SC rejects HLL's plea on M&A stamp duty

The Supreme Court on Wednesday dismissed the appeals of Hindustan Lever, National Organic Chemical Industries and Western Hatcheries against the imposition of stamp duty on amalgamation of companies by the Maharashtra government.

These companies, which had merged with or taken over other companies, had challenged the validity of certain provisions in the Bombay Stamp Act, 1958.

In one case, Tata Oil Mills Co Ltd had amalgamated with Hindustan Lever in 1993. The Bombay high court had sanctioned the scheme in 1994.

On presentation of the certified copy of the high court order, the registrar of companies, Maharashtra, issued a certificate amalgamating the two firms, but asked the company to pay stamp duty.

This was challenged before the high court, but the petition was dismissed. The other companies followed, and all of them reached the Supreme Court.

When contacted, a Hindustan Lever spokesperson said, "We don't comment on court judgments or matters that are sub-judice."

According to provisions in the Stamp Act, duty is payable on every order of amalgamation or reconstruction made by the high court.

The companies argued that the state legislature did not have the competence to impose stamp duty on the order of amalgamation or reconstruction because they were covered by the Companies Act, which is a piece of central legislation.

It was also contended that in the guise of stamp duty, the state legislature was imposing a tax on the amalgamation of companies.

Rejecting these arguments, the Supreme Court held that stamp duty was levied on the instrument or deed, and the measure was the valuation of the property transferred.

Laws of incorporation, regulation, winding up and such other actions belonged to the Centre, but the follow-up legislation was different, like levying stamp duty and prescribing the rate of stamp duty on such documents.

The duty charged by the Bombay Stamp Act was on the instrument and its execution. The measure of charging stamp duty might be fixed or ad-valorem, which could be determined by the state legislature, the Supreme Court ruled.