Selling Manufactured Goods At Factory Premises Doesn't Turn 'Industrial' Land Into 'Commercial' For Stamp Duty: Supreme Court

"The manufactured items definitely had to be sold and if the premises is used for such sale too, even retail sale, it cannot lead to a conclusion that the property is one used for commercial purposes, as distinguished from an industrial purpose." Supreme Court, in an important ruling delivered on August 24, 2026, held that the incidental retail or wholesale sale of manufactured goods directly from factory premises does not change the classification of the property from 'industrial' to 'commercial' for the purpose of computing stamp duty.

Setting aside a High Court verdict, a bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran observed that under the relevant state circulars, actual user determines property valuation rather than rigid zoning or master plan classifications.

The dispute arose after a gift deed transferring a share in a multi-storey family building was registered by reckoning the property as residential land under the Rajasthan Stamp Act, 1998. The Sub-Registrar sought enhancement of stamp duty by classifying the property as commercial because a showroom named 'Sodhi Carpets' operated from the site in an area having multiple commercial enterprises. However, upon inspection, the Collector and the Rajasthan Tax Board found that the premises was actively functioning as a carpet manufacturing factory registered under the Factories Act, 1948 and the District Industries Centre, Jaipur, though the High Court subsequently reversed these concurrent statutory findings in favor of the State.

The primary question before the Supreme Court was whether a property used for manufacturing and on-site sale of goods should be assessed as 'industrial' or 'commercial' property for computing duty under the Rajasthan Stamp Act, 1998. The Court also examined whether the High Court was justified in laying down an exclusivity test requiring manufacturing premises to be located strictly in industrial areas without any on-site sales activity.

User Determines Valuation Over Master Plan Classification

The Supreme Court closely examined Circular No. 2/2004 issued by the Government of Rajasthan, which prescribes the method of valuation for different categories of land for determining stamp duty. The bench highlighted that the circular explicitly places emphasis on the actual user at the time of execution rather than formal zoning demarcations.

The Court observed that under the circular, if the land is being put to industrial use, or is situated in a RIICO Industrial Area, or has been converted to industrial purpose, it must be assessed at industrial rates. The bench categorically ruled that user determines the valuation of the land as distinguished from its classification, even if the Master Plan suggests otherwise.

Sale Of Manufactured Goods Does Not Strip Property Of Industrial Character

Addressing the High Court's reasoning, the bench disapproved of the standard that an industrial property must be exclusively used for manufacturing without carrying on any sales. The Court stressed that manufacturing and selling are fundamentally interconnected commercial realities for any industry.

The bench held that manufactured items inevitably have to be sold, and using the premises for retail or wholesale disposal of such goods cannot convert an industrial property into a commercial establishment. The judges noted that the lesser valuation prescribed for industrial land is a deliberate policy measure designed to promote industrial activity, and the registration of the unit as a factory under the Factories Act, 1948 and with the District Industries Centre carries decisive weight.

High Court Erred In Creating Tests Outside Statutory Circulars

The Supreme Court found that the High Court had committed a clear error by creating an artificial two-pronged test that required the property to be located inside a designated industrial zone and strictly restricted to exclusive manufacturing without any subsequent commercial activity.

The bench remarked that such tests find no sanction or basis in the state government circular governing property valuations for stamp duty. Consequently, the bench set aside the High Court's judgment and restored the concurrent orders passed by the statutory authorities.

No Refund For Stamp Duty Voluntarily Paid At Higher Residential Rates

While ruling in favor of the appellant on the classification dispute, the Court clarified that no refund would be granted for the excess stamp duty already paid. The appellant had originally stamped the gift deed based on residential circle rates, which were higher than industrial rates but lower than commercial rates.

The bench ruled that since the executant of the gift deed had voluntarily chosen to value and register the property as residential land with open eyes, no claim for refund of the difference between residential and industrial stamp duty could be entertained pursuant to the order.

The Supreme Court allowed the appeal, settling that the on-site sale of manufactured goods does not alter the industrial character of a factory for stamp duty computation under the Rajasthan Stamp Act, 1998. The judgment firmly establishes that practical user and statutory factory registrations prevail over rigid zoning assumptions when determining stamp duty liabilities.

Date of Decision: August 24, 2026