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 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...

Rajasthan Stamp Act | Duty Can't Be Levied On Transaction Not Having 'Territorial Nexus' With State: High Court

ANIRUDH VIJAY

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