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Exemption from Stamp Duty Extends to Non-SEZ Lands If Used ‘In Connection With Carrying Out SEZ Purposes’: Madras High Court Quashes Registrar’s Stand, Orders Refund

Exemption from Stamp Duty Extends to Non-SEZ Lands If Used ‘In Connection With Carrying Out SEZ Purposes’: Madras High Court Quashes Registrar’s Stand, Orders Refund

Sanchayita Lahkar

 

The High Court of Judicature at Madras Single Bench of Justice N. Anand Venkatesh has allowed three writ petitions filed by a developer in relation to a Special Economic Zone (SEZ) project, holding that instruments executed for the purposes of an SEZ are exempt from stamp duty under Section 3 of the Indian Stamp Act, 1899. The court directed the registration of demerger orders issued by the Ministry of Corporate Affairs and ordered a refund of all stamp duty collected on instruments pertaining to the SEZ project, including on non-SEZ lands used in connection with SEZ activities.

 

The matter pertained to a Sector-Specific SEZ project for IT/ITES development in Zamin Pallavaram Village, Tamil Nadu. The land, measuring 29.485 acres, was owned by a private entity. Out of this, 27.53 acres were notified as SEZ land by the Ministry of Commerce and Industry (MCI) on 12.02.2008. The remaining 2.415 acres was classified as non-SEZ land. The landowner appointed a private developer as co-developer, and a co-developer agreement was executed on 20.05.2016. Lease deeds were registered on 09.11.2016, which were exempted from stamp duty at the time of execution.

 

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Subsequently, the Chennai Metropolitan Development Authority granted planning permission on 23.06.2018 and the Pallavaram Municipality issued a building permit on 26.10.2018. The project progressed in phases and partial completion certificates were issued by CMDA in 2019 and 2022. A partial denotification of 2.261 acres from the SEZ land was later approved by MCI.

 

The developer proposed a demerger of its rights to a wholly owned subsidiary company through a Scheme of Arrangement under Section 233 of the Companies Act, 2013. The scheme was approved by the Regional Director, South East Region (SER), Ministry of Corporate Affairs, Hyderabad on 19.08.2022, with a corrigendum issued on 15.11.2023.

 

Pursuant to the demerger, the subsidiary replaced the original developer as co-developer and presented the demerger orders for registration before the Sub-Registrar, Pallavaram. Registration charges were paid. However, the third respondent refused to register the documents, citing lack of clarity on stamp duty exemption for non-SEZ lands. The matter was referred to the District Registrar and the third respondent impounded the documents, invoking Section 33 of the Indian Stamp Act.

 

On 18.06.2024, the third respondent issued a letter demanding stamp duty of ₹22,69,81,600 on the ground that the demerger instrument amounted to a conveyance under Article 23 of Schedule I of the Stamp Act. The developer challenged this action and filed the present writ petitions seeking (i) a declaration that SEZ-related instruments were exempt from stamp duty, (ii) a direction to register the demerger scheme, and (iii) quashing of the impounding order dated 18.06.2024.

 

The respondents argued that G.O.Ms.No.29 dated 01.03.2019 and G.O.Ms.No.47 dated 19.02.2020 limited stamp duty exemption to orders of the High Court or the National Company Law Tribunal (NCLT), and did not cover approvals granted by Regional Directors under Section 233 of the Companies Act. It was further contended that only the notified SEZ lands qualified for exemption, and not the 2.415 acres of non-SEZ land.

 

The court examined the two primary issues: whether demerger orders issued by the Regional Director, SER, MCA, Hyderabad are eligible for stamp duty exemption under Clause (3) of the Sixth Proviso to Section 3 of the Stamp Act, and whether such exemption can extend to non-SEZ lands used for SEZ purposes.

 

The court noted that “the levy of duty is on the instrument and not on the transaction” and that Clause (3) of the Sixth Proviso to Section 3, as inserted via the SEZ Act, exempted instruments “executed by, or, on behalf of, or, in favour of, the Developer, or Unit or in connection with the carrying out of purposes of the Special Economic Zone.”

 

The court stated: “On a combined reading of Section 2(f) and (g) of the SEZ Act, this Court has already concluded that the term 'developer' will include a co-developer.” It further recorded: “The approval granted for the demerger by the Regional Director, SER, MCA, Hyderabad is valid for all purposes under the Companies Act, 2013.”

 

Rejecting the respondents’ reliance on G.O.Ms.No.47, the court held: “The Government was oblivious of the fact that the Companies Act conferred powers on the Central Government to delegate its powers to the Regional Director. Therefore, to confine the reduced stamp duty only to those orders passed by the High Court or the NCLT is wholly unsustainable.”

 

Regarding the applicability of exemption to the 2.415 acres of non-SEZ land, the court recorded: “The exemption does not confine itself only to those lands falling within the SEZ. But, it is also extended to the lands utilized in connection with the carrying out of the purposes of the SEZ.”

 

The court found that all lands, including SEZ, non-SEZ, and denotified portions, were part of a unified project developed for SEZ purposes. It stated: “The language used under Clause (3) of the Sixth Proviso to Section 3 of the Stamp Act is wide enough to include even the lands, which are utilized in connection with carrying out the purposes of the SEZ.”

 

The court also cited the definition of ‘Special Economic Zone’ under Section 2(za) of the SEZ Act and noted that even the denotified land was subject to conditions requiring it to continue serving SEZ objectives. The court reiterated: “In order to give effect to such a benefit conferred by the Legislature, such an exemption must be extended also to those lands namely an extent of 2.415 acres (non SEZ land), which is used for carrying out the project in the SEZ lands.”

 

The court allowed all three writ petitions. It quashed the impounding of documents and held the petitioner eligible for stamp duty exemption under Section 3 of the Indian Stamp Act, as amended by the SEZ Act.

 

“Accordingly, the writ petitions are allowed as prayed for. As a consequence, the stamp duty that was deposited by the petitioner before the Sub-Registrar, Pallavaram pursuant to the interim order dated 31.7.2024 granted by this Court shall be refunded to the petitioner together with interest as was indicated in the said interim order.”

 

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The court further directed:

“The very same benefit will also enure for all the documents that were executed with respect to the subject lands and any stamp duty that has been paid and collected till now shall be refunded by the respondents within a period of four weeks from the date of receipt of a copy of this order.”

 

It concluded that: “There is no scope for initiating any proceedings under Section 33A of the Stamp Act since this Court has held that the petitioner is entitled to exemption from payment of the stamp duty and consequently, there is no deficit stamp duty recoverable from the petitioner.”

 

Advocates Representing the Parties

For the Petitioners: Mr. Vijay Narayan, Senior Counsel; Mr. R. Sankaranarayan, Senior Counsel; Mr. Sathish Parasaran, Senior Counsel

For the Respondents: Mr. P.S. Raman, Advocate General assisted by Mr. U. Bharanidharan, Special Government Pleader

 

Case Title: M/s. Embassy Property Developments Pvt. Ltd. v. The Inspector General of Registration & Others

Neutral Citation: 2025:MHC:984

Case Number: W.P.Nos.17059, 17061 & 19636 of 2024

Bench: Justice N. Anand Venkatesh

 

[Read/Download order]

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