Rajasthan Stamp Act | Duty Can't Be Levied On Transaction Not Having 'Territorial Nexus' With State: High Court
The Rajasthan High Court recently set aside a single bench decision which permitted levy of duty under the Rajasthan Stamp Act, 1998 on an amalgamation instrument executed outside the State pursuant to sanction of Himachal Pradesh High Court, not only in relation to properties situated in Rajasthan, but also on the transfer of shares.A division bench comprising Justices Manindra Mohan...
The Rajasthan High Court recently set aside a single bench decision which permitted levy of duty under the Rajasthan Stamp Act, 1998 on an amalgamation instrument executed outside the State pursuant to sanction of Himachal Pradesh High Court, not only in relation to properties situated in Rajasthan, but also on the transfer of shares.
A division bench comprising Justices Manindra Mohan Shrivastava and Birendra Kumar observed,
"...insofar as transfer of shares by virtue of order of amalgamation passed by the High Court of Himachal Pradesh is concerned, it did not happen within the territory of the State of Rajasthan. Both the companies are situated outside the territory of Rajasthan. The entire proceedings of arrangement and amalgamation and its sanction took place outside the State of Rajasthan. Therefore, to that extent, stamp duty under the Stamp Act of 1998 would not be leviable..."
The bench made it clear that an instrument executed outside the State of Rajasthan would be chargeable with duty when it bears a "territorial nexus"; tt is not that every instrument as specified in the Schedule appended to the Stamp Act of 1998, executed outside the State, becomes chargeable to stamp duty. "Only those relating to any property situated in the State or relating to any matter or thing done or to be done in the State and received in the State."
In the instant case, the Petitioner-company had amalgamated with one Sunvision Engineering Company and had made an application with the Jaipur Development Authority for mutation of properties held by the latter in the area, to the Petitioner's name.
In response, the JDA formed an opinion that there was deficit of stamp duty and raised a demand not only on the land in question but on the valuation of the instrument as a whole. This included valuation of the shares, which were transferred upon amalgamation.
The single bench had held that under Stamp Act of 1998, order of amalgamation passed by the High Court of Himachal Pradesh, being an instrument as defined under Section 2(xix) of the Stamp Act of 1998, was liable to be charged with stamp duty in terms of Section 3(b) of the Stamp Act of 1998 even though the instrument is executed out of the State of Rajasthan as it relates to the properties situated in the State of Rajasthan.
Notably, Section 3 of the Stamp Act of 1998 provides for levy of stamp duty not only on those instruments specified in the Schedule, with the amount of the duty indicated therein, which are executed in the State on or after the date of commencement of the Stamp Act of 1998 but also provides for levy of stamp duty on instruments executed outside the State.
The division bench observed that interpretation giving wide sweep of legislative power to the State legislature to levy stamp duty on instruments executed outside the State, even when it does not relate to any taxing event having any territorial nexus within the State, would be violative of Article 245 of the Constitution of India.
The court held that the appellant would be liable for payment of stamp duty only on the market value of the properties situated in the State of Rajasthan required to be assessed in accordance with the Stamp Act of 1998. The court added that the demand for payment of stamp duty in excess of such liability is in excess of authority under the Stamp Act of 1998.
The division bench opined that the Single Judge's findings that the stamp duty, if not paid in the State of Himachal Pradesh, could well be levied under the Stamp Act of 1998, does not have any legal basis. The court also opined that there is no material on record placed by any of the parties to establish that the instrument-in question was leviable to stamp duty under the State law in Himachal Pradesh.
"Secondly, irrespective of whether or not the appellant was liable to pay stamp duty in the State of Himachal Pradesh and whether or not it has been paid in that State, the stamp duty would be leviable only in respect of the properties situated in the State of Rajasthan and not in respect of transfer of shares under the instrument as that transfer by execution of instrument and passing of order by the High Court of Himachal Pradesh does not bear any territorial nexus."
The court also quashed the order and notice issued by the Collector (Stamps), Jaipur Circle III to the extent of including value of shares issued pursuant to the scheme of arrangement and amalgamation. He was directed by the court to carry out fresh assessment of duty payable by the appellant-company in accordance with the directions.
Relying on New Central Jute Mills Co. Ltd. & Others Vs. State of West Bengal & Others, the court opined that only the difference of the duty, in case rate of duty is higher in the State of Rajasthan, would be payable in view of the provisions contained in Section 21 of the Stamp Act of 1998.
The bench noted that in the present case, it is not the case of the petitioner that the legislature does not have the competence to impose stamp duty on order of amalgamation passed by a Court, but chargeability to stamp duty in terms of the provisions contained under the statutory scheme of Section 3 of Stamp Act of 1998 and issue regarding territorial nexus.
It was observed by the bench that the law on the subject of stamps is altogether a matter of positive juris. An Act, in order to impose a tax, must be clearly expressed, added the court. The court opined that a tax shall not be imposed, unless the language imposing the duty is clear and unambiguous.
The court observed that literal interpretation of Section 3(b) of the Stamp Act of 1998, on its fair and reasonable construction, would clearly mean that an instrument mentioned in the Schedule, executed outside the State of Rajasthan, would be chargeable with duty when it bears a territorial nexus. The court also observed that every instrument as specified in the Schedule appended to the Stamp Act of 1998, executed outside the State, becomes chargeable to stamp duty, but only those relating to any property situated in the State or relating to any matter or thing done or to be done in the State and received in the State.
The bench pursued that Sections 21(1) and 21(2) of the Stamp Act of 1998 when read with Section 3, expressly provides for levy of stamp duty on an instrument executed outside the State of Rajasthan to the extent provided therein. Levy of stamp duty on instruments executed outside the State of Rajasthan is restricted according to the statutory scheme of Sections 3 and 21 of the Stamp Act of 1998 and not beyond that, added the court.
Taxing Event
The court opined that a plain reading of Section 3(b) of Stamp Act of 1998 reveals that every instrument mentioned in the Schedule appended to the Stamp Act of 1998, which is executed out of the State, is chargeable with stamp duty under the Stamp Act of 1998, a State legislation, when it relates to any property situated, or to any matter or thing done or to be done in the State and is received in the State. Therefore, the court observed that the provision clearly provides for the taxing event, which makes an instrument, though executed out of the State of Rajasthan, chargeable with stamp duty under the State legislation, i.e. the Stamp Act of 1998.
The court noted that the taxing event, in view of expression, "relates to any property situate, or to any matter or thing done or to be done in the State and is received in the State" bears connection in the nature of territorial nexus. In the absence of aforesaid legal requirement under Section 3 of the Stamp Act of 1998, an instrument as defined under the Stamp Act of 1998 even though as a conveyance and mentioned in the Schedule appended to the Stamp Act of 1998, could not be subjected to stamp duty, added the court.
Further, the court also added that if the first legal requirement under expression, i.e., "relates to any property situate, or to any matter or thing done or to be done in the State", is absent, even if it is received in the State, it may not be chargeable with stamp duty under the State legislation, i.e., the Rajasthan Stamp Act, 1998. Therefore, it is not enough that the instrument is a conveyance as covered by entry at Serial No. 21 in the Schedule appended to the Stamp Act of 1998, but it must bear territorial nexus as required under Section 3(b) of the Stamp Act of 1998, if the instrument happens to be an instrument executed out of the State, added the court.
The counsels for the appellant include Sr Adv. Bishwajit Bhattachharya, Adv. Anuroop Singhi with Adv. Devansh Sharma while counsels for the respondents include AAG Major R.P. Singh assisted by Adv. Jaivardhan Singh Shekhawat.
Case Title: Himachal Futuristic Communications Limited v. State of Rajasthan & Ors.
Citation: 2022 LiveLaw (Raj) 211
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