1994 (2) TMI 325 - SC - Indian Laws

SC rules Form VI instruments under Kerala Abkari Act Section 7 are bonds requiring stamp duty under Article 13

The SC held that Form VI instruments executed under Section 7 of the Kerala Abkari Act for deferred payment of excise duty on liquor exports constituted ... Classification of the instrument under the Kerala Stamp Act - chargeable to stamp duty - Liability to pay excise duty on the liquor exported - definition of the word 'bond' - Whether the bond executed under Section 7 of the Kerala Abkari Act for deferred payment of duty on export by the manufacturers of Indian made Foreign Liquor in Form VI was a bond within meaning of Article 13 of the Kerala Stamp Act 1939 ('the Act') or an agreement as defined in Article 5 of the Schedule of the Act? S.P. Bharucha, J. - HELD THAT:- In our view, the definition of 'bond' in Sub-Clause (1) of Clause (a) of Section 2 of the Kerala Stamp Act is clear and unambiguous. It must be read as it stands, nothing may be read in or implied. The word 'whereby' must be read as meaning what it ordinarily does, namely, 'by which'. An instrument, therefore, by which person puts himself under an obligation to pay a sum of money to another on condition that the obligation small be void if some specific act is, or is not, performed is a bond. The only question to pose is has the executant of the instrument put himself under an obligation, or bound himself, to pay a sum of money to another, the obligation to be void under specified circumstances? If the executant can be sued for that sum of money only upon the strength of the instrument, the instrument is a bond. As required by the Abkari Act, the respondents oblige themselves in the event of breach of the condition, to pay to the State of Kerala the sum of money mentioned in the instrument in question, being the amount of the excise duty. Under the instrument in question the respondents clearly oblige or bind themselves to pay to the State of Kerala a specified sum of money and can be sued thereon. The instrument in question is, therefore, an instrument whereby a person obliges himself to pay money to another, the obligation to become void if a specified act is performed. It is a bond within the meaning of the Kerala Stamp Act. Instrument indemnifies the State of Kerala against loss of excise duty in the event that delivery of the liquor exported is not made to the Excise Officer in charge of the importer or in the event that the excise duty is not paid to him by reason of failure of delivery of all or any part of the liquor. The instrument in question must, therefore, be assessed to duty under the provisions of Entry 32 of the Schedule. In the result, the appeal is allowed. The judgment and order under appeal is set aside. The writ petition filed by the respondents is allowed only to the extent that it is declared the instruments executed by them in Form VI of the Distillery and warehouse Rules made under the provisions of the Kerala Abkari Act shall be liable to stamp duty under Entry 32 of the Schedule Kerala Stamp Act. R.M. Sahai, J. - HELD THAT:- The liability to pay or the obligation undertaken to pay on later date does not arise as between a debtor and creditor but in lieu of liability which already exists in law. An instrument or document does not become bond under Stamp Act because it is so described but only when an obligation to pay arises in consequence of it. Mere use of the word 'bond' in Section 7 of the Abkari Act does not render it a bond for purposes of stamp duty. The agreement in Form VI has been reproduced earlier. The distiller executing this agreement avails of the facility of exporting the liquor without payment of duty. But it undertakes to pay the amount if the duty on liquor sent to another State is not paid to it. The obligation to pay under the instrument, thus, arises not as a creditor or debtor in the commercial sense or special sense but for failure of duty enjoined by law. The meaning of ordinary and special bond is explained by Rule 51. A special bond is executed for specified occasion or particular consignment of spirit removed from distillery under Rule 50 without payment of duty on condition that duty shall be paid on the prescribed rate in case of failure to account for the satisfaction of the Commission. The specified occasion as is clear from Form VI is the breach of condition of the permit issued by the Excise authorities. The agreement itself shows that the bounden shall be liable to pay the government in case bounden commits breach of any condition of the permit issued by the department. The obligation to pay thus arises not as a creditor or debtor but for breach of the condition imposed not by the bond or agreement but of some condition imposed in the permit issued by the Excise Authorities. The liability to pay duty arises under the Abkari Act, the rules framed under it and not under the instrument. The Stamp Act does not visualise duty for extension of facility to the distillery. If the legislature in Section 7 (1)(b) would have used the word 'agreement' it would have been difficult for the department to claim duty on it as bond. The result shall be no different if it uses the word 'bond' as it is not the use of the word but nature of document which is decisive of duty. The Stamp Act is a fiscal statute. It should not be so construed as to cause unintended hardship. Since the language of the section does not admit of any doubt and the document executed in Form VI being in respect of right arising out of permit issued by the department it was not liable to be stamped as bond, but as agreement. For these reasons the appeal fails and is dismissed. ORDER - For the reasons given by the majority (R.M. Sahai, J. dissenting and S.P. Bharucha, J. with whom N.G. Venkatachala, J. has agreed) the appeal is allowed and the judgment and order under appeal is set aside. The Writ Petition filed by the respondent is allowed only to the extent that it is declared the instrument executed by them in Form VI of the Distillery and Warehouse Rules made under the provisions of the Kerala Abkari Act shall be liable to stamp duty under Entry 32 of the Schedule to the Kerala stamp Act. There shall be no order as to costs. We are informed the respondent in pursuance of the interim order passed by the High Court had paid duty on the document to the State Government as one payable under Article 13 of the Schedule to the Kerala Stamp Act. Since we have held that the document was only indemnity bond, the amount of duty payable by the respondent was much less than what was paid by it. Issues Involved:1. Classification of the instrument under the Kerala Stamp Act.2. Obligation under the instrument and its relation to the Abkari Act.3. Applicable stamp duty for the instrument.4. Comparison with judgments from other High Courts.5. Refund of excess stamp duty paid.Issue-wise Detailed Analysis:1. Classification of the Instrument under the Kerala Stamp Act:The primary issue was whether the instrument executed by the respondents was a 'bond' or an 'agreement' under the Kerala Stamp Act. The Division Bench of the Kerala High Court held that the instrument was not a bond but an agreement, as the obligation mentioned in it was incurred under Section 7 of the Abkari Act and not created by the instrument itself. The Supreme Court, however, clarified that the definition of 'bond' in Sub-Clause (i) of Clause (a) of Section 2 of the Kerala Stamp Act is clear and unambiguous. It stated that an instrument by which a person obliges himself to pay money to another, with the obligation void if a specified act is performed, qualifies as a bond. The Court concluded that the instrument in question was a bond as it created an obligation to pay a sum of money to the State of Kerala, void upon the performance of specified acts.2. Obligation under the Instrument and its Relation to the Abkari Act:The respondents argued that their obligation to pay excise duty on exported liquor arose under the Abkari Act, not the instrument. The Supreme Court noted that the respondents were liable to pay excise duty at the point of manufacture, and the instrument allowed them to defer payment until the liquor was cleared for export. The instrument stipulated that the respondents would pay the duty if the conditions were not met, thus creating a new obligation. The Court emphasized that the instrument facilitated the export of liquor without immediate payment of duty, subject to conditions, and the obligation to pay arose from the instrument itself.3. Applicable Stamp Duty for the Instrument:The respondents contended that even if the instrument was a bond, it should be liable to duty under Entry 32 (indemnity bonds) rather than Entry 13 of the Kerala Stamp Act. The Supreme Court analyzed the instrument and concluded that it indemnified the State of Kerala against loss of excise duty if the liquor was not delivered or the duty was not paid. Hence, the instrument should be assessed to duty under Entry 32, which pertains to indemnity bonds, rather than the general category of bonds under Entry 13.4. Comparison with Judgments from Other High Courts:The Supreme Court referred to several High Court judgments to support its interpretation. In Bira Lal Sircar v. Queen Emperess, the Calcutta High Court emphasized that a bond must create an obligation to pay money. The Allahabad High Court in Mai Dhan Gupta v. Board of Revenue and Hindustan Sugar Mills Ltd. v. State of U.P. held that the obligation must be created by the instrument itself, not a pre-existing one. The Bombay High Court in Patel Stone Trading Co. v. Ramsing reiterated that the instrument must create a new obligation. These judgments supported the Supreme Court's view that the instrument in question created a new obligation and was a bond.5. Refund of Excess Stamp Duty Paid:The respondents had paid duty on the document as per Article 13 of the Schedule to the Kerala Stamp Act, based on an interim order of the High Court. The Supreme Court directed the State Government to refund the excess amount paid by the respondents, as the duty payable under Entry 32 (indemnity bonds) was less than that under Entry 13. The refund was to be processed within three months from the date of the judgment.Conclusion:The Supreme Court allowed the appeal, setting aside the judgment and order of the Kerala High Court. It declared that the instrument executed by the respondents in Form VI of the Distillery and Warehouse Rules under the Kerala Abkari Act was liable to stamp duty under Entry 32 of the Schedule to the Kerala Stamp Act. There was no order as to costs, and the State Government was directed to refund the excess stamp duty paid by the respondents.