Liability Of Subsequent Purchaser Of A Property To Pay The Deficit Stamp Duty

14th April, 2023 - 11:02 am Categories: Stamp Duty 0 Comments

Introduction

Stamp duties are a type of tax imposed by legislative bodies on written instruments that document specific transactions, rather than the transactions per se. In India, the imposition of stamp duty on a written instrument was implemented as a means for the government to generate revenue. However, over time, the importance of stamp duties has increased to the extent that a document bearing a stamp is considered more authentic and reliable than an unstamped document. The Stamp Act is the central fiscal statute that governs the laws regarding stamp duty on instruments listed in Entry 91 of the Constitution of India’s Union List[1].

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Payment of stamp duties must be made in full and promptly, otherwise, penalties will be imposed. It is required to pay the stamp duty before the execution of the document or on the day of registration. Failure to make the payment as required may result in additional penalty fees. This tax is levied on written instruments related to the transfer of property such as conveyances, transfer of bonds, mortgages, sale certificates, partition deeds, gifts, settlements, etc. Unlike taxes on transactions or individuals, stamp duties are paid by affixing a stamp, either impressed or adhesive, to these written instruments. Oral transactions or those conducted solely through conduct are not subject to stamp duties. According to the Stamp Duty Law, a written instrument that is insufficiently stamped is liable to be impounded as per Section 33, Indian Stamp Act, 1899. Further, until the instrument is properly stamped, it will not be considered admissible in evidence[2].

The liability of a subsequent purchaser of a property to pay the deficit stamp duty remains a contentious issue in the real estate industry. The law imposes a duty on the purchaser to ensure that the proper stamp duty has been paid on the property at the time of purchase. However, the question of whether a subsequent purchaser should be held liable for the deficit stamp duty when they had no knowledge of it at the time of purchase has been the subject of much debate. While some argue that ignorance should not be an excuse, others believe that the purchaser should not be held responsible for the actions of the previous owner. This question of whether the subsequent purchaser is liable to pay the deficit stamp duty demanded in respect of the first transaction which conveyed the property to the predecessor-in-title has been subjected to interpretation in a plethora of discussions.

In the case of Sandeep Texturisers Private Limited v. State of Gujarat[3], the petitioners were buyers of a property that was auctioned under the SERFAESI Act, 2002. The Stamp Authorities informed the petitioners that they owed an unpaid stamp duty of Rs. 08,11,000/- in relation to the previous transaction regarding their property. The Division Bench evaluated the issue of whether the State Revenue Authorities can take action against the subsequent purchaser when there is no law establishing a charge over the defaulter’s property in regards to stamp duty and whether the fact of deficit stamp duty could be recorded in the record of rights.

The court observed in this regard that the responsibility for paying outstanding stamp duty in case of default lies solely with the person who defaulted. The state revenue authorities can recover the amount by proceeding against the defaulter, but not a third party who was not involved in the transaction. They cannot issue a notice for recovery of the amount against the subsequent purchaser if they have not taken any steps to attach the property of the defaulter prior to its sale.

In Abdulkadar Amadbhai Dholiya v Deputy Collector[4] also, the petitioner was an auction purchaser. In the sale deed it was recited that the properties were sold ‘free of any encumbrances or charge’.  Later, when the petitioner wanted to sell the property, he approached the Deputy Collector, Stamp Duty  to give the original sale deed between the original owner and predecessor in title, the authority refused, stating that since the deficit stamp duty was payable, document could not be given. It was held that the petitioner was not liable to pay any additional stamp duty which was to be levied from the original defaulter. Hence, held that the refusal on part of the deputy collector could not sustain.

The Apex Court ruled in a leading case[5] that mere purchase of some of the properties of a person who had outstanding dues in respect of Excise Duty would not make the subsequent purchase liable unless there is a specific provision in the statute creating first charge relating to the government dues/excise duty over the said property. This charge over the properties in respect of tax or other dues would not be transferred when the property is conveyed to the subsequent purchase in an auction in absence of specific provision to such effect.

In yet another case of Canara Bank v Collector of Stamps[6]  also it was held that subsequent purchaser cannot be fastened with the liability of deficit stamp duty in respect of the previous transaction.

Conclusion

The liability of a subsequent purchaser of a property to pay the deficit stamp duty remains a complex issue in the real estate industry, with differing opinions and judicial interpretations.

Author: Salmath KP. in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

REFERENCES/CITATIONS

1. Constitution, Schedule VII, List I – Union List.
2. Section 35, Indian Stamp Act, 1899
3. Sandeep Texturisers Pvt. Ltd. v. State of Gujarat 2012 SCC OnLine Guj 5851 : (2013) 1 GLH 430
4. Abdulkadar Amadbhai Dholiya v. Deputy Collector 2016 SCC OnLine Guj 1741
5. Rana Girdhar Limited v. Union of India [(2013) 10 SCC 746]
6. Canara Bank v Collector of Stamps [2013 (3) GLH 205]

[1] Constitution, Schedule VII, List I – Union List.

[2] Section 35, Indian Stamp Act, 1899

[3] Sandeep Texturisers Pvt. Ltd. v. State of Gujarat 2012 SCC OnLine Guj 5851 : (2013) 1 GLH 430

[4] Abdulkadar Amadbhai Dholiya v. Deputy Collector 2016 SCC OnLine Guj 1741

[5] Rana Girdhar Limited v. Union of India [(2013) 10 SCC 746]

[6] Canara Bank v Collector of Stamps [2013 (3) GLH 205]