The Supreme Court has ruled that the classification of land under a master plan is not determinative for stamp duty valuation, emphasizing that the actual use of the property is the relevant consideration. The judgment, authored by Justice K. Vinod Chandran and concurred by Justice J.B. Pardiwala, set aside the Rajasthan High Court's decision which had treated a property as commercial for stamp duty purposes on the ground that manufactured goods were also being sold from the premises.
The case arose from a gift deed registered as residential land. Upon inspection, the Sub-Registrar found the property being used as a showroom under the name Sodhi Carpets, with commercial establishments in the vicinity, and classified it as commercial. The Collector under the Rajasthan Stamp Act, however, found that manufacturing activity was being carried out on the premises. The Rajasthan Tax Board concurred with the Collector after reviewing both inspection reports and the relevant State Government circular.
The Rajasthan High Court reversed these concurrent findings, holding that a property could be treated as industrial only if it was situated in an industrial area and the activity was exclusively manufacturing. Since the premises were also used for the sale of manufactured goods, the High Court concluded that the property was commercial in nature.
Aggrieved by this ruling, the petitioner appealed to the Supreme Court, contending that the property was being used for industrial purposes, as it was registered as a factory under the Factories Act, 1948 and also registered as an industry with the District Industries Centre, Jaipur.
Allowing the appeal, the Supreme Court rejected the State's argument that the property should be classified as commercial merely because it was not located within an industrial area. The Court relied on the State Government's circular, which stipulates that land shall be valued at the industrial rate if, at the time of execution of the document, it is being put to industrial use, situated in a RIICO Industrial Area, or has been converted to industrial purpose.
The Court observed: 'The circular requires that at the time of execution of the document, if the land is being put to industrial use or is situated in a RIICO Industrial Area or has been converted to industrial purpose, then it shall be valued at the industrial rate.' It further stated: 'Hence, our finding, that the user determines the valuation of the land, as distinguished from the classification, even as per the Master Plan as submitted by the learned Government Advocate.'
The bench criticized the High Court's approach, noting: 'The High Court clearly erred in stipulating a test which does not come out from the circular of the State Government providing for valuation of different properties, specifically of industrial, residential and commercial properties.' The Court emphasized that the sale of manufactured goods from premises used for manufacturing does not convert the use into commercial, stating: 'The manufactured items definitely had to be sold and if the premises is used for such sale too, even retail sale, it cannot lead to a conclusion that the property is one used for commercial purposes, as distinguished from an industrial purpose.'
As a result, the Supreme Court allowed the appeal, thereby setting aside the Rajasthan High Court's judgment and restoring the orders passed by the Sub-Registrar, the Collector, and the Rajasthan Tax Board, which had all found the property to be used for industrial purposes and accordingly valued it for stamp duty.