IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.BALAKRISHNAN NAIR & THE HONOURABLE MR. JUSTICE C.T.RAVIKUMAR FRIDAY, THE 28TH AUGUST 2009 / 6TH BHADRA 1931 WP(C).No. 17794 of 2007(R) ------------ -------------------------- PETITIONER(S): ---------------------- 1. KERALA BUILDERS FORUM, 43, JAWAHAR NAGAR, KADAVANTHRA, COCHIN-20, REPRESENTED BY ITS SECRETARY GEORGE E. GEORGE. 2. M/S. SKYLINE FOUNDATIONS AND STRUCTURALS PVT. LTD., MAGNUM, KARIKAMURI CROSS ROAD, COCHIN-11, REPRESENTED BY ITS MANAGING DIRECTOR, K. LAVA. 3. INFRA HOUSING PVT. LTD., FIRST FLOOR, CLS BUILDING, M.G.ROAD, KOCHI-11, REPRESENTED BY ITS DIRECTOR, GEORGE E. GEORGE. 4. ABAD BUILDERS PVT. LTD., ABAD PLAZA COMPLEX, M.G.ROAD, KOCHI-35, REPRESENTED BY ITS DIRECTOR, NAJEEB ZACHARIA. 5. RAMESH SIVARAMAKRISHNA, S/O. LATE S.K.NAIR, AGED 46 YEARS, SOWBHAGYA, ELAMKULAM ROAD, KALOOR P.O., ERNAKULAM-17. BY SENIOR ADVOCATE SRI. ARAVIND DATTAR ADVS. SRI.P.R.VENKETESH, SRI. R.AZAD BABU, SRI.T.R.RAJAN SRI.C.MURALIKRISHNAN (PAYYANUR) & SRI.S.ANANTHAKRISHNAN RESPONDENT(S): -------------------------- 1. STATE OF KERALA, REPRESENTED BY THE FINANCE (B) DEPARTMENT, GOVT. SECRETARIAT, GOVT. OF KERALA, THIRUVANANTHAPURAM. 2. THE INSPECTOR GENERAL OF REGISTRATION, THIRUVANANTHAPURAM. 3. THE DISTRICT REGISTRAR, ERNAKULAM. BY SPL. GOVT. PLEADER SRI. N. MANOJ KUMAR. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 15/07/2009, ALONG WITH WPC Nos. 19901 OF 2007, 19852 OF 2007 AND 6975 OF 2009 THE COURT ON 28/08/2009 DELIVERED THE FOLLOWING: APPENDIX PETITIONER'S EXHIBITS: Ext.P1: True copy of the agreement for sale relating to undivided share of land entered into between the third petitioner and the fifth petitioner. Ext.P2: True copy of the construction agreement entered into between the 3rd and 5th petitioner. Ext.P3: True copy of the one of the joint venture agreement involving the third petitioner and another. Ext.P4: True copy of the power of attorney executed in favour of the third petitioner. Ext.P5: True copy of the relevant portion of the Finance Bill 2007 containing the relevant amendment brought about to the Stamp Act. Ext.P6: True copy of the relevant portion of the Finance Act, 2007 containing the relevant amendment brought about to the Stamp Act. Respondents' Exhibits: Ext.R1(a) : True copy of an excerpt from the document registered by the 4th petitioner with No.2767/07 at S.R.O., Ernakulam. K. BALAKRISHNAN NAIR & C.T. RAVIKUMAR, JJ. ------------------------------ W.P.(C) Nos.17794 of 2007, 19852/07, 19901/07 and 6975 of 2009. ------------------------------ Dated this, the 28th day of August, 2009 JUDGMENT Balakrishnan Nair, J. The main point that arises for decision in these cases is the constitutional validity of certain provisions of the Kerala Stamp Act, 1959, which were introduced by way of an amendment by the Finance Act, 2007(Act No.15 of 2007). W.P.(C) No.17794/07: This writ petition is treated as the main case for the purpose of referring to the pleadings and exhibits. The brief facts of the case are the following: 2. The first petitioner is a Society, registered under the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act, 1955. The petitioners 2 to 4 and other builders are its members. The fifth petitioner is a person, who entered into two agreement with the third petitioner, one WPC No.17794/07 etc. - 2 - for the purchase of an undivided share of land owned by the said petitioner and the other for construction of a residential flat. The members of the first petitioner, including petitioners 2 to 4 are engaged in the business of development of properties and construction of apartments and other buildings. 3. The fifth petitioner entered into Ext.P1 agreement dated 13.1.2007 with the third petitioner, for the purchase of an undivided share of a land owned by the latter. Simultaneously, the fifth petitioner also entered into another agreement with the third petitioner, for the construction of a flat in the property owned by the latter. Ext.P2 dated 13.1.2007 is the agreement concerning construction of the residential flat. The petitioners submit that similar agreements have been entered into by petitioners 2 to 4 and other members of the first petitioner with several persons, for the sale of undivided share of land belonging to them and for construction of apartment blocks. The petitioners also submitted that in certain cases, the owners of land entered into agreements with the builders, for a joint WPC No.17794/07 etc. - 3 - venture and in such cases, they jointly develop the land. The owners of land will execute a power of attorney in favour of the builders to develop the property. Ext.P3 dated 14.3.2005 is one such agreement entered into by the third petitioner with the owners of a land. Ext.P4 dated 11.5.2005 is the power of attorney executed by the owners of the said land in favour of the third petitioner. 4. The petitioners are aggrieved by the recent amendments brought to the Kerala Stamp Act, 1959 (hereinafter referred to as “the Act”) by the Kerala Finance Act, 2007. A true copy of the amendment introduced as per Amendment Act No.15 of 2007 to the Kerala Stamp Act, 1959 (Act No.17 of 1959) is produced in the writ petition as Ext.P6.. Section 2 of Act 15 of 2007 deals with the amendment to the Act. The impugned amendments are those relating to Articles 5 (3), 21, 22 and 44(f) of the Schedule to the Act. The amendment introduced to Article 5 reads as follows: WPC No.17794/07 etc. - 4 - “5. Agreement or memorandum of an agreement. xxx xxx xxx xxx xxx xxx (c) if relating to giving authority or power to a promoter or developer by whatsoever name called, for construction, development or sale or transfer (in any manner whatsoever) of any immovable property. The same duty as a conveyance (under 21 or 22 as the case may be) on the value or the estimated cost of proposed construction/ development of such property, as the case may be.” Article 21, after the amendment reads as follows: “21. Conveyance (as defined by section 2(d), other than a conveyance specified in No.22, not being a transfer charged or exempted under No.55. Six rupees for every Rs.100 or part thereof of the amount or value of the consideration for such conveyance. provided that if the conveyance relates to any transfer of undivided share of any land and refers to any agreement relating to the construction of any building or part of building, including flat or apartment or room etc., the value of such building or such part of the building shall also be included in such consideration, and the stamp duty if any paid in respect of such agreement shall be deducted from the stamp duty payable for the conveyance.” A proviso has been added to column (3) of Article 22. The said article, including the amendment, reads as follows: WPC No.17794/07 etc. - 5 - “22. Conveyance (as defined by section 2(d), not being a transfer charged or exempted under No.55 of immovable property situated within the Municipal Corporations or Municipalities. Eight rupees fifty paise for every Rs.100 or part thereof of the amount or value of the consideration for such conveyance. provided that if the conveyance relates to any transfer of undivided share of any land and refers to any agreement relating to the construction of any building or part of building, including flat or apartment or room etc., the value of such building or such part of the building shall also be included in such consideration, and the stamp duty if any paid in respect of such agreement shall be deducted from the stamp duty payable for the conveyance.” A new clause (f) has been added to Article 44 by the aforementioned Amending Act. The said Article 44 deals with power of attorney. The relevant portion, which was introduced as per the amendment to the said Article, reads as follows: “44. Power of attorney (as defined by section 2(p), not being a proxy). (f) when authorising a person other than his father, mother, wife or husband, son, daughter, brother of sister to sell immovable property situated in Kerala. The same duty as a conveyance (No.21 or 22 as the case may be) for the amount of consideration/estimate WPC No.17794/07 etc. - 6 - The petitioners attack the above amendments, contending that the State lacks legislative competence for enacting those amendments. They also submit that the amendments violate the fundamental rights of the petitioners, guaranteed under Articles 14 and 19(1)(g) of the Constitution of India. So, they prayed that the impugned amendments may be declared as ultra vires of the Constitution and, therefore, unenforceable. The State filed a counter affidavit, supporting the impugned amendments. The petitioners filed a reply affidavit dealing with the averments in the counter affidavit. 5. We heard learned Senior Counsel Sri.Aravind Dattar and also learned counsel M/s.P.R.Venkitesh and S.Ananthakrishnan for the petitioners. We also heard M/s. K.I.Mayankutty Mather and Millu Dandapani, learned counsel who appeared in the connected writ petitions. The learned Special Government Pleader, Sri.N.Manoj Kumar appeared for the State and supported the impugned amendments. The learned Senior Counsel took us through item WPC No.17794/07 etc. - 7 - 63 of List II and Item 44 of List III of the Seventh Schedule to the Constitution. Reference was also made to item 91 of List I of the Seventh Schedule to the Constitution. Stamp duty is a duty on an instrument executed. Article 5 of the Schedule read with Section 3 of the Act enables levy of stamp duty on an instrument of agreement. The word 'agreement' is not defined in the Stamp Act. So, the definition of 'agreement' under the Indian Contract Act can be followed. Article 5(c) in the Schedule to the Act enables the State to levy duty on execution of an agreement, giving authority for construction etc., at the same rate as could be levied on a conveyance under Articles 21 or 22 of the Schedule, on the value for the estimated cost of development of such property. “Conveyance” is defined in Section 2(d) of the Act, as follows: “(d). 'conveyance' includes a conveyance on sale and every instrument by which property, whether movable or immovable is transferred inter vivos and which is not otherwise specifically provided for by the Schedule”. The learned Senior Counsel pointed out that, hitherto, the WPC No.17794/07 etc. - 8 - stamp duty for an agreement was Rs.50/- and now, the stamp duty has been fixed at the same rate as that of a sale deed. The amount will be calculated with reference to the value of the proposed construction or development mentioned in the agreement. The measure of tax indicated is highly arbitrary and irrational, it is pointed out. As per the newly amended Article 21 of the Schedule to the Act, when an undivided share in a land is conveyed and the same refers to any agreement relating to construction of any building, flat, apartment, room, etc., the value of such building, flat, apartment, room etc. shall also be included in the consideration for conveyance. It is also provided that any stamp duty paid in respect of the agreement shall be deducted from the stamp duty payable for conveyance. Article 22 deals with conveyance in Municipalities and Municipal Corporations. The newly introduced proviso to Article 21 finds a place in Article 22 also. The learned Senior Counsel submitted that when an undivided share in a property is conveyed, the duty is computed with reference to the flat or apartment that may come up in that land. The learned Senior Counsel pointed WPC No.17794/07 etc. - 9 - out that in many cases, the agreement mentioned in Article 5(c) need not consummate into a sale. Similarly, a construction need not necessarily take place, even if the undivided share is transferred, as contemplated in Articles 21 and 22. In that event, there is no provision for refund of the amount already collected as stamp duty. With the amendment to Article 44, if a power of attorney is executed in favour of a person, who is not a near relative mentioned therein, stamp duty at the rate applicable to conveyance under Article 21 or 22, as the case may be, shall be levied. Hitherto, the stamp duty for executing a power of attorney was only Rs.100/-. The above provisions are not meant to plug tax evasion, but are steps to spread the tax net wider. It is an attempt to levy stamp duty for something not covered by the competency of the State Legislature. Without amending the definition of conveyance, something not a conveyance is treated as a conveyance and duty is sought to be levied. Such an attempt is without authority. The learned Senior Counsel also submitted that any such attempt of the State will offend Articles 14 and 19(1)(g) of WPC No.17794/07 etc. - 10 - the Constitution of India. In support of his submissions, the learned Senior Counsel relied on the following decisions, viz. Gannen Dunkerley and Co., v. State of Madras, (AIR 1954 Madras 1130); State of Madras v. Gannen Dunkerley and Co., AIR 1958 SC 560, Hindustan Lever v. State of Maharashtra, (2004) 9 SCC 438, M/s. Govind Saran Ganga Saran v. Commissioner of Sales Tax, AIR 1985 SC 1041, State of Rajasthan v. Rajasthan Chemists Association, (2006) 6 SCC 773, Chief Controlling Revenue Authority v. Sudarsanam Pictures, AIR 1968 Madras 319, Chief Controlling Revenue Authority v. Dr.K.Manjunatha Rai, AIR 1977 Madras 10. The above decisions are cited in support of the submission that, something which has nothing to do with conveyance, as defined under Section 2(d) of the Kerala Stamp Act, cannot be taxed treating the same as conveyance, by amending the Schedule to the Act, but without amending the substantive provision. The learned Senior Counsel also relied on the decision in India Cement Ltd. v. State of Tamil Nadu, AIR 1990 SC 85, K.Damodarasamy Naidu v. State of Tamil WPC No.17794/07 etc. - 11 - Nadu, (2000) 1 SCC 521, Builders Association v. Union of India, AIR 1989 SC 1371. The learned counsel, Sri.Mayankutty Mather, who appeared in a connected writ petition, submitted that the impugned provisions are suffering from the vice of vagueness. There is no provision for adjustment of stamp duty already paid, if no construction or development takes place. Relying on Section 54 of the Transfer of Property Act, it is submitted that agreement for conveyance does not transfer any interest in the immovable property. The learned counsel also submitted that the builder or land owner is not the owner of the flat/apartment. A third party purchases an undivided share and the builder executes a works contract and a flat is constructed in the property owned by the third party. So, in that transaction, no sale of flat takes place between the builder and the owner of the undivided share, who purchased it from the land owner or from the builder. The learned counsel also submitted that if a fully constructed flat is sold by the builder, then stamp duty has to be paid for the land as well as the flat. In the case on hand, the learned counsel submitted WPC No.17794/07 etc. - 12 - that the person who purchased the undivided share in the land engages the builder to construct a flat for him. It is a works contract. So, duty is tried to be levied on construction of the building by the builder in execution of a works contract. The State Legislature has no legislative competence to do that. The actions of the State, though legislative, are liable to be interfered with, as they offend the fundamental rights of the petitioners under Articles 14 and 19(1)(g) of the Constitution of India, it is submitted. The learned counsel also relied on the decision of the Apex Court in State of Rajasthan v. Basant Nahata, AIR 2005 SC 3401. 6. The learned Special Government Pleader for Taxes, on the other hand, submitted that the newly introduced amendment does not cover the case of a works contract. No contractor will be liable to pay duty on the instrument of works contract executed by him. So, the builders and developers mentioned in Article 5(c) of the Schedule to the Act are those persons who purchase land or enter into agreement with the WPC No.17794/07 etc. - 13 - land owner, construct flats in the land and sell them to third parties along with the undivided share in the land. The amount is collected in instalments from the purchaser. Though it would appear that the person who purchased the undivided share is building the flat engaging the builder, in fact, it is the other way. The builder is building the flat and selling it to the buyer on payment of its value in instalments. Tax was being evaded, on the conveyance of such flats. To plug such evasion of tax, the amendments were introduced. If the State legislature has competence to levy duty on the instrument of conveyance, it has also the power to enact provisions to plug evasion of stamp duty. The learned Government Pleader undertook that, stamp duty will not be levied from the works contractors, who execute work contracts, but duty will be levied only from persons who enter into agreements in the nature of Exts.P1 to P3 and execute power of attorney in the nature of Ext.P4. A close scrutiny of Exts.P1 to P4 would show that the sale of property and sale of flat takes place, but duty is paid only for the conveyance of undivided share in the land. In view of the above WPC No.17794/07 etc. - 14 - position, the attack against the impugned provisions is untenable, it is submitted. The learned Government Pleader relied on the decisions of the Apex Court in State of Maharashtra v. Bharat Shanti Lal Shah, (2008) 3 SCC 5, Govt. of A.P. v. P.Laxmi Devi, (2008) 4 SCC 720, Greater Bombay Co - op, Bank Ltd. v. United Yarn Tex (P) Ltd., (2007) 6 SCC 236, State of A.P. v. Mcdowell and Co., (1996) 3 SCC 709, Veena Hasmukh Jain v. State of Maharashtra, (1999) 5 SCC 725 and Fantasy Sales Corporation v. Sales Tax Inspector, 2007 (2) KLT 174, to support his contentions. 7. We considered the rival submissions made at the Bar and also went through the decisions cited by both sides. Before referring to the decisions, we may refer to the agreements produced in this case as Exts.P1 to P3 and the power of attorney produced as Ext.P4. Ext.P1 is an agreement executed between the fifth petitioner and the third petitioner for the purchase of 1238/270000 undivided share in 120.115 cents WPC No.17794/07 etc. - 15 - of land in Re-survey No.457/1 of Kakkanad Vilage in Ernakulam District for a consideration of Rs.1,32,466/-. The said agreement would show that one of the conditions of sale is that the fifth petitioner should entrust the work of construction to the third petitioner. The said agreement would also show that the first party thereto (third petitioner herein) has an approved plan from the Trikkakara Panchayat for the construction of a multi storeyed building called Infra Vantage in the above-said property, consisting of two bed room and three bed room apartments with common areas, common facilities, common amenities etc. The proposal is to construct a huge apartment consisting of 16 floors including the ground floor. As mentioned earlier, the agreement for sale of the undivided share in the land is subject to the condition that the construction shall be entrusted to the third petitioner. In the said agreement, it is specifically stated that the 5th petitioner shall not demand registration of the sale deed for the undivided share before the payment of entire sale price and settlement of the cost and charges of the construction of the WPC No.17794/07 etc. - 16 - apartment. Simultaneously, with the execution of Ext.P1, the fifth petitioner has executed Ext.P2 agreement, entrusting the construction to the third petitioner. The said agreement provides for construction of a two bed room flat with a built up area having 950 square feet. As per the agreement, the fifth petitioner undertook to pay the charges for construction in accordance with the payment schedule. If there is default, the third petitioner is entitled to collect the defaulted amount with 12% interest. Clause 10 and 11 of Ext.P2 reads as follows: “10). The second party shall not do anything on the apartment which will affect the strength and support of the entire multi storeyed building or raise any construction or change the boundary peripheral area including elevation and exterior of the building either by addition or deletion than in a manner planned, built and handed over. 11). The Second Party shall not interfere with and shall not obstruct the common use of the stair cases and the common verandas, common places and the common facilities such as lifts, standby generator, septic tank, water WPC No.17794/07 etc. - 17 - tank etc. and the Second Party shall not cause any nuisance, obstructions and problems to the other owners of apartments.”. Going by the above clauses, there is no reason for the third petitioner to include those conditions, if he is only a works contractor. Those conditions would show that the third petitioner is more than a works contractor. A close reading of Ext.P2 would show that the third petitioner is not at all a works contractor. Yet another relevant fact is that it was the third petitioner who obtained the building permit from Kakkanad Panchayat, under the Kerala Municipality Building Rules, 1999, which were extended by the Government to the said Panchayat's area also. So, it is the responsibility of the third petitioner under the said Rules to build the apartments in accordance with the conditions of the building permit and also in compliance with the relevant Rules. Therefore, the third petitioner is not a works contractor. WPC No.17794/07 etc. - 18 - 8. Ext.P3 is the agreement entered into by the third petitioner with third parties, under which it gets possession of certain land for construction of residential flats. The third petitioner offered a portion of the built up area to the land owners. In consideration of that, they have handed over possession of the property and also executed Ext.P4 power of attorney in favour of the third petitioner, so that the said petitioner can do with respect to the property all that can be done by the owners. So, a close reading of Exts.P3 and P4 would show that the owners have transferred the property to the builder in consideration of giving them a portion of the built up area going to be constructed and on the strength of Ext.P4 power of attorney, the builder will sell the undivided share to third parties and also along with that sell the flats on completion of construction of them. Exts.P3 and P4, when taken together, are meant to evade stamp duty on conveyance of property, as in the case of Exts.P1 and P2. Thus, a reading of Exts.P1 to P4 would show that, they are used to evade stamp duty. In this context, we would refer to the decision of the Apex Court in WPC No.17794/07 etc. - 19 - Hussainbai v. Alath Factory Thezhilali Union, (1978) 4 SCC 257. It was a case of a coir factory, where the management claimed that the workmen under them were workers of independent contractors, though raw materials were supplied by the management and the goods manufactured were taken by them. The management entered into agreements with the intermediate contractors, who in turn, engaged workmen under them. A dispute arose as to who was the real employer of the workmen. The Labour Court as well as this Court held in favour of the workmen. The matter was carried before the Supreme Court. The Honourable Supreme Court, in that context, observed as follows: “The presence of intermediate contractors with whom alone the workmen have immediate or direct relationship ex-contractu is of no consequence when, on lifting the veil or looking at the conspectus of factors governing employment, we discern the naked truth, though draped in different perfect paper arrangement, that the real employer is the Management, not the immediate contractor. Myriad devices, half hidden