An infrastructure project involves, besides the actual project documents, finance documents, security documents etc. Dealing with land plays a critical role in most projects. The role of a legal counsel includes preparing, executing, vetting of these documents and structuring a wholesome transaction. As the costs of these projects are enormous so are the resultant implications on stamp duty. Since, the ISA, BSA (both defined later) and other stamp acts have diverse classifications of instruments under which each of them are covered, it is necessary for legal counsel to understand the background and nature of the stamp duty and its effects/impact on the entire project.
Stamp duty is a kind of tax, just like sales/income tax etc. and justifiably its basic purpose is to raise revenue for the Government. Thus, like any other tax, stamp duty must be paid in full and on time to the Government, with delays attracting penalties. Broadly speaking, stamp duty is levied on an instrument (and not on a transaction); stamp duty is payable on property (whether immovable/ movable or tangible/intangible) either on a fixed basis or on the basis of the consideration mentioned in the instrument as the case may be. In case of immovable property, there is an additional concept of valuation of the property, which is also taken into account while determining the stamp duty payable.
In India, the Indian Stamp Act, 1899 (ISA) is the Central Legislation while the States have their own local stamp acts to deal with issues arising within that particular State. The Bombay Stamp Act, 1958 which came into force on 16th February 1969 (BSA) is the law for stamp duty within the State of Maharashtra. Constitution of India empowers both the Parliament and the State Legislature to make provisions and laws for stamp duty within its ambit. Accordingly, ISA covers certain documents as specified therein. An instrument is defined under BSA to include every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, etc. These documents that have been excluded, as aforesaid are governed under the ISA. The word 'document' is neither defined either in ISA nor the BSA and one needs to rely upon the Evidence Act, 1872 and The General Clauses Act, 1897 for its interpretation. With the enactment of Information Technology Act, 2000 the term 'document' also includes any electronic record as defined therein. Popularly, the words instruments and documents are used interchangeably.
Often the phrase 'duly stamped' is used in relation to an instrument. It connotes that an instrument bears an adhesive/impressed stamp of not less than the proper amount. Stamp papers can be validly purchased from the State 'authorized vendors' and in cases of high denomination, stamp duty can also be paid by way of franking the instrument again through the State authorized channels. A duly stamped document can be admitted as evidence in any lawful transaction or in a court of law with few exceptions under the criminal proceedings.
In Maharashtra, prior to 1st May, 1994 stamp papers could be purchased in the names of advocates or in any other name. However, thereafter stamp papers are to be purchased in the name of one of the parties to the instrument. Furthermore, the validity of stamp papers are restricted to a period of 6 months and if the stamp paper is used thereafter then it is deemed that the document is executed on ordinary paper without a stamp.
If an instrument falls within several descriptions in Schedule I of the BSA with different rates of duties, then the instrument is chargeable with the highest of the duty prescribed. In addition, BSA also prescribes methodology for adjudication (proper valuation), refund of duties, grievance processes and convictions etc. The Collector is normally authorized or vested with the power of adjudication. If a document is not stamped or adequately stamped, it is likely to be impounded.
Circumventing the instruments classifications with a view to avoid or reduce duties has long been historically established. In order to bring this circumvention/avoidance within the taxing network, the classifications of instruments, rates etc. are revised periodically. The Government is to promote certain industries, remit either in full or in part the stamp duty payable by such identified industries.
The Department of Registration and Stamps, Government of Maharashtra, the 2nd highest revenue earning department, had a vast presence with over 400 offices managed by 2500 employees and generates various job opportunities. It undertook an ambitious IT project called SARITA (Stamps and Registration Information Technology Based Administration) whereby all the sub registrar/district level/division level offices as well as the Head Quarters at Pune have been computerized and automated. SARITA has been operational since January 2001 and has registered more than 2 million documents with the estimated revenues exceeding Rs. 5000 crores.
The challenge for legal counsel in structuring documents arises to make it 'stamp duty friendly' with the different slabs and classifications available. Care needs to be taken as the documents attract duty on arrival within a State and with eager regulators around, it's best to be conformist in approach.