Supreme Court Clarifies Stamp Duty on Sale of Industrial Assets: Sub Registrar vs. Dankuni Steels Ltd. (26 April 2023)

Date of the Judgment: 26 April 2023

Citation: 2023 INSC 431

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

Can stamp duty be levied on the value of plant and machinery when an industrial unit is sold, or should it only apply to the land and buildings? The Supreme Court of India recently addressed this complex issue, focusing on the interpretation of ‘immovable property’ under the Indian Stamp Act, 1899. This case arose from a dispute over the valuation of assets sold by the Official Liquidator of a company, where the Sub-Registrar sought to include the value of plant and machinery in the stamp duty calculation, a move contested by the purchaser. The Supreme Court bench, comprising Justices K.M. Joseph and Hrishikesh Roy, delivered the judgment.

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 Official Liquidator attempted to sell the company’s assets in three lots, but eventually conducted a consolidated auction sale. M/s. SMC Marketing Private Ltd. emerged as the highest bidder for Rs. 8.35 crores, encompassing land, buildings, civil works, plant and machinery, and current assets. Subsequently, on the direction of the Company Court, the Official Liquidator executed a sale deed on 5 August 2004, in favor of M/s. Dankuni Steel Ltd., the nominee of the successful bidder. The sale deed included a recital that the total sale consideration was Rs. 8.35 crores, but also stated that the value of the land, building, and civil works was Rs. 1,01,05,000, based on an earlier offer when the assets were to be sold individually. M/s. Dankuni Steels Ltd. claimed a 50% exemption on stamp duty and registration fees based on GOMS No. 103, dated 7 February 2001, which provided concessions for industrial units.

Timeline

Course of Proceedings

The Sub-Registrar, Amudalavalasa, kept the registration pending, stating that the chargeable value was Rs. 8.35 crores, while the respondents claimed it was only Rs. 1,01,05,000 for land and buildings. The District Registrar, Srikakulam, directed the respondents to deposit Rs. 86,29,025 as stamp duty and a penalty of Rs. 1,000. Aggrieved, the respondents filed writ petitions challenging these communications. A Single Judge of the High Court ruled that the sale was of all assets as one lot and that the value of plant and machinery should be included for stamp duty, while also allowing a deduction for current assets and extending the benefit of GOMS No. 103. Both parties filed writ appeals. The Division Bench held that the Sub-Registrar could not force the respondents to register the plant and machinery if they did not seek its registration, and directed the Sub-Registrar to determine the value of the land and buildings only.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 2(14) of the Indian Stamp Act, 1899: Defines “instrument” as any document by which a right or liability is created, transferred, limited, extended, extinguished, or recorded.
• 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. The Andhra Pradesh Amendment Act of 1988 added a proviso allowing a registering officer to inspect the property and make inquiries to ensure compliance.
  
  “Provided that a registering officer appointed under the Registration Act, 1908 or any other officer authorised in this behalf, may inspect the property, which is the subject matter of such instrument, make necessary local enquiries, call for and examine all the connected records and satisfy that the provisions of this section are complied with.”
• Section 47A of the Indian Stamp Act, 1899 (as amended by Andhra Pradesh Act): Empowers the registering officer to refer instruments to the Collector if they believe the market value of the property has not been truly set forth.
  
  “47-A. Instruments of conveyance, etc., under-vaulted how to the dealt with: – (1) where the registering officer appointed under the Registration Act, 1908, (Central Act 16 of 1908), while registering any instrument of conveyance, exchange, gift partition, settlement, release , agreement relating to construction, development or sale of any immovable property or power of attorney given for sale, development of immovable property, has reason to believe that the market value of the property which is the subject matter or such instrument has not been truly setforth in the instrument, or that the value arrived at by him as per the guidelines prepared adopted by the parties, he may keep pending such instrument, and refer the matter to the Collector for determination of the market value of the property and the proper duty payable thereon:”
• 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” to include land, benefits arising out of land, and things attached to the earth.
• Section 3 of the Transfer of Property Act, 1882: Defines “immovable property” as not including standing timber, growing crops, or grass.
• Section 8 of the Transfer of Property Act, 1882: States that a transfer of property passes all the interest the transferor is capable of passing, including all things attached to the earth.
  
  “Unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property, and in the legal incidents thereof. Such incidents include, where the property is land, the easements annexed thereto, the rents and profits thereof accruing after the transfer, and all things attached to the earth; and, where the property is machinery attached to the earth, the moveable parts thereof;…”

Arguments

Appellant (Sub-Registrar):

• The transaction was a comprehensive sale of all assets, including plant and machinery, intended for the continuation of the business.
• The respondents sought benefits under a Government Order (GOMS No. 103) meant for industrial units, implying they intended to use all assets, including the plant and machinery.
• The District Registrar correctly applied the law as 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 are immovable property and should be included in the valuation for stamp duty.
• The Division Bench erred in holding that the respondents could avoid stamp duty on the plant and machinery by not seeking its registration.

Amicus Curiae:

• There was a comprehensive sale of all assets, and it is not permissible to draw up a conveyance for only a part of the transaction for registration.
• Registration Authorities are empowered to go behind an ostensible instrument and ascertain the stamp duty payable on the actual transaction.
• The definition of “instrument” in the Stamp Act includes the deed of conveyance, and since more than one matter exists in substance, the authorities can consider the powers available under Section 27 (after the proviso) and Section 47A.
• The preambular recitals in the conveyance indicate a larger transaction than what is projected in the schedule, and the authorities can verify these recitals.
• The authorities can verify the true extent and market value of the specified immovable property under Sections 27 and 47A of the Act.
• The transaction comprised four distinct matters: land and building (immovable property), plant and machinery permanently embedded to earth (immovable), plant and machinery not permanently embedded (movable), and current assets and motor vehicles (movable).

Respondent (M/s. Dankuni Steels Ltd.):

• The respondent contended that the sale deed was only for land and buildings, and the plant and machinery were not part of the transaction for registration purposes.
• They initially claimed a 50% exemption on stamp duty and registration fees based on GOMS No. 103, but later abandoned this claim.

Official Liquidator:

• The Official Liquidator stated that the High Court had made it clear that the stamp duty would be determined by the authority and that the liquidator was not at fault.

Submissions of Parties

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?

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

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 relied on this case to interpret Sections 3, 4, and 5 of the Indian Stamp Act, emphasizing that Section 5 applies when an instrument comprises more than one transaction.
• Himalaya Space House Company Limited v. Chief Controlling Revenue Authority [(1972) 1 SCC 726]*: The Court distinguished this case, noting that it was decided before the amendment to Section 27 of the Stamp Act in Andhra Pradesh, which now empowers the authorities to look beyond the document.
• Duncans Industries Limited v. State of Uttar Pradesh and others [(2000) 1 SCC 633]*: The Court followed this case, which held that plant and machinery permanently embedded in the earth are immovable property and should be included in the valuation for stamp duty.
• Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd. and others [(2015) 10 SCC 700]*: The Court referred to this case to reiterate that a single instrument dealing with distinct matters is chargeable with the aggregate amount of duties.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors:

• The comprehensive nature of the sale, which included land, buildings, and plant and machinery.
• The intention of the parties, as evidenced by their conduct and the recitals in the sale deed, to transfer the entire industrial unit as a going concern.
• The legal definitions of “immovable property” under the Registration Act, General Clauses Act, and Transfer of Property Act, which include things attached to the earth.
• The provisions of Section 8 of the Transfer of Property Act, which state that a transfer of property includes all things attached to the earth unless a different intention is expressed.
• The amendments to the Indian Stamp Act in Andhra Pradesh, which empower the registering officer to inspect the property and make inquiries to ensure compliance with Section 27 and also Section 47A which empowers the registering officer to deal with undervalued instruments.

The Court emphasized that the sale deed, in conjunction with the facts, indicated a comprehensive sale of all assets. The Court also noted that the respondents’ claim for exemption implied their intention to use all assets, including plant and machinery. The Court agreed that the principle in Duncans Industries was applicable, and plant and machinery embedded in the earth are immovable property. The Court found that the Division Bench overlooked the nature of the transaction and the powers of the authorities. The Court held that Sections 27 and 47A empower the authorities to verify the true nature of the transaction. The Court noted that the preambular recitals and the total sale consideration of Rs. 8.35 crores indicated a larger transaction. The Court held that the sale deed, in conjunction with Section 8 of the Transfer of Property Act, conveyed rights over plant and machinery attached to the land.

Logical Reasoning:

The court rejected the argument that the respondents could avoid stamp duty on the plant and machinery by not seeking its registration, stating that the Division Bench overlooked the nature of the transaction and the powers of the authorities. The court also rejected the argument that the value of land and buildings should be considered separately, holding that the value of plant and machinery, if immovable, should also be included for stamp duty.

The Court’s reasoning was based on a combined reading of the sale deed, the relevant legal provisions, and the conduct of the parties. The court emphasized the importance of considering the substance of the transaction rather than merely the form of the document.

The Supreme Court’s decision clarifies that when an industrial unit is sold, the value of plant and machinery that is permanently attached to the earth should be included in the valuation of immovable property for the purpose of stamp duty. This decision has significant implications for similar transactions in the future.

“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 effort of respondents 1 and 2 was to avoid payment of the stamp duty as due in law.”

“The Division Bench appears to have proceeded on the basis that the first appellant could not force Respondents 1 and 2 to pay stamp duty on the value of the plant and machinery, when they do not seek its registration.”

Key Takeaways

• When an industrial unit is sold, the value of plant and machinery permanently attached to the earth must be included in the valuation for stamp duty purposes.
• Registration authorities have the power to look beyond the ostensible instrument and ascertain the true nature of the transaction to determine the correct stamp duty.
• Sellers and purchasers cannot avoid stamp duty on plant and machinery by artificially separating the values of land, buildings, and machinery in the sale deed.
• The intention of the parties and the substance of the transaction are crucial factors in determining the applicability of stamp duty.
• The definition of “immovable property” under various statutes includes things attached to the earth, which can include plant and machinery.

Directions

The Supreme Court directed the following:

• The judgment of the Division Bench was set aside, and the judgment of the learned Single Judge was restored, with a modification.
• The direction to the second appellant to give the benefit of GOMS 103 dated 07.02.2001 was set aside.
• The second appellant (District Registrar) was directed to ascertain the value of plant and machinery based on whether it answers the description of immovable property as understood in law.
• The second appellant was also directed to consider whether the first respondent is entitled to the benefit of exemption of stamp duty as claimed and to make it available if entitled in law.

Development of Law

The Supreme Court’s judgment has clarified the position of law regarding the inclusion of plant and machinery in the valuation of immovable property for stamp duty purposes. The ratio decidendi of the case is that when an industrial unit is sold, the value of plant and machinery permanently attached to the earth must be included in the valuation of immovable property for the purpose of stamp duty. This judgment reinforces the principle that the substance of the transaction, rather than its form, should be considered when determining stamp duty liability. This decision also expands on the interpretation of Sections 27 and 47A of the Indian Stamp Act, as amended in Andhra Pradesh, empowering the authorities to look beyond the ostensible instrument to ascertain the true nature of the transaction. This is a departure from the earlier position where the authorities were seen to have limited powers to look beyond the document as laid down in Himalaya Space House Company Limited v. Chief Controlling Revenue Authority [(1972) 1 SCC 726].

Conclusion

The Supreme Court’s judgment in The Sub 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 attached to the earth. The Court emphasized that the substance of the transaction, rather than its form, should be considered, and that registration authorities have the power to look beyond the ostensible instrument to determine the correct stamp duty. This decision reinforces the principle that the value of all immovable property, including plant and machinery, must be considered for stamp duty purposes when an industrial unit is sold.