30 April 2024 Civil Appeals >> Civil & Consumer Law  

The Life Insurance Corporation of India (LIC) recently secured a partial victory in a legal battle against the state of Rajasthan concerning stamp duty on insurance policies. The disagreement centered on whether Rajasthan could impose its own stamp duty on LIC's insurance policies issued within the state.

Facts:

The crux of the issue stemmed from the division of legislative powers between the central government and states as outlined in the Indian Constitution's Seventh Schedule. This schedule allocates specific subjects to different lists:

• Union List (Entry 91): Grants Parliament the authority to set stamp duty rates for insurance policies.
• State List (Entry 63): Empowers States to prescribe stamp duty rates for documents other than those under the Union List.
• Concurrent List (Entry 44): Allows both Parliament and State Legislatures to make laws on stamp duties (excluding judicial stamps), but specifically excludes fixing rates.

State's Power to Levy Stamp Duty Upheld:

The court acknowledged the state of Rajasthan's right to levy stamp duty on insurance policies under Entry 44 of the Concurrent List. However, the court clarified that the rate of stamp duty must adhere to the rates prescribed by Parliament under Entry 91 of the Union List.

LIC's Obligation to Pay Stamp Duty:

The court further confirmed that LIC is obligated to purchase "India Insurance Stamps" and pay the stamp duty to the Rajasthan government. This obligation stems from the Rajasthan Stamp Law (Adaptation) Act, 1952 and the Rajasthan Stamp Rules, 1955.

Caught Between Unavailable Stamps and Cash Payment Rules:

The case also addressed a scenario where the required stamps might be unavailable within the state. The court pointed out an error in the High Court's judgment. Section 3A of the 1952 Act (except for instruments under Entry 91 of List I) allows for paying the stamp duty in cash to the government treasury if the stamps are unavailable.

LIC Exempted from Disputed Stamp Duty:

While upholding the state's right to collect stamp duty, the court exempted LIC from paying the contested stamp duty in this specific case. The court considered the following factors:

• The Rajasthan government's letter acknowledging the unavailability of stamps and not being involved in their distribution.
• The lack of a clear mechanism for cash payment under the 1952 Act when stamps are unavailable.
• LIC's efforts to purchase stamps within the state.

Court's Verdict:

• LIC's appeals were dismissed, upholding the High Court's judgment on the state's power to levy stamp duty.
• Certain findings of the High Court regarding the cash payment option were set aside.
• The state government was directed not to collect the disputed stamp duty from LIC in this specific case.

This case highlights the complexities of navigating the division of legislative powers in India. It also emphasizes the importance of clear legal provisions to address situations like the unavailability of required stamps.

  Indian Stamp Act, 1899