Stamp duty is confined to property conveyed by the instrument, excluding prior separate transactions.

Khatau Junker Limited (“KJL”) entered into an agreement dated 22 February 1996 with Rallies India Limited (“RIL”) for the transfer of leasehold land, buildings, plant, machinery and other assets for an aggregate consideration of ₹21 crores.

RIL subsequently designated Rallis Industrial Chemicals Limited (“RICL”) to acquire the leasehold property and ICICI Limited to acquire the movable plant and machinery.

On 27 September 1996, KJL separately transferred the movable assets to ICICI for ₹17.12 crores, and ICICI thereafter leased those assets to RICL.

By a deed of assignment dated 8 October 1996, KJL transferred only the leasehold land, buildings and structures to RICL for ₹4 crores; the instrument was registered on 12 May 1997 and stamp duty was paid on that consideration.

The Stamp authorities issued notice alleging that the instrument reflected a transaction valued at ₹21 crores and ultimately demanded ₹3,67,64,510 towards stamp duty, together with a penalty of ₹60 lakhs.

The learned Single Judge partly allowed the writ petition, quashed the demand and consequential recovery proceedings, restrained the State from raising a demand in respect of the 22 February 1996 agreement, and permitted fresh adjudication limited to the immovable property conveyed by the deed dated 8 October 1996, after supplying the valuation report or relevant Jantri and granting an opportunity of hearing.

Whether stamp duty on the conveyance dated 8 October 1996 could be assessed on the aggregate consideration of ₹21 crores, including the movable plant and machinery referred to in the earlier agreement dated 22 February 1996?

Whether the plant and machinery could be treated as “immovable property” under the Explanation to Section 2(ja) of the Bombay Stamp Act, 1958, on the basis that they were transferred with the intention of running the factory?

Whether the prior transfer of movable assets to ICICI and their subsequent lease to RICL could be treated as part of the impounded conveyance for the purpose of stamp-duty assessment?

Whether the Stamp authorities could redetermine the stamp duty payable on the immovable property without furnishing the valuation material relied upon and without granting an effective opportunity of hearing?

The Court applied Sections 2(l), 2(ja), 3, 8 and 32A of the Bombay Stamp Act, 1958.

Section 2(l) defines an “instrument” as a document by which a right or liability is created, transferred, limited, extended, extinguished or recorded; stamp duty is imposed on the instrument, not merely on the underlying transaction.

Under Section 2(ja), plant or machinery transferred with the intention of running a factory may, by the statutory Explanation, be deemed immovable property, but the deeming provision must apply to the instrument and property actually transferred.

Section 32A permits the Collector to determine the correctness of the consideration or market value, subject to notice and hearing.

Section 8 cannot be used to enlarge the scope of a conveyance so as to include distinct property not transferred by that instrument.

Relying on *Hindustan Lever & Anr. v. State of Maharashtra & Anr.*, (2004) 9 SCC 438, and *IRC v. G. Angus & Co.*, (1889) 23 QBD 579, the Court held that stamp duty is chargeable on the instrument effecting the transfer, not on an unembodied transaction.

The Court distinguished *Sub-Registrar, Amudalavalasa v. Dankuni Steels Ltd.*, (2023) 10 SCC 601, and applied the natural-justice principle that valuation reports or Jantri materials relied upon for enhanced duty must be furnished to the affected party, as recognised in *Manubhai Vaghjibhai Dabhi v. State of Gujarat*.

The Court examined the actual terms of the conveyance dated 8 October 1996 rather than treating the earlier agreement as the operative instrument.

The deed expressly recorded that the movable assets had already been separately purchased by ICICI and that the remaining movable assets had been separately acquired by RICL before execution of the deed.

Its operative clause transferred and assigned only the leasehold property, comprising the land, buildings, structures and facilities described in the Schedule, for ₹4 crores.

Therefore, the recital of the earlier agreement merely explained the sequence of transactions and did not transfer the plant and machinery through the impounded instrument.

The fact that ICICI’s transfer or lease documents might be disputed as to registration or adequacy of stamp duty did not permit the authorities to disregard those separate transactions and retrospectively treat the machinery as directly conveyed to RICL under the 8 October deed.

Consequently, the Explanation to Section 2(ja) and Section 8 could not be invoked to impose stamp duty on the entire ₹21-crore transaction.

However, the authorities retained jurisdiction to determine the correct market value and stamp duty relating solely to the immovable property conveyed by the deed, provided the valuation material was disclosed and a proper hearing was afforded.

The State was held precluded from raising a stamp-duty demand in respect of the transaction embodied in the agreement dated 22 February 1996 or from including the movable plant and machinery in the assessment on the conveyance dated 8 October 1996.

The Stamp authorities were, however, permitted to redetermine the stamp duty payable on the immovable property transferred by the deed dated 8 October 1996, after furnishing the relevant valuation report or Jantri, giving notice and an opportunity of hearing, and passing a reasoned order.

The exercise was directed to be completed within 10 weeks from receipt of the judgment by the competent authority.

There was no order as to costs.