| Reference Date | Version | October 24, 2024 | 1.0 |
| Keywords | Stamp duty, Tolls, Lease, Concession Agreement, BOT |
| Legislation(s)/Policies |
(i) Transfer of Property Act, 1882 (ii) The Indian Stamp Act, 1899 (iii) General Clauses Act, 1897 (iv) The Constitution of India |
| Jurisdiction | India |
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 Amendments, where applicable.
The nature of the instrument is to be understood from the content of the instrument and not merely from its nomenclature.
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 authorised Madhya Pradesh Rajya Setu Nirman Nigam Ltd. (‘MPRSNN’) for reconstruction, strengthening, widening and rehabilitation of a road section under the BOT Scheme.
Chronology of Events
- April 04, 2002: MPRSNN invited tenders for the project.
- August 08, 2002: Letter of Acceptance was issued for execution of the Concession Agreement.
- August 12, 2002: Amendment to the Stamp Act introduced 2% stamp duty on BOT agreements involving toll rights.
- September 15, 2002: Concession Agreement was signed on a stamp paper of Rs.100.
- March 26, 2004: Show cause notice was issued by the Collector of Stamps.
- April 30, 2004: Order passed directing recovery of deficit stamp duty amounting to Rs.1,08,00,000/-.
- February 11, 2010: High Court dismissed the writ petition and upheld the order.
- May 03, 2010: Appeal filed before the Hon’ble Supreme Court.
The Case – Rewa Tollway P. Ltd. v. The State of Madhya Pradesh & Ors.
Propositions Discussed
- Whether the right to collect tolls under a BOT Scheme amounts to a ‘lease’ under Section 105 of the Transfer of Property Act, 1882 and Section 2(16) of the Stamp Act.
- Validity of the amendment introducing 2% stamp duty on BOT concession agreements.
Definition of Lease
The Stamp Act includes within the definition of lease:
- A patta
- A kabuliyat or undertaking relating to immovable property
- Any instrument by which tolls of any description are let
- Any writing signifying grant of a lease application
Section 105 of the Transfer of Property Act defines lease as a transfer of a right to enjoy immovable property for a specified time in consideration of value.
Case of the Appellants
- The appellants argued on grounds of legitimate expectation and promissory estoppel.
- Government clarifications had earlier stated that BOT agreements would be executed on stamp paper of Rs.100 without additional stamp duty.
- The appellants claimed they entered into the agreement relying upon those representations.
- It was argued that there was no transfer of interest in property and therefore the agreement could not be treated as a lease.
- The appellants challenged the constitutional validity of the 2002 amendment.
Case of the Respondents
- The respondents argued that all ingredients of a lease existed under the concession agreement.
- Possession was transferred for a specified period for consideration.
- The Stamp Act specifically includes instruments relating to tolls within the definition of lease.
- The amendment only prescribed the rate of stamp duty and did not alter the legal definition of lease.
- Promissory estoppel and legitimate expectation cannot operate against a statute.
Ruling
Validity of the Amendment
The Hon’ble Supreme Court held that legitimate expectation does not restrict the government from altering policies in public interest.
The principle of promissory estoppel cannot be invoked against legislative powers.
The Court observed that reversal of the amendment in 2008 did not automatically render the 2002 amendment illegal.
Whether BOT Agreement Amounts to a Lease
The Court held that the concession agreement amounts to a lease under the Stamp Act.
The definition of lease under the Stamp Act is broader than the definition under the Transfer of Property Act.
Any instrument by which tolls are let is treated as a lease for stamp duty purposes.
The Hon’ble Supreme Court upheld the judgement of the High Court and directed recalculation of stamp duty on the basis of project expenditure.
View Point
Under the Stamp Act, an instrument shall be chargeable with stamp duty according to the applicable schedule and State Amendments.
The substance of the instrument is more important than the nomenclature used by parties.
The Legislature has intentionally expanded the definition of lease to include instruments involving toll collection arrangements.
In BOT projects, stamp duty may be linked to the project cost where the rights granted are connected to the expenditure incurred by the concessionaire.
Any structuring from a stamp duty perspective requires careful examination of applicable State laws and amendments.
Legal Support in the Corporate and Infrastructure Sector
Ashwini Panwar (Mr) and Riddhi Rahi (Ms)
Associate at Alaya Legal
