Applicant Can Seek Refund For Unused Stamp Paper Post 6 Months, If Unaware During Such Time That It Won't Be Of 'Immediate Use': Delhi HC

“…this highlights a gap in the statutory provisions in respect of a case, where a person with the bona fide intention purchases the stamp paper by making full payment for the same and discovers after a period of six months that the stamp paper is of no use. In light of the decision of Supreme Court in Rajeev Nohwar, Section 54 of the Act is not applicable to such a case as the person purchasing the stamp duty did not have the knowledge, within the period of six months of purchasing the stamps, that the stamps purchased would be of no immediate use”.

The court explicated that reading Section 54(c) to mean that refund could be sought beyond 6 months from purchase in a case where stamp paper was faulted or spoiled, but not with respect to a stamp paper in pristine condition which could not be used, would be arbitrary, unreasonable and liable to be declared ultra vires of Article 14.

“…if the provisions of Sections 54(c) and 50(2) of the Act are juxtaposed, it would be clear that a person would be entitled to file an application for refund of stamp duty two months after the stamp paper has been spoiled notwithstanding, that more than six months have elapsed after the stamp was purchased, but he cannot apply for refund in respect of the stamp paper that is in a pristine condition after six months of the date of purchase of the said paper…If Section 54 of the Act is read as restricting the right for seeking refund in a case such as the present one, it would suffer from the vice of arbitrariness and fall foul of Article 14 of the Constitution of India.”

As such, to uphold the constitutionality of Section 54, the Division Bench of Justices Vibhu Bakhru and Amit Mahajan read Section 54 in line with the ruling in Rajeev Nohwar v. Chief Controlling Revenue Authority, Maharashtra State, Pune & Ors, where the Supreme Court allowed refund holding that the appellant had no knowledge that stamp purchased would have no use within the period of six months from its purchase.

Arriving at the conclusion, the court remarked that denial of refund of stamp duty collected, even though no duty was payable because the charging event did not occur, militated against the scheme of providing for allowance of stamps.

“…if the provisions of the Act are construed in a manner so as to permit collection and retention of stamp duty, which is not chargeable without any recourse for refund whatsoever, it would run contrary to the scheme of the Act.”

The issue had arisen when the petitioner, being desirous of buying a property, had purchased an e-stamp paper for conveyance of the property. As requisite NOC could not be obtained for buying the property, a refund of the stamp duty was sought. However, the petitioner's application was rejected by the Collector on the ground that the same was filed after expiry of 6 months from the date of purchase of the e-stamp certificate.

Aggrieved, the petitioner approached the High Court. Through the present petition, it challenged Section 54, to the extent it provided for retention of 10 percent of the stamp duty, as ultra vires of Articles 265 and 300A of the Constitution. It further raised a challenge to Section 54(c) under Article 14 of the Constitution, stating that it set an arbitrary limit on the period for seeking refund of unutilized stamp paper (6 months from the date of turnover) even though the taxing event had not occurred.

In support of the contention, comparison was drawn with Section 49(d) of the Act, which covers cases where stamp papers are used for executed instruments and provides an additional period of 2 months from the date of execution of instrument.

Primarily, the petitioner's case was that stamp duty ought to be refunded, as the instrument on which it was payable had not been executed and the charging event for payment of stamp duty had not arisen.

In its analysis, the court noted that the incidence of tax was on an instrument and it would be erroneous to assume that a tax could not be collected prior to the taxing event.

Opining that an assessee did not have an inherent right for refund of tax paid, and that refund was governed by the statute governing tax itself, the petitioner's contention that retention of 10 percent of the allowance for stamps was ultra vires of Articles 265 and 300A was dismissed.

However, it was clarified that in cases where payments collected were not covered under the taxing statutes, the provisions for refund would not be binding.

“There is considerable merit in the petitioner's contention that there is an anomaly in restricting the time period for seeking an allowance under Section 54 of the Act to only six months after the stamp paper has been purchased when compared with the time period available for making an application in respect of stamps that are spoiled, obliterated or rendered unfit for use.”

Noting that refund of stamp duty was provided even in cases where instrument had been executed but transaction subsequently became void, it was held that there was a lacuna in the law inasmuch as it did not expressly provide for refund of unused stamps where the cause of action for seeking refund arose after a period of 6 months.

“…the legislative intent is to refund the stamp duty to refund the amount paid for the purchase of stamps if the same are not used or cannot be used for discharging of the liability to pay stamp duty”.

On the question of limitation, when Section 54(c) was read as inapplicable, the court said that “reasonable period” would be 6 months from the date the applicant became aware that he would have no “immediate use” of the stamp paper.

“Section 54(c) of the Act and Section 50 of the Act indicate that the legislative intent to confine the period for seeking allowance to not exceed six months after the cause of action has arisen …in cases where the applicant applies for refund of unused stamps/stamp certificate within a period of six months of becoming aware that he has no immediate use of the same, the claim for refund cannot be stated to be delayed and must be admitted”.

The court was influenced by the decision in Rajeev Nohwar (Supra), where in the context of Section 52 of the Maharashtra Stamp Act, 1958 (which is similarly worded as Section 54 of the Act), it was held that the provision was only applicable to cases where the applicant had knowledge that stamp purchased would not be used within 6 months from the date of purchase.

In closing, the Bench directed the Collector to process the petitioner's claim for refund of stamp paper, to the extent of 90 percent, within 2 weeks.

Counsels for Petitioner: Advocates Parvinder Chauhan & Aman Ghawana

Counsels for Respondents: CGSC Kirtiman Singh with Advocates Waize Ali Noor, Kunjala Bhardwaj & M Bajaj for UOI; Advocates Gautam Naryan & Asmita Singh for GNCTD

Case Title: Citius Real Estate (P) Ltd. v. Union of India and Anr.

Citation: 2023 LiveLaw (Del) 1218