The SC has observed that the penalty of ten times prescribed under section 40(1) (b) of the Indian Stamp Act cannot be mechanically imposed.
A bench comprising of Justices Ashok Bhushan MR Shah and R. Subhash Reddy observed that the reason such as fraud or deceit in order to deprive the undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty under section 40(1) (b).
As per the above mentioned section, the Collector is of opinion that such instrument is chargeable with duty and is not duly stamped, he shall require the payment of the proper duty or the amount required to make up the same, together with a penalty of the five rupees; or, if he thinks fit an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof.
In the above case while impounding the document the collector imposed ten times penalty (Rs 12, 80, 97,000/-) on the ground that the party has not mentioned the actual nature of the document with the intention to escape the duty.
Referring to section 40 and other provisions, the bench observed that whenever statute transfers discretion to an authority the discretion is to be exercised in furtherance of objects of the enhancement.
The court also observed that t=it is only in the very extreme situation that penalty needs to be imposed to the extent of ten times. In this case, the bench noted that the conduct of the party was not found to be dishonest or contumacious. Taking notes of the facts, the bench allowed the appeal by reducing the penalty imposed to the extent of the half which is five times of deficiency in the stamp duty (Rs 6, 40, 48,500).