SEZ Units Cannot Be Denied Stamp Duty Exemption Due To Pre-Ordinance Lease: Gujarat High Court

The Gujarat High Court on 2 September held that an SEZ unit cannot be denied exemption from stamp duty and registration fee merely because its lease deed was executed before the Gujarat Special Economic Zone Ordinance, 2004 came into force, where the investment was made on the basis of the State Government's earlier SEZ policy promising such fiscal incentives.

A Division Bench comprising Chief Justice Sunita Agarwal and Justice D.N. Ray dismissed the State Government's appeal against an order directing refund of stamp duty and registration fee paid by Sahajanand Technologies Pvt. Ltd. The judges observed:

“Looking to the intention and promise of the Government which has led to establishment of Special Economic Zone and the investment in the SEZ area, it was opined that merely because a policy framed by the Government culminated into an Ordinance in the year 2004, that by itself cannot be a ground to deny the benefits under the Ordinance to the investors like the petitioners. The fiscal benefits as promised in the policy are, thus, to be accorded to the petitioners.”

The dispute arose from a lease deed executed by Sahajanand Technologies on 4 December 2003 in connection with its SEZ unit. The Single Judge had directed the State authorities to refund the stamp duty and registration fee paid by the petitioners.

Challenging the order, the State contended that the Gujarat Special Economic Zone Ordinance, 2004 came into force only on 10 February 2004 and that the fiscal exemption under the Ordinance could not apply to a lease executed before that date. It also contended that the benefit under the Ordinance was confined to a “transfer of land” and that a lease could not be treated as such a transfer.

The Court rejected this narrow interpretation, noting that a lease involves transfer of an interest in immovable property. It further noted that the State's SEZ policy dated 19 July 2002 had provided complete exemption from stamp duty and registration fee, among other fiscal incentives. It held that the subsequent Ordinance gave statutory shape to the policy rather than marking the beginning of the State's commitment to investors.

The Bench found that investors had proceeded on the basis of the Government's existing policy and that the time taken to process applications and obtain clearances could not be used to deprive them of the promised fiscal benefits. It also rejected a strict cut-off based solely on the date of promulgation of the Ordinance, holding that it would create an artificial distinction between similarly situated SEZ investors. It observed:

“There is one more aspect of the matter and that is if we accept the contentions of the learned counsel for the appellant about the strict implementation of the date for grant of exemption being the date of promulgation of the ordinance, it would result in a hostile discrimination between two sets of persons who had proceeded to establish their units in a Special Economic Zone even a day prior to 10.02.2004 and those who executed deeds on or after 10.02.2004.”

The judges also found no error in the Single Judge's decision to grant the fiscal benefit despite the lease having been executed before the Ordinance.

Accordingly, the High Court directed the State authorities to process and pay the refund within six weeks and dismissed the appeal.

Counsel for the Appellant: Ms. Hetal Patel, Assistant Government Pleader

Counsel for Respondent No. 2: Mr. Param Shah with Mr. Abhishek M. Mehta

Counsel for Respondent No. 1: Mr. Derick Rajan Thomas