Karnataka HC Holds ₹25 Crore Stamp Duty Cap Excludes 10% Cess as S.3B of Karnataka Stamp Act Functions Independently [Read Order]

The Karnataka High Court,upheld the validity of an additional ₹2.5 crore stamp duty charged as 10% cess under Section 3B of the Karnataka Stamp Act,1957 ruling that the ₹25 crore cap under Article 20(4)(ii) did not apply to this cess, as Section 3B operates independently

Prestige Exora Business Parks Limited,petitioner-assessee,challenged the ₹2.5 crore cess imposed on stamp duty and sought to quash the adjudication order dated 03.12.2022.

The National Company Law Tribunal(NCLT), on 22.04.2022, approved a scheme under which Exora Business Park and the CAM business were demerged and transferred to Pluto Cessna Business Park as a going concern under the Companies Act, 2013.

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The transfer was treated as a conveyance under the Karnataka Stamp Act, 1957, and stamp duty was charged under Article 20(4)(ii).

The petitioner said ₹25 crore was the maximum duty payable. However, the authority added a 10% cess of ₹2.5 crore under Section 3B of the Act.

The petitioner's counsel argued that the maximum stamp duty for a company’s demerger was ₹25 crore as per the Karnataka Stamp (Second Amendment) Act, 2022. He said Section 3C of the Act stated that total stamp duty, including any additional duty, should not go beyond this limit. So, the extra ₹2.5 crore was not valid.

He also referred to a previous case where the Court said a stamp duty exemption under Section 9 applied to both Section 3 and Section 3B. The Court followed a strict interpretation of tax concessions. He cited the Tata Consultancy Services case to support his view.

The Government Advocate replied that Section 3C only applied to duties under other laws, and the additional duty under Section 3B was correctly charged.

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A single bench of Hemant Chandangoudar(Judge) examined whether the additional ₹2.5 crore stamp duty charged under Section 3B of the Karnataka Stamp Act was valid, even though the main duty had already reached the ₹25 crore cap under Article 20(4)(ii).

It found that the demerger was treated as a ‘conveyance’, and while the total duty calculated was over ₹34 crore, the law capped it at ₹25 crore. However, the authority still added 10% extra under Section 3B, which the petitioner argued was not allowed because the cap should apply to total duty.

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The court disagreed. It explained that Section 3C only limits duties charged under other laws, not under the Karnataka Stamp Act itself. Section 3B was a separate provision meant for additional duty, and the ₹25 crore limit did not apply to it.

The petitioner referred to an earlier case involving TCS, but the Court said that ruling was based on specific facts and did not apply here.

In conclusion, the court upheld the additional ₹2.5 crore duty and ruled that it was valid under the law.

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