The court established that a Novation Agreement transferring debt is chargeable under the Stamp Act, emphasizing the substance over the form in determining stamp duty liability.

Amarjeet Singh Serjit Singh J:

Introduction

[1] On 6 November 2023, I dismissed the originating summons filed by the plaintiff, Nike Global Trading BV, Singapore Branch against the assessment of stamp duty (ad valorem duty) chargeable in respect of a Novation Agreement dated 17 December 2021 ("the Novation Agreement"). The plaintiff has appealed against the assessment under s 39(1) of the Stamp Act 1949 .

[2] Hereinafter, all sections or schedules referred to in this judgment refer to the Stamp Act 1949 .

Background Facts

[3] On 1 May 2021, Nike European Operations Netherlands ("the original lender") and Nike Sales (Malaysia) Sdn Bhd ('the borrower') entered into a loan agreement amounting to RM41,257,000.00. The loan agreement was assessed and stamped under Item 27(a) of the First Schedule. The loan has been fully disbursed.

[4] Subsequently, the original lender and the borrower entered into a Novation Agreement with the plaintiff whereby the Original lender transferred the debt amounting to RM41,257,000.00 to the plaintiff.

[5] The Novation Agreement was presented to the defendant, Collector of Stamp Duties ("the Collector"), for adjudication on 21 January 2022. The Collector assessed the duty due amounting to RM1,716,004.00 via a notice of assessment dated 21 February 2022. The Collector based the assessment on s 16 read with Item 32(a) of the First Schedule. Dissatisfied, the plaintiff on 18 March 2022 filed an objection against the assessment under s 38A for a review of the assessment made. The objection was dismissed and the assessment was maintained by the Collector. Hence this appeal.

The Issues

[6] There is only one issue for determination in this appeal. It is as follows: whether the Novation Agreement is chargeable under s 16(1) read together with Item 32(a) of the First Schedule?

[7] For convenience, both sections are reproduced below. Section 16 (1) provides as follows:

Any conveyance or transfer operating as a voluntary disposition inter vivos shall be chargeable with the like stamp duty as if it were a conveyance or transfer on sale.

While Item 32(a) of the First Schedule which provides for the description of the instrument ie conveyance, assignment, transfer, or absolute bill of sale, and the formula to calculate the proper stamp duty states as follows:

On sale of any property (except stock, shares, marketable securities, and accounts receivables or book debts of the kind mentioned in paragraph (c)).

Analysis And Findings

[8] Section 4(1) of the Stamp Act 1949 provides that subject to the Act and exemptions contained therein the instruments specified in the First Schedule are chargeable with the stipulated duties. Thus, the governing principle is that stamp duty is chargeable on the instrument and not transactions.

[9] The law is instructively stated by the Federal Court in BASF Services (M) Sdn Bhd v. Pemungut Duti Setem ; 2010 MarsdenLR 1322 ; [2010] 5 CLJ 109 in the following paragraphs:

[18] Now that this Court has identified the transfer form as the instrument that is chargeable to stamp duty, the next step is to decide on whether the infrastructure fees are part of the consideration of the agreement and hence liable under Item 32(a). It is generally acknowledged that the real substance of a transaction may not successfully be appreciated by mere perusal of a document, or by a hurried gauging of the machinery adapted by the parties of the transaction. Only after going through the exercise of construing the document as a whole may the real substance of that transaction be known and thenceforth ascertain the respective parties' rights and obligations, and the correctness of the respondent's adjudication (IRC v. Duke of Westminster [1936] AC 1; Pernas Securities Sdn Bhd v. The Collector Of Stamp Duties; [1976] 2 MLJ 188). C.C. Gallagher Highmore's Stamp Laws 4th edn at p. 7 authored:

General Rules as to Stamp Duties

In order to determine whether any, and if any what, stamp duty is chargeable upon an instrum