2016 (1) TMI 1527 - HC - Indian Laws

Validity and jurisdiction of the order imposing additional stamp duty and penalty under Sections 47-A and 33 of the Indian Stamp Act 1899 - notice issued for inadequacy of stamp duty payment - instrument was in respect of a property which had been valued at agricultural rates - alternative remedy - breach of the procedure prescribed under the Act - second respondent suffering from non application of mind - HELD THAT - From the facts we may note that the initial stamp duty which stood paid on the instrument by the appellant was Rs. 1, 07, 600/-. The order of the second respondent held the appellant liable to pay additional stamp duty as well as penalty totaling Rs. 8, 93, 313/-. This we may note represents an increase of eight times over the initial stamp duty which was paid on the instrument. This was therefore clearly one of the exceptional situations which were envisaged by the Supreme Court in Smt. P. Laxmi Devi 2008 (2) TMI 850 - SUPREME COURT and Har Devi Asnani 2011 (9) TMI 957 - SUPREME COURT as instances where the petitioner was not liable to be relegated to the alternative remedy of an appeal or a revision under Section 56 of the Act. We further find that the proceedings taken against the appellant were clearly without jurisdiction violative of the procedure prescribed under the Act and there existed no justification in the second respondent invoking the powers conferred by sections 47A or 33 of the Act. We proceed to set forth our reasons for arriving at the above conclusions hereinafter. We find in the facts that not only was there a complete non disclosure of the relevant material to which the appellant could respond to establish his innocence the notice itself was couched in tenor and language which would have led any person to face the specter of what the Supreme Court described as the impregnable wall of prejudged opinion . In the case of an instrument which creates rights in respect of property and upon which duty is payable on the market value of the property comprised therein since the tax liability gets fastened immediately upon execution it must necessarily be quantified on the date of execution. The levy of tax or its quantum cannot be left to depend upon hypothetical or imponderable facets or factors. The value of the property comprised in an instrument has to be adjudged bearing in mind its character and potentiality as on the date of execution of the instrument. Thus we fail to find the existence of the essential jurisdictional facts which may have warranted the invocation of the powers conferred by section 47A (3). We are therefore of the firm opinion that the initiation of proceedings as well as the impugned order based upon a presumed future use of the property for residential purposes was wholly without jurisdiction and clearly unsustainable. We find that the proceedings taken against the appellant were even otherwise liable to be quashed outright. The reason which compels us to arrive at the above conclusion is this. The response filed before the second respondent clearly asserted that the property in question fell within the flood plain area of the Hindon river. The order of the NGT NOIDA Master Plan as well as the Government Order clearly restrained all residential activities in this area. There was therefore no basis for the Sub Registrar or for that matter the second Respondent presuming that the property was liable to be treated as for residential purposes and taxed at residential rates. For this additional reason also we find that the proceedings initiated against the appellant and the order impugned in the writ petition are rendered unsustainable. Thus we find merit in the instant appeal. We are of the opinion that the learned Single Judge clearly erred in dismissing the writ petition and relegating the appellant to pursue the alternative remedy. We accordingly allow the special appeal and set aside the judgment and order of the learned Single Judge dated 21 December 2015. We consequently also allow the writ petition and quash the order of the second respondent dated 26 October 2015 and all proceedings taken against the appellant.

Summary

The core legal questions considered in this judgment revolve around the validity and jurisdiction of the order imposing additional stamp duty and penalty under Sections 47-A and 33 of the Indian Stamp Act, 1899. Specifically, the issues include: (1) Whether the second respondent had jurisdiction to initiate proceedings and impose additional stamp duty based on the valuation of the property; (2) Whether the notice dated 30 August 2012 complied with the requirements of natural justice and statutory procedure; (3) Whether the valuation of the property for stamp duty purposes can be based on presumed future use rather than its character on the date of execution; (4) Whether the appellant was rightly relegated to the alternative remedy of appeal under Section 56 instead of being granted relief under writ jurisdiction; and (5) Whether the proceedings were sustainable in light of environmental and planning restrictions, including flood plain zoning and related injunctions.

Regarding the validity of the notice dated 30 August 2012 and the jurisdiction under Section 47A, the Court examined the statutory framework governing reassessment of stamp duty under the Indian Stamp Act and the U.P. Stamp (Valuation of Property) Rules, 1997. Section 47A(3) authorizes the Collector to inquire and determine if the market value of property in an instrument has not been truly set forth, but only upon having material warranting such belief. Rule 7 mandates that before assuming jurisdiction, the Collector must issue a show cause notice disclosing the basis of the opinion and allow the person concerned to respond.

The Court found that the notice issued to the appellant was fundamentally flawed. It pre-judged the issue by stating prima facie that the appellant had evaded stamp duty without disclosing the material basis for this conclusion. This violated the principles of natural justice as the appellant was not apprised of the evidence or reasoning underpinning the Collector's opinion, thereby denying a meaningful opportunity to contest the claim. The Court relied on precedents including the Division Bench's earlier judgment in a related case involving the appellant's wife, as well as the Supreme Court's ruling in Oryx Fisheries (P) Ltd. v. Union of India, which emphasized that a show cause notice must not confront the person with a foregone conclusion but must enable an effective defense. The Court held that the notice was invalid and the proceedings initiated thereon were without jurisdiction.

On the issue of valuation and the applicability of agricultural versus residential rates, the Court underscored that the Indian Stamp Act is a fiscal statute wherein the taxable event is the execution of the instrument, and the stamp duty payable must be determined based on the market value of the property as of that date. The Court rejected the second respondent's reliance on the Sub Registrar's report, which was based on an assumption that the property would be put to residential use in the future due to its proximity to Greater NOIDA's industrial development area. The Court held that the presumed or potential future use of the property cannot form the basis for valuation or imposition of additional stamp duty. Instead, the character and potentiality of the property on the date of execution must govern. This principle was supported by consistent precedent, including the Division Bench's earlier ruling in the appellant's wife's case, which clarified that market value must be determined with reference to the property's status at the time of the instrument's execution.

Further, the Court took note of the appellant's submission supported by the National Green Tribunal's order, the NOIDA master plan, and Government Orders, which collectively prohibited construction in the flood plain area of the Hindon river where the property is situated. These environmental and planning restrictions barred residential or commercial construction, thereby negating any basis for treating the land as residential for stamp duty purposes. The Court found that neither the Sub Registrar nor the second respondent had justified their assumption that the land could be used for residential purposes, rendering the proceedings and the impugned order unsustainable on this ground as well.

Regarding the alternative remedy, the Court referred extensively to the Division Bench's judgment in the related writ petition involving the appellant's wife, which in turn relied on authoritative Supreme Court precedents (Government of Andhra Pradesh v. Smt. P. Laxmi Devi and Har Devi Asnani v. State of Rajasthan). These precedents establish that the existence of an alternative statutory remedy is not an inflexible bar to writ jurisdiction. Exceptions arise where there is violation of natural justice, lack of jurisdiction, or where relegation to the alternative remedy would perpetuate grave injustice. The Court observed that the demand for additional stamp duty and penalty in this case was exorbitant-amounting to nearly eight times the originally paid stamp duty-constituting an exceptional circumstance justifying exercise of writ jurisdiction. The Court held that the learned Single Judge erred in dismissing the writ petition and relegating the appellant to the alternative remedy of appeal under Section 56.

The Court's conclusions include that the proceedings initiated under Sections 47A and 33 were without jurisdiction and violated statutory procedure; the notice issued was invalid for failing to disclose the basis of the Collector's opinion and for pre-judging the matter; the valuation of the property must be based on its character and potentiality as on the date of execution, not on hypothetical future use; the environmental and planning restrictions barred residential use, negating the basis for additional stamp duty; and the writ jurisdiction was rightly invoked given the exceptional and arbitrary nature of the demand. Consequently, the Court set aside the impugned order dated 26 October 2015 and quashed all proceedings against the appellant.

Significant holdings include the following verbatim excerpts encapsulating the Court's reasoning:

"The market value of the property is to be determined with reference to its character on the date of execution of the instrument and its potentiality as on that date."

"The levy under the statute gets attracted the moment an instrument is executed. These propositions clearly flow from a plain reading of the definition of the words 'chargeable', 'executed' and 'instrument' as carried in the Act."

"A notice in order to be legally valid and be in compliance with the principles of natural justice must necessarily disclose, though not in great detail, the case and the basis on which action is proposed to be taken against the person concerned."

"If on a reasonable reading of a show cause notice a person of ordinary prudence gets the feeling that his reply to the show cause notice will be an empty ceremony and he will merely knock his head against the impregnable wall of prejudged opinion, such a show cause notice does not commence a fair procedure..."

"The existence of an alternative statutory remedy as has been consistently held by the Courts is not a rule of inflexible character nor is it an inviolable condition... Some of the well settled exceptions to the rule of a petitioner being relegated to an alternative remedy are where the principles of natural justice have been violated or where orders are made without jurisdiction."

"The initial stamp duty which stood paid on the instrument by the appellant was Rs. 1,07,600/-. The order of the second respondent held the appellant liable to pay additional stamp duty as well as penalty totaling Rs. 8,93,313/-. This... represents an increase of eight times over the initial stamp duty... clearly one of the exceptional situations... where the petitioner was not liable to be relegated to the alternative remedy."

In sum, the Court established that the statutory powers under the Indian Stamp Act must be exercised strictly in accordance with procedural safeguards and jurisdictional facts. Valuation for stamp duty cannot be speculative or based on future intentions. The principles of natural justice require that a show cause notice disclose the basis of the demand to enable a fair hearing. The availability of an alternative remedy does not preclude writ jurisdiction in exceptional cases involving gross injustice or jurisdictional errors. These principles culminated in the quashing of the impugned order and proceedings against the appellant.