Stamp duty penalties must be proportionate to the default, not punitive for delay alone.

The petitioner allotted shares on four occasions between 2006 and 2008 but did not pay the requisite stamp duty at the time. On 22 June 2016, it applied under Section 31 of the Indian Stamp Act, 1899, for determination of the duty payable.

The Collector directed payment of ₹1,90,430 in stamp duty and imposed a penalty of ₹14,00,000. On appeal, the penalty was reduced to ₹12,00,000.

The petitioner challenged that penalty, submitting that no notice had preceded its application and that it would accept a penalty up to twice the duty.

Whether the penalty imposed under Section 40(1)(b) of the Indian Stamp Act, 1899, was a proper exercise of the Collector’s discretion, given the delay and the absence of mala fides or an intention to evade stamp duty.

Whether the penalty should be reduced to twice the amount of stamp duty payable.

Section 31 of the Indian Stamp Act, 1899, provides for an application to the Collector for determination of the proper duty. Under Section 40(1)(b), the Collector has discretion to impose a penalty of up to ten times the proper duty.

That discretion must be exercised judiciously and reasonably, not arbitrarily or oppressively; the penalty should be proportionate to the default and should account for aggravating circumstances such as fraud, deceit, or intentional deprivation of State revenue.

Relying on Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh & Ors., Civil Appeal Nos. 3195–3196 of 2020, the Court noted that a penalty is intended to deter, not to exact retribution.

Although the petitioner’s application was delayed, it had itself approached the authority to have the duty determined, and the record showed that no notice had been issued before it did so.

The Court found no mala fides or intention to deceive or evade payment. In those circumstances, a penalty of ₹12,00,000 was not justified merely by the fact of delay; the appropriate penalty had to reflect a proportionate exercise of the statutory discretion.

The petition and pending applications were disposed of accordingly.