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Life Insurance Corporation of India vs. State of Rajasthan and Ors.

Not available · 2024 INSC 358Decided 30 Apr 2024
Not available
Justice Pamidighantam Sri Narasimha · Justice Aravind Kumar

Background

LIC issued numerous insurance policies within Rajasthan between 1993-94 and 2001-02. Because "India Insurance Stamps" were not available for purchase within Rajasthan at the time, LIC bought the required stamps from Maharashtra instead. The Rajasthan tax authorities later demanded over Rs. 1.19 crore from LIC, treating this as a loss of stamp duty revenue to the state, and issued show-cause notices and orders directing LIC to pay up. LIC challenged this, and the dispute reached the Supreme Court through five tagged civil appeals arising from a Rajasthan High Court judgment.

Decision Breakdown

The Supreme Court held that the Rajasthan Stamp Law (Adaptation) Act, 1952 (not the 1998 Act) governed the case, and that the Rajasthan state legislature does have the constitutional competence, under Entry 44 of List III, to levy and collect stamp duty on insurance policies (subject to the rate set by Parliament under Entry 91 of List I). The Court also held LIC was legally obligated to purchase India Insurance Stamps and pay stamp duty within Rajasthan for policies issued there. However, because the state's own departments had earlier told LIC that such stamps were unavailable and gave it no way to pay in cash, the Court found LIC was blameless for buying stamps from outside the state, and it set aside the specific demand orders directing recovery of the disputed amounts, while otherwise dismissing the appeals and upholding the High Court's judgment.

Lesson Learnt

A state government can validly tax an activity within its constitutional powers, but it cannot penalize a citizen or company for non-compliance that was itself caused by the state's own failure to provide the means of compliance (here, the unavailable stamps).

Official source (sci.gov.in)View Judgment (PDF)

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