Stamp Duty Demand After 15 Years is Legally Unsustainable – Karnataka High Court Quashes Proceedings

Government Cannot Revive Time-Barred Demands – Recovery Proceedings Must Be Initiated Within the Limitation Period - In a decisive ruling Karnataka High Court struck down a stamp duty demand raised 15 years after the registration of a document, declaring it legally unsustainable and time-barred under the Karnataka Stamp Act, 1957. The Court held that the recovery of short-paid stamp duty must be initiated within the statutory limitation period of five years, and in the absence of fraud, any demand raised beyond this period is without jurisdiction.

Justice Suraj Govindaraj, delivering the judgment in Writ Petition No. 41844 of 2017 – B.C. Prasad & Another v. The District Registrar & Deputy Commissioner of Stamps, observed, "Proceedings for the recovery of stamp duty not levied or short-levied must be initiated within the period prescribed under Section 46A of the Karnataka Stamp Act. Any action taken beyond the prescribed period is legally untenable."

The Court ruled that since there was no allegation of fraud, collusion, or willful misstatement, the demand raised after 15 years was "hopelessly barred by limitation" and liable to be quashed.

"Notice Issued 15 Years After Registration – Petitioners Challenged Legality of Demand"

The case arose from a General Power of Attorney (GPA) executed on November 23, 1995, where the petitioners, B.C. Prasad and Guru Prasad, were appointed as lawful attorneys for landowners in Bangalore. The GPA was duly registered, and the requisite stamp duty was paid at the time.

On December 30, 2010, the District Registrar and Deputy Commissioner of Stamps issued a notice, claiming that there was a shortfall of ₹98,500 in the stamp duty paid and directing the petitioners to remit the amount within 60 days.

Challenging this demand, the petitioners contended that the notice was issued 15 years after the document was registered, far beyond the limitation period prescribed under the Karnataka Stamp Act. They argued that Section 46A clearly limits the time for initiating recovery proceedings to five years, unless fraud is alleged, in which case the period extends to ten years.

The Karnataka Appellate Tribunal (KAT) dismissed the petitioners' appeal on February 28, 2017, upholding the demand. Aggrieved by this decision, the petitioners moved the Karnataka High Court, arguing that the demand was illegal and unenforceable due to the expiration of the statutory limitation period.

"Legal Certainty Must Prevail – Government Cannot Revive Long-Settled Transactions"

Examining the statutory framework under Section 46A of the Karnataka Stamp Act, the High Court found that the limitation period for initiating recovery proceedings is five years from the date the duty becomes payable.

Justice Suraj Govindaraj, interpreting the provision, ruled: "The Karnataka Stamp Act prescribes a clear limitation period for the recovery of deficient stamp duty. If the deficiency arises due to fraud, collusion, or willful misstatement, the limitation period extends to ten years. However, in all other cases, the recovery must be initiated within five years. Any action beyond this period is without jurisdiction and legally untenable."

The Court categorically rejected the argument that administrative delays could justify reopening a settled transaction, stating: "A statutory period of limitation exists to ensure legal certainty in financial transactions. If the state fails to act within the prescribed time, it cannot be allowed to resurrect claims at its convenience, as doing so would lead to arbitrary taxation and undue financial burdens on citizens."

"Government Cannot Ignore Limitation Laws – Demand Declared Unenforceable"

The High Court ruled that the authorities had no legal basis to issue the demand in 2010 for a document registered in 1995, as the prescribed five-year limitation period had expired in 2000. The Court observed:

"The proceedings for recovery of stamp duty in this case were initiated nearly 15 years after the document was registered. Even if the ten-year limitation period applied, the demand should have been raised before 2005. The demand issued in 2010 is legally unsustainable and must be quashed."

The Court rejected the state’s argument that the delay was due to procedural reasons, holding that administrative inefficiencies cannot override statutory limitations.

The Court further emphasized: "The principle of legal certainty requires that individuals and businesses must be able to rely on the finality of transactions. If the government fails to act within the statutory period, it cannot later claim deficiencies that should have been addressed long ago."

"Stamp Duty Demand Quashed – High Court Issues Certiorari"

Allowing the petition, the Karnataka High Court set aside both the demand notice and the Karnataka Appellate Tribunal’s order, declaring them null and void.

The Court issued a writ of certiorari, ruling: "The writ petition is allowed. The order dated 28.02.2017 passed by the Karnataka Appellate Tribunal and the demand order dated 08.11.2013 issued by the District Registrar are quashed. The respondents are permanently restrained from recovering any stamp duty in this matter."

With this judgment, the petitioners were fully relieved from any liability to pay the demanded stamp duty.

"Tax Authorities Cannot Revive Old Claims – Karnataka High Court Protects Citizens from Arbitrary Taxation"

This judgment sets an important precedent in tax and revenue law, ensuring that:

• Tax and stamp duty demands must be raised within the prescribed limitation period.

• The government cannot arbitrarily reopen transactions decades after their completion.

• Legal certainty must prevail, and citizens must not be subjected to indefinite financial liabilities due to administrative inefficiencies.

By quashing the time-barred demand, the Karnataka High Court has reinforced the rule of law and the principle that limitation statutes must be strictly followed, ensuring that citizens are not unfairly burdened by delayed and arbitrary taxation.

Date of decision: 04/03/2025