Stamp duty implications are required to be assessed carefully for restructuring plan involving merger, demerger or slump sale. Even if the court/tribunal approved restructuring schemes are tax neutral, it may not necessarily avoid the stamp duty implications.
Earlier this year, the Gujarat High Court (High Court) addressed various issues related to stamp duty implications on schemes of merger or amalgamations under the Gujarat Stamp Act, 1958 (Stamp Act). The High Court dealt with various questions of law referred to it by the revenue authorities for its opinion in various stamp references (Ambuja Cements Limited v. Chief Controlling Revenue Authority). Set our below is a summary of some of the key questions and the decisions of the High Court thereon.
Relevance of 'Appointed Date' in Scheme for stamp duty determination
A scheme of amalgamation between Holcim (India) Private Limited and Ambuja Cement Limited was approved by the High Court on 18 March 2014. The 'Appointed Date' in the scheme was 1 April 2013. On 15 May 2013, the Article 20(d) of the Stamp Act was amended as a result of which the maximum amount of stamp duty on court orders approving the scheme increased from INR 10 crore to INR 25 crore. The applicant entity paid the stamp duty on the High Court order approving the scheme as per the legal position as applicable on 1 April 2013 (being the appointed date) post the adjudication order passed by the revenue authorities. However, later on, the revenue authorities demanded a higher stamp duty in accordance with the legal position as applicable on the date of High Court order approving the scheme.
The contention of the applicant company was that since the amalgamation was effective from the appointed date and the adjudication application of the applicant company had already been processed by the revenue authorities, therefore, the applicant company should not be liable to pay any additional stamp duty. However, the revenue authorities rejected the contention of the applicant on the ground that stamp duty has to be determined on the basis of date of execution of instrument, which, in the present case, would be the date of High Court order approving the scheme.
The High Court ruled held that in view of the facts and circumstances of the case and also the language of Explanation III(a) to Article 20(d) of Schedule I of the Stamp Act, the stamp duty as on the appointed date will be payable.
Fair market value of shares for stamp duty determination in case of merger of unlisted companies
Article 20(d) of the Stamp Act provides for computation of the stamp duty on the basis of (i) higher of the market value of shares issued or exchanged under the scheme or the face value of such shares, and (ii) the amount of consideration, if any, paid for such amalgamation. In terms of Explanation III(c) to Article 20(d) of Schedule I of the Stamp Act, where the transferor and transferee companies involved in the scheme are unlisted, the market value of shares would mean the face value of the shares issued or allotted by the transferee company.
The revenue authority, however, submitted that the premium on shares of transferee company should be included within the meaning of 'consideration, if any, paid for such amalgamation' and therefore, the stamp duty should be calculated on basis of the aggregate of face value of the shares issued by the transferee company and the amount of share premium on such shares. The revenue authority also relied on the definition of market value given under Section 2(n)(a)1 of the Stamp Act.
The High Court ruled in favour of the applicant companies and held that explanation III (c) to Article 20(d) of Schedule-I of the Stamp Act did not provide for adding the word ‘premium’ into ‘market value of share’, and that there was no scope of reading something into the entry which was not expressly mentioned in the statute. Therefore, the stamp duty has to be calculated on the basis of face value of shares issued by the (unlisted) transferee company pursuant to the scheme.
Stamp duty determination in case of a composite scheme of arrangement
The issue before the High Court was that in case of a composite scheme involving more than one restructuring exercise by way of merger, demerger and/or slump sale, whether each leg of restructuring exercise would be liable to the stamp duty as a separate transaction or whether the High Court order approving such composite scheme shall be treated as a single instrument liable to stamp duty only once.
Where the composite scheme of arrangement provided for transfer of undertakings by way of merger, demerger and slump sale amongst group companies, the revenue authority treated each leg of the restructuring exercise as a 'distinct transaction' under Section 52 of the Stamp Act and determined the stamp duty accordingly on each transaction. However, the High Court, based on the facts and circumstances of the case, held that a composite scheme of arrangement in the present case would be construed as a single transaction and therefore, the stamp duty should be levied accordingly.
Set-off of the stamp duty paid in another state
The National Company Law Tribunal, Principal Bench, had approved a scheme of arrangement which involved transfer of the immovable properties situated in the state of Gujarat in favour of the transferee entity. Since the registered office of the applicant entity was situated in the state of Rajasthan, the applicant entity paid the stamp duty to the revenue authorities of Rajasthan on the said order of the tribunal. However, the revenue authorities of Gujarat did not allow the set off of the stamp duty paid on the tribunal's order in Rajasthan and asked the applicant entity to pay the full amount of stamp duty as per the rates applicable in Gujarat.
The High Court ruled in favour of the applicant and held that the stamp duty paid by the applicant entity on the tribunal’s order to the stamping authorities of Rajasthan should be allowed to be set off in accordance with the provisions of Section 193 of the Stamp Act and that the applicant entity would be liable to pay the differential amount only in case the stamp duty payable in Gujarat is higher than the amount paid by the applicant in Rajasthan.