Havi Logistic (M) Sdn Bhd v Pemungut Duti Setem [2022] MLJU 2801

Note: For more details, please refer to the full judgement.

This recent ruling by the High Court is a good example how stamp duty is a key factor in M&A transactions.

Fact Summary

The Plaintiff (“Taxpayer”) acquired a business including its assets and liabilities but not the goodwill. Taxpayer paid about RM10.3m for the acquisition. An Asset Purchase Agreement was executed by the Taxpayer and Vendor to give effect to the transaction.  When the Agreement was sent for adjudication, the Stamp Office imposed ad valorem rate of nearly RM400,000 with the view that the Agreement falls within the ambit of Section 21(1) of the Stamp Act 1949 (“SA”) and Item 32(a), First Schedule of the SA which forms the basis of the impugned assessment.

The Taxpayer made the payment and informed the Stamp Office that the payment was made under objection based on Section 38A of the SA that the Agreement should be assessed based on Item 4, First Schedule of the SA via a letter.

Items 4 and 32(a), First Schedule of the SA read as follows:

FIRST SCHEDULE [Section 4]

INSTRUMENTS CHARGEABLE WITH STAMP DUTY

“4 AGREEMENT OR MEMORANDUM OF AGREEMENT made under hand only, and not otherwise specially charged with any duty, whether the same is only evidence of a contract or obligatory on the parties from its being a written instrument.”

Proper stamp duty – RM10

“32 CONVEYANCE, ASSIGNMENT, TRANSFER OR ABSOLUTE BILL OF SALE:

1. On sale of any property (except stock, shares, marketable securities and accounts receivables

Proper stamp duty – For every RM100 or fractional part of RM100 of the amount of the money value of the consideration or the market value of the property, whichever is the greater-

1. Rm1.00 on the first RM100,000;
2. RM2.00 on any amount in excess of RM100,000 but not exceeding RM500,000;
3. Rm3.00 on any amount in excess of RM500,000.

In the past, an Agreement like this would have been stamped for RM10. The Taxpayer being aggrieved, appealed to the High Court. This is a landmark ruling as this is the first reported case of its kind in Malaysia. The High Court Judge in her detailed written grounds has analysed the law in a structured approach, something which is commendable given that stamp duty law is rather technical. 

Summary Judgement

The issue arises here is whether the Agreement constitutes conveyance of sale as defined under Section 2 of the SA as follows:

“conveyance on sale” includes every instrument and every decree or order of any Court, whereby any property, or any estate or interest in any property, upon the sale thereof is transferred to or vested in a purchaser or any other person on his behalf or by his direction;”

The Judge went on to explain that based on the Agreement, the fact that goodwill is not part of the “Acquired Assets” and that there is no landed property involved, it is of the considered view that the business contract between the Vendor and the Taxpayer does not involve transfer of properties or interest legally or equitably between the two parties. As such, the Agreement cannot be said to be an instrument which falls within the purview of Section 21 and Item 32, First Schedule of the SA.

The facts are clear. The Agreement is a mere written contract for the purchase of business between the Taxpayer and Vendor and the consideration paid by the Taxpayer is for the list of assets stated in the Agreement. The Agreement clearly stipulates that the goodwill of the Vendor’s business in Malaysia is excluded from the transaction and that the Vendor remains in business in Malaysia. The Agreement is not a sham arrangement. Nowhere can it be shown that the valuation of the assets purchased by the Taxpayer is inflated.

On a plain reading of Item 4, First Schedule of the SA, this Court finds that the Taxpayer has fulfilled all the requirements stipulated thereunder. The Agreement clearly fell within the ambit of Item 4, First Schedule of the SA. Therefore, the stamp duty on the Agreement should be assessed under the same Item.