State Can Impose Stamp Duty On Insurance Policies Executed Within State, But Only Parliament Can Fix The Rate :Supreme Court

The Supreme Court on April 30 dismissed the appeals filed by the Life Insurance Corporation (LIC) against the demand of stamp duty of approximately Rs 1.19 crores raised by the State of Rajasthan. The Court upheld the legislative competence of the State to levy stamp duty on insurance policies executed within the State subject to the rates determined by the Central legislation.

The Bench comprising Justices PS Narasimha and Aravind Kumar observed that the power and jurisdiction of the State to levy and collect duty on policies would be determined by taking into account the factum of where the insurance policies had been issued.

Reversing the High Court's findings, the court observed that since the policies of insurance were issued in the State of Rajasthan, the State of Rajasthan would have the power and jurisdiction to levy and collect stamps.

The Judgment authored by Justice PS Narasimha clarified that although the power to prescribe the rate of the stamp duty exclusively vests with the Parliament as per Entry 91 of List I, the state government is not deprived of levying and collecting the stamp duty under Entry 44 of List III.

“We have undertaken a detailed analysis of the provisions of the Rajasthan Stamp Law (Adaptation) Act, 1952 and the Rajasthan Stamp Rules, 1955 that impose stamp duty on insurance policies issued by the appellant within the state. Section 3 of Indian Stamp Act, 1899 as adapted to the state of Rajasthan is the charging provision as per which the appellant must pay stamp duty to the state government on insurance policies executed within the state. The rate at which stamp duty is payable on policies of insurance under the 1952 Act has been adopted from Schedule I of the central Act, in accordance with Entry 91 of List I. The charging provision has thus been validly enacted by the state government under Entry 44 of List III. Therefore, the state government in the present case can impose stamp duty on the issuance of insurance policies within its territory and require the payment of such stamp duty by the appellant.”, the court said.

The stamp duty amounting to Rs. 1.19 crores was demanded by the Rajasthan Government against the execution and issuance of the insurance policies by the Life Insurance Corporation (LIC) in the Rajasthan State under the Rajasthan Stamp Law (Adaptation) Act, 1952 (“Old Stamp Law”). The demand was made by Rajasthan in light of the legislative competence to impose and collect stamp duty on policies of insurance under Entry 44 of List III, as per the rate prescribed by the Parliament under Entry 91 of List I of the constitution.

Protesting the demand for the stamp duty, the LIC contended that the State of Rajasthan has no legislative competence to levy and demand stamp duty on the execution and issuance of the insurance policies within the State because as per Entry 91 of List I only the Union Government has the power to levy and collect the stamp duty on the execution and issuance of the insurance policy.

State Government Has Legislative Competence To Charge Stamp Duty Under Entry 44 of List III Subject To Rate Prescribed Under Entry 91 of List I

The question that appeared before the court was whether the state government has the legislative competence to impose and collect stamp duty on policies of insurance as per Entry 91 of List I read with Entry 44 of List III(Concurrent List).

Answering in affirmative, the court observed that the state government has the legislative competence to impose and collect stamp duty on policies of insurance as per Entry 91 of List I read with Entry 44 of List III.

The court observed that Entry 91 of List I is not a charging provision but only authorizes the Parliament to prescribe the rate of the stamp duty to be levied by the State Government for the insurance policies issued within the state jurisdiction.

“only the Parliament holds the exclusive power and the legislative competence under the Constitution (Entry 91 List I) to prescribe the rate of stamp duty on insurance policies.”, the court said.

The court held that the State government can enact a law that imposes stamp duty on insurance policies by using the rate prescribed by the Parliament by sourcing legislative competence through Entry 44 of List III.

Upon placing reliance on the Judgment of VVS Rama Sharma v. State of Uttar Pradesh, the court stated that the power to levy stamp duty under Entry 44 of List III is divided between the Union and State, therefore, the state can levy stamp duty on the insurance policies issued within its jurisdiction subject to the rate of stamp duty prescribed by the Union under Entry 91 of List I.

“From the above precedents, it is clear that the state of Rajasthan has the power to impose and collect stamp duty on insurance policies under Entry 44 of List III, albeit such duty must be imposed as per the rate prescribed by a Parliamentary legislation under Entry 91 of List I.”, the court said.

By Virtue Of Article 254 (2) of the Constitution, the Rajasthan Stamp Law (Adaptation) Act, 1952 Prevails Over Indian Stamp Act, 1899

Article 254(2) stipulates that when a state law with respect to a matter in the Concurrent List is repugnant to the provisions of an earlier law made by the Parliament or an existing law with respect to that matter, then the law passed by the state shall prevail in that state “if it has been reserved for the consideration of the President and has received his assent”.

Applying the test of Article 254(2) in the present case, the court held that the imposition of stamp duty by the state government is under the 1952 Act, which is a state law that has been enacted under Entry 44 of List III and has received Presidential assent as contemplated under Article 254.

“The 1952 Act that occupies the field in the present case has undisputedly received Presidential assent and hence it prevails over the Indian Stamp Act, 1899 so far as the state of Rajasthan is concerned.”, the court said.

Conclusion

Based on the above premise, the court recorded the following conclusions:

"I. The preliminary issue relating to the applicability of the relevant state law, i.e., the 1952 Act or the 1998 Act, is answered by holding that the Rajasthan Stamp Law (Adaption) Act, 1952 applies to the present case.

II. We hold that the state legislature has the legislative competence to impose and collect stamp duty on policies of insurance under Entry 44 of List III, as per the rate prescribed by the Parliament under Entry 91 of List I.

III. We hold that for the execution of insurance policies within the state of Rajasthan, the appellant is bound to purchase India Insurance Stamps and pay the stamp duty to the state of Rajasthan.

IV. While we have upheld the power and jurisdiction of the state to levy and collect stamp duty on insurance policies, in the facts and circumstances of the case as indicated hereinabove, we direct that the state government shall not demand and collect the stamp duty as per the orders dated 36 16.09.2004, 16.10.2004, 11.10.2004, 01.11.2004, and 28.10.2004."

Accordingly, the appeals were allowed.

Counsels For Appellant(s) Mr. N. Venkatraman, A.S.G.(Arguing Counsel) Mr. C.Paramasivam, Adv. Mr. Nishant Sharma, Adv. Mr. V. Chandrasekara Bharthi, Adv. Ms. Amitha Chandramouli, Adv. Mr. Rahul Vijayakumar, Adv. Mr. Shivshankar G., Adv. Mr. Rakesh K. Sharma, AOR

Counsels For Respondent(s) Dr. Manish Singhvi, Sr. Adv.(Arguing Counsel) Ms. Shubhangi Agarwal, Adv. Mr. Apurv Singhvi, Adv. Mr. Rohan Darade, Adv. Mr. Milind Kumar, AOR

Case Title: LIFE INSURANCE CORPORATION OF INDIA VERSUS THE STATE OF RAJASTHAN AND ORS., CIVIL APPEAL NO. 3391 OF 2011

Citation : 2024 LiveLaw (SC) 337

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