State Legislature Can Impose & Collect Stamp Duty On Insurance Policies As Per Rate Prescribed By Parliament: SC

The Supreme Court held that State legislature has the legislative competence to impose and collect stamp duty on policies of insurance under Entry 44 of List III of the Constitution, as per the rate prescribed by the Parliament under Entry 91 of List I.

The Court held thus in a batch of civil appeals in which the issue for consideration was whether the Rajasthan State has the power and jurisdiction to levy and collect stamp duty on policies of insurance issued within the State.

The two-Judge Bench comprising Justice P.S. Narasimha and Justice Aravind Kumar said, “We hold that the state legislature has the legislative competence to impose and collect stamp duty on policies of insurance under Entry 44 of List III, as per the rate prescribed by the Parliament under Entry 91 of List I. … We hold that for the execution of insurance policies within the state of Rajasthan, the appellant is bound to purchase India Insurance Stamps and pay the stamp duty to the state of Rajasthan.”

ASG N. Venkataraman appeared for the appellant while Senior Advocate Manish Singhvi appeared for the respondent.

Facts of the Case -

The appellant, Life Insurance Corporation of India (LIC) had issued various insurance policies within the Rajasthan State between 1993-94 and 2001-02. As per the prevailing law relating to stamp duty, LIC was required to affix stamps by paying stamp duty on the policies of insurance issued by it in accordance with the Indian Stamp Act, 1899 as adapted to the Rajasthan State by the 1952 Act. In 1991, LIC wrote to the Collector, Jaipur regarding the non-availability of ‘Agents License Fee stamps’ and the Treasury Officer, Jaipur replied to LIC that ‘India Insurance Stamps’ are the property of the Central Government and their supply and distribution is not related to their department.

In 2004, the Inspector General (Registration and Stamps) Rajasthan, Ajmer issued a letter to the appellant to deposit a sum of Rs. 1.19 crores for causing loss of revenue to the State as it had purchased insurance stamps between 1993-94 and 2001-02 from the Maharashtra State for insurance policies that were issued within the Rajasthan State. Pursuantly, the Additional Collector (Stamps), Jaipur issued a show-cause notice under Section 37(5) of the Rajasthan Stamp Act, 1998 for payment of the amount. LIC filed a writ petition challenging such order but the same was dismissed on the ground of alternative efficacious remedy. Hence, it preferred a writ appeal before the Division Bench which held that the LIC should have paid the stamp duty in cash and there was no legal sanction permitting it to purchase such stamps from outside the State in case of non-availability. Therefore, it approached the Apex Court.

The Supreme Court after hearing the contentions of the counsel observed, “The law under consideration in the facts of the present case is different. In the present case, the imposition of stamp duty by the state government is under the 1952 Act, which is a state law that has been enacted under Entry 44 of List III, and has received Presidential assent as contemplated under Article 254.”

The Court added that Article 254(2) clearly stipulates that when a state law with respect to a matter in the Concurrent List is repugnant to the provisions of an earlier law made by the Parliament or an existing law with respect to that matter, then the law passed by the state shall prevail in that state “if it has been reserved for the consideration of the President and has received his assent”.

“It is first important to determine whether stamp duty in the present case can be imposed under the 1952 Act or the 1998 Act. The High Court has relied on the provisions of the 1952 Act while arriving at its conclusion. We agree with the High Court on this aspect as the stamp duty must be levied as per the law in force as on the date of execution of the instrument.20 In the present case, the insurance policies were issued between 1993-94 to 2001-02. Section 3 of the 1998 Act21, which is the charging provision, imposes stamp duty on every instrument mentioned in the Schedule that is executed in the state on or after the date of commencement of the Act. The 1998 Act came into force only on 27.05.2004 by way of a notification. Hence, at the time that the relevant instruments were executed, the 1952 Act was still in force and the stamp duty is leviable under the same”, it further said.

It also said that the 1952 Act that occupies the field in the case has undisputedly received Presidential assent and hence it prevails over the Indian Stamp Act, 1899 so far as the state of Rajasthan is concerned.

“This Court in VVS Rama Sharma (supra) did not consider any such law enacted by the state legislature that received Presidential assent and was applicable within the state over the central Act. Further, a stamp duty is a tax, and hence under Article 26539, its levy and collection must be by the ‘authority of law’, it noted.

The Court said that Section 3 of the Indian Stamp Act, 1899 as adapted to the state of Rajasthan is the charging provision as per which the appellant must pay stamp duty to the state government on insurance policies executed within the state.

“The rate at which stamp duty is payable on policies of insurance under the 1952 Act has been adopted from Schedule I of the central Act, in accordance with Entry 91 of List I. The charging provision has thus been validly enacted by the state government under Entry 44 of List III. Therefore, the state government in the present case can impose stamp duty on the issuance of insurance policies within its territory and require the payment of such stamp duty by the appellant”, it further observed.

The Court held that the commencement of proceedings for recovery of stamp duty under the state law and the rules made thereunder is legal, valid, and justified.

“… the appellant had no choice but to purchase the insurance stamps from outside the state. While it made every endeavour to purchase the stamp from within the state, due to the letter by the department and the lack of mechanism for payment of stamp duty under the 1952 Act in case of unavailability of insurance stamps, it was unable to purchase the stamps and pay the stamp duty to the Rajasthan government”, it concluded.

The Court, therefore, directed that the state government shall not demand and collect the stamp duty as per the orders.

Accordingly, the Apex Court dismissed the appeals and affirmed the judgment of the High Court.

Cause Title- Life Insurance Corporation of India v. The State of Rajasthan and Ors. (Neutral Citation: 2024 INSC 358)

Appearance:

Appellants: ASG N. Venkataraman, Advocates C. Paramsivam, Nishant Sharma, and AOR Rakesh K. Sharma.

Respondents: Senior Advocate Manish Singhvi and AOR Milind Kumar.

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