(First published on Linkedin)
Stamp duty is often one of the largest fiscal costs in mergers and demergers – precisely because it’s pegged to transaction value. Yet, what constitutes “value” ought to be straightforward: it is the equity value actually discharged, not a theoretical enterprise value.
In Bharti Airtel vs. Chief Controlling Revenue Authority, the authorities sought to levy stamp duty on the enterprise value of the demerged unit—disregarding the liabilities and the actual consideration discharged (i.e., the equity value of shares issued). The Bombay High Court rightly held that enterprise value cannot substitute actual equity valuation de hors of liabilities under Article 25(da) of the Maharashtra Stamp Act.
But the larger issue remains: this was avoidable litigation. Maharashtra already has an established position – stamp duty is to be levied on the equity value (net equity value for unlisted companies/ undertakings and market price for listed shares). Yet, this matter escalated through layers of adjudication and litigation, tying up time, resources, and creating needless uncertainty.
In a global environment where certainty and speed are critical for both internal and external M&A, such ambiguity – even in cases where the answer should be self-evident – casts a long shadow. It discourages internal reorganisations, deters external deals, and pushes deal timelines into a zone of unnecessary caution. The cost of doing business factors in heavily for the inherent unpredictability with the Indian authorities.