In CIVIL APPEAL NO.3070 OF 2022- SC- If single instrument has been charged under correct charging provision, then Revenue cannot split such instrument into two on account of reduction in stamp duty: SC Justices Hemant Gupta & V. Ramasubramanian [26-04-2022]

Read Order: ASSET RECONSTRUCTION CO. INDIA LTD. Vs. CHIEF CONTROLLING REVENUE AUTHORITY 

Mansimran Kaur

New Delhi, April 27, 2022:  While allowing the appeal against the judgment of the Full Bench of the Gujarat High Court in a Stamp Reference case, the Supreme Court has opined that once a single instrument has been charged under a correct charging provision of the Statute then the Revenue cannot split the instrument into two, because of the reduction in the stamp duty facilitated by a notification of the Government issued under Section 9(a) of the Bombay Stamp Act, 1958.

A Division Bench of Justice Hemant Gupta and Justice V. Ramasubramanian stated that the High Court solely took into consideration the interpretation arising out of Article 45 (f) and failed to consider that a chargeable instrument cannot be split into two by Revenue merely because a reduction in the stamp duty was notified by a Government notification under Section 9 (a) of the 1958 Act. 

The present appeal was preferred  by the Asset Reconstruction Company  on being aggrieved by the opinion of the Full Bench of the High Court of Gujarat in a Stamp Reference under Section 54 ( 1) (a) of the Gujarat Stamp Act, 1958 made by the Chief Controlling Authority of the State of Gujarat. 

Brief facts of the case were that the Oriental Bank of Commerce granted certain facilities to the borrower and the borrower committed default. On being unsuccessful in its attempt to recover the debt, the Bank assigned the debt in favour of the appellant under Section 3 of the Securitization and Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002 . The assignment made by the OBC was under an agreement dated November 18, 2008. The registration of the agreement was preceded by adjudication under Section 31 of the Act. 

However, an audit objection was raised by the Office of the Accountant General pertaining to the fact that the deed of the assignment contained a reference to a Power of Authority in schedule 3 and that the said PoA was chargeable to stamp duty under Article 45 (f) of the Schedule – I to the Act. A demand for deficit stamp duty to the tune of Rs.23, 53,800/ was raised pursuant to the audit objection. Thereafter, the matter was sent to the file of the Chief Controlling Revenue Authority who passed   an   order   dated   January 4, 2012   setting   aside   the   order   of adjudication passed on October 23, 2008 and directed the recovery of the deficit stamp duty. 

On being aggrieved by the aforesaid order, the appellant instituted the present appeal under Section 54 (1) (a) of the Act. The Chief Revenue Controlling Authority posed two questions to seek the opinion of the Court. The questions were whether   the   objection   raised   by   the   Account General, Ahmedabad in audit para, in the year 2008 is proper as per Article 45(f) of the Bombay Stamp Act, 1958 and Whether the Asset Reconstruction Company (India) Limited is liable to pay stamp duty of Rs.24,94,100 i.e. 4.9% as per Article20(a) of the Bombay Stamp Act.

In answering the same, the Full Bench of the High Court analyzed the content of the deed agreement and discovered that the Bank had  agreed to execute an irrevocable PoA in favor of the appellant as per the form set out in Schedule 3 of the deed agreement.  The form set out in Schedule 3 prescribes the power to the assignee, as an agent of the Bank, to sell any immovable property.  The High Court, thus came to the conclusion that the appellant need to pay the stamp duty as enshrined under Article 45 (f) . The reasoning framed by the Court was that merely because the power to sell, forms the part of the deed agreement under Schedule 3, the appellant cannot be exempted from the charge of the duty and the PoA was required to be considered independently. 

However, the Top Court did not concede to the aforesaid reasoning. The Court opined that what was presented for the registration by the appellant was a single document namely an “Assignment Agreement”.  Clause 11. 2 of the Assignment Agreement was put forth wherein it was stated that the seller had agreed to execute an irrevocable PoA along with the execution of the deed assignment. It was also noted that what was mentioned in Schedule 3 of the Assignment Agreement was the format of an irrevocable PoA. 

The Apex Court further stated that the High Court was ignorant of the fact that there was no independent instrument of PoA and that the power of  sale of a secured asset was acknowledged by the provisions of the Securitization Act 2002, and not out of an independent instrument of PoA.  Additionally, it was observed that for invoking Article 45 (f) two conditions are to be met; first that the PoA should be given for consideration and second the authorization to sell any immovable property should flow out of the instrument. 

Further the Court noted that in the instant case, the consideration paid by the appellant to OBC was for the purpose of acquisition of financial assets, in respect to a particular borrower.  Schedule 3 of the deed assignment was only incidental to the deed of assignment. The deed of assignment had already been charged for duty under Article 20 (a) which deals with “conveyance”, indeed Article 45 (f) also requires a PoA to be chargeable to stamp duty under Article 20.  

The Court said, “In all taxing Statutes, there are taxing provisions and machinery provisions. Once a single instrument has been charged under a correct charging provision of the Statute, namely Article 20(a), the Revenue cannot split the instrument into two, because of the reduction in the stamp duty facilitated by a notification of the Government issued under Section 9(a).”

This was observed keeping in view the notification dated April 4, 2003 in the instant case, in exercise of the power to reduce, remit or compound the duty, conferred by Section 9 (a) of the Act, stating that the amount of duty chargeable under Article 20 (a)  was capped at Rs 1,00,000/-, in addition to the said amount the appellant was asked to pay additional duty of Rs. 40,000/- under Section 3- A.  

The Court clarified the proposition of law that once the deed of assignment is accepted as an instrument chargeable to duty as conveyance under Article 20 (a) and the duty payable in pursuance of the same is collected, then the respondent does not possess the leverage to subject the same instrument to duty under Article 45 (f) merely because the appellant had the opportunity to avail the benefit of  the notifications under Section 9 (a). 

Accordingly, the appeal was allowed and the impugned order was set aside. Consequently, the demand made by the Controlling Revenue Authority was also set aside.