Gujarat International Finance Tec-City (GIFT City), the first International Financial Services [IFSC] in India, has gained the significant attention as a hub for financial and IT services. However, one crucial aspect that often remains under-discussed is the applicability of stamp duty within the Special Economic Zone [SEZ].
Simply said, GIFT City is a "Special Economic Zone" that has been set up under the Gujarat SEZ Act of 2004 ("Guj SEZ Act").With a view to attract businesses and investors alike in GIFT City, the Government has introduced various fiscal benefits including income tax exemption, customs duty exemption, and exemption from state taxes and levies. These benefits are aimed at promoting investment and boosting economic growth within the SEZ.
The provisions of Section 21 hold significant relevance in the context of the present article as it provides for fiscal benefits and state taxes and levies for units located within GIFT City and are reproduced hereunder for the sake of convenience.
"21. (1) All sales and transactions within the processing area of the Zone shall be exempt from all taxes, cess, duties, fees or any other levies under any State law to the extent specified below:
(a) Stamp duty and registration fees payable on transfer of land meant for approved Units in the Zone.
(b) Levy of Stamp duty and registration fees on loan agreements, credit deeds and mortgages executed by the Unit, industry or establishment set up in the processing area of the Zone.
(c) Sales Tax, Purchase Tax, Motor Spirit Tax, Luxury Tax, Entertainment Tax and other taxes and cess payable on sales and transactions."
One of the questions that has arisen time and again is whether there is in fact a stamp duty exemption for undertaking business transactions within GIFT City. A bare look at the provisions of sub-clause (b) of Clause (1) of Section 21 of the Guj SEZ Act makes it clear that the Government intends to waive all stamp duty and registrations payable on instruments executed in GIFT City.
It is pertinent to however note whether the Guj SEZ Act which is a State legislation could have provided for matters which fall within the Union List under the Seventh Schedule of the Indian Constitution. Item 46 of the said Union List states that matters pertaining to Bills of exchange, cheques, promissory notes and other like instruments fall under the Union List. This is also encapsuled in the definition of "instruments" under the provisions of Bombay Stamp Act, 1958 (as applicable to the State of Gujarat) ("Gujarat Stamp Act") which is reproduced hereunder-
"Instrument" includes any document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded but does not include a bill of exchange, cheque, promissory note, bill of lading, letters of credit, policy of insurance, transfer of share, debenture, proxy and receipt;"
It is clear therefore that the aforementioned instruments are not regulated by the provisions of the Gujarat Stamp Act. The question therefore is whether the Guj SEZ Act could have provided for matters other than those which are governed by the Gujarat Stamp Act.
It is clear that the Guj SEZ Act cannot override the provisions of the Seventh Schedule of the Constitution of India. Therefore, while the units in GIFT City would enjoy exemption from stamp duty and registration fee at the time of execution of instruments like loan agreements, pledge deeds, etc., much to the disappointment of the market players in GIFT City, the same benefit would not be available for instruments Bills of Exchange, LOC, Insurance Policy, Debentures, etc. until such time, of course, that the Central Government by an amendment or notification to the Indian Stamp Act, 1899 waives the duty in respect of the said instruments as executed in the State of Gujarat.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.