Read Time: 07 minutes

Synopsis

The Supreme Court has upheld the state of Rajasthan's power and jurisdiction to levy and collect stamp duty on policies of insurance issued within the state and rejected a contention of the Life Insurance Corporation, regarding the lack of legislative competence.

A bench of Justices PS Narasimha and Aravind Kumar affirmed the state's power under the Rajasthan Stamp Law (Adaptation) Act, 1952 and the rules made thereunder. 

The top court agreed with the High Court's view that the stamp duty must be levied as per the law in force as on the date of execution of the instrument.

Appellant Life Insurance Corporation contended that the state does not have the power to collect and levy stamp duty on insurance policies under the state enactment as only the Union can prescribe the rate of stamp duty for such instruments. 

It relied upon constitutional scheme on the fields of legislation under the Seventh Schedule on matters of stamp duty. 

The court, however, said as per Entry 44 of List III, the Parliament and the legislatures of the states have concurrent powers to legislate on stamp duties (other than duties or fees collected by means of judicial stamps), but not including rates of stamp duty. 

"A combined reading of the constitutional scheme shows that the power to prescribe the rate of duty is mutually exclusive and has been clearly demarcated between the Parliament and the legislatures of the state. Insurance policies, which are the relevant instrument for the purpose of the present case, fall under Entry 91 of List I for the purpose of prescription of rate of duty. This means that only the Parliament holds the exclusive power and the legislative competence under the Constitution to prescribe the rate of stamp duty on insurance policies," the bench observed.

Court also dealt with the question whether the state government can enact a law that imposes stamp duty on insurance policies by using the rate prescribed by the Parliament by sourcing legislative competence through Entry 44 of List III.

It relied upon a recent judgment in 'Vijay Vs Union of India', (2023) wherein it was held that the power to levy stamp duty on all documents is concurrent under Entry 44 of List III. Only the power to prescribe the rate of such duty is with the Parliament, and subject to Entry 91 of List I, with the state legislatures.

Therefore, the court said, "It is clear that the state of Rajasthan has the power to impose and collect stamp duty on insurance policies under Entry 44 of List III, albeit such duty must be imposed as per the rate prescribed by a Parliamentary legislation under Entry 91 of List I". 

In the facts and circumstances of the present case, the bench, however, has directed that the state government should not demand and collect the stamp duty as per a series of orders issued in 2004.

"The appellant had no choice but to purchase the insurance stamps from outside the state. While it made every endeavour to purchase the stamp from within the state, due to the letter by the department and the lack of mechanism for payment of stamp duty under the 1952 Act in case of unavailability of insurance stamps, it was unable to purchase the stamps and pay the stamp duty to the Rajasthan government," the bench noted.