Imposition of Stamp duty on advertisement agreements – A debatable issue

Imposition of Stamp duty on advertisement agreements – A debatable issue

An amendment to the Maharashtra Stamp Act was brought about in the year 2005 introducing a new Article No. 5(h)(A) to bring all contracts pertaining to advertising, broadcasting and telecasting under the ambit of stamp duty. By virtue of this amendment, contracts between advertisers and the media attracted an ad valorem stamp duty at rate of 0.25% of the total contract value. The amendment sought to charge stamp duty on an agreement or memorandum of an agreement for any advertisement on mass-media made for promotion of any product or programme or event with an intention to make profits or business out of it.

The said amendment had huge financial ramification on the advertising industry in Maharashtra, resulting in Advertising Agencies Association of India, The Indian Newspaper Society, The Indian Society of Advertisers and Indian Broadcasting Foundation challenging its constitutional validity before the Bombay High Court by way of a writ petition. It was contended by the Petitioners that the said amendment was ex facie unconstitutional and ultra vires Articles 14 and 19(1)(a) of the Constitution of India. Referring to Entry No.92 of List I of the Seventh Schedule to the Constitution of India and Entry No.55 in List II, it was contended by the Petitioners that the entire field of levying stamp duty on advertisement is occupied by the Union List, and State's power to tax such advertisements is excluded and limited by virtue of Entry No.55 of List II.

It was argued by the Petitioners that apart from the fact that the State lacks competence to enact the law, the State is levying stamp duty on the transaction itself.

The Petitioners contended that the ad valorem rate of stamp duty for advertisement contracts would have a direct and proximate effect of causing advertisers to place their advertisements in newspapers/forms of mass media whose rates of advertisement are less. It was further contended that it is also very likely that advertisers would choose to advertise through mediums / newspapers and enter into contract outside the territory of the State of Maharashtra so as to avoid levy completely. This would result in loss of advertising revenue to such newspapers and other forms of mass media that are in a position to command a particular rate for their advertisements due to their substantial circulation.

The Petitioners stated that the advertisement revenue for such newspapers, in turn, facilitates the vast circulation as it allows for the newspapers to be sold at a subsidized rate and benefits the consumer / recipient. They further stated that by imposition of this ad valorem stamp duty, the newspapers would have to raise their purchase price, thus impacting their circulation. Therefore, the Petitioners’ claimed that the imposition of the stamp duty directly impinges upon their rights guaranteed by Article 19(1)(a) of the Constitution of India. 

In response, the Collector of Stamps inter alia stated that the amendment does not levy stamp duty on advertisements since Stamp Act provides for levy of duty on instrument and not the transaction embodied and contained in the instrument. If there is an instrument in the form of an agreement executed between advertising agencies and manufacturers of the products or the artistes or the broadcasters/publishers, then, such instruments of agreement are chargeable with the stamp duty. Therefore, relying on section 34 of the Maharashtra Stamp Act, 1958, Collector of Stamps submitted that it would be beneficial for the parties to such instruments to pay proper stamp duty so that the instrument can be admitted in evidence. It was argued by the Respondents that the said petition was nothing, but an attempt to evade compliance with this mandate.

The Respondents further argued that it is the instrument and not the transaction on which the stamp duty is being imposed. However, assuming though not admitting that there is an overlap between the two entries, namely, Entry 92 of List I and Entry 55 of List II read with Entry 44 of List III, such an overlap will not render the impugned levy unconstitutional as such overlap is in the nature of incidental entrenchment under the doctrine of pith and substance. The amendment cannot be declared ultra vires if that is otherwise legal and valid. A possible misuse or abuse of a power is no ground to strike down the provision itself. For this reason, the challenge on the basis of Article 14 must fail.

After considering the rival submissions, the Division Bench of the Bombay High Court affirmed the constitutionality of the said amendment to the Maharashtra Stamp Act for levying stamp duty on the execution of agreements pertaining to advertisements by applying the Entry 63 of List II and Entry 44 in List III.

The decision of the Bombay High Court was challenged by the Petitioners in a Special Leave Petition before the Hon’ble Supreme Court,  wherein the Counsel for the Petitioners inter alia submitted that: 

  1. Constitution of India does not empower the State of Maharashtra to impose tax on anything shown on electronic and print media, and levy stamp duty on the execution of the document pertaining to advertisement. For what it cannot do directly, it cannot be permitted to do indirectly in law. 

  2. The State Legislature cannot impose tax on anything shown on electronic and print media, that is to say, on the television, radio and newspaper. 

  3. The levy of stamp duty is a colorable piece of legislation and it will not be saved by the doctrine of 'pith and substance' or by 'aspect doctrine'. 

  4. The expression “through an electronic and print media” has to be given appropriate and adequate emphasis so that the freedom of speech and expression is sustained in a democratic body polity and no attempt should be made to scuttle their progress and smother their effective sustenance. 

  5. Additionally, if a huge revenue is taken away from the members of the Broadcasting Foundation, who are embedded to the cause of freedom of speech and expression that percolates the ethos pertaining to individual and collective expression, inevitably hamper the freedom of speech and expression. This is not constitutionally permissible.

In response, it was argued on behalf of the State of Maharashtra that:

  1. The subject of levy of stamp duty comes within Lists II and III of the Constitution. The State Legislature has the authority to legislate and, therefore, the judgment rendered by the High Court is absolutely flawless. 

  2. The argument of the Petitioner that such a levy affects the freedom of press and freedom of speech and expression as enshrined under Article 19(1)(a) of the Constitution of India is incorrect because levy of stamp duty is in no way correlated with such argument.  

  3. A State Legislature can legislate touching the aspects of stamp duty for the purpose of revenue generation and it cannot be called a colorable exercise of power.  

  4. Stamp Duty is to be paid by the advertising agency or persons and, thereby, neither the electronic media nor the print media are affected.

After considering the rival contentions, the Hon’ble Supreme Court was of the opinion that the matter requires to be debated, especially keeping in view the sanctity of the freedom of speech and expression and the involvement of electronic and print media. Accordingly, the Hon’ble Court, vide order dated March 27, 2017 stayed the operation of the judgment of the High Court, subject to the member of the Petitioner-Foundation keeping accounts with itself and giving at least samples of ten agreements to the Respondent-State so that eventually at the time of final adjudication appropriate relief can be moulded. Also, each of the members of the Foundation were directed to give a summary of the revenue earned through the advertisement.

In its recent order passed on 20th February 2024 in the aforesaid Special Leave Petition, the Hon’ble Supreme Court has granted leave to the Petitioners. Till the final outcome of the matter, the decision of the High Court has been stayed by the Apex Court. 

As the things stand today, the validity of the 2005 amendment to the Article no.5 of the Maharashtra Stamp Act is yet to be debated by the rival parties before the Hon’ble Supreme Court of India.

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