Is Fraud Necessary To Initiate Stamp Duty Undervaluation Proceedings? Supreme Court Refers Issue To Larger Bench

The Supreme Court on Monday referred to a larger Bench the question of whether stamp duty authorities must have material showing fraudulent intention before questioning the value of a property under Section 47-A of the Indian Stamp Act.

A Bench of Justice Dipankar Datta and Justice Sheel Nagu expressed serious doubts about the three-Judge Bench ruling in V.N. Devadoss v. Chief Revenue Control Officer-cum-Inspector of Stamps.

That judgment held that the power under Section 47-A is based on “wilful undervaluation” with fraudulent intention to evade proper stamp duty. The present Bench observed that these expressions do not appear in the wording of Section 47-A itself.

The court observed, “Having bestowed our anxious thoughts and in the circumstances discussed above, we have serious doubt regarding the efficacy of the law declared in V.N. Devadoss (supra) as a binding precedent and find ourselves unable to accept the proposition laid down therein as correct law. V.N. Devadoss (supra) being a larger Bench decision, the only option now open to us is to refer the following questions for consideration by a Bench larger than the present Bench:”

The Bench also considered two other Supreme Court decisions, Ramesh Chand Bansal v. District Magistrate/Collector and Shanti Bhushan v. State of U.P. In Ramesh Chand Bansal, the Supreme Court observed that the Stamp Act is intended to collect proper stamp duty and protect State revenue.

It also held that guideline or circle rates provide material for the registering authority to assess whether the valuation stated in an instrument is prima facie correct.

In Shanti Bhushan, the Supreme Court observed that the Stamp Act is a taxing statute and must be interpreted according to the words used in it. It held that there is no scope to imply something that is not expressly provided. The present Bench observed that this reasoning provides a close parallel to the issue before it.

The Bench could not, however, pronounce upon the correctness of V.N. Devadoss. Ramesh Chand Bansal and Shanti Bhushan were decisions of coordinate Benches, while V.N. Devadoss was decided by three judges.

Judicial discipline therefore required the present Bench to follow the larger Bench ruling unless the issue was reconsidered by a Bench of greater strength.

The dispute concerned Bharat Petroleum Corporation Limited's purchase of land from the Government of India.

BPCL had paid the entire sale consideration, and the transfer deed reflected that consideration. It also paid stamp duty and registration charges on the amount recorded in the deed.

The registering authority made a reference under Section 47-A to the District Revenue Officer (Stamps). BPCL was subsequently issued a show-cause notice seeking additional stamp duty.

Section 47-A provides for an enquiry where the registering officer has reason to believe that the market value of the property or the consideration has not been truly set out in the document. The matter can then be referred to the Collector, who determines the market value and the proper stamp duty after giving the parties an opportunity to be heard.

The provision does not expressly require fraudulent intention or wilful undervaluation. The Bench noted that the statutory test is whether the officer has a “reason to believe” that the market value or consideration has not been truly set forth.

The issue reached the Supreme Court after a Single Judge of the Madras High Court quashed the notice issued to BPCL. The Single Judge noted that the guideline value was ₹500 per square foot, while the value reflected in the instrument was ₹168.30 per square foot.

Relying on V.N. Devadoss, the Single Judge held that Section 47-A could be invoked only where there was material suggesting deliberate undervaluation with fraudulent intent to evade stamp duty. The Division Bench later reversed that decision and restored the proceedings before the District Revenue Officer.

The apex court clarified that it was not deciding the actual market value of the land. It was also not deciding whether BPCL ultimately had to pay additional stamp duty.

The question before the court was whether the statutory machinery under Section 47-A could validly be set in motion in the first place.

The Bench examined the effect of the V.N. Devadoss test through two examples.

In the first, a property has a circle rate of ₹2 crore but a depressed market value of ₹1.5 crore because it is tenanted, has limited road access and is involved in litigation. The purchaser buys it for ₹1.5 crore and records the entire consideration in the instrument. There is no fraud or cash dealing.

The court observed that under Section 47-A, the enquiry in such a case would concern whether ₹1.5 crore was the property's true market value. The purchaser would have to establish the market value rather than disprove fraud.

If the V.N. Devadoss test were applied, fraudulent intention would instead become a prerequisite for issuing notice.

The court observed that the enquiry would then shift from valuation to the purchaser's culpable mindset. It described this as converting a market-value enquiry into a “quasi-criminal enquiry.”

The second example involved a property worth ₹2 crore but recorded in the sale deed at ₹1.5 crore. The seller receives ₹1.5 crore by cheque and another ₹50 lakh in cash. The court observed that although fraudulent intention exists, the registering authority might have no material showing that intention before starting an enquiry.

If fraudulent intention were made a condition for issuing notice, the enquiry could be "stillborn," the court observed. The concealed cash payment may be known only to the parties.

The court observed that this could defeat the object of Section 47-A, which is to protect government revenue.

The bench therefore observed that the V.N. Devadoss test could be “too harsh” in a genuine case of undervaluation and “too lax” where consideration has been concealed.

The bench also rejected the submission that fraudulent intention or mens rea could not arise merely because the transfer deed named the President of India as the transferor. It explained that the President's name appeared because the transaction was executed in the exercise of the Union government's executive power.

The court observed that the reference to the President as the transferor could not, by itself, prevent an enquiry into whether the consideration or market value had been truly set forth.

The bench referred two questions to a larger Bench. The first asks whether V.N. Devadoss, as followed in Registrar of Assurances v. ASL Vyapar (P) Ltd., correctly holds that Section 47-A requires wilful undervaluation coupled with fraudulent intention to evade proper stamp duty.

The larger Bench will also consider whether Section 47-A can be invoked in the absence of a culpable mindset where the registering authority has reason to believe that the true nature and value of the transaction have not been properly reflected.

The second question asks whether the decisions in Ramesh Chand Bansal and Shanti Bhushan lay down the correct law.

The matter will now be placed before the Chief Justice of India for appropriate orders. 

For Appellant: Additional Solicitor General N. Venkataraman

For Respondents: Senior Advocate Haripriya Padmanabhan