ASSIGNMENT OF LEASEHOLD RIGHTS IN IMMOVABLE PROPERTY IS NOT A SUPPLY

Supply

The term ‘supply’ is defined under Section 7(1) of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) as including all forms of supply of goods or services or both as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of business. 

Supply related to immovable properties

Schedule II to the Act provides the activities or transactions that are to be treated as supply of goods or supply of services.  Para 2 of this schedule deals with the land and building.  According to this para the activities or transactions in relation to land and building are to be treated as supply as detailed below-

• any lease, tenancy, easement, licence to occupy land is a supply of services;
• any lease or letting out of the building including a commercial, industrial residential complex for business or commerce, either wholly or partly, is a supply of services.

Issue

The issue to be discussed in this article is as to whether the assignment of leasehold rights in immovable property is supply of service or not with reference to the deciding case laws.

Assignment of land

Assignment of land refers to the legal transfer of rights, interests, or ownership of property from one party (assignor) to another (assignee). It is often used for transferring leasehold interests or by governments to assign land to landless individuals, frequently with conditions against alienation for a specific period.   Assignment is of two types – Full assignment and Partial assignment.

Case laws

In Gujarat Chamber Of Commerce And Industry & Ors., M/s. Multi Thread Fastners, M/s. Imperial Engineers, Lucid Colloids Ltd., M/s. Metal Plast Engineers Versus Union Of India & Ors., Chief Commissioner of Central Tax, State of Gujarat, Special Commissioner of State Tax, State Tax Officer (1), Assistant Commissioner of State Tax (2), State Tax Officer (EOW) - 2025 (1) TMI 516 - GUJARAT HIGH COURT the lease was executed by Gujarat Industrial Development Corporation. (‘GIDC’ for short).  The object of the GIDC Act is to establish and manage the industrial estate and develop such industrial area.  Section 14(a) of the Act empowers the GIDC to acquire and hold such property, both moveable and immovable which is necessary for the performance of its activities and to lease, sell, exchange or otherwise transfer and property held by it on such conditions as may be deemed property by the Corporation.   The ownership of the land remains with GIDC only and the possession and occupation are transferred by way of leasehold rights in favour of the allotees.

In the Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017, at Serial No. 41 under Heading 9972, NIL rate is prescribed for one time upfront amount, (premium, salami, cost, price, development charges or by any other name) leviable in respect of such service, by way of granting long term (30 years or more) lease of industrial plots by State Government Industrial Development Corporation or undertakings to industrial units.

In view of the abovesaid notification, even if the assignment of leasehold rights on the land on charge of one-time upfront amount by the GIDC for allotment of plot or land to the industrial unit is covered within the scope of ‘Supply of service’ as per clause 5(a) of the Schedule II read with section 7(1) of the Act.  Charging one-time upfront amount as premiums by GIDC would attract NIL rate of GST.  Therefore, when the industrial unit is allotted land by the GIDC no GST is required to be paid. 

In the said case GIDC allotted land to the petitioner land the petitioner constructed factory building on the land allotted to the petitioner and has assigned the rights of the land along with the building.  The Gujarat High Court considered the question as to whether the assignment of leasehold rights of the land along with the building would be covered by the scope of supply as to levy GST under Section 9 of the Act.

The Gujarat High Court considered the various provisions contained in General Clauses Act, 1897, Transfer of Property Act 1882 and the Registration Act, 1908 and such other provisions.  The High Court came to the conclusion after analysing the above said provisions that the assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party assignee for a consideration shall be assignment/sale/transfer of benefits arising out of ‘immovable property’ by the lessee -assignor in favour of third party-assignee who would become lessee of GIDC in place of original allotee-lessee.  In such circumstances the Court observed that the provisions of Section 7(1) of the Act read with clause 5(b) of Schedule II.    These would not be applicable to the assignment of land rights and would not be subject to levy of GST.

In M/s. Vidarbha Beverages, Smt. Archana, Shri. Rasesh M/s. Vidarbha Beverages, Shri. Vishal Versus Union of India, Through the Secretary, Department of Revenue, Ministry of Finance, New Delhi, State of Maharashtra, The State Tax Office. - 2026 (2) TMI 891 - BOMBAY HIGH COURT a show cause notice was issued to the petitioner to show cause as to why GST to the tube of Rs.59.4 lakhs along with interest of Rs.40.98 lakhs should not be demanded and recovered from the petitioner under Section 74 of the Act.  The show cause notice alleged that the petitioner has concealed a transaction where he has assigned the leasehold rights in the plot belonging to MIDC to one Rao Himanshu for Rs.3.30 crores. 

The petitioners challenged the show cause before the High Court by filing a writ petition.  The Department contended that the transfer of assignment of rights would amount to supply of services in terms of Section 7(1) of the Act read with sub-clause 2(b) of Schedule II.  The High Court observed that the Department, in the show cause notice mentioned that transaction under question does not amount to sub lease as the petitioner’s right stands extinguished by the said transaction.  The Department recognised the said transaction as seeking compensation to transfer rights in favour of the assignee. This activity amounts to service classifiable under ‘Other miscellaneous services’ and is taxable @ 18% under Sl. No. 35 of the Notification NO.11/2017-Central Tax (Rate), dated 28.06.2017.

The High Court further observed that Sl. No. 1 includes other services such as washing, cleaning and dyeing services, beauty and physical well being services and other misc. services including services nowhere else classified. These services cannot be extended to assignment of leasehold rights in an immovable property.  The petitioner holds a lease for 95 years which is a long-term lease.  The rights under the lease are transferable under 2(u) of the least executed between the petitioner and GIDC.  Thus, the rights are transferable.

The High Court relied on the judgment of Gujarat High Court in ‘Gujarat Chamber of Commerce and Industry’(supra).  The High Court subscribed to the decision in the said case.  The High court further observed that the law laid down by the Gujarat High Court is binding on the authorities until a contrary decision is given by another competent High Court, is binding on the Tribunals and State of Bombay. 

As such the High Court allowed the writ petition and quashed the show cause notice with adjudication order, dated 30.12.2025.