Tata Tea is likely to save substantial tax outgo on the proposed demerger of its north Indian tea plantation into a separate company as the West Bengal government is yet to bring into force the Indian Stamp (West Bengal Amendment) Act 2003. The Act has already been passed by the state legislature.

With Rs 360 crore of assets being demerged, the company is set to save up to 10% of the value or about Rs 35 crore of stamp duty charges, legal experts associated with demergers said.

"The Indian Stamp (West Bengal Amendment) Act 2003, passed by the state legislature, has not yet been brought into force and no stamp duty is levied as per prevailing practice.

However, Tata Tea Ltd (TTL) and Amalgamated Plantations Private Ltd (APPL) may share any additional cost or savings including stamp duty, if held to be payable, in such proportion as mutually agreed," the scheme of arrangement between TTL and APPL has mentioned.

And this, tea industry officials and merger consultants say, would help Tata Tea save about 10% of the value of the assets that would have been payable as stamp duty.

"Till now, there is no stamp duty on companies demerging assets in states like West Bengal, Assam and Tamil Nadu, among others, while duties at 8-10% are levied in several other states. However, the Indian Stamp (West Bengal Amendment) Act 2003 has not yet been notified and so companies registered in the state demerging their assets would not have to pay the duties till the new law is made effective," a partner in an audit firm said.

Tata Tea is demerging its north Indian plantation assets spread over Assam and West Bengal. The assets consist of four tea estates in West Bengal, covering 2,094 hectares, and 20 estates in Assam covering 12,667 acres. Employees numbering 31,800 would also be transferred to APPL, the demerged entity.

"We understand that the new Act hasn't been notified yet because the state government wants to promote restructuring of the tea industry, which is passing through a crisis," said the finance director of a large tea plantation company.

Earlier, the south Indian plantation business was restructured and out of 25 estates, 17 were transferred to Kanan Devan Hills Plantation Company Pvt Ltd, principally owned by former employees of TTL.

The north Indian assets, including 24 tea estates but excluding packaging centres at Nonoi, Kellyden and Dam Dim estates, have been valued at Rs 359 crore.

While Tata Tea might save on stamp duty, it will have to shell out 'salami' to the state. Salami is a duty that the state charges for transfer of land, in this case tea estate.

At present, the state government charges Rs 15,000 per hectare as salami on transfer of tea estate. This was introduced by the West Bengal government through a notification in 1994. A temporary relief of 40% discount was provided between 2001 and 2004.