(Note: An excellent article on Stamp Duty in agreements by Ms Mamta Ramaswamy, an Associate at Doraswamy Law Chambers (DLC), Bangalore and a student pursuing her Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata. CCV's Isaac Gomes feels the article is quite informative and very handy for our readers)
According to Black’s Law Dictionary stamp duty means an extra charge placed on certain legal documents by purchasing a stamp to be placed on said document. It can be interpreted from the above-mentioned definition that a stamp duty is a charge, it can either be fixed or variable (according to the legal instrument), levied on certain legal documents, thereby providing that law can exclude certain documents from the purview of stamping and stamp duty is paid by purchasing a stamp and not by any other means.
In India, levying of stamp duty is governed by two legislations, i.e., a stamp act legislated by the Parliament and stamp act legislated by Legislature of each State. Article 246 read with Schedule VII of the Indian Constitution state that Parliament can enact laws relating to rates of stamp duty in respect of bill of exchange, cheques, promissory notes, bill of lading, letter of credits, policies of insurance, transfer of shares, debentures, proxies and receipts and, Legislature of State can legislate on any matter other than those mentioned above.
According to section 3 of the Indian Stamp Act, 1899 (the Parliament Legislation) stamp duty will be levied on the following documents:
- list of documents mentioned in First Schedule of the Parliament Legislation;
- every bill of exchange payable otherwise on demand or promissory note drawn or made out of India and accepted or paid or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated and
- Every instrument (other than a bill of exchange or promissory note) mentioned in First Schedule, which not having been previously executed by any person, is executed out of India, related to any property situate, or to any matter or thing was done or to be done in India and is received in India.
According to section 3 of the Parliament Legislation, stamp duty will not be levied on the following documents:
- any instrument executed by or on behalf of or for the government in cases where, but for this exemption, the Government would be liable to pay the duty chargeable in respect of such instrument;
- any instrument for the sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of any ship or vessel or any part, interest, share or property of or in any ship or vessel registered under the Merchant Shipping Act 1894, or under Act 19 of 1838, or the Indian Registration of Ships Act, 1841, as amended by subsequent Acts;
- any instrument executed, by, or, on behalf of, or, for the developer, or unit or connection with the carrying out of purposes of the Special Economic Zone.
According to section 3 of the Karnataka Stamp Act, 1957 (the State Legislation), stamp duty will be levied on the following documents:
- every instrument mentioned in the Schedule under the State Legislation, not having been previously executed by any person, is executed in the territories of the State of Karnataka on or after the commencement of the State Legislation and,
- every instrument mentioned in the Schedule under the State Legislation which, not having been previously executed by any person, is executed out of the State of Karnataka relates to any property situate, or to any matter or thing done or to be done, in the territories of the State of Karnataka and is received in the territories of the State of Karnataka.
According to section 3 of the State Legislation, stamp duty will not be levied on the following documents:
- any instrument, executed by, or on behalf of, or in favor of, the Karnataka Government in cases where, but for this exemption, the Karnataka Government would be liable to pay the duty chargeable in respect of such instrument;
- any instrument for sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of any ship or vessel, or any part, interest, share or property of or in any ship or vessel registered under the Merchant Shipping Act, 1958.
Liability of Paying Stamp Duty
An agreement, among the parties, can impose liability on a particular party for payment of the stamp duty. Section 29 of the Parliament Legislation, gives a choice to the parties of an agreement to decide the party who shall be liable to pay the stamp duty levied on the concerned agreement, which, in the absence of an agreement, imposes the liability of paying stamp duty on certain persons. Similarly, section 30 of the State Legislature gives a choice to the parties, to an agreement, to decide the party who shall be liable to pay the stamp duty levied on the concerned agreement and in the absence of such agreement, section imposes the liability of paying stamp duty on a particular party.
Since stamp duty is a cost to the subject matter of the agreement, it seems logical to pass the burden of paying stamp duty on the party paying a consideration under the agreement.
Penalty for non-compliance with the Parliament Legislature or the State Legislature
The legislatures enacted by the Parliament and the respective State Government under various provisions of the respective Acts provide that an unstamped or an inadequately stamped instrument will not be admissible as evidence. Following provisions highlight the consequences of an inadequately stamped instrument:
- According to section 33 of the State Legislature and section 33 of the Parliament Legislature, if it appears to an authorized person, that an instrument, including an agreement, is inadequately stamped, then such authorized person may impound (take into custody) such agreement or instrument.
- According to section 34 of the State Legislature and section 35 of the Parliament Legislature, an inadequately stamped instrument is inadmissible as evidence and such instrument will not be acted upon subject to certain exceptions as provided for under the section.
- According to section 35 of the State Legislature and section 36 of the Parliament Legislature, an inadequately stamped instrument if recorded as an evidence shall not be admissible but the State Government may under section 36 of the State Legislature or section 37 of the Parliament Legislature (as the case may be), if it deems that the instrument bears sufficient stamp but not proper description, can permit admissibility of such instrument on payment of such charge as deems fit.
A stamp duty is payable by the parties to an agreement to a state government for recognizing an agreement. Stamp duty is revenue for the state government even if it is imposed by the central government (as in few instruments as discussed above). Respective state governments have authority to impound or nullify the effect of an agreement if such agreement is inadequately stamped.
Apart from the discussion as mentioned above, state governments including the Karnataka Government have initiated the concept of e-stamping. E-stamping in the State of Karnataka is governed by The Karnataka Stamp (Payment of Duty using e-stamping) Rules, 2009 (the Rules). According to the provisions of the Rules, any person paying stamp duty can receive an e-stamp certificate by approaching any approved authority (as defined in the Rules) and by furnishing requisite details, as required under the Rules, along with the payment of stamp duty amount. Any person can purchase e-stamp using cash, pay order, bank draft or any other mode of funds. The Rules further provide that e-stamp certificate shall be visible in the face of the instrument against which it is issued.