Gujarat HC rules on various stamp duty issues relating to scheme of arrangement inter-alia holding that composite scheme is one single instrument, allowing set off of stamp duty paid in another state etc.
The Hon'ble Gujarat High Court ('High Court') in a recent ruling1 dealt with several aspects under the Gujarat Stamp Act, 1958 (' the Act') wherein it held as under:
- A composite scheme of arrangement comprising of transfer of undertakings by way of demerger(s)/ slump sale and merger shall be treated as a single instrument for levying stamp duty.
- In view of Explanation III(c) in Article 20(d) of Schedule-I of the Act, scheme involving only unlisted companies, the market value of shares shall be deemed to be its face value, irrespective of whether the shares are being issued at premium.
- Stamp duty applicable as on the Appointed Date of the scheme is payable and not on the date of NCLT order.
- Stamp duty paid on the same instrument in another state, allowed to be set off against the stamp duty payable in Gujarat.
- 'Capital work in progress' cannot be considered as immovable property and shall not be subject to stamp duty levy.
The High Court passed an order in eight connected matters since there were few common questions which were involved. The key issues which were dealt by the High Court are discussed below.
ssue 1 – Whether an order under Sections 230 to 232 of the Companies Act, 2013, sanctioning a composite scheme of arrangement, be considered as a single indivisible instrument or several distinct transactions within one document?
Facts and Backgroun
- The Appellants entered into a composite scheme of arrangement involving transfer of undertakings by way of demerger(s)/ slump sale and merger which was sanctioned through an order by the National Company Law Tribunal ('NCLT').
- Section 5 of the Act states that an instrument containing several distinct matters or transactions shall be chargeable with the aggregate amount of the duties that would have been chargeable if the instruments relating to each such matter was executed separately.
- The Collector construed the composite scheme as involving multiple distinct transactions and accordingly levied stamp duty separately for each arrangement, resulting in the aggregate stamp duty demand more than the maximum amount (i.e. currently INR 25 Crores) prescribed under the Article 20(d) of Schedule-I of the Act.
Contention of the Appellants
- NCLT order sanctioned a single composite scheme and such instrument cannot be treated as covering separate transactions.
- NCLT order sanctioning the scheme becomes an 'instrument' and partakes the character of conveyance and such order cannot be separated.
Contention of the Revenue
- In view of the words 'distinct matters' or 'distinct transactions' under section 5 of the Act, the stamp duty should be charged as if separate instruments are executed for each separate transaction.
- The Revenue relied upon the Supreme Court ruling in case of Coastal Gujarat Power Limited and others2 and several other judicial precedents and contended that the composite scheme results in multiple and distinct transactions, and thus, section 5 of the Act should apply. Accordingly, the stamp duty should be separately charged for each transaction.
Ruling of the High Court
- The High Court, after discussing the Supreme Court ruling in case of Coastal Gujarat Power Limited (supra), held that a composite scheme of arrangement cannot be segregated when the said arrangement was pursuant to a single composite order.
- The High Court held that treating a single composite scheme as distinct transactions and thereby demanding separate stamp duty would be in conflict with the true import and meaning of section 5 of the Act.
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Footnotes
1. Ambuja Cements Limited v Chief Controlling Revenue Authority (C/SR/1/2020)
2. Chief Controlling Revenue Authority v Costal Gujarat Power Limited and others (Civil Appeal No. 6054 of 2015)
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