Supreme Court clarifies stamp duty on industrial asset sales: Sub Registrar vs. Dankuni Steels Ltd. (26 April 2023)

Date of the Judgment: 26 April 2023

Citation: Civil Appeal No(s). 3134-3135 of 2023, [@ SLP (CIVIL) NO(S).8708-8709/2019], 2023 INSC 373

Judges: K.M. Joseph, J. and Hrishikesh Roy, J.

Can a sale of industrial assets, which includes land, buildings, and plant and machinery, be registered by paying stamp duty only on the value of the land and buildings? The Supreme Court recently addressed this question, clarifying the scope of stamp duty applicability in such transactions. This case revolves around a dispute regarding the valuation of assets for stamp duty purposes during the sale of a company’s assets in liquidation. The core issue was whether the value of plant and machinery should be included for stamp duty calculation, alongside land and buildings, or if it could be excluded by only registering the land and buildings. The judgment was delivered by a bench comprising Justice K.M. Joseph and Justice Hrishikesh Roy, with Justice K.M. Joseph authoring the opinion.

Case Background

M/s. Midwest Iron & Steel Company Ltd. was ordered to be wound up by the High Court of Andhra Pradesh on 13 June 2002. The company’s assets, including land, buildings, plant and machinery, and current assets, were put up for auction. M/s. SMC Marketing Private Ltd. emerged as the highest bidder with a bid of Rs. 8.35 crores. On 15 June 2004, the High Court directed the Official Liquidator to execute the sale deed in favor of M/s. Dankuni Steel Ltd., the nominee of the highest bidder. The sale deed was executed on 5 August 2004, with a stated value of Rs. 1,01,05,000 for land, building and civil works.

However, the sale deed also mentioned that the total sale consideration was Rs. 8.35 crores for all assets. The respondents claimed a 50% exemption on stamp duty and registration fees under GOMS No. 103, dated 7 February 2001, which was applicable to industrial units. The Sub-Registrar, Amudalavalasa, raised objections, stating that the chargeable value should be Rs. 8.35 crores and not just the value of the land and buildings. This led to a dispute over the valuation of the assets for stamp duty purposes. The respondents contended that they were only registering the land and buildings, and therefore, should only pay stamp duty on the value of land and buildings, not the entire sale consideration.

Timeline:

Course of Proceedings

The Sub-Registrar, Amudalavalasa, kept the registration pending due to discrepancies in the valuation of the property. The District Registrar, Srikakulam, directed the first respondent and the Official Liquidator to deposit Rs. 86,29,025 as stamp duty, along with a penalty of Rs. 1,000. Aggrieved, the respondents filed writ petitions before the High Court of Andhra Pradesh.

A Single Judge of the High Court ruled that the sale was for all the assets as one lot, and the value of the plant and machinery should be considered for stamp duty. However, the Single Judge also allowed the benefit of GOMS 103, which provided for a 50% exemption on stamp duty for industrial units. The matter was remitted to the second appellant to determine the current assets and to deduct their value from Rs.8.35 crores and to reckon the remaining value as the value of the land, buildings, civil works, plant and machinery.

Both the respondents and the appellants filed writ appeals against the Single Judge’s order. The Division Bench of the High Court set aside the Single Judge’s order, holding that the respondents could not be forced to register the plant and machinery if they did not want to. The Division Bench directed the Sub-Registrar to consider the request for registration of the land and buildings, determine its value, and collect stamp duty and registration fees accordingly. This led to the present appeals before the Supreme Court.

Legal Framework

The case involves the interpretation of several key legal provisions:

• Section 2(14) of the Indian Stamp Act, 1899: Defines “instrument” to include any document by which a right or liability is created, transferred, or extinguished.
• Sections 3, 4, and 5 of the Indian Stamp Act, 1899:
  • Section 3: Specifies which instruments are chargeable with duty.
  • Section 4: Deals with multiple instruments used in a single transaction.
  • Section 5: States that instruments relating to several distinct matters shall be chargeable with the aggregate amount of duties.
• Section 27 of the Indian Stamp Act, 1899: Requires that all facts affecting the chargeability of an instrument with duty must be fully and truly set forth. A proviso added by the Andhra Pradesh Amendment Act of 1988, allows a registering officer to inspect the property and make inquiries to ensure compliance.
• Section 47A of the Indian Stamp Act, 1899: Inserted by the Andhra Pradesh (Amendment) Act, it deals with undervalued instruments and empowers the registering officer to refer the matter to the Collector for determination of the market value.
• Section 2(6) of the Registration Act, 1908: Defines “immovable property” to include land, buildings, and things attached to the earth.
• Section 3(26) of the General Clauses Act, 1897: Defines “immovable property” similarly to the Registration Act.
• Section 3 of the Transfer of Property Act, 1882: Defines “immovable property” and “instrument.”
• Section 8 of the Transfer of Property Act, 1882: States that a transfer of property passes all interests of the transferor, including things attached to the earth.

These provisions collectively govern the determination of stamp duty on property transactions, particularly concerning the inclusion of plant and machinery as part of the immovable property.

Arguments

Appellants’ Arguments:

• The appellants argued that the High Court had ignored the nature of the transaction, which was a sale of all assets, including plant and machinery, to carry on the business.
• They contended that the District Registrar correctly applied the law laid down in Duncans Industries Limited v. State of Uttar Pradesh and others [(2000) 1 SCC 633], which held that plant and machinery permanently embedded in the earth should be considered immovable property for stamp duty purposes.
• The appellants submitted that the Division Bench erred in holding that the respondents could not be compelled to register the plant and machinery if they did not want to.

Respondents’ Arguments:

• The respondents initially claimed that they were only registering the land and buildings, and therefore, should only pay stamp duty on the value of land and buildings.
• They also sought the benefit of a 50% exemption on stamp duty and registration fees under GOMS No. 103, dated 7 February 2001, which was applicable to industrial units.

Amicus Curiae’s Arguments:

• The Amicus Curiae argued that the sale was a comprehensive transaction of all assets, and it was not permissible to register only a part of the transaction.
• He submitted that the Registration Authorities are empowered to look behind an ostensible instrument to ascertain the actual transaction and the stamp duty payable.
• He relied on Member, Board of Revenue v. Arthur Paul Benthall [AIR 1956 SC 35] to argue that the case was governed by Section 5 of the Act, which deals with instruments relating to several distinct matters.
• He contended that the authorities could verify the preambular recitals in the conveyance to ascertain whether the instrument provides for a larger transaction than projected in the Schedule.
• He cited Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd. and others [(2015) 10 SCC 700] to support the view that the authorities could verify the true extent and market value of the specified immovable property.
• He argued that the plant and machinery, if permanently embedded to the earth, should be considered immovable property and subject to stamp duty.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether there is a comprehensive sale of all the assets and, in a single transaction, is it permissible to draw up a conveyance for only a part of such transaction for seeking registration?
2. Whether the Registration Authorities are empowered to go behind an ostensible instrument and ascertain the stamp duty payable on the actual transaction?

Additionally, the court also considered whether the plant and machinery should be considered as immovable property for the purpose of stamp duty.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court relied on the following cases and legal provisions:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Member, Board of Revenue v. Arthur Paul Benthall [AIR 1956 SC 35]*: The Court drew inspiration from this case to hold that the single sale deed must be treated as dealing with distinct matters within the meaning of Section 5 of the Act.
• Himalaya Space House Company Limited v. Chief Controlling Revenue Authority [(1972) 1 SCC 726]*: The Court distinguished this case, noting that the proviso to Section 27 of the Act, added by the Andhra Pradesh Amending Act, empowered the authority to make inquiries, which was not the case in Himalaya Space House Company Limited.
• Duncans Industries Limited v. State of Uttar Pradesh and others [(2000) 1 SCC 633]*: The Court relied on this case to hold that plant and machinery permanently embedded in the earth should be considered immovable property.
• Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd. and others [(2015) 10 SCC 700]*: The Court relied on this case to support the view that the authorities could verify the true extent and market value of the specified immovable property.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The comprehensive nature of the sale transaction, which included land, buildings, plant and machinery, and other assets.
• The intention of the parties, as evidenced by the sale deed and the conduct of the respondents, to operate the unit as a going concern.
• The legal principle that plant and machinery permanently embedded in the earth should be considered immovable property.
• The power of the registering authorities to look behind the ostensible instrument and ascertain the true nature of the transaction.
• The need to prevent the avoidance of stamp duty by artificially separating the value of the plant and machinery.

Fact:Law Ratio

The Court’s reasoning was a blend of factual analysis (examining the sale deed, the conduct of the parties, and the nature of the assets) and legal interpretation (applying relevant provisions of the Stamp Act, Registration Act, Transfer of Property Act, and General Clauses Act). The legal considerations were given slightly more weight in the final decision.

Logical Reasoning:

The Court rejected the argument that the respondents could avoid stamp duty by not registering the plant and machinery. The Court emphasized that the sale was a comprehensive transaction of all assets, and it was not permissible to register only a part of the transaction. The Court also emphasized that the registering authorities are empowered to look behind an ostensible instrument to ascertain the actual transaction and the stamp duty payable.

The Supreme Court noted that the Division Bench had overlooked the nature of the transaction, the effect of the auction sale, the property sold and their value, and the fact that the Company Judge had by order dated 15.06.2004 left it open to the authority to determine the liability. The Division Bench also did not consider the preambular part of the sale deed and failed to bear in mind the power available with the authorities.

The Court also observed that the effort of respondents 1 and 2 was to avoid payment of the stamp duty as due in law. The Division Bench erred in not noticing the true purport of the sale deed in conjunction with Section 8 of the Transfer of Property Act and the definition of the word ‘immovable property’.

The Court held that the sale deed operated to convey the rights over the plant and machinery as well, which was comprised in the land scheduled in the sale deed. The Court clarified that only such plant and machinery, which was permanently embedded to the earth and answering the description of the immovable property as defined, would be considered for stamp duty purposes.

The Court noted that the proviso to Section 27 of the Act, added by the Andhra Pradesh Amending Act (8 of 1988), does empower the Officer to inspect the property, make local inquiries in the facts, call for connected records, examine them and satisfy that the provisions of Section 27 are complied with. The Court also noted that Section 47A of the Andhra Pradesh Amending Act (8 of 1988), empowers the Registering Officer to deal with undervalued instruments.

The Supreme Court, therefore, concluded that the plant and machinery, such as would answer the description of immovable property, must also be found part of the property for the purpose of the stamp duty and other charges as per law.

The Court stated, “The mere fact that there is no express reference to plant and machinery in the Recital Clause cannot mean that the interest in the plant and machinery which stood attached to the land, which was scheduled, was not conveyed to the first respondent.”

The Court further stated, “The effort of respondents 1 and 2 was to avoid payment of the stamp duty as due in law. The Division Bench erred in not noticing the true purport of the sale deed in conjunction with Section 8 of the Transfer of Property Act and the definition of the word ‘immovable property’.”

The Court also clarified, “As far as the plant and machinery is concerned, it must, however, be only such plant and machinery, which was permanently embedded to the earth and answering the description of the immovable property as defined.”

Key Takeaways

• Stamp duty is applicable to the total value of assets transferred, including plant and machinery that are permanently embedded to the earth, not just the value of land and buildings.
• Registering authorities have the power to look behind the ostensible instrument and ascertain the true nature of the transaction to determine the correct stamp duty payable.
• Parties cannot avoid stamp duty by artificially separating the value of plant and machinery from the value of land and buildings in a sale transaction.
• The judgment clarifies the scope of “immovable property” under various statutes, specifically including machinery permanently attached to the earth.
• This judgment will serve as a precedent for similar cases involving the sale of industrial assets and the determination of stamp duty.

Directions

The Supreme Court directed the second appellant to:

• Ascertain the value of plant and machinery on the basis of it answering the description of immovable property as understood in law.
• Go into the question of whether the first respondent would be entitled to the benefit of the exemption of stamp duty, etc., as claimed and make available the exemption, if entitled in law.

Development of Law

Ratio Decidendi: The Supreme Court held that in the sale of industrial assets, stamp duty is applicable to the total value of assets transferred, including plant and machinery permanently embedded to the earth. The Court also held that registering authorities have the power to look behind the ostensible instrument to ascertain the true nature of the transaction and determine the correct stamp duty payable.

This judgment clarifies that the value of plant and machinery, if permanently embedded to the earth, must be included for stamp duty purposes when industrial assets are sold. This is a departure from the view that stamp duty should only be calculated on the value of the land and buildings, and it aligns with the principle that all components of a comprehensive sale must be considered for stamp duty.

Conclusion

The Supreme Court’s judgment in TheSub Registrar, Amudalavalasa & Anr. vs. M/s Dankuni Steels Ltd. & Ors. clarifies that stamp duty on the sale of industrial assets must include the value of plant and machinery permanently embedded to the earth, in addition to land and buildings. This ruling ensures that stamp duty is levied on the true value of the transaction and prevents parties from avoiding stamp duty by artificially separating the value of different assets. The judgment reinforces the powers of registering authorities to look beyond the ostensible instrument and ascertain the actual transaction for stamp duty purposes. This decision is a significant development in property law, providing clarity on the scope of immovable property and the application of stamp duty in industrial asset sales.

Disclaimer: This is a summary and analysis of the judgment for educational purposes and should not be considered legal advice. For specific legal advice, please consult a legal professional.