Nature Of Concessions – Stamp Duty Implications

Concessions require proper structuring, keeping in mind various aspects, including stamp duty. Expert advice from corporate lawyers and infrastructure lawyers is required to have a futuristic perspective and effectively protect legitimate business interests within the legal regime's parameters.

Introduction

Stamp duty is applicable on an 'instrument' and not a transaction. The instruments shall be chargeable with duty of the amount indicated in the relevant schedule as the proper duty.

In order to ascertain the stamp duty applicable to an instrument, it is essential to determine the nature of the instrument as defined in the Indian Stamp Act, 1899 ('Stamp Act') read with State Amendment, where applicable. The 'nature' of the instrument is to be understood from the content of the instrument and not from its nomenclature. Stamp duty is a tax payable to the government; thus, the statute governing stamp duty must be interpreted strictly.

In its judgement dated July 19, 2024, in a matter involving appeals preferred against the judgement and Order of the High Court of Madhya Pradesh, the division bench of the Hon'ble Supreme Court examined the issue of whether or not an agreement for a transaction where the right to collect tolls is given in lieu of the amount spent by the Concessionaire in the construction of roads, bridges, etc., under the Build, Operate & Transfer Scheme of the State of Madhya Pradesh ('BOT Scheme') amounts to a 'lease' for the purposes of determining stamp duty. This article discusses the decision of the Hon'ble Supreme Court in the case of Rewa Tollway P. Ltd. v. The State of Madhya Pradesh & Ors., regarding determination of stamp duty on concession agreements.

Background and Sequence of Events

The State of Madhya Pradesh, vide Order dated February 01, 2001, authorized Madhya Pradesh Rajya Setu Nirman Nigam Ltd. ('MPRSNN') for reconstruction, strengthening, widening and rehabilitation of a section of road on Satna-Maihar-Parasimod-Umaria Road Project to be executed through Concession on BOT Scheme ('Project'). The chronology of events is as below:

April 04, 2002: MPRSNN invited tenders for the Project vide advertisement.

August 08, 2002: A Letter of Acceptance ('LoA') was issued by the MPRSNN to the Appellant for execution of the Concession Agreement within 30 days.

August 12, 2002: The State of Madhya Pradesh notified amendment to the Stamp Act, inserting proviso (c) to Clause(c) to Entry No. 33 of Schedule-1(A), which provided that there shall be levy of stamp duty @ 2% on the amount likely to be spent on the project, on the agreement to lease and right to collect the toll is given.

September 15, 2002: Concession Agreement was signed on 15.09.2002 on a stamp paper of Rs.100 between MPRSNN and the appellant.

March 26, 2004: A show cause notice was issued to the appellant by the Collector of Stamps.

April 30, 2004: Pursuant the said notice and the proceedings before the Collector of Stamps, on April 30, 2004 an Order was passed against appellant under the Stamp Act directing recovery of deficit stamp duty amounting to Rs.1,08,00,000/-(Rupees one crore eight lakh) said to be payable on the Concession Agreement ('Said Order').

June 06, 2004: The Said Order was challenged by the appellant before the High Court of Madhya Pradesh.

February 11, 2010: The High Court dismissed the said writ petition along with eleven other matters and upheld the Said Order.

May 3, 2010: appellant filed an appeal before the Hon'ble Supreme Court.

The Case – Rewa Tollway P. Ltd. v. THe State of Madhya Pradesh & Ors

Propositions discussed:

1. Whether or not a transaction where the right to collect tolls is given in lieu of the amount spent by the Concessionaire in the construction of roads, bridges etc. under the BOT Scheme amounts to a 'lease' as contemplated under Section 105 of the Transfer of Property Act, 1882 ('TP Act') and Section 2(16) of the Stamp Act.

The Stamp Act, states that the lease of an immovable property includes also:

(a) a patta;
(b) a kabuliyat or other undertaking in writing, not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for, immovable property;
(c) any instrument by which tolls of any description are let;
(d) any writing on an application for a lease intended to signify that the application is granted;

The expression 'lease of an immovable property' is defined in section 105 of the TP Act to mean: "a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms."

2. Validity of the amendment made in proviso (c) to Clause (C) of Article 33 of Schedule 1(A) as amended by the Indian Stamp (M.P.) Act, 2002. The said amendment is reproduced below:

"(c) an agreement to lease where the right to collect tolls is given in lieu of the amount spent by the lessee in construction of roads, bridge etc. under the Build, Operate and Transfer (B.O.T.) scheme, shall be chargeable at the rate of two per cent on the amount likely to be spent under the agreement by the lessee."

Case of the Appellants in respect of the propositions under discussion:

• The appellants argued on grounds of legitimate expectation and promissory estoppel. The appellant referred to three events to support its submissions: July 01, 2002: The Chief Secretary issued a clarification stating that no stamp duty shall be payable on the agreements being executed under BOT Scheme.
  July 21, 2002: A further clarification was issued stating that no stamp duty would be levied on BOT Projects in future and such agreements would be signed on stamp paper of Rs.100.
  March 10, 2008: Notification of State Government whereby the stamp duty on toll was reduced from 2% to Rs.100.

• The appellants entered into the Concession Agreements without factoring in 2% stamp duty, and had legitimate expectation that the agreement was to be executed only on stamp paper of Rs.100/-. The subsequent demand was contrary to the legitimate expectations of the appellants and, therefore, liable to be set aside. It was further submitted that the Circular of the Chief Secretary stopped the State Government from amending the Stamp Act and the subsequent demand would be hit by the principle of promissory estoppel.

• In a lease, following three ingredients must pre-exist:

(1) There is a transfer of a right to enjoy such property.

(2) It is made for a fixed time, express or implied or in perpetuity.

(3) There has to be consideration of a price paid or promised.

It was submitted that, "a 'lease' means transfer of interest in the property to enjoy the property whereas, 'license' means transfer of property but no interest in the property. In the case at hand, there was no transfer of interest in the property, as such, it would not fall within the definition of 'lease'."

• Insertion of proviso (c) to Clause(C) under Article 33 of Schedule 1-A by the 2002 Amendment Act was ultra vires as it violates the mandate of Article 14 of the Constitution of India. It was submitted that the said amendment was illegal, arbitrary and bad in law as it nullified the promise made by the Circular by the Chief Secretary dated July 01, 2002, and has taken away the vested right of the appellants of not factoring in 2% stamp duty and ultimately resulting into a demand of a huge amount of approximately Rs.1,08,00,000/- (Rupees one crore eight lakh only). The said amendment was ultra vires, inasmuch as, the State had no legislative competence to bring in this amendment. Further, it was submitted that it was a colourable and excessive legislation and was a fraud on the Constitution of India, inasmuch as, the State itself in 2008 withdrew the Amendment of 2002.

Case of the Respondents in respect of the propositions under discussion:

• All the ingredients of a document constituting a lease as defined under the TP Act were existing in the Concession Agreements under the BOT Scheme. Reference was made to various clauses of the Concession Agreement to show that possession was actually transferred to the appellants in order to recover the toll, the period of such possession was defined to be fifteen years. Further, such transfer of possession was for a consideration which was also mentioned in the agreement.

Reference was made to the definition of 'lease' under the Stamp Act, as laid down in Section 2(16), which includes any instrument by which tolls of any description are let. He also referred to the definition of 'immovable property' as defined under Section 3(26) of the General Clauses Act, 1897, which would include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.

• The arguments made on behalf of the appellants relating to the vires of inserting the proviso (c) to Clause (C) to Entry 33 of Schedule 1-A of the Stamp Act by the M.P. Amendment of 2002 have no merits as it neither defines the word 'lease' nor does it in any way interfere with the definition of 'lease' in any manner, either by expanding or restricting its interpretation. It is only a statutory provision as to what would be the rate of stamp duty payable on lease deeds of a particular type.

• The submissions of the appellants relating to Promissory Estoppel and Legitimate Expectation are unwarranted and without any merit, inasmuch as, prior to the execution of the Concession Agreement, the amendment had been brought in. There can be no Legitimate Expectation or application of Promissory Estoppel against statute.

Ruling

Validity of the amendment made in proviso (c) to Clause (C) of Article 33 of Schedule 1(A) as amended by the Indian Stamp (M.P.) Act, 2002.

• The doctrine of legitimate expectation does not constrain the government from altering its policies, provided the changes are made in public interest and not through an abuse of power. The judiciary affords considerable leeway to the Executive and Legislature in matters of economic policy, recognizing their prerogative to prioritize different economic factors.Promissory estoppel or legitimate expectation can be dealt with on the same status of the executive decision.
  The principle of promissory estoppel cannot be invoked against the exercise of legislative power. A prior executive decision does not bar the State Legislature from enacting a law or framing any policy contrary to or in conflict with the previous executive decision in furtherance of larger public interest; nor can it be canvassed that the law laid down by the Legislature would be hit by principle of promissory estoppel or legitimate expectation because earlier the executive had expressed its view differently.

• Simply because the 2002 amendment had been reversed in 2008, it cannot by itself draw any kind of presumption that the 2002 amendment was illegal.
  But for the insertion of the proviso which is sought to be challenged, the stamp duty payable on the lease would be 8% of the market value as provided to be charged on the conveyance under Entry-22 of Schedule 1-A. By inserting the proviso, the stamp duty chargeable on a lease under BOT Project for tolls/bridges, construction of roads etc. would be 2% of the amount spent by the lessee.

Whether or not a transaction where the right to collect tolls is given in lieu of the amount spent by the Concessionaire in the construction of roads, bridges etc. under the BOT Scheme amounts to a 'lease' as contemplated under Section 105 of the Transfer of Property Act, 1882 ('TP Act') and Section 2(16) of the Stamp Act.

• With regard to the question as to whether the Concession Agreement is a lease or a bond or a license it was held that the definition of lease as given under the Stamp Act clearly covers any instrument by which tolls of any description are let and also under Section 105 of the TP Act, all the ingredients of a lease are fulfilled. This underscores the principle that while legitimate expectation warrants fair treatment, it does not preclude the government's flexibility in policy-making.

• The Hon'ble Supreme Court reiterated the view taken in the case of Nasiruddin and another Vs. State of Uttar Pradesh Thr. Secretary and Ors (2018) Nasiruddin and reproduced the relevant paragraph as under:

"17. The expression "lease" under the Stamp Act has a wider meaning as compared to its original meaning contained in Section 105 of the Transfer of Property Act (for short "the TP Act"). If "lease" under Section 2(16) of the Stamp Act includes therein four specified categories of documents set out in sub clauses (a) to (d), we do not find any such inclusion in Section 105 of the Transfer of Property Act. It is for this reason, we are of the view that the definition of "lease" for the purpose of the Stamp Act is extensive in nature. It is also clear from the use of the expression and includes also "in Section 2(16) of the Stamp Act. So by fiction, "any instrument by which tolls of any description are let "is considered as "lease" for the purpose of payment of stamp duty under the Stamp Act."