Supreme Court settles the power of State to levy stamp duty on insurance policies: Life Insurance Corporation of India vs. State of Rajasthan (2024) INSC 358 (30 April 2024)

Date of the Judgment: 30 April 2024
Citation: (2024) INSC 358
Judges: Pamidighantam Sri Narasimha, J. and Aravind Kumar, J.
Can a state government impose stamp duty on insurance policies when the power to set the rate lies with the Union government? The Supreme Court of India recently addressed this complex question, clarifying the legislative powers of both the Union and State governments regarding stamp duty on insurance policies. The case involved the Life Insurance Corporation of India (LIC) and the State of Rajasthan, focusing on the state’s authority to collect stamp duty on insurance policies issued within its borders. The judgment was delivered by a two-judge bench comprising Justice Pamidighantam Sri Narasimha and Justice Aravind Kumar, with the majority opinion authored by Justice Pamidighantam Sri Narasimha.

Case Background

The Life Insurance Corporation of India (LIC) issued various insurance policies within the state of Rajasthan between 1993-94 and 2001-02. According to the prevailing stamp duty laws, LIC was required to affix stamps, paying the necessary duty on these policies, as per the Indian Stamp Act, 1899, adapted to Rajasthan by the Rajasthan Stamp Law (Adaptation) Act, 1952.

On 19 August 1991, LIC informed the Collector, Jaipur, about the unavailability of ‘Agents License Fee stamps’. The Treasury Officer, Jaipur, responded on 7 October 1991, stating that ‘India Insurance Stamps’ were the property of the central government and their supply was not under their department’s purview.

In 2004, the Inspector General (Registration and Stamps), Rajasthan, issued a letter to LIC demanding a payment of ₹1.19 crores. This was for the loss of revenue to the state, as LIC had purchased insurance stamps from Maharashtra for policies issued in Rajasthan. Subsequently, the Additional Collector (Stamps), Jaipur, issued a show-cause notice under Section 37(5) of the Rajasthan Stamp Act, 1998, for the payment.

The Additional Collector confirmed the show-cause notice on 16 September 2004, directing LIC to deposit the amount. Similar orders were passed on 16 October 2004 for ₹1.07 crores, 11 October 2004 for ₹1.18 crores, 1 November 2004 for ₹1.87 crores, and 28 October 2004 for ₹43.68 lakhs. LIC challenged these orders through separate writ petitions.

Timeline:

Course of Proceedings

LIC initially filed a writ petition challenging the Additional Collector’s order, which was dismissed by a single judge of the High Court. The judge stated that LIC had an alternative remedy of filing a revision under Section 65 of the Rajasthan Stamp Act.

LIC then appealed to a division bench of the High Court. The High Court initially directed the Chief Secretary of the Rajasthan government to form a High Powered Committee to resolve the matter. However, the committee rejected LIC’s representation, leading to the revival of the writ appeal, which was eventually dismissed by the High Court.

Legal Framework

The High Court relied on Sections 2, 3(v), and 3A of the Rajasthan Stamp Law (Adaptation) Act, 1952, along with Rules 2(d) and 3 of the Rajasthan Stamp Rules, 1955.

• Section 2 of the 1952 Act: States that the Indian Stamp Act, 1899, applies to the whole of Rajasthan from 1 April 1958.

  “Subject to the other provisions of this Act, the Indian Stamp Act, 1899 (II of 1899) of the Central Legislature as amended from time to time, hereinafter referred to as the Indian Act shall apply to the whole of the State of Rajasthan on and from the 1st day of April, 1958.”

• Section 3(v) of the 1952 Act: Specifies that references to ‘government’ in the Indian Stamp Act, 1899, should be construed as references to the state government of Rajasthan.

  “references in the Indian Act to any Government shall, unless the context otherwise requires, be construed as references to the State Government, that is to say, to the Government of the State of Rajasthan as formed by section 10 of the States Re-organisation Act, 1956 (Central Act 37 of 1956):
  Provided that in clause (i) of section 3 of the Indian Act, the word “Government” wherever occurring shall mean the State Government as well as the Central Government.”

• Section 3A(1) of the 1952 Act: Allows for payment of stamp duty in cash when stamps are not available for sale.

  “Where the State Government or the Collector under instructions of the State Government, by order published in the Official Gazette, declares that adhesive or impressed stamps of any denomination are not in stock for sale in sufficient quantity; then, notwithstanding anything contained in this Act or the rules made thereunder and during the period the said order remains in force,—
  (i) any instrument chargeable with the stamp duty under this Act may be executed on an unstamped paper;
  (ii) the stamp duty chargeable on such instrument under this Act may be paid to or collected by any Government treasury in cash and a receipt or challan therefor shall be duly given by the officer receiving the cash;
  (iii) the officer-in-charge of the Government treasury shall, as soon as may be, after the stamp duty chargeable on any such instrument under this Act has been received in cash, make on the instrument for which the stamp duty has been paid in cash, the following endorsement, after due verification that the stamp duty had been paid in cash for such instrument, and after cancelling such receipt or challan so that it cannot be used again, namely:-
  ‘Stamp duty of Rs. ……………………paid in cash, vide receipt/challan No. …………………….dated…………………
  (iv) the instrument endorsed under clause (iii) shall be deemed to be duly stamped under this Act and may be used or acted upon as such to all intents and for all purposes;
  Explanation.- For the purposes of sub-section (1) “Government treasury” includes a Government sub-treasury and any other place as the State Government may by notification in the Official Gazette, appoint in this behalf.”

• Rule 2(d) of the Rajasthan Stamp Rules, 1955: Defines ‘government’ as the state government of Rajasthan.

  “Government” means the Government of the State of Rajasthan”

• Rule 3 of the Rajasthan Stamp Rules, 1955: Specifies the mode of payment of stamp duty to the state government.

  “Except as otherwise provided by the Act, or by these rules, –
  (1) all duties with which any instrument is chargeable shall be paid, and such payment shall be indicated on such instruments, by means of stamps issued by the Government for the purpose of the Act and these Rules; and
  (2) a stamp which by any word or words on the face of it is appropriated to any particular kind of instrument shall not be used for any instrument of any other kind.
  Explanation: – For the purpose of clause (1), a stamp of the central Government or of the Government of any covenanting State shall be deemed to have been superimposed with word “Rajasthan” or with the letters “RAJ”.”

The High Court interpreted these provisions to mean that LIC should have paid the stamp duty in cash when stamps were unavailable and that purchasing stamps from outside the state was not allowed.

The High Court also discussed the legislative competence of the state government to impose stamp duty on insurance policies, referring to Entry 91 of List I (Union List) and Entry 44 of List III (Concurrent List) of the Seventh Schedule of the Constitution of India. Entry 91 empowers the Parliament to set the rate of stamp duty on insurance policies, while Entry 44 empowers both the Parliament and state legislatures to enact laws regarding stamp duties, excluding the rates of stamp duty.

The High Court concluded that the Rajasthan Stamp Law (Adaptation) Act, 1952, was enacted under Entry 44 of List III and had received Presidential assent, thus having an overriding effect. It also distinguished the case from VVS Rama Sharma v. State of Uttar Pradesh, where there was no state law with Presidential assent.

Arguments

Submissions by the Appellant (LIC):

• LIC, represented by the learned ASG, Mr. N. Venkataraman, argued that the state of Rajasthan lacks the legislative competence to impose and collect stamp duty on insurance policies. They contended that this power falls under the Union List, specifically Entry 91 of List I, which empowers the Parliament to prescribe the rate of stamp duty on insurance policies.

• LIC argued that the state cannot demand that stamp duty on insurance policies must be paid to it, and that stamps cannot be purchased from other states. They cited VVS Rama Sharma v. State of Uttar Pradesh, arguing that a state cannot require the purchase of insurance stamps, which are central government property, only from that particular state.

• The appellant submitted that a levy of stamp duty is a tax, and there is no valid imposition of tax without a clear rate of taxation. They relied on Govind Saran Ganga Saran v. Commissioner of Sales Tax and Mathuram Agrawal v. State of Madhya Pradesh, stating that the rate of stamp duty must be clearly ascertainable.

• LIC argued that Entry 44 of List III is not a taxation entry, citing State of West Bengal v. Kesoram Industries and State of Karnataka v. State of Meghalaya. They submitted that taxation entries are clearly demarcated between the Union and State Lists, with no head of taxation in the Concurrent List.

• LIC contended that the proceedings were initiated under the Rajasthan Stamp Act, 1998, which does not provide for the imposition of stamp duty on insurance policies. They argued that the 1998 Act’s schedule does not include an entry for insurance policies, unlike the Indian Stamp Act, 1899.

• Alternatively, LIC argued that even if the 1952 Act applies, they had no choice but to purchase stamps from Maharashtra due to their unavailability in Rajasthan. They also pointed out that Section 3A(4) of the 1952 Act does not apply to instruments under Entry 91 of List I, meaning they could not have paid in cash.

Submissions by the Respondent (State of Rajasthan):

• The State of Rajasthan, represented by Dr. Manish Singhvi, argued that the state has the power to impose and collect stamp duty on insurance policies under Entry 44 of List III. They contended that while the power to prescribe the rate is with the Parliament, the power to collect and impose the duty lies with both the Parliament and state legislatures.

• The state argued that Entry 44 of List III is a taxation provision, citing Bar Council of Uttar Pradesh v. State of Uttar Pradesh. They submitted that the state can impose the duty at the rate prescribed by the Parliament.

• The state submitted that the 1952 Act applies because the policies were issued between 1993-94 and 2001-02, before the 1998 Act came into force. They argued that the 1952 Act received Presidential assent and prevails over the Indian Stamp Act, 1899, in Rajasthan.

• The state further argued that the 1952 Act adopts the Schedule from the central Act for the rate of stamp duty. They also argued that even if the 1998 Act applies, Sections 90 and 91 of that Act adopt the Indian Stamp Act for instruments in Entry 91 of List I.

• The state distinguished the case from VVS Rama Sharma, stating that it pertained to the registration of a criminal case and lacked criminal intent, unlike the present case.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the Rajasthan Stamp Law (Adaptation) Act, 1952, or the Rajasthan Stamp Act, 1998, applies to the present case?
2. Whether the state government has the legislative competence to impose and collect stamp duty on policies of insurance as per Entry 91 of List I read with Entry 44 of List III?
3. Whether the 1952 Act requires the purchase of insurance stamps from and payment of stamp duty to the Rajasthan government for insurance policies issued within the state?
4. Whether, in the facts of the present case, the appellant is liable to pay stamp duty?

Treatment of the Issue by the Court

Authorities

Legislative Competence:

• VVS Rama Sharma v. State of Uttar Pradesh [(2009) 7 SCC 234] – Supreme Court of India: The court discussed the distribution of legislative powers on stamp duty between the Union and the States.

• Vijay v. Union of India [2023 SCC OnLine SC 1585, 2023 INSC 1030] – Supreme Court of India: The court reiterated that the power to levy stamp duty on all documents is concurrent.

• Bar Council of Uttar Pradesh v. State of Uttar Pradesh [(1973) 1 SCC 261] – Supreme Court of India: The court held that stamp duty falls under Entry 44 of List III.

Requirements of a Valid Tax Law:

• Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985 Supp SCC 205] – Supreme Court of India: The court emphasized that the rate of taxation is an essential component for a valid imposition of tax.

• Mathuram Agrawal v. State of Madhya Pradesh [(1999) 8 SCC 667] – Supreme Court of India: The court reiterated that the rate of stamp duty must be clearly ascertainable.

Nature of Entry 44 of List III:

• State of West Bengal v. Kesoram Industries [(2004) 10 SCC 201] – Supreme Court of India: The court discussed that taxation entries are clearly demarcated between the Union and State Lists.

• State of Karnataka v. State of Meghalaya [(2023) 4 SCC 416] – Supreme Court of India: The court reiterated the principle that taxation entries are clearly demarcated between the Union and State Lists.

Applicability of State Law:

• UP Electric Supply Co Ltd v. R.K. Shukla [(1969) 2 SCC 400] – Supreme Court of India: The court discussed the effect of Presidential assent on state laws.

• M. Karunanidhi v. Union of India [(1979) 3 SCC 431] – Supreme Court of India: The court discussed the effect of Presidential assent on state laws.

Stamp Duty as a Tax:

• Government of Andhra Pradesh v. P. Laxmi Devi [(2008) 4 SCC 720] – Supreme Court of India: The court clarified that stamp duty is in the nature of a tax.

Authority of Law for Levy and Collection of Tax:

• Balaji v. ITO [AIR 1962 SC 123] – Supreme Court of India: The court held that the levy and collection of tax must be by the ‘authority of law.’

• Municipal Council, Kota, Rajasthan v. Delhi Cloth and General Mills Co. Ltd, Delhi [(2001) 3 SCC 654] – Supreme Court of India: The court reiterated that the levy and collection of tax must be by the ‘authority of law.’

Judgment

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

How each authority was viewed by the Court?

• VVS Rama Sharma v. State of Uttar Pradesh [(2009) 7 SCC 234] – Differentiated. The Court distinguished this case, stating that it was based on the interpretation of the UP Stamp Rules, 1942, framed under the central Act, and there was no state law with Presidential assent.
• Vijay v. Union of India [2023 SCC Online SC 1585, 2023 INSC 1030] – Followed. The Court reiterated the principle that the power to levy stamp duty on all documents is concurrent under Entry 44 of List III.
• Bar Council of Uttar Pradesh v. State of Uttar Pradesh [(1973) 1 SCC 261] – Followed. The Court relied on this case to hold that Entry 44 of List III is a taxation entry.
• Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985 Supp SCC 205] – Distinguished. The Court distinguished this case, stating that it pertained to cases where the charging provision was ambiguous in defining an essential component of a valid tax law.
• Mathuram Agrawal v. State of Madhya Pradesh [(1999) 8 SCC 667] – Distinguished. The Court distinguished this case, stating that it pertained to cases where the charging provision was ambiguous in defining an essential component of a valid tax law.
• State of West Bengal v. Kesoram Industries [(2004) 10 SCC 201] – Distinguished. The Court distinguished this case, stating that it pertained to taxation entries, rather than to entries on stamp duty.
• State of Karnataka v. State of Meghalaya [(2023) 4 SCC 416] – Distinguished. The Court distinguished this case, stating that it pertained to taxation entries, rather than to entries on stamp duty.
• UP Electric Supply Co Ltd v. R.K. Shukla [(1969) 2 SCC 400] – Followed. The Court relied on this case to state that a state law with Presidential assent prevails over the central law.
• M. Karunanidhi v. Union of India [(1979) 3 SCC 431] – Followed. The Court relied on this case to state that a state law with Presidential assent prevails over the central law.
• Government of Andhra Pradesh v. P. Laxmi Devi [(2008) 4 SCC 720] – Followed. The Court relied on this case to clarify that stamp duty is in the nature of a tax.
• Balaji v. ITO [AIR 1962 SC 123] – Followed. The Court relied on this case to reiterate that the levy and collection of tax must be by the ‘authority of law.’
• Municipal Council, Kota, Rajasthan v. Delhi Cloth and General Mills Co. Ltd, Delhi [(2001) 3 SCC 654] – Followed. The Court relied on this case to reiterate that the levy and collection of tax must be by the ‘authority of law.’

Reasoning of the Court:

The Supreme Court held that the Rajasthan Stamp Law (Adaptation) Act, 1952, applies to the case because the insurance policies were issued between 1993-94 and 2001-02, before the Rajasthan Stamp Act, 1998, came into force. The Court clarified that the state has the legislative competence to impose and collect stamp duty on insurance policies under Entry 44 of List III, which is a concurrent power. The power to prescribe the rate of stamp duty lies with the Parliament under Entry 91 of List I, but the power to levy and collect the duty is concurrent, meaning both the Parliament and state legislatures can enact laws regarding stamp duties, excluding the rates of stamp duty.

The Court further held that the 1952 Act requires the purchase of insurance stamps from and payment of stamp duty to the Rajasthan government for policies issued within the state. The Court noted that the state government is authorized to collect stamp duty on policies executed within the state. However, due to the unavailability of stamps and the lack of a mechanism for payment, LIC was unable to pay the stamp duty to the Rajasthan government.

The Court also clarified that Section 3A(4) of the 1952 Act excludes instruments under Entry 91 of List I from the application of Section 3A, meaning that LIC could not have paid the stamp duty in cash.

Final Order

The Supreme Court allowed the appeal filed by LIC and set aside the judgment of the High Court. The Court held that the state government shall not demand and collect the stamp duty as per the orders issued.

The Supreme Court clarified that the state government has the power to levy and collect stamp duty on insurance policies, but the collection of stamp duty was not possible in the present case due to the unavailability of stamps and lack of mechanism for payment.

Key Takeaways

• State’s Power to Levy Stamp Duty: The Supreme Court affirmed that state governments have the power to levy and collect stamp duty on insurance policies issued within their borders under Entry 44 of List III.

• Concurrent Legislative Power: The power to levy stamp duty is a concurrent power, with the Union government setting the rate and both Union and State governments having the power to collect the duty.

• Presidential Assent: State laws that receive Presidential assent have an overriding effect over central laws on the same subject.

• Relief to LIC: The Supreme Court granted relief to LIC, stating that the state government cannot demand stamp duty in this case due to the unavailability of stamps and the lack of a mechanism for payment.

• Importance of Legal Authority: The judgment emphasized that the levy and collection of tax must be by the ‘authority of law.’

Flowchart of the Case