LIFE INSURANCE CORPORATION OF INDIA vs. THE STATE OF RAJASTHAN AND ORS.

Case Analysis

LIFE INSURANCE CORPORATION OF INDIA vs. THE STATE OF RAJASTHAN AND ORS.

November 24, 2024

A) ABSTRACT / HEADNOTE

This case focuses on the imposition of stamp duty on insurance policies issued by the Life Insurance Corporation (LIC) within Rajasthan. The primary issues revolve around the legislative competence of Rajasthan to impose and collect stamp duty on such instruments under the Rajasthan Stamp Law (Adaptation) Act, 1952 (hereinafter referred to as “1952 Act”). The Supreme Court evaluates whether LIC was obligated to purchase insurance stamps solely from Rajasthan and whether the imposition of stamp duty under state laws was valid. The judgment addresses constitutional provisions, legislative lists under the Seventh Schedule, and the interplay between the Indian Stamp Act, 1899, and state enactments. It concludes that Rajasthan has the power to levy and collect stamp duty but provides relief to LIC under the specific facts of the case.

Keywords: Stamp duty, Insurance policies, Rajasthan Stamp Act, Legislative competence, Constitution of India

B) CASE DETAILS

i) Judgment Cause Title
Life Insurance Corporation of India v. The State of Rajasthan & Ors.

ii) Case Number
Civil Appeal No. 3391 of 2011

iii) Judgment Date
April 30, 2024

iv) Court
Supreme Court of India

v) Quorum
Justice Pamidighantam Sri Narasimha and Justice Aravind Kumar

vi) Author
Justice Pamidighantam Sri Narasimha

vii) Citation
[2024] 5 S.C.R. 241; 2024 INSC 358

viii) Legal Provisions Involved

Rajasthan Stamp Law (Adaptation) Act, 1952
Rajasthan Stamp Act, 1998
Indian Stamp Act, 1899 (as adapted by Rajasthan)
Article 254, Constitution of India
Entries 44 (List III) and 91 (List I), Seventh Schedule, Constitution of India

ix) Judgments Overruled by the Case (if any)
None explicitly overruled but distinguished from VVS Rama Sharma v. State of Uttar Pradesh.

x) Case is Related to Which Law Subjects
Taxation Law, Constitutional Law, Insurance Law

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The case arises from disputes between LIC and the State of Rajasthan concerning stamp duty obligations on insurance policies issued within the state from 1993-94 to 2001-02. Rajasthan authorities demanded payment of stamp duty under the 1952 Act, alleging revenue losses due to LIC’s purchase of insurance stamps from Maharashtra. LIC argued that such purchases were legitimate and challenged Rajasthan’s legislative competence to impose stamp duties on insurance instruments.

The High Court of Rajasthan upheld the state’s right to impose and collect stamp duty. Aggrieved, LIC approached the Supreme Court.

D) FACTS OF THE CASE

Timeline and Transactions: LIC issued insurance policies in Rajasthan during the period 1993-94 to 2001-02. Rajasthan claimed that LIC purchased insurance stamps from Maharashtra, causing revenue losses.
Show-Cause Notice and Recovery Orders: Rajasthan authorities issued recovery notices amounting to over INR 4.5 crores for unpaid stamp duty. LIC challenged these notices in writ petitions.
High Court Ruling: Rajasthan High Court held LIC liable for stamp duty payments to Rajasthan, emphasizing that stamps for insurance policies executed in Rajasthan must be purchased within the state.
Letter of Non-Availability: LIC relied on a letter dated October 7, 1991, from Rajasthan’s Treasury Department, which stated that “India Insurance Stamps” were central government property and unavailable locally.
Disputed Legal Framework: LIC argued that the applicable rates of stamp duty fell under Union List Entry 91, precluding state imposition, and that Rajasthan’s claims were ultra vires.

E) LEGAL ISSUES RAISED

Does the 1952 Act or the Rajasthan Stamp Act, 1998 apply to the case?
Does Rajasthan have the legislative competence to impose stamp duty on insurance policies under Entry 44 of List III?
Are insurance stamps purchased from outside Rajasthan valid for policies executed within the state?
Was LIC liable to pay the disputed stamp duty amounts?

F) PETITIONER/APPELLANT’S ARGUMENTS

Lack of Legislative Competence: LIC argued that Entry 91 of List I confers exclusive power on Parliament to prescribe stamp duty rates for insurance policies. Rajasthan’s demand lacked constitutional authority.
Non-Availability of Stamps: LIC contended that it had no choice but to procure insurance stamps from Maharashtra due to the non-availability of such stamps in Rajasthan, as confirmed by the Treasury Department’s letter.
Inapplicability of State Laws: LIC claimed that the 1998 Act, under which the notices were issued, did not cover the relevant period. The applicable rates of duty could only be prescribed by central law.
Invalid Recovery Notices: LIC argued that the recovery proceedings under the 1998 Act were invalid, as they contradicted constitutional provisions and prior legal precedenG) RESPONDENT’S ARGUMENTS

Concurrent Power Under Entry 44: Rajasthan claimed that Entry 44 of List III empowers states to impose and collect stamp duties on insurance policies, provided the rates are prescribed by Parliament.
Validity of 1952 Act: The state asserted that the 1952 Act, as a validly enacted state law with Presidential assent, governed the stamp duty regime during the relevant period.
Revenue Loss to State: The state emphasized the substantial revenue loss due to LIC’s evasion of local stamp duty by purchasing stamps from Maharashtra.
Mandatory Local Procurement: The state argued that policies executed within Rajasthan must bear locally purchased stamps, per the Rajasthan Stamp Rules, 1955.

H) JUDGMENT

a. RATIO DECIDENDI

The Supreme Court held that:

Rajasthan has legislative competence under Entry 44 of List III to impose stamp duties on insurance policies executed within its territory, using rates prescribed by Parliament under Entry 91 of List I.
The 1952 Act applies to policies issued before the 1998 Act came into force.
LIC was bound to purchase insurance stamps locally from Rajasthan for policies executed within the state.

b. OBITER DICTA

The Court noted discrepancies in the High Court’s findings, particularly its failure to consider the Treasury Officer’s 1991 letter acknowledging stamp non-availability.

c. GUIDELINES

States may collect stamp duties on insurance policies executed within their territory using Parliament-prescribed rates.
Disputes over stamp procurement must consider factual realities, such as stamp availability.
Clear mechanisms for stamp procurement should be established to prevent ambiguity.

I) CONCLUSION & COMMENTS

The Court’s decision upholds the principle of cooperative federalism, balancing central and state legislative powers. While affirming Rajasthan’s authority to collect stamp duty, it recognizes LIC’s constraints and grants partial relief.