Can Rajasthan State Collect Stamp Duty on Insurance Policies? SC Explains!

Key Judicial Interpretation

The Supreme Court affirmed that under Entry 44 of List III, the state of Rajasthan has the legislative competence to impose and collect stamp duty on insurance policies issued within its territory (paras 12-16).

Court’s View

The Court emphasized that while only the Parliament can prescribe the rate of stamp duty on insurance policies under Entry 91 of List I, the states have the power to impose and collect the duty as per the rate prescribed by Parliament (paras 9-19).

Conclusion

The Supreme Court upheld the High Court’s decision affirming the state of Rajasthan’s power to levy and collect stamp duty on insurance policies but directed that, in this particular case, the state should not collect the demanded duty due to specific circumstances (paras 37-38).

Relevant Acts, Sections, Provisions, and Rules Cited

Article 246, Article 254, Entry 91 of List I, Entry 63 of List II, Entry 44 of List III, Indian Stamp Act, 1899, Rajasthan Stamp Law (Adaptation) Act, 1952, Rajasthan Stamp Act, 1998, Rajasthan Stamp Rules, 1955.

Case of the Appellant

The appellant, Life Insurance Corporation of India, argued that the state of Rajasthan lacked the legislative competence to impose stamp duty on insurance policies, which they contended falls under the Union List. They also argued that they had to purchase stamps from Maharashtra due to their unavailability in Rajasthan.

Appellant Relied On

The appellant relied on the constitutional scheme of legislative powers under the Seventh Schedule and specific court judgments including VVS Rama Sharma v. State of Uttar Pradesh, Govind Saran Ganga Saran v. Commissioner of Sales Tax, and Mathuram Agrawal v. State of Madhya Pradesh.

Case of the Respondent

The state of Rajasthan argued that it has the legislative competence under Entry 44 of List III to impose and collect stamp duty on insurance policies and that the appellant should have paid the stamp duty to the state as per the prevailing law.

Respondent Relied On

The respondent relied on the Rajasthan Stamp Law (Adaptation) Act, 1952, and its presidential assent under Article 254, as well as the interpretation of legislative powers concerning stamp duties.

Question & Answer

Question: Can the state of Rajasthan levy and collect stamp duty on insurance policies?
Answer: Yes, the state of Rajasthan has the legislative competence to impose and collect stamp duty on insurance policies issued within its territory as per Entry 44 of List III, while the rate is prescribed by the Parliament under Entry 91 of List I (paras 12-16).

Question: What was the Supreme Court’s view on the legislative competence regarding stamp duty?
Answer: The Supreme Court held that while only the Parliament can prescribe the rate of stamp duty on insurance policies, the states can impose and collect the duty as per the rate prescribed by the Parliament (paras 9-19).

Question: Why did the Supreme Court direct the state not to collect the demanded duty in this case?
Answer: The Court directed the state not to collect the demanded duty due to the specific circumstances, including the admitted non-availability of India Insurance stamps within Rajasthan and the appellant’s reliance on a letter from the state treasury officer (paras 32-38).

Question: How does the Supreme Court’s decision affect the validity of stamp duty laws in Rajasthan?
Answer: The decision affirms the validity of Rajasthan’s stamp duty laws, confirming that the state can levy and collect stamp duty on insurance policies issued within its territory (paras 12-16).

Question: What did the Court say about the use of stamps from other states?
Answer: The Court held that the purchase of stamps from outside Rajasthan for policies issued within the state is not permissible under the 1952 Act, and such instruments would not be ‘duly stamped’ (paras 20-26).

Details of Case

Court: Supreme Court of India
Bench: Justice Pamidighantam Sri Narasimha, Justice Aravind Kumar
Date of Order: April 30, 2024
Case Name: Life Insurance Corporation of India vs. The State of Rajasthan and Ors.
Case No.: Civil Appeal No. 3391 of 2011 with Civil Appeal Nos. 3849, 3393, 3394, and 3395 of 2011