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Tuesday, September 2, 2014

Marine Insurance - Indian Stamp Act - and stamp duty on Policies

Till a decade ago, when Marine Insurance transactions had more clarity and were generating good premium – Open Cover was an agreement, while Open Policy was a Stamped document.  Though the signatory – the Insurer would honour, only Open Policy could be filed in a Court of law as documentary proof.   Open Policies were issued covering inland transits; for import and export shipments, Open Cover was issued – individual Certificate(s) for each and every transit falling under the arrangement were issued and these were stamped documents.  In Marine insurance, the stamp duty is recoverable from the policy holder.

Insurance Policies are stamped in accordance with the values prescribed in the Indian Stamp Act, 1899 -  a fiscal statute laying down the law relating to tax levied in the form of stamps on instruments recording transactions. The purpose of  this enactment is to raise revenue for the local governments. Additionally, payment of stamp duty imparts legality to the document making them authentic documents in Court of Law.   Stamp duty is to be paid in full and at the time of contract inception.  The Act also provides for that – a person executing an instrument affixed with adhesive stamp, shall cancel the adhesive stamp so affixed by writing on or across the stamp his name or initials.

Here is an interesting case that came up before Calcutta High Court in June 1929 – it was a reference made by the Board of Revenue, Bengal, under Section 57 of the Indian Stamp Act, 1899 on whether a certain type of document represented by a blank form attached to the statement of the case drawn up by the Board of Revenue should be stamped with duty payable under Article 47-A (1) (ii) of Schedule I to the Indian Stamp Act or with duty under Article 62 (c) of the said Schedule or with some other and what duty.

The case pertained to an Association called the Marine Insurance Association, Calcutta- who were issuing Marina Insurance Policies upon goods. For these policies they had to pay stamp duty as prescribed in the Indian Stamp Act. This Association has observed that, in the course if shipments to India, the policies of insurance or their equivalents sometimes take the form not of policies that have been executed in India but of certificates that policies have been taken out abroad. It, appears that this kind of certificate is so worded in some cases that it may be construed as a document which transfers the rights of the original policy-holder under a policy taken out abroad to the person interested in India in the goods shipped--in many cases to the Bank through whom the bills for the price of the goods are discounted.  So, Marine Insurance Association entered into correspondence with the Government of Bengal representing that these certificates, to give them a neutral same, ought to be subjected to duty under the Indian Stamp Act before they are allowed to operate in India – various forums had varied opinions on this. 

The Bench held that it is not within the purview of Section 57 of the Indian Stamp Act at all that section does not provide a means by which the authorities concerned in collecting stamp duty can get advice from the Court by laying a case before it for the decision a general question. It held that Court will decide only on an actual case and will not provide opinion in the legal nature to a general question. 

The Court held that in the impugned case, the person/body  at whose instance this matter has been raised as a general question is the Marine Insurance Association, Calcutta. Its complaint is that certain of its rivals are wrongly escaping stamp duty. No one of these rivals has been attacked either by being threatened that the documents will be impounded or in any other way. No one of the persons concerned is before the Court or has had an opportunity of corning before the Court or can be brought before it. This case illustrates very strongly the necessity of seeing that general questions are not referred to the High Court under the machinery provided by Section 57 of the Indian Stamp Act.  The Court dismissed the reference.

With regards – S. Sampathkumar

2nd Sept. 2014. 

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