[Shivani Vij is an advocate practicing before the Supreme Court of India, High Court of Delhi and various statutory and arbitral tribunals]
In India, instruments creating title or any other interest in property, including commercial documents, are subject to payment of a fiscal duty to the Government in the form of ‘stamp duty’. Although the Indian Stamp Act, 1899, a central legislation, governs transactions involving payment of stamp duty, States too have their own statutes and rules. While these statutes regulate the varied rates of stamp duty payable on instruments like sale deeds, lease deeds, securities, and provide for penalties in case of undervaluation of duty, they also account for instances where the stamp paper is purchased but not used thereafter, or the stamp paper is otherwise ‘spoilt’. Though provisions for allowance or refund of such spoilt stamps exist, the limitation period for entertaining such claims has been a subject matter of debate and the bedrock of the present-day litigation. What is the validity of a stamp paper? If not in immediate use, can a refund of the stamp duty be sought? What are the various forms of recourse for spoilt stamps? Is hardship a valid ground to entertain a belated claim for refund of a spoilt stamp? As brought out in the discussion below, Indian courts often encounter these questions and attempt to strike a balance between a belated claim for refund and unjust enrichment of the state.
An Expiry Date or Perpetual Use?
A question that often plagues businesses, litigants or persons entering into a commercial transaction, especially foreign participants, is the validity of a stamp paper in India. Can a stamp paper purchased for a particular transaction be used in perpetuity? Or does it have an expiration date? Can an unused stamp paper be refunded?
Pertinently, the Indian Stamp Act does not provide any expiration date for use of a stamp paper. The only restriction for a stamp paper is prescribed under section 54 of the Indian Stamp Act. Section 54 provides that an allowance for stamp paper, which is not spoilt or rendered useless or unfit but is not in the immediate use of its purchaser, may be sought for by the purchaser within six months of its purchase. Clarifying the above, the Supreme Court of India in Thiruvengada Pillai v. Navaneethamal, (2008) 4 SCC 530, has held that “the stipulation of period of six months prescribed in Section 54 is only for the purpose of seeking refund of the value of the unused stamp paper, and not for use of the stamp paper”. The Court concluded by stating that there is no impediment in using a stamp paper which may have been purchased more than six months prior to its use in a document.
Thus, as can be deduced from above, a stamp paper does not have any expiration date and can be used for execution of a document at any time. However, in case there is a likelihood of a transaction or execution not going through, the unused stamp paper must be returned to the Collector of Stamps within six months of purchase to seek a refund. Here, it is important to note that there is no relaxation in the limitation period prescribed in section 54.
Spoilt Stamps – Is the Limitation Period of 6 Months sacrosanct?
A stamp paper that is purchased may be spoilt for reasons other than their being ‘not in immediate use’. Though the expression ‘spoilt’ has not been defined in the Indian Stamp Act, section 49 thereof provides an exhaustive list of spoilt stamps and makes a provision for their allowance by the Collector, if an application for refund is made within the limitation period prescribed under section 50. Instances such as stamp used on a document not executed by a material party, stamp on any paper inadvertently and undesignedly spoiled, obliterated or rendered unfit, deficient stamp, and the like, are all considered spoilt stamps for which a refund may be sought.
It is pertinent to note that an application for seeking refund under section 49 must be made (1) within two months of the date of an executed instrument where one party refuses to act, (2) within six months after the stamp has been spoiled, where no instrument has been executed by any party on a stamped paper, and (3) within six months after the date of the instrument, where an instrument has been executed on a stamped paper. The proviso to section 50(3) provides for a separate limitation where the instrument has been sent out of India and/ or where an instrument is substituted for another instrument. A question that arises here is whether the limitation period prescribed herein is sacrosanct or is subject to exceptional reasons for a belated claim.
The limitation period under the Indian Stamp Act has been the subject matter of much debate since, while it does not bar a right, it does bar the remedy to avail a refund of unused stamp in Indian courts. Broadly speaking, if a stamp is spoilt in terms of section 49, a refund may be applied for within six months of it being spoilt or the date of the instrument, as the case may be. Pertinently, the Indian Stamp Act does not account for any claim of a belated application or provide for any extension to make an application. This was clarified by the High Court of Punjab & Haryana in P.C. Jain Textile Pvt. Ltd v. State of Haryana, CWP No. 1016 of 2013, wherein the petitioner argued that a belated claim must be allowed since the vendor delayed the matter and ultimately refused to sell his land. Here, the Court held that “the limitation provided for moving the application under Section 50(2) of the Act has a sanctity behind it which cannot be brushed aside making the provision redundant and nugatory.”
It is also pertinent to note here that certain tax statutes such as the Income Tax Act 1962 under section 119(b) confers power on the income tax authorities to consider belated applications for exemptions or refund in cases of genuine hardship. However, it is important to distinguish these cases with the Indian Stamp Act, a self-contained code, wherein no such belated claim is permissible by the legislature.
At the behest of crafty petitioners, however, proceedings are often instituted, seeking refund of the value of the stamp duty belatedly, giving reasons of the inability to approach or hardship in approaching the revenue authorities within six months. In the case of Citius Real Estate, WP(C) No. 7416 of 2019, the petitioner attempted to justify a belated claim for refund by showing that conciliation talks for a possible sale deed went a little beyond six months. It was also argued that the state cannot recover tax if the taxing event has not occurred, and cannot indulge in undue enrichment by retaining the value of a spoilt stamp. In most cases seeking a belated refund, reliance is placed on a much-celebrated judgement of the Delhi High Court in Dr. Poornima Advani v. Government of Delhi, WP(C) No. 9014 of 2017, upheld in appeal in Government of NCT of Delhi v. Dr. Poornima Advani,LPA 188 of 2019, wherein the Court permitted a refund of a lost stamp paper on the basis that the State cannot adopt the principle of retention and must not indulge in undue enrichment. However, it is germane to state that Poornima Advani only dealt with whether the case of a lost stamp, not covered by section 49, is a spoilt stamp, and not the case of limitation under section 50. In another case of Vimal Kumar Saigal v. The Office of Collector of Stamps, WP(C) No. 9699 of 2016 (judgement dated 16 January 2020), placing reliance on a circular issued by the revenue authorities, the Court in fact permitted refund of stamp duty under section 49(d)(8) of the Indian Stamp Act much beyond six months of the stamp being spoilt.
A proceeding in Ramesh Chandra Kalra v. Union of India, WP(C) No. 10786 of 2019, is currently sub judice, before a division bench of the Delhi High Court, wherein the vires of section 50 prescribing the limitation period of six months, has been impugned, on the premise that the State cannot retain the value of a spoilt stamp and would be violating article 265 of the Constitution in doing so. Article 265 provides that no tax shall be levied or collected except by authority of law. The reason for a belated claim in this case was also a stamp purchased for a transaction that failed to execute and was beyond six months of purchase of the stamp.
Though a challenge to the limitation period in Ramesh Chandra Kalra is currently sub judice, cue could be taken from the decision of the Supreme Court in ALD Automotive Pvt. Ltd. v The Commercial Tax Officer, 2018 SCC OnLine SC 1945, wherein the vires of section 19(11) of the Tamil Nadu VAT Act, 2006, which prescribes a time limit for seeking input tax credit, was upheld by the Court. The Court reasoned that tax credit is a concession provided to the dealer under a statutory scheme and, therefore, the conditions set out therein must be strictly complied with to avail that concession. The Court also rejected the argument of the petitioner that valid reasons or explanations for preferring a late application for availing the tax credit is justified. The Court stated that a taxing statute is distinct from the law of limitation and the compliance of the mandatory prescription of the timeline for seeking input credit is necessary.
Drawing a parallel from this case to the Indian Stamp Act, it can be argued that grant of refund under that legislation is also a concession and the provisions governing the same must be construed strictly. Thus, the limitation period under section 50 must be treated as sacrosanct and the conditions prescribed therein must be strictly met to claim the said refund.
Hardship, a Ground for a Belated Claim – Food for Thought?
To consider belated claims for allowance of spoilt stamps, one may ask whether hardship in approaching the revenue authorities in time is a valid ground or reason under section 49 or section 54 of the Stamp Act, or both. While dealing the constitutional validity of section 47-A of the Indian Stamp Act, the Supreme Court in Govt. of Andhra Pradesh v P. Laxmi Devi, (2008) 4 SCC 720, placing reliance on R.K. Garg v Union of India, (1981) 4 SCC 675, held that a greater latitude must be given to the state in devising fiscal and regulatory statutes and the courts must exercise judicial restraint in dealing with them. This is because law relating to economic activities are distinct from laws relating to civil rights and liberties (such as freedom to speech) and involve greater complexity and precision. It was also reasoned that considerations of hardship or equity are not relevant for construing taxing or fiscal statutes which are economic measures of the state (CIT v. VMRP Firm Muar, AIR 1965 SC 1216). Even where hardship is present, it is only for the legislature to carry out amends (Bengal Immunity v. State of Bihar, AIR 1955 SC 661). In ALD Automotive, the Court has reiterated that fiscal and taxation statutes must be interpreted strictly and literally, and that reasons of hardship given for belated applications do not warrant any relaxation.
Though the principle of unjust enrichment exists in administrative law and is applicable to the actions of a state, it is trite law that a taxing statute must be construed within its four corners. In consonance with this, the courts must further a strict interpretation to give effect to the statute while interpreting sections 49 and 50 of the Indian Stamp Act. It is also reasonable to argue that non-refund beyond the limitation period by the State does not amount to double taxation or retention of tax without authority of law under article 265 of the Constitution as it is within the four corners of the statute. Nor does it amount to an arbitrary action as the executive can act only in accordance with the power that is conferred to it by the legislature.
I now seek to answer the question: how good is a stamp paper beyond six months? It will most certainly depend on the ‘use of the stamp’. A stamp paper that is not put to use within six months is ineligible for refund as it does not fulfil the requirements of section 54. A stamp paper that has been rendered spoilt or useless for other reasons is also good for refund only as long as an application is made within six months of it being spoilt or the date of the instrument, as the case may be.
– Shivani Vij
 Jaswant Singh Bambha v. Central Board of Direct Taxes, 2005 142 TAXMAN 528 Punj; John Shalex Paints (P) Ltd. v. CBDT, (1993) 201 ITR 523 (Karn); Kusumben M. Parikh v. Central Board of Direct Taxes, (2000) 242 ITR 501 (Guj); Dharampal Singh Pall v. Central Board of Direct Taxes, (2001) 250 ITR 629 (MP).