'Ten Times Penalty' Prescribed For Deficit Stamp Duty Cannot Be Mechanically Imposed: SC [Read Judgment]

The Supreme Court has observed that the penalty of ten times prescribed under Section 40(1) (b) of the Indian Stamp Act cannot be mechanically imposed.

The reason such as fraud or deceit in order to deprive the or undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty under Section 40(1)(b), the bench comprising Justices Ashok Bhushan, MR Shah and R. Subhash Reddy observed.

As per Section 40(1)(b) if the Collector is of opinion that such instrument is chargeable with duty and is not duly stamped, he shall require the payment of the of the proper duty or the amount required to make up the same, together with a penalty of the five rupees; or, if he thinks fit, an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof.

In this case, while impounding the document, the collector [styled as a Deed of Assent executed between M/ H.C. Dhanda Trust, a private trust and Jogesh Dhanda] imposed ten times penalty (Rs.12,80,97,000/) on the ground that "the party has not mentioned the actual nature of the document with the intention to escape the duty".

Referring to Section 40 and other provisions, the bench observed that whenever statute transfers discretion to an authority the discretion is to be exercised in furtherance of objects of the enactment.

The discretion is to be exercised not on whims or fancies rather the discretion is to be exercised on rational basis in a fair manner. The amount of penalty not exceeding ten times is not an amount to be imposed as a matter of force. Neither imposition of penalty of ten times under Section 40(1) (b) is automatic nor can be mechanically imposed. 

The purpose of penalty generally is a deterrence and not retribution. When a discretion is given to a public authority, such public authority should exercise such discretion reasonably and not in oppressive manner. The responsibility to exercise the discretion in reasonable manner lies more in cases where discretion vested by the statute is unfettered. Imposition of the extreme penalty i.e. ten times of the duty or deficient portion thereof cannot be based on the mere factum of evasion of duty. The reason such as fraud or deceit in order to deprive the Revenue or undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty under Section 40(1)(b).

The Court also noticed its judgment in Gangtappa and another vs. Fakkirappa, 2019(3) SCC 788 which dealt with a similar issue.

The bench also observed that it is only in the very extreme situation that penalty needs to be imposed to the extent of ten times. In this case, the bench noted that the conduct of the party was not found to be dishonest or contumacious. Taking note of the facts of the case, the bench allowed the appeal by reducing the penalty imposed to the extent of the half i.e. five times of deficiency in the stamp duty ( Rs.6,40,48,500)

Case name: TRUSTEES OF H.C. DHANDA TRUST vs. STATE OF MADHYA PRADESH

Case no.: CIVIL APPEAL NOS. 3195-3196 OF 2020

Coram: Justices Ashok Bhushan, MR Shah and R. Subhash Reddy

Counsel: Sr. Adv A.K. Chitale and SG Tushar Mehta

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