Advocates Kirit Hakani & Niyati Mankad (Hakani) have exhaustively discussed the Stamp Law prevailing in the State of Maharashtra.The constitutional scheme and important legal provisions of stamp laws have been explained. The ld. authors have also dealt with the amendments brought in the Central Law by the Finance Acts 2019 & 2020 which have brought a new regime for levying stamp duty on securities and cleared confusions and disputes prevailing for many years. The relaxations given by the State Government on account of the COVID-19 pandemic have also been discussed. The law relating to stamp duty on gifts to relatives, as prevailing in Gujarat, Tamil Nadu and Karnataka, have also been explained
I. Introduction: Object & Purpose.
1. Laws dealing with Stamp Duty are purely fiscal measures enacted to secure revenue for the Government on certain class of instruments. It is designed to secure revenue for the State on certain classes of instruments and all its provisions must be construed as having in view the protection of revenue and the prevention of evasion of the revenue that it imposes.
2. This object is attained inter alia by excluding documents/ instruments which are not stamped or insufficiently stamped, as evidence. However, the purpose of the Act is not to exclude evidence or to enable parties to avoid their obligations on technical grounds or to alter the terms of the bargain between the parties. Thus, theyare not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. (1) The stringent provisions of the Act are concerned solely in the interest of the revenue, and once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of the initial defect in the instrument. (2)
3. Every state has its own law dealing with Stamp Duty. Most of these state laws are pari-materia. Also, in India there is Central Law dealing with Stamp duty. In this Article I have discussed the Central law and State Law prevailing in the State of Maharashtra. Further, the Article also deals with the Amendments brought in the Central Law by Finance Act, 2019 & 2020 which have brought a new regime for levying stamp duty on securities and cleared confusions and disputes prevailing for many years. The Maharashtra Government has given certain relaxations on account of the current COVID-19 pandemic. The said relaxations are also discussed herewith. As far as the instrument of Gift is concerned, provisions prevailing in Gujarat, Tamil Nadu and Karnataka are covered.
II. Legislative Competence of Union& State Legislature under the Constitution of India to enact stamp laws:
II. Scheme of ISA and MSA – Important Legal Provisions:
1. The object of laws dealing with stamp dutyare three fold:
a. to raise revenue by taxing instruments (4) ;
b. to penalise by rendering an unduly stamped instrument to be inadmissible as evidence and also
c. to provide for penalty against evasions of Stamp duty.
i. by impounding of instruments,
ii. imposing penalty and
iii. by prosecuting defaulter for evasion. (5)
2. As per Section 2(14) of the ISA (6) , “Instrument” includes (a) every document by which any right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded; (b) a document, electronic or otherwise, created for a transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded; and (c) any other document mentioned in Schedule I, but does not include such instruments as may be specified by the Government, by notification in the Official Gazette. Any instrument mentioned in Schedule I to Indian Stamp Act is chargeable to duty of the amount indicated in that Schedule as the proper duty (Section 3 of the ISA). The list includes instruments such as affidavit, lease, memorandum and articles of company, bill of exchange, bond, mortgage, conveyance, receipt, debenture, share, insurance policy, partnership deed, proxy, shares etc.Thus, if an instrument is not listed in the schedule, no stamp duty is payable. (7)
Under the Maharashtra Stamp Act, 1958 (“MSA”) the term “instrument” includes every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt.
3. As per Section 2(26) of ISA, “stamp” means any mark, seal or endorsement by any agency or person duly authorised by the State Government, and includes an adhesive or impressed stamp, for the purposes of duty chargeable under the Act. In India we deal with two types of stamps, judicial and non-judicial. The Indian Stamp Act covers non-judicial stamps which are for use in transactions between persons where written instruments are used. Judicial stamps are otherwise known as “Court-fee” and judicial stamped papers bear the word “Judicial”, and are for use in courts and certain public offices under the provisions of the Court-fees Act 1870.
4. In case of sale, mortgage or settlement, if there are several instruments for one transaction, stamp duty is payable only on one instrument. On other instruments, nominal stamp duty of rupee one is payable [Section 4(1) of ISA].
5. If one instrument relates to several distinct matters, stamp duty payable is aggregate amount of stamp duties payable on separate instruments (Section 5 of ISA).
General Power of Attorney.
It was held by the Hon’ble Supreme Court that a general power of attorney is a single instrument though comprises of distinct acts which the donor is capable of performing whether in his individual capacity or in his representative capacity as trustee or as executor or administrator – are not “distinct matters” and thus, do not attract the operation of Section 5 of the Indian Stamp Act. (8)
6. It may also happen that one instrument covering only one matter may come under more than one description given in Schedule to Stamp Act. In such case, highest rate specified among the different heads will prevail (Section 6 of ISA).
7. Government has the power to reduce or remit whole or part of stamp duties payable. Such reduction or remission can be in respect of whole or part of territories and also can be for particular class of persons. Government can also compound or consolidate duties in case of issue of shares or debentures by companies [Section 9(1) of ISA].‘Government’ means Central Government in respect of stamp duties on bills of exchange, cheque, receipts etc. and ‘State Government’ in case of stamp duties on other documents [Section 9(2) of the ISA].
8. The payment of stamp duty can be made by adhesive stamps or impressed stamps. Instrument executed in India must be stamped before or at the time of execution (Section 17 of ISA). Instrument executed out of India can be stamped within three months after it is first received in India [Section 18(1) of ISA]. However, in case of bill of exchange or promissory note made out of India, it should be stamped by first holder in India before he presents for payment or endorses or negotiates in India (Section 19 of ISA).
Section 17 of the MSA provides that all instruments chargeable with duty and executed in Maharashtra should be stamped before or at the time of execution or immediately thereafter or on the next working day following the date of execution. Moreover, as per Section 18 of MSA only Instruments executed out of Maharashtra may be stamped within three months after it is first received in India.
9. ISA and MSA both prohibit writing of a second instrument chargeable with duty on a stamp paper on which an instrument chargeable with duty has already been written (Section 14 of the MSA). Moreover, the stamp paper must be in the name of one of the parties to the transaction (Section 34 of the MSA). They cannot be in the name of the Chartered Accountant or Lawyer of the parties.
10. The stamp duty charged by the Legislature is on the instrument and is on the execution of the instrument. The measure of charging stamp duty may be fixed or ad-valorem which is to be determined by the Legislature. The basis for computation of stamp duty can be determined by the State Legislature and it may be on the basis of the market value of the property transferred or at a fixed amount. (9)
11. Parties by Agreement may decide as to who shall bear the amount of stamp duty. In absence of such an agreement reference be made to Section 29 of ISA or Section 30 of MSA, as the case may be.
12. Ordinarily, the person liable to pay stamp duty may himself assess the stamp duty payable by him and pay accordingly. However, in cases of complex documents, the person paying the duty may not be sure of the stamp duty payable. In such case, he can apply for opinion of the Collector. He has to apply with draft document and prescribed fees and then the Collector will determine the stamp duty payable as per his judgment [Section 31(1) of ISA as well as Section 31 of the MSA].
13. ‘Duly Stamped’ means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law in force in India [Section 2(11) of ISA]. (10)
14. In case of adhesive stamps, the stamps have to be effectively cancelled so that they cannot be used again (Section 12 of ISA & MSA).Similarly, impressed stamps have to be written in such a way that it cannot be used for any other instrument and stamp appears on the face of instrument (Section 13 of ISA & MSA). If stamp is not so used, the instrument is treated as ‘unstamped’. Similarly, when stamp duty paid is not adequate, the document is treated as ‘not duly stamped’.
15. If non-payment or short payment of stamp duty is by accident, mistake or urgent necessity, the person can himself produce the document to Collector within one year. In such case, Collector may receive the amount and endorse the document that proper duty has been paid (Section 41 of ISA).
Validity of stamp paper and provisions pertaining to refund:
16. As per Section 54 of the ISA — When any person is possessed of a stamp or stamps which have not been spoiled or rendered unfit or useless for the purpose intended, but for which he has no immediate use, the Collector shall repay to such person the value of such stamp or stamps in money, deducting ten naye paise for each rupee or portion of a rupee, upon such person delivering up the same to be cancelled, and proving to the Collector’s satisfaction—
(a) that such stamp or stamps were purchased by such person with a bona fide intention to use them; and
(b) that he has paid the full price thereof; and
(c) that they were so purchased within the period of six months next preceding the date on which they were so delivered:
Provided that, where the person is a licensed vendor of stamps, the Collector may, if he thinks fit, make the repayment of the sum actually paid by the vendor without any such deduction as aforesaid.
17. In Thiruvengada Pillai Vs. Navaneethammal & Anr. [(2008) 4 SCC Online 530], it was held by the Supreme Court that a stamp paper, even if it is more than six months old, is valid to be used. Section 54 of the ISA just bars taking refund after six months of purchase, but it does not restrict the use of such old stamp paper for an agreement. Thus, nothing prohibits a person from using it even after years of its purchase. ISA does not have any prescribed period of limitation for its validity.
18. But the two states Maharashtra and Gujarat, have specific provisions that states that if a stamp is not used or surrendered back within six months of the date of issuing them, they will be treated as expired. Section 52B(b) of the MSA Act and Section 52C of Bombay Stamp (Gujarat Amendment) Act, 2016 states that if any stamp has been purchased and it is neither used nor any allowances are claimed on it within a period of six months, it will be treated as invalid. However, the stamps purchased and not used for intended purpose are entitled for refund after deduction of certain charges, if lodged for refund within six months from the date of purchase and on fulfilling the conditions stipulated in Chapter V of the MSA. (11) If the Stamp paper is unused or mutilated then a person may claim refund of the stamp duty. For this, claim shall be made to the collector of Stamps within a period of 6 months from the date of purchase of Stamps (Section 47 of MSA).
III. Evidentiary value of Unstamped/ under-stamped Instrument.
1. An instrument not ‘duly stamped’ cannot be accepted as evidence by civil court, an arbitrator or any other authority authorized to receive evidence (Section 35 of the ISA and Section 34 of the MSA). However, such a document can be accepted as evidence in criminal court. Chapter VII of the ISA provides for various penalties for breach or violation of provisions of the Act.
2. As per the provision of Section 59 of MSA, any person who, with the intention to evade the Stamp duty, executes or signs any instruments chargeable with stamp duty, otherwise than as a witness, without the same being duly stamped, shall on conviction, be punished with rigorous imprisonment for term which shall not be less than one month but which may extend to six months and with fine upto Rs. Five Thousand. Further, Section 67 and 68 of the MSA empowers the authorities to enter upon any premises and to inspect and impound/ seize the documents which are not duly stamped and burden is casted upon every public officer to assist the authorities in detection of evasion. The documents impounded for want of proper duty, attracts penalty @ 2 % per month from the date of execution of such document.
3. In a landmark judgment, the Hon’ble Supreme Court in SMS Teas Estates (P) Ltd Vs Chandmari Tea Co (P) Ltd, (2011) 14 SCC 66 held that where an arbitration agreement is contained in an unstamped/insufficiently stamped agreement, the provisions of the Indian Stamp Act 1899 (Indian Stamp Act) require the judge hearing the application under Section 11 application under the Arbitration and Conciliation Act, 1996 to impound the agreement and ensure that stamp duty and penalty (if any) are paid thereon before proceeding with the Section 11 application. This Judgment was again upheld by the Hon’ble Supreme Court even after the introduction of Section 11(6A) of the Arbitration and Conciliation Act in the case of Garware Wall Ropes Ltd vs CoastalMarine Constructions & Engineering Ltd. (12)
4. It is a settled law that in case of any suit or proceeding, any objection regarding the document being insufficiently stamped or for that matter as to the admissibility of the same has to be taken at the time when the same is sought to be tendered/admitted in evidence and on failure to do so, once document is marked as an exhibit, Section 35 of the MSA, creates an embargo to question such decision, at a later stage of the suit, or in higher Courts. This is more so, as neither the Code of Civil Procedure, nor the Evidence Act contains any provision for de-exhibiting any document. Thus, in absence of any statutory mandate in the Code of Civil Procedure or the Evidence Act to the contrary, the statutory prohibition as contained in Section 35 of the MSA has to prevail and a party is clearly precluded from calling into question the exhibition of a document on account of it being insufficiently stamped, at a later stage of the same Suit or in Higher Courts. (13) However, the concerned Stamp Authority is not precluded from recovering the stamp duty on such Instrument marked and admitted in evidence.
IV. Brief overview of the Amendments to the Indian Stamp Act, 1899 vide the Finance Act, 2019:
1. The amendments introduced in the Indian Stamp Act 1899 vide the Finance Act, 2019 were to be effective from 1st April, 2020. However, the Department of Revenue of the Ministry of Finance, India has issued two Notifications dated March 30, 2020 deferring the implementation of Part I of Chapter IV of the Finance Act, 2019 i.e. amendments pertaining to the Indian Stamp Act, 1899 (14) and corresponding enforcement of the Indian Stamp (Collection of Stamp-Duty through Stock Exchanges, Clearing Corporations and Depositories) Rules, 2019 (15) to July 1, 2020.
2. The Amendments to the Indian Stamp Act vide the Finance Act, 2019 have been brought about keeping in mind the technological advances in the field of security transactions through stock exchanges and depositories. Moreover, the primary objectives of the Amendment are-
a. to set up a zero-evasion centralised collection mechanism under which stamp duty is collected through one agency, at one place and on one instrument for securities market transactions.
b. to standardise the stamp duty payable on issuance, sale and transfer of securities market instruments. It does so by removing multiple instances of stamp duty, waiving stamp duty on certain instruments, and removing the ability of the State Governments to determine rates or levy stamp duty in addition to the Act.
3. The Finance Act, 2019 has introduced and/or amended certain definitions such as allotment list, clearance list, debentures, depositories, issuer, instruments, securities, stock exchange, etc.
4. The Amendment has introduced an inclusive definition of securities [Section 2(23A) of ISA] and expanded the scope of securities that have to be stamped under the Act. Now it not only includes securities as defined in Securities Contracts (Regulation) Act, 1956 (i.e. shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature) but also includes derivatives, certificate of deposit, commercial paper, repo on corporate bonds and other debt instruments as the Reserve Bank of India may specify and other instruments which the Central Government may notify.
5. Prior to the Amendment under the Finance Act, 2019, only debentures which qualified as ‘marketable security’ (i.e. being capable of being sold in any stock market in India or the UK) attracted stamp duty under Article 27 of ISA. The term ‘debentures’ was not defined separately in the Act.
In case of mortgaged debentures, if the mortgage-deed was stamped and registered appropriately (such mortgage would be subject to relevant State stamp legislations i.e. MSA in the State of Maharashtra), then debentures would be exempt from stamp duty.
Moreover, transfer of debentures were liable to stamp duty under the relevant State stamp legislations [Article 59(a) of Schedule I to the MSA]. As a result, only a portion of the debenture transactions in India were liable to stamp duty under ISA while most other transactions were being stamped under the relevant State stamp legislations. However, the Finance Act, 2019 has resulted into key changes in relation to levy and collection of stamp duty in relation to debentures and other securities.
6. The exemption from stamp duty on transfer of securities in dematerialized form has been removed. Hence, now on transfer of dematerialized securities, in addition to securities transaction tax (“STT”) will also attract the additional cost of stamp duty, thereby increasing the transaction costs. For instance, transfer of shares through a stock-exchange on a delivery basis will now in addition to the STT of 0.1% on the price, also be subjected to stamp duty at the rate of 0.015% on the price of the shares transferred. However, under the Amended Section 8A of the ISA, the transfer of registered ownership of securities from a person to a depository (i.e. conversion of physical or materialized securities to dematerialized securities) or from a depository to a beneficial owner (conversion of dematerialized securities to physical or materialized securities) shall continue to be exempted.
7. Introduction of Part AA under Chapter II “AA.—Of the liability of instruments of transaction in stock exchanges and depositories to duty”. Section 9A provides for instruments chargeable with duty for transactions in stock exchanges and depositories whereas Section 9B provides for Instruments chargeable with duty for transactions otherwise than through stock exchanges and depositories (i.e. physical transfer of securities). The said Sections 9A & 9B can be summarised as under:
Section
Transaction leviable to duty
What is liable to stamp duty?
Who will pay?
Who will collect on behalf of the State Government?
