levy of tax under vat 9b an stamp duty simultaneously[1] - RS Goyal ...

Sumit NemaAdvocateMadhya Pradesh High Courtemail: advocatenema@gmail.comPhone: (0761)2404937Cell: 9713163667Fax No. (0761) 2403036Office & Residence(Jabalpur)‘Asha’,1029, Gol Bazar,JABALPUR (M.P) 482002Indore Branch Office303, Princess Valley,Next to Hotel PrincesPalace,South Tukoganj,INDORE – 452001ADDITIONAL POINT IN RELATION TO SECTION 9B OF VATACT 2002 AS INTRODUCED W.E.F.1-4-2011Under the Constitution, List II of the Seventh Schedule provides byEntry 49 the power to levy tax on land and buildings. Under Entry64 of List II, the State has the power to prescribe the stamp duty.1. Can the State Government levy tax on building under Entry 49and stamp duty on building under Entry 63 simultaneously ?Introductory Note :-The power to legislate is engrafted under Article 246 of theConstitution of India and the various entries for the three lists ofthe Seventh Schedule are the “fields of legislation”. The differententries are all of enabling character and are designed to define anddelimit the respective areas of legislative competence of the Unionand the State legislatures. It has been a cardinal principle ofconstruction that widest interpretation has to be given to theentries subject to the conditions that the meaning of the wordsshould not be extended beyond their reasonable connotation and

Actual Legal Position – Legality of the simultaneous imposition oftax on ‘land and buildings’ under Entry 49 of List II of ScheduleVII to the Constitution and imposition of stamp duty on ‘land andbuildings’ by the State Legislature in exercise of power underEntry 63 of List II :-Read with Article 246 of the Constitution of India, the StateLegislature can levy stamp duty under Entry 44 of List III of theSeventh Schedule to the Constitution and prescribes the rates ofstamp duty under Entry 63 of List II of the Seventh Schedule. Thepower to levy stamp duty is concurrent under Entry 63 of List IIand the power to prescribe the rates of stamp duty between theexclusive jurisdiction of the Union and the State (a) as regards theinstruments specified in Entry 91 of List I, the power exclusivelybelongs to the Parliament, and (b) regarding other instruments, thepower belongs to the States under Entry 63, List II. Entry 44 ofList III of the Seventh Schedule relates to the stamp duties otherthan duties or fees collected by means of judicial stamps, but notincluding rates of stamp duty. The charging provisions levyingstamp duty could be enacted by both the Parliament and the StateLegislatures, subject to the provisions of Article 254 of theConstitution.Entry 63 of List II of the Seventh Schedule to the Constitutionclearly states the power of the State Legislatures to prescribe therates of stamp duty in respect of documents other than thosespecified in the provisions of List I with regard to rates of stampduty. The actual legal position is that once it is held that thepower to tax is within the competence of the State Legislature, noquestion of repugnancy under Article 254 of the Constitution canarise and thus, where the levy of the stamp duty by the State isnot covered by any of the entries in List I of the Seventh

Schedule and is purely a taxation measure and the imposition ofthe duty or levy falls in the pith and substance of List II of theSeventh Schedule to the Constitution, it cannot be said that theState is incompetent to levy the stamp duty under Entry 44 ofList III and prescribe the rate of stamp duty under Entry 63 ofList II of the Seventh Schedule to the Constitution [Bar Councilof U.P. v. State of U.P., AIR 1973 SC 231 : (1973) 1 SCC 261].Furthermore, under Entry 44 of List III – the Concurrent List ofSchedule VII, any State Government as well as the CentralGovernment can levy stamp duties other than duties or feescollected by means of judicial stamps, but not including rates ofstamp duty and in respect of such instruments mentioned in Entry91 of List I – the Union List of the Seventh Schedule [that is, ratesof stamp duty in respect of bills of exchange, cheques, promissorynotes, bills of lading, letters of credit, policies of insurance, transferof shares, debentures, proxies and receipts] and thus, the rates ofstamp duty can be prescribed by the Parliament only with regardto instruments falling within Entry 91 of List I and with regard toother instruments, by the State Legislatures under Entry 63 of ListII [Veena Hasmukh Jain v. State of Maharashtra, AIR 1999 SC807 : (1999) 5 SCC 725]. There is also no dispute that there islegislative competence in the State Government to levy stamp dutyon a conveyance of property [Hanuman Vitamin Foods (P) Ltd. v.State of Maharashtra, AIR 2000 SC 2571 : (2000) 6 SCC 345].The entries in the three lists of the Seventh Schedule to the Constitutionare legislative heads and are of enabling character and each general wordshould be interpreted to extend to all ancillary or subsidiary matterswhich can fairly and reasonably be comprehended in it. The powers ofthe Union and the State Legislatures are both expressed in precise and indefinite terms and, therefore, there can be no reason in giving broader

interpretation to one rather than to the other. It is true that whilelegislating on any subject covered under an entry of any list, there canalways be a possibility of entrenching upon or touching the field oflegislation of another entry of the same list or another list for matterswhich may be incidental or ancillary thereto. In such eventuality, a broadand liberal interpretation of an entry in the list may certainly be required.It may not be reasonable to import any limitation in interpreting aparticular entry in the List by comparing the said entry orcontrasting it with any other entry in that very List. While thecourt is determining the scope of the area covered by a particularentry, the court must interpret the relevant words in the entry in anatural way and give the said words the widest interpretation. Whatthe entries purport to do is to describe the area of legislativecompetence of the different legislative bodies, and, therefore, itwould be unreasonable to approach the task of interpretation in anarrow or restrictive manner [Banarasi Dass v. WTO, AIR 1965SC 1387].An absolute or watertight compartmentalization of the heads of subjectfor legislation may not be possible but at the same time, entrenching intothe field of anther entry cannot mean its total sweeping off even thoughit may be in the executive list of heads of subjects for legislation by theother legislature. It is only when an apparent overlapping occurs that thedoctrine of “pith and substance” has to be applied to find out the truenature of legislation and the entry within which it would fall. Whendifferent entries in the same list crop up for consideration, the usualprinciple followed is that each particular entry should relate to a separatesubject or group of subjects and every attempt should be made toharmonize different entries and to discard a construction which willrender any of the entries ineffective [ITC Ltd. v. Agricultural ProduceMarket Committee, AIR 2002 SC 852 : (2002) 9 SCC 232].

Further, in Hindustan Lever v. State of Maharashtra, AIR 2004 SC326 : (2004) 9 SCC 438, where the State legislation, that is, theBombay Stamp Act, 1958, sought to impose stamp duty on anorder sanctioning the scheme of amalgamation of two companiespassed by the court under Section 394 read with Section 391 ofthe Companies Act, 1956, it was held to be valid being aninstrument effecting transfer of assets and liabilities between theparties. It was also observed that stamp duty is levied on theinstrument and the measure is the valuation of the propertytransferred. There is no question of encroachment on the field ofthe Parliament under Entry 43 of List I of the Seventh Scheduleto the Constitution since the follow-up legislation under Entry 43of List I pertaining to incorporation, regulation and winding up oftrading corporations, including banking, insurance and financialcorporations but not including co-operative societies is totallydifferent from the levy of stamp duty and of prescribing the rateof stamp duty under the State legislation in respect of documentspertaining to compromise or arrangement of such corporations. TheState legislation does not, in any way, describe any alternateprocedure as compared to the one appearing in Section 394 of theCompanies Act, 1956 and, therefore, the question of repugnancy isirrelevant. Entry 63 of List II empowers the State Legislature toprescribe the rates of stamp duty in respect of documents otherthan those specified in the provisions of List I, that is, rates ofstamp duty in respect of bills of exchange, cheques, promissorynotes, bills of lading, letters of credit, policies of insurance, transferof shares, debentures, proxies and receipts. By sanctioning of theamalgamation scheme, the property including the liabilities aretransferred as provided in Section 394 of the Companies Act andon that transfer instrument, stamp duty is levied. It, therefore, cannotbe said that the State Legislature has no jurisdiction to levy suchduty.

Taking the aforementioned view into consideration, it is to beunderstood that Entry 49 of List II basically pertains to tax onland and buildings while Entry 63 of List II deals with impositionof stamp duty which, though may be imposition of stamp duty onland and buildings, is a different subject and, on a harmoniousconstruction, neither of these separate subjects or different entries,though pertaining to allied matters, can be rendered otiose ormeaningless.Basis of challenge to the legality of the simultaneous imposition oftax on ‘land and buildings’ under Entry 49 of List II and stampduty on ‘land and buildings’ under Entry 63 of List II ofSchedule VII to the Constitution by the State Legislature :-In the case of challenge to the vires or legality of the power of theState Legislature to simultaneously levy tax on land and buildingsin exercise of power under Entry 49 of List II of Schedule VII tothe Constitution as well as prescribe the stamp duty under Entry63 of List II, such challenge may be supported on the foundationthat the word “tax”, when interpreted in its widest sense, includesall money raised by taxation and it, therefore, includes taxes leviedby the Central and the State Legislatures, and also those known as“rates”, or other charges levied by local authorities under statutorypowers. “Taxation”, therefore, includes the imposition of any tax orimpost, whether general or local or special, and “tax” should beconstrued accordingly [D.G. Gose and Co. (Agents) (P) Ltd. v. Stateof Kerala, AIR 1980 SC 271 : (1980) 2 SCC 410]. In view of suchinterpretation, the need to impose stamp duty or any other impostseparately on land and buildings apart from that in Entry 49 ofList II does not arise.

Furthermore, it is also well settled that the mutual exclusivity oftaxes which has been reflected in Article 246 (1) means that thetaxing entries must be construed so as to maintain exclusivity andalthough a taxing entry should be given a liberal interpretation, yetthat cannot be deemed to cover a subject-matter which, on a fairreading of the entry, it does not cover [Gujarat Ambuja CementsLtd. v. Union of India, AIR 2005 SC 3020 : (2005) 4 SCC 214]. It isequally settled that each general word in an entry should be interpretedto extend to all ancillary or subsidiary matters which can fairly andreasonably be comprehended in it. Therefore, when the tax has alreadybeen sought to be levied by the State legislature on land andbuildings, it includes all rates or taxes or imposts, whether generalor local or special, and, hence, the State ought not to impose tax onland and buildings in exercise of its power under Entry 49 of ListII as well as stamp duty under Entry 63 of List II simultaneouslyas that would amount to double taxation of the same property.If it is open to resolve the conflict between two entries indifferent Lists by examining the dominant purpose and the pithand substance of the two legislations, there is no reason why therepugnancy between the provisions of the two legislations underdifferent entries in the same List should not be resolved byscrutinizing the same on the same touchstone. What is to beascertained in each case is whether the legislations are on thesame subject-matter or not by finding out the dominant intentionor pith and substance of the two legislations. The cause of conflictarises when there is the apparent identity of the subject-mattersand one legislation covers the entire field covered by the otherand not merely partially in a different context and further, both thelegislations are substantially on the same subject-matter [VijayKumar Sharma v. State of Karnataka, AIR 1990 SC 2072 : (1990)2 SCC 562]. In the instant case, Entry 49 of List II covers theentire subject of ‘land and buildings’ while Entry 63 of List II

deals with the power of the State Legislatures to prescribe therates of stamp duty in respect of documents other than thosespecified in the provisions of List I and hence, if an extendedmeaning is given to Entry 63 of List II to cover ‘land andbuildings’ which is already covered by Entry 49 of the same List,the same would result in conflict as both the entries would thensubstantially cover the same subject matter.It is true that under the three lists of the Seventh Schedule to theConstitution, a taxation entry in a legislative list may be withrespect to an object or an event or may be with respect to bothand Article 246 makes it clear that the exclusive powers conferredon the Parliament or the States to legislate on a particular matterincludes the power to legislate with respect to that matter. Hence,where the entry describes an object of tax, all taxable eventspertaining to the object are within that field of legislation unlessthe event is specifically provided for elsewhere under a differentlegislative head and where articles have been made the object oftaxation, either directly or indirectly, the entries in the legislativelists have specifically said so or the impost is such that thesubject-matter of tax follows by necessary implication. It is alsotrite that taxing entries must be construed with clarity andprecision so as to maintain the mutual exclusivity which isreflected in Article 246 and a construction of a taxation entrywhich may lead to overlapping must be eschewed. If the taxingpower is within a particular legislative field, it would follow thatother fields in the legislative lists must be construed to excludethis field so that there is no possibility of legislative trespass[Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515].Thus, when the State Legislature has been conferred with thepower to impose tax on land and buildings by virtue of a specificentry, that is, Entry 49 of List II of Schedule VII to theConstitution, the exclusivity of that taxing entry ought to be

maintained and all taxable events pertaining to the ‘land andbuildings’ ought to be construed within that field of legislationsince the taxable event is nowhere else specifically provided forunder a different legislative head.It is settled that each general word in an entry should be interpretedto extend to all ancillary or subsidiary matters which can fairly andreasonably be comprehended in it and the entries in the legislativelists must be given a broad and liberal meaning. Where there is noquestion of conflict between two items in the same List, there isno warrant for restricting the natural meaning of one for thesimple reason that the same subject might in some aspect comewithin the purview of the other [State of Bombay v. NarottamdasJethabhai, AIR 1951 SC 69]. The aforementioned principle conveysthat in the situation of conflict between two entries in the sameList, there may be need for restricting the natural meaning of onefor the simple reason that the same subject might not come withinthe purview of the other. Even according to Seervai [Seervai, H.M. :Constitutional Law of India, 4 th /Silver Jubilee Edn., Vol. 3, para22.20], although legislative power includes all incidental andsubsidiary power, yet the power to impose a tax is not such apower under our Constitution. Thus, the power to tax is not anincidental power and even the entry in respect of prescribing ofthe rates of stamp duty, that is, Entry 63 of List II, cannot begiven an extended interpretation or a far too liberal construction soas to cover the levy of any kind of tax or other impost, duty orfee, on a subject matter – land and buildings – which, on a fairreading of the entry, it does not cover and which has been alreadycovered by another specific entry of the same list.Furthermore, there is nothing like an implied power to tax. Thesource of power which does not specifically speak of taxation

cannot be so interpreted by expanding its width as to includetherein the power to tax by implication or by necessary inference[State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201].Thus, where Entry 63 of List II of the Seventh Schedule to theConstitution does not expressly include the subject ‘land andbuildings’ within its purview, the same cannot be so interpreted byexpanding its width as to include therein the power to levy anykind of tax or impost by implication or inference.SUMIT NEMAC.A.,LL.B