Stamp Duty Must Be Assessed On Date Of Execution, Not On Impounding Or Registrar's Order: MP High Court Quashes Excess Demand

The Madhya Pradesh High Court has held that the stamp duty on an instrument must be determined as of the date of its execution, not on the date it was impounded or on the date the Registrar of Stamps passes a subsequent order.

The division bench of Justice Vivek Rusia and Justice Pradeep Mittal observed;

"it is clear from the relevant law and rules that stamp duty is to be determined with reference to the date of execution of the document, and not on the date when the document is impounded or when an order is subsequently passed by the Registrar of Stamps".

The petitioner, a company, was granted 30 year mining lease for the extraction of limestone over an area of 150.028 hectares in the District Rewa by the State government for use in its cement manufacturing plant. The agreement was executed on October 9, 2014, on a stamp paper of Rs. 1,000/-.

The petitioner allegedly submitted that document before the Sub Registrar on December 12, 2014, for proper determination and payment of the stamp duty and for registration. The document was forwarded to the Registrar for correction and determination under the Stamp Act.

Per Article 38(vi) of the Act, stamp duty of 5% of the amount of premium or money advanced or to be advanced as outlined in the deed, plus the average annual rent reserved, or the market value of the property whichever is higher was applicable where a lease purports to be for a period of thirty years or more, or in perpetuity.

On January 19, 2015, the proceedings were registered by the Satna Collector of Stamps under Section 40 read with Article 38(vi) of the Act. It was discovered that the annual royalty for the leased area was Rs. 1,25,35,110/-. The Mining Officer also specified that dead rent at Rs. 1,000/- per hectare per year for five years would amount to Rs. 6,04,000/-.

The counsel for the petitioner contended that dead rent cannot be added to the royalty, as royalty becomes payable when it exceeds the dead rent. The petitioner claimed that the Collector wrongly added the dead rent and calculated the stamp duty at Rs. 1,94,58,462/.

The petition further contended that the Collector and Board of Revenue failed to properly consider the stamp duty and wrongly upheld the order of the Collector.

The counsel for the respindents conteded that the amendment prescribing 5% stamp duty came into force on September 16, 2014 and was applicable at the time of execution of the mining lease. The amendment introducing 0.75% duty came into force on January 14, 2016 and cannot be applied retrospectively to leases executed in 2014.

The court examining the provisions of Mines and Minerals (Development and Regulation) Act, concluded that the lesser is required to either pay royalty or dead rent which ever is higher.

Further, the court noted that per Section 26 of the Indian Stamp Act, thr stamp duty is to be determined on the basis of estimated royalty at the time of execution of lease deed.

The court noted that the primary issue for consideration was "how the stamp duty be calculated on document, either according to the law and rule which was prevailing at the time of execution of document or when it was submitted for registration or at the time when the order is passed by registrar of stamp?"

The court noted that stamp duty was primarily imposed on the execution of a document and not only on the date it is submitted for registration. The court further noted,

"Under Section 23 of the Registration Act, 1908, a document must be presented for registration within four months from the date of its execution. Failure to submit within prescribe period, late payment of stamp duty attracts a penalty, if a document is submitted for registration significantly later than its execution, the Sub-Registrar might assess the duty based on the market value of the property at the time of submission".

The court therefore concluded that the stamp duty is to be determined with reference to the execution date. The court further clarified that royalty is a kind of rent which the lessor of the mine charges from the lessee, whereas Dead Rent was kind of mineral rent of royalty.

"the rent called royalty is a varying charge based on the value of the product and the rent called dead-rent is a minimum annual payment which is usually not enforce if the amount is payables annual royalty is more than the amount of dead rent fixed for the year. Royalty in the sense is therefore genus and dead rent is species", the court observed.

The court held that the Collector erred by adding dead rent to the royalty as they both cannot be levied simultaneously on the same lease. The court further calculated the stamp duty to be Rs. 6,26,755/- only.

Thus, the court allowed the petition and set aside the impugned order.

Case Title: M/S Jai Prakash Associated Pvt Ltd. v State of MP [MP-6936-2019]

For Petitioner: Senior Advocate R.S. Jaiswal with Advocate Anjali Upadhyay

For Respondent: Government Advocate Ritwik Parashar

Click here to read/download the Order