Banks and others challenge legality of added burden

The Maharashtra Tax Laws (Levy and Amendment) Act, 2013, amended the Maharashtra Stamp Act, 1958, with effect from 1 May 2013. The amendment has introduced significant obligations on banks and other financial institutions (FIs), in terms of liability to pay duty and historic forensic investigation and compliance. The legality of the amendment has been challenged by individuals and several prominent banks before Bombay High Court.

Rationale for change

Section 30A of the state’s Stamp Act, as introduced by the amendment, has three parts. First, FIs have been made liable to pay “proper” stamp duty on any document executed after 1 May 2013, either by or in favour of FIs. This requirement would not affect their “contractual” right to recover the duty from the other parties. Second, for all documents executed prior to 1 May 2013, where proper stamp duty has not been paid, the FIs must impound and forward them to the Collector. Third, if such impounding is not done, FIs will be penalized for an amount equivalent to the stamp duty on the instruments.

The stamp authority suggests that the amendment is beneficial for FIs as it is in their interest to ensure that proper stamp duty is paid on instruments created in their favour, since instruments not duly stamped are inadmissible as evidence in courts. The challenge to the amendment’s legality suggests that FIs disagree with this wisdom.

Jeet Sen Gupta is a partner, Deep Roy is an associate partner and Divya Srikanth is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.