makes a proposition and the other opposes it. Filing a return may not by itself create one, since the authority may accept the return as correct and complete. But once the authority is not satisfied and calls for evidence, a controversy arises between the assessee and the State, and it makes no difference that the officer raising the dispute is also the one who decides it, because he raises it in the interest of the State. For the accrual of the right of appeal, the Supreme Court said, the critical date is “the date of initiation of proceedings and not the decision itself”.
Applied to tax matters, the lis commences when the taxing authority, not satisfied with the correctness of the return, calls for materials or evidence to justify the assessee's claim. If a notice has been issued by the assessing officer pursuant to the return, the lis has commenced and the right of appeal, including the obligation to pay court fee on the appeal as it stood on that date, becomes a vested right. Only an express stipulation or necessary intendment can take it away. The 2016 notification contains neither, and it came into effect on 1 April 2016. So the enhanced rate is payable on every appeal or revision where the lis commenced after that date, and not otherwise.
Neither side's test survived intact. The date of the assessment order, which the State had pressed through Raveendranathan Nair, was not the trigger. Nor was the assessment year, which the petitioners had pressed through Ismail. The date of the first notice was.
Twelve petitions, three outcomes
The judge then went through the batch case by case.
Mohammed Rafi, proprietor of Sharafiya, Kottayam (W.P.(C) 819/2017): the assessment year was 2015-16 and the penalty order under challenge before the Deputy Commissioner, Kottayam, was dated 20 September 2016, but the notice under Section 67 of the KVAT Act had been issued on 7 July 2016. The exhibits show he filed his revision on 22 November 2016 with applications for condonation of delay, stay and early hearing, received a notice from the Deputy Commissioner dated 24 December 2016, replied on 4 January 2017 and was met with a rejection letter the same day. The lis began after the notification; the enhanced fee is payable.
Sobha Ltd, Thrissur (1710/2017): assessment year 2013-14, assessment order dated 20 May 2016, pre-assessment notice dated 12 November 2015. The lis began before the notification; the enhanced fee is not payable.
Hindustan Coca-Cola Beverages, Palakkad (16785/2017): assessment year 2012-13, assessment order dated 29 November 2016, pre-assessment notice dated 26 October 2015. The judgment records that the lis commenced before the notification and, in the same sentence, that the petitioner is liable to pay the enhanced rate. It is the only case in the batch in which a pre-notification commencement is paired with liability.
L. Satheek (24297/2017) and Lekshman and Co (24298/2017), both of Kollam: assessment orders for 2010-11 dated 2 May 2014 and 16 July 2013, allowed in part by the Deputy Commissioner (Appeals) and carried in second appeal to the Tribunal. The lis commenced before the notification; the enhanced fee is not payable. Far East Trading Establishment, Kayamkulam (24326/2017): assessment order for 2008-09 dated 20 March 2014, first appeal dismissed, second appeal before the Tribunal. The same result.
In five petitions the court found no pleading or material showing the date of the assessment order or of the pre-assessment notice, and left it to the forum before which the appeal is pending to identify the date of commencement of the lis and decide whether the enhanced fee is due. They are Malabar Blue Metals (28493/2017, assessment years 2009-10 to 2013-14, before the Tribunal), Sivasakthi Engineering and Fabricators (32515/2017, 2009-10 to 2013-14, Deputy Commissioner (Appeals), Palakkad), Aagaz Properties Pvt Ltd (33920/2017, 2012-13 to 2014-15, Deputy Commissioner (Appeals), Palakkad), Chathamkulam Projects and Developers (9667/2018, 2009-10 to 2012-13, before the Tribunal) and Giby Traders (27634/2020, 2012-13, Deputy Commissioner (Appeals), Ernakulam).
Manappuram Jewellers, Thrissur (12501/2023): a penalty order for 2014-15 is under appeal before the Joint Commissioner (Appeals), Thrissur. A shop inspection had taken place on 23 March 2015, but the books of account were called for only on 20 August 2018. The lis began after the notification; the enhanced fee is payable.
Order
The writ petitions were disposed of in those terms: three petitioners must pay the additional court fee at 1%, four need pay only the pre-2016 rate, and five must have the date of commencement of their disputes determined by the appellate authority or Tribunal before which their appeals lie. The batch was heard on 30 September 2026 and the judgment delivered on 26 October 2026.