Case Title: LIFE INSURANCE CORPORATION OF INDIA VERSUS THE STATE OF RAJASTHAN AND ORS., CIVIL APPEAL NO. 3391 OF 2011
Summary
The Supreme Court dismissed appeals by the Life Insurance Corporation (LIC) against a demand for stamp duty of Rs 1.19 crores from the State of Rajasthan. The court upheld the State’s legislative competence to impose stamp duty on insurance policies executed within the state, subject to the rates established by Central legislation. The court ruled that the state government has the authority and jurisdiction to levy and collect stamps, as the insurance policies were issued within the state. The Rajasthan Government demanded a stamp duty of Rs. 1.19 crores in response to the execution and issuance of insurance policies by the LIC in the Rajasthan State under the Rajasthan Stamp Law (Adaptation) Act, 1952 (“Old Stamp Law”). The LIC protested the demand, arguing that the State of Rajasthan lacks legislative competence to levy and demand stamp duty on the execution and issuance of insurance policies within the state.
The court ruled that the state government has the legislative authority to impose and collect stamp duty on insurance policies under Entry 91 of List I, as read with Entry 44 of List III (Concurrent List). The court noted that Entry 91 of List I allows the Parliament to establish the stamp duty rate that the State Government will impose on insurance policies issued within the state’s jurisdiction. The authority to impose stamp duty under Entry 44 of List III is shared between the Union and the state, and the state is permitted to impose stamp duty on insurance policies issued within its jurisdiction, provided the rate of stamp duty is consistent with the rate established by the Union under Entry 91 of List I. The Rajasthan Stamp Law (Adaptation) Act, 1952, prevails over the Indian Stamp Act, 1899, as per Article 254 (2) of the Constitution. The court concluded that the appellant is required to acquire India Insurance Stamps and remit the stamp duty to the state of Rajasthan for insurance policies to be executed within the state.
About the case
The appeals lodged by the Life Insurance Corporation (LIC) against the demand of stamp duty of approximately Rs 1.19 crores raised by the State of Rajasthan were dismissed by the Supreme Court on April 30. The State’s legislative competence to impose stamp duty on insurance policies executed within the State, subject to the rates established by the Central legislation, was upheld by the Court.
The Bench, which consisted of Justices PS Narasimha and Aravind Kumar, noted that the State’s authority and jurisdiction to impose and collect duties on policies would be determined by considering the location from which the insurance policies were issued.
The court reversed the High Court’s findings and noted that the State of Rajasthan would have the authority and jurisdiction to levy and collect stamps, as the insurance policies were issued in the state.
The Judgment, which was authored by Justice PS Narasimha, clarified that the state government is not deprived of the ability to levy and collect the stamp duty under Entry 44 of List III, despite the fact that the power to prescribe the rate of the stamp duty exclusively vests with the Parliament as per Entry 91 of List I.
“We have conducted a comprehensive examination of the provisions of the Rajasthan Stamp Law (Adaptation) Act, 1952 and the Rajasthan Stamp Rules, 1955 that impose stamp duty on insurance policies issued by the appellant within the state.” The appellant is required to pay stamp duty to the state government on insurance policies executed within the state in accordance with Section 3 of the Indian Stamp Act, 1899, as adapted to the state of Rajasthan. In accordance with Entry 91 of List I, the rate at which stamp duty is payable on insurance policies under the 1952 Act has been adopted from Schedule I of the central Act. Consequently, the state government has validly enacted the charging provision under Entry 44 of List III. Consequently, the court stated that the state government has the authority to impose a stamp duty on the issuance of insurance policies within its jurisdiction and compel the appellant to pay the stamp duty.
The Rajasthan Government demanded a stamp duty of Rs. 1.19 crores in response to the execution and issuance of insurance policies by the Life Insurance Corporation (LIC) in the Rajasthan State under the Rajasthan Stamp Law (Adaptation) Act, 1952 (“Old Stamp Law”). Rajasthan made the demand in accordance with the legislative authority to impose and collect stamp duty on insurance policies under Entry 44 of List III, at the rate established by the Parliament under Entry 91 of List I of the constitution.
The LIC protested the demand for the stamp duty, arguing that the State of Rajasthan lacks legislative competence to levy and demand stamp duty on the execution and issuance of insurance policies within the state. According to Entry 91 of List I, the Union Government is the sole entity with the authority to levy and collect the stamp duty on the execution and issuance of insurance policies.
The State Government possesses the legislative authority to impose stamp duty in accordance with Entry 44 of List III, provided that the rate is as prescribed in Entry 91 of List I.
The court was presented with the inquiry of whether the state government possesses the legislative authority to impose and collect stamp duty on insurance policies in accordance with Entry 91 of List I, as read with Entry 44 of List III (Concurrent List).
The court observed that the state government has the legislative competence to impose and collect stamp duty on insurance policies in accordance with Entry 91 of List I, as read with Entry 44 of List III, and answered in the affirmative.
The court noted that Entry 91 of List I is not a charging provision; rather, it allows the Parliament to establish the stamp duty rate that the State Government will impose on insurance policies issued within the state’s jurisdiction.
The court stated that the Constitution (Entry 91 List I) grants the Parliament the exclusive power and legislative competence to establish the rate of stamp duty on insurance policies.
The court determined that the State government has the authority to implement a law that imposes stamp duty on insurance policies by utilizing the rate established by the Parliament and sourcing legislative competence through Entry 44 of List III.
The court, citing the judgment in VVS Rama Sharma v. State of Uttar Pradesh, determined that the authority to impose stamp duty under Entry 44 of List III is shared between the Union and the state. Consequently, the state is permitted to impose stamp duty on insurance policies issued within its jurisdiction, provided that the rate of stamp duty is consistent with the rate established by the Union under Entry 91 of List I.
The court stated that the state of Rajasthan has the authority to impose and collect stamp duty on insurance policies under Entry 44 of List III, provided that the duty is imposed in accordance with the rate specified by a Parliamentary legislation under Entry 91 of List I, as indicated by the aforementioned precedents.
The Rajasthan Stamp Law (Adaptation) Act, 1952, prevails over the Indian Stamp Act, 1899, as a result of Article 254 (2) of the Constitution.
In the event that a state law regarding a matter in the Concurrent List is in conflict with the provisions of an earlier law passed by the Parliament or an existing law regarding that matter, Article 254(2) provides that the state law shall prevail in that state “if it has been reserved for the consideration of the President and has received his assent.”
The court concluded that the state government’s imposition of stamp duty falls under the 1952 Act, a state law that has been enacted under Entry 44 of List III and has received Presidential assent, as required by Article 254. This conclusion was reached by applying the test of Article 254(2) in the present case.
“The 1952 Act, which occupies the field in the present case, has undisputedly received Presidential assent. Consequently, it is superior to the Indian Stamp Act, 1899 in the context of the state of Rajasthan,” the court stated.
The court arrived at the subsequent conclusions in accordance with the preceding premise:
“I. The preliminary issue concerning the applicability of the pertinent state law, namely the 1952 Act or the 1998 Act, is resolved by concluding that the Rajasthan Stamp Law (Adaption) Act, 1952, is applicable to the current case.”
II. We maintain that the state legislature possesses the legislative authority to impose and collect stamp duty on insurance policies under Entry 44 of List III, in accordance with the rate established by Parliament under Entry 91 of List I.
III. We maintain that the appellant is required to acquire India Insurance Stamps and remit the stamp duty to the state of Rajasthan in order to execute insurance policies within the state of Rajasthan.
IV. Despite our previous affirmation of the state’s authority and jurisdiction to impose and collect stamp duty on insurance policies, we direct that the state government refrain from enforcing the stamp duty collection and demand as outlined in the aforementioned facts and circumstances.
Consequently, the appeals were granted.
