Sick CPSEs: Stamp duty waiver at SPV stage to fast-track closures

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March 30, 2021 4:00 AM

The move, initiated by the department of public enterprises, is to de-link the process of closure of a CPSE from disposal of its immovable assets to avoid any delay in closure of the loss-making entity.

The amendment to the Indian Stamp Act, 1899, is being done via the Finance Act.The amendment to the Indian Stamp Act, 1899, is being done via the Finance Act.

In a move that would help fast-track closure of sick central public sector undertakings (CPSEs), the Centre has inserted a provision in the Finance Act 2021 to waive stamp duty on transfer of immovable properties of these units to a state-owned special purpose vehicle (SPV). However, the stamp duty at applicable rates will be paid when the assets are finally sold by the SPV.

The move, initiated by the department of public enterprises (DPE), is to de-link the process of closure of a CPSE from disposal of its immovable assets to avoid any delay in closure of the loss-making entity. Currently, there are 21 sick/loss-making CPSEs which have received Cabinet nod for closure, some nearly a decade back.

These units have been unable to attain closure due to various reasons including delay in disposal of immovable assets such as 15,000 acres of land across the country.

“Even though stamp duties are collected and appropriated by the states, the Centre has the power to decide their leviability under the Constitution. The idea is that double stamp duty is avoided, first for demerger/ pooling and subsequently on sale of immovable property. With this amendment, stamp duty will be leviable only when immovable property is finally sold to buyers at the rates decided by state governments,” a senior finance ministry official told FE.

The amendment to the Indian Stamp Act, 1899, is being done via the Finance Act.

The revised guidelines will enable the administrative ministries to take steps for monetization of land of these CPSEs for setting up of industrial clusters or any other such purpose. The new policy will also aid the objective of the new strategic sector policy which envisages closure of CPSEs wherever required.

The mechanism announced by the NDA government in September 2016 mandated ultimate closure of a unit within 13-months from the date of issue of minutes of the Cabinet approval as against years it took earlier. With the main impediment now taken care of, the timeline for closure will be further reduced as transfer of immovable assets and clearance of dues (mostly to the government) won’t take much time, another official said.

While two relatively small companies — Indian Oil-CREDA Biofuels and CREDA-HPCL Biofuels – are the ones that completed the closure formalities once the NDA government came to power in 2014, many large loss-making firms that are a drain on the exchequer, are yet to reach finality. Continuous losses have eroded the net worth of Hindustan Photo Films (negative net worth of Rs 20,330 crore, FY18), Indian Drugs and Pharmaceuticals (Rs 7,534 crore) and Hindustan Cables (Rs 5,673 crore) are some of the big CPSEs still awaiting closure. Other companies awaiting closure include HMT Watches (since 2016), HMT Chinnar Watches (2016), HMT Bearings (2016), Tractor Unit of HMT (2016), Kota Unit of Instrumentation (2016) and STCL (2013).

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