2024 (3) TMI 1253 - HC - Customs

Levy of stamp duty on Bill of Entry (BoE) and on Delivery Orders (DO) - goods imported in Maharashtra - seek refund paid on stamp duty - Whether the State of Maharashtra has the legislative competence to levy, impose and collect stamp duty on a Delivery Order, an instrument defined in Section 2(l) of the Maharashtra Stamp Act, 1958, chargeable with duty as mentioned in Article 29 of the First Schedule in the Maharashtra Stamp Act, 1958? - Entries 41 and 83 of List I of Schedule VII of the Constitution of India - ultra vires Article 246(1), 286(1)(b) and 286(2) - HELD THAT - A plain reading of the taxing provision of the MSA suggests that a DO mentioned in Article 29 is indeed an instrument. It is not excluded from the definition of instrument. It creates an entitlement in the consignee, i.e., the Petitioners herein or any person named by them in the DO, to take delivery of the goods lying in any dock or port, in any warehouse in which the goods are stored, or deposited on rent or hire or upon any wharf etc. The definition of instrument includes every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished, or recorded. Certain documents have been specifically excluded from the definition. A DO is not one of them. Once the goods reach the destination port, they are unloaded and stored in a warehouse or storage as directed by transacting parties. In the meantime, the consignee or his agent presents a document called the BoE also containing a description of the goods matching that contained in the BoL and other details to the customs authorities. It is on the basis of the BoE that customs duty payable is computed and paid by the consignee. Upon evidence of payment of customs duty, and also its own charges, the shipper then issues the DO saying that the custodian of the goods may hand the goods over to the consignee (as there is no pending duty, claim or demand). Stamp duty is then paid on the DO and upon verification of payment of the same, the custodian releases the custody of the goods. Whether the DO is an integral part of the chain of events in the course of import of goods or is independent of the import albeit incidental thereto - If it is the latter, and not an integral part of the import, the State is well within its powers to levy stamp duty on it as per the pith and substance rule since the primary object and the essential purpose of Article 29 read with Section 2(l) of the MSA is then identified as distinct and not an integral part of an import but more as consequence of import. The BoE is presented for computation of the customs duty. Once the customs duty is paid, the import process so far as the customs authorities and the Customs Act is concerned ends. The DO is then issued by the shipper upon proof of payment of customs duty and its own charges. The DO does not form part of the chain of the import process and the taxing event occurs beyond the course of import. As Dr Saraf puts it, if a consignee can take delivery without a DO, there would be no question of a stamp duty impost. There is thus, no overlap in the legislative field and, the State and the Centre are both well within their own occupied area of Legislation. The DO in question in this group of cases only springs into being when that frontier has ended, i.e., after the process of assessment and recovery of customs duty is complete. The BoL, a document of title, originates when goods are laden on the vessel. It is the first in point of time. The BoE, as the Gujarat High Court judgments point out, is for the purposes of customs duty assessment. This is second in point of time. The DO comes into existence third in time sequence, after the customs duty, dues, freight, etc., are paid and the goods are lien-free, i.e., available for delivery. The customs barrier is, therefore, not a physical barrier per se, but speaks of a point in time after the role of customs has ended. Thus, a parallel can be drawn between the taxing power of the State in respect of levy of entry tax in the aforesaid decision and levy of stamp duty on a DO in the present case. Article 286(1)(b) of the Constitution restricts the power of the State to impose tax on the supply of goods imported into the country. The imposition of stamp duty on a DO in no manner encroaches upon the parliamentary legislature in Entry 83 of List I of the VIIth Schedule. Shipper s lien on the goods - The DO in the present circumstances has nothing to do with the customs duty nor the clearance by the customs authority for domestic consumption. Dr Saraf candidly says that if the Petitioners are able to bye-pass the requirement of a DO, the State will not have any claim of stamp in such a situation. But the moment there is a DO, the same will not be valid or accepted by the custodian without proof of payment of the stamp duty. DO is not a document of title under Article 29 of the MSA and hence, it is not an instrument - It is a DO which entitles the person named therein to take delivery of the goods after discharging the dues of a shipper. It is only after the shipper s charges are cleared that his lien on the goods is extinguished. A right to possession of the goods is distinct from ownership of the goods. Although title to goods includes ownership and possession, the former may exist without the latter. Ownership denotes de jure possession, but another person may be in de facto possession of the goods. The distinction between title and possession is self-evident. A BoL may, for instance, be transacted in a sale in the high sea. Title would pass. But the new/substituted consignee would not get physical possession of the goods sold, the high seas sale notwithstanding, until the goods were cleared through customs on arrival at the destination port. That possession may happen with or without a DO; and it is for each state government to decide whether or not to levy stamp duty on the DO. Consequently, the DO is not a BoL, nor a BoE, and it is not covered by any exclusion of the BoL or the BoE . As in the present case, even if we were to accept the contention of the Petitioners that the BoL constitutes title to the goods, without a DO, the owner or the consignee may not have possession of the goods without payment of the carrier s charges. Only upon release of the shipper s lien is the consignee entitled to delivery/possession of the goods. Thus, it is not necessary for the DO to be a document of title to fall within the purview of the definition of instrument . Once we have held that the State has not encroached upon the legislative field of the Union, merely because the amount of stamp duty is computed on the valuation of the goods does not preclude a DO from being an instrument chargeable to stamp duty by the State. Thus, we hold that the action of the State of Maharashtra in levying stamp duty on DO as provided in Article 29 of Schedule I of the MSA is well within the legislative competence of the State and does not intrude upon the legislative domain of the Parliament as reserved in Entries 41 and 83 of List I of Schedule VII of the Constitution of India and is not ultra vires Article 246(1), 286(1)(b) and 286(2) of the Constitution of India. The alternative prayer of the Petitioners to read down Article 29 of Schedule I of the Stamp Act of 1958 to not apply to a DO issued in respect of goods imported in Maharashtra is untenable. As held by the apex court in the matter of The Authorised officer, Central Bank of India vs Shanmugavelu 2024 (2) TMI 291 - SUPREME COURT , the rule of reading down is to be used for a limited purpose of making a particular provision workable and to bring it in harmony with other provisions of the statute. It is to be used keeping in view the scheme of the statute and to fulfil its purpose. We have already held that the DO is not an extension of a BoL and both are mutually exclusive documents. Thus, there is no statutory conflict and the requirement of reading down the provision does not arise. Since we hold as such, the further question of granting refund of payments made by the Petitioners towards stamp duty is redundant. All interim applications pending therein also stand disposed.

Summary

Issues Involved:
1. Legislative competence of the State of Maharashtra to levy stamp duty on Delivery Orders (DOs) u/s Article 29 of the Maharashtra Stamp Act, 1958 (MSA).
2. Whether DOs are integral to the import process and thus beyond the State's taxing power.
3. Discrimination between importers in Maharashtra and Gujarat regarding stamp duty on DOs.
4. Alternative prayer to read down Article 29 of Schedule I of the MSA.

Summary:

Legislative Competence:
The Petitioners challenged the imposition of stamp duty on DOs by the State of Maharashtra, arguing it was ultra vires Articles 246(1), 286(1)(b), and 286(2) of the Constitution of India. They contended that the legislative competence to levy such a duty falls exclusively within the Union's domain, as it pertains to import and export across customs frontiers. The Court, however, held that the State's legislative competence to levy stamp duty on DOs is valid, as the MSA is a fiscal statute aimed at collecting revenue from certain instruments, and does not intrude upon the Union's legislative domain.

Integral to Import Process:
The Petitioners argued that DOs are an adjunct to the Bill of Lading (BoL) and should not be subject to stamp duty as they fall within the import process. The Court found that the DO is issued after customs duty is paid and the goods are cleared, thus it is not an integral part of the import process but rather a consequence of it. The DO entitles the consignee to take delivery of the goods, creating a right distinct from the import process. Therefore, the levy of stamp duty on DOs does not encroach upon the legislative field of the Union.

Discrimination:
The Petitioners claimed discrimination between importers in Maharashtra and Gujarat, citing a Gujarat High Court decision exempting stamp duty on Bills of Entry (BoE). The Court noted that the Gujarat decision was specific to BoEs and did not equate BoEs with DOs. The Court held that the legislative and regulatory framework in Maharashtra is distinct and the Gujarat High Court's decision does not apply. Therefore, the claim of discrimination was dismissed.

Alternative Prayer:
The Petitioners sought to read down Article 29 of Schedule I of the MSA to exclude DOs issued for imported goods. The Court rejected this, stating that the rule of reading down is used to make a provision workable and harmonious within the statute, which was not necessary here as DOs and BoLs are distinct documents. The Court held that there was no statutory conflict necessitating the reading down of the provision.

Conclusion:
The Court concluded that the levy of stamp duty on DOs by the State of Maharashtra is within its legislative competence and does not violate constitutional provisions. The alternative prayer to read down Article 29 of Schedule I of the MSA was found untenable, and the request for refunds of stamp duty payments was rendered redundant. The rule was discharged with no order as to costs, and all interim applications were disposed of.