A Proposed Review Cannot Displace the No-GST Ruling On Industrial Leasehold Assignments

A Binding Judgment Cannot Be Set Aside by Departmental Disagreement

When the jurisdictional High Court has decided a legal issue, the Tribunal must apply that decision to cases within its purview. The Department's disagreement, or its intention to seek further judicial consideration, does not suspend the judgment. An intention to challenge a ruling is distinct from an order staying or reversing it. This distinction is important where taxpayers continue to face demands on an issue already decided in their favour.

The principle was applied in The Assistant Commissioner of CGST & Central Excise, Division-IX, Ankleshwar, Vadodara-II Commissionerate Versus Pragna Chemical Industries, Shivabhishek Industrial Park Private Limited and Kumar Packaging. - 2026 (10) TMI 619 - GSTAT SURAT, together with the connected departmental appeals concerning Shivabhishek Industrial Park Private Limited and Kumar Packaging. The Goods and Services Tax Appellate Tribunal, Surat Bench, comprising Hon'ble Sanjaykumar Dwivedi, Member (Judicial), and Hon'ble Ramesh Kumar Gokalbhai Hadvani, Member (Technical), decided Appeal Nos. APL/59/SRT/2026, APL/82/SRT/2026 and APL/83/SRT/2026.

The disputes concerned GST demanded from recipients of assigned leasehold rights in plots originally allotted by the Gujarat Industrial Development Corporation, commonly known as GIDC. The First Appellate Authority had set aside the demands in accordance with the Gujarat High Court. The Tribunal had to determine whether the Department could obtain a different result merely because it proposed to seek review after dismissal of its special leave petitions.

The Transaction Involved Acquisition of Existing Leasehold Rights

The Tribunal discussed the facts of Pragna Chemical Industries as the representative case. In 1990, GIDC allotted Plot No.7311 at its Ankleshwar Industrial Estate to an individual under a licence agreement. The Central Excise and Customs Department subsequently attached the property to recover dues of Tulsi Alloys Private Limited. An e-auction was conducted by MSTC Limited on behalf of the Department on 26.04.2018.

M/s Raj Enterprise emerged as the successful bidder. It then nominated Pragna Chemical Industries as the person to whom the property was to be transferred, and GIDC transferred the leasehold rights to Pragna Chemical Industries. The respondent thus became the assignee, or recipient, of those rights. The controversy concerned the transfer of an existing interest in industrial property, not merely a payment for temporary use of premises.

The Department, however, treated the transaction as a supply of service and demanded GST from the respondent under the reverse-charge mechanism. The adjudicating authority confirmed the tax and interest, imposed a penalty equal to the tax under Section 74 of the CGST Act, 2017, and imposed a further equal penalty under Section 122(2)(b) of the CGST Act, 2017. The First Appellate Authority set aside the demand by applying the Gujarat High Court's decision.

Assignment Must Be Distinguished From Ordinary Renting

A person holding property on lease has the right to possess and use it for the agreed period, subject to the lease conditions. That person may be permitted to transfer those existing rights to someone else. This is called an assignment of leasehold rights. In the transaction the High Court considered, the new holder replaced the earlier lessee in its relationship with the industrial development corporation. The new holder acquired the existing leasehold interest; it did not become the absolute owner of the land. The question was whether the payment was for acquiring that property interest, rather than for receiving an ordinary rental service.

For example, suppose a corporation allots an industrial plot to Company A on a ninety-nine-year lease. After twenty years, Company A transfers its remaining leasehold rights to Company B for an agreed amount, with the corporation's approval. Company B takes Company A's place for the remaining period, subject to the applicable lease conditions. This differs from Company A retaining its leasehold interest and merely allowing Company B to occupy the premises against monthly rent. In the first situation, the existing leasehold interest transfers; in the second, the Company permits occupation under a separate arrangement. Both involve leased property, but they are not necessarily the same transaction for GST purposes.

However, the judgment does not mean that every payment connected with industrial land is free from GST. An original allotment by the corporation, ordinary renting, a sublease, a development agreement or a separate transfer charge collected by the corporation requires its own examination. The present ruling applies to assignments covered by the High Court's decision. To determine whether a transaction qualifies, the agreement must show what rights the earlier holder transferred, what rights it retained and what the new holder acquired. The actual rights transferred matter more than the name given to the agreement or payment

Assignment of Leasehold Rights Was Not a Taxable Supply of Service

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 Gujarat High Court examined whether GST could be charged when a lessee transferred its existing leasehold rights in a GIDC industrial plot, including the associated building, to another person for consideration. The case arose in R/Special Civil Application No.11345 of 2023 and connected matters. The question was what the purchaser acquired in return for the payment: a taxable service or an existing interest in immovable property.

Paragraph 83, reproduced in the Tribunal's order, treated the assignment as a transfer of benefits arising from immovable property. The incoming purchaser became the lessee of GIDC in place of the earlier holder. After examining Section 7(1)(a) of the CGST Act, 2017, clause 5(b) of Schedule II to the CGST Act, 2017 and clause 5 of Schedule III to the CGST Act, 2017, the High Court concluded that the assignment under consideration did not attract GST under Section 9 of the CGST Act, 2017. Payment of consideration did not, by itself, make the transfer a taxable service. The Court had to examine its legal nature. Since GST was not payable on that transaction, the Court did not need to decide whether ITC could be used to discharge the proposed tax.

The Surat Tribunal recorded that this judgment covered the transactions before it. It therefore had to apply the jurisdictional High Court's decision, rather than reconsider the same legal question as though it remained undecided. This did not create a general exemption for every transaction involving leased land. It meant that once the present assignments fell within the binding ruling, the GST demands could not be sustained by repeating an interpretation the High Court had already rejected.

Dismissal of the Department's Challenges Left the No-GST Rulings Undisturbed

In Aerocom Cushions Private Limited Versus Assistant Commissioner (Anti-Evasion), CGST & CX, Nagpur-1, Superintendent, CGST & Central Excise, Anti – Evasion, Nagpur. - 2026 (1) TMI 701 - BOMBAY HIGH COURT, the Bombay High Court agreed with the Gujarat High Court's interpretation. It accepted that the assignment under consideration transferred benefits arising from immovable property and did not attract GST. The Court therefore set aside the show-cause notice. This decision further supported the same legal approach. However, the Surat Tribunal was bound by the Gujarat High Court's judgment because it was the jurisdictional High Court, not merely because another High Court had agreed with it.

The Department challenged both decisions before the Supreme Court, but neither challenge succeeded. In Assistant Commissioner (Anti Evasion) & Anr. Versus Aerocom Cushions Private Limited. - 2026 (5) TMI 1509 - SC Order. The Tribunal referred to SLP(C) No.18772/2026. Subsequently, in The Union Of India & Anr. Versus Gujarat Chamber Of Commerce And Industry & Ors. - 2026 (7) TMI 1434 - SC Order, the Supreme Court dismissed the Department's petitions on 21.07.2026, referring to the earlier dismissal in the similar matter. The High Court judgments consequently remained undisturbed.

The effect of these orders, however, should be understood carefully. The Supreme Court did not deliver a detailed judgment independently examining every argument about GST on leasehold assignments. Its short dismissal orders should not be described as such an examination or as express approval of every reason given by the High Courts. For the Surat Tribunal, the position was straightforward: the Gujarat High Court's ruling continued to operate, the present transactions fell under it, and no order had stayed or recalled it. The Tribunal therefore had to apply that ruling.

A Proposed Review Does Not Put a Binding Judgment on Hold

The Department explained that it had filed the appeals because it had challenged the Gujarat High Court's judgment before the Supreme Court. After those challenges were dismissed, it stated that it was preparing to file a review petition. However, it did not produce any order staying or recalling the judgment. The intention to seek review did not change the legal position in force at the time. The Tribunal therefore remained bound to follow the High Court's jurisdictional ruling in the cases it covered.

The difference is simple: asking for a decision to be reconsidered is not the same as obtaining an order suspending it. For example, the Department may believe that a judgment is wrong and announce that further proceedings are being prepared. That announcement does not permit the Tribunal to treat the judgment as ineffective. Even filing a review petition does not, by itself, amount to a stay. The Department must show an actual judicial order affecting the judgment's operation, not merely its intention to obtain one. Otherwise, taxpayers could be denied the benefit of a binding ruling for an uncertain period while the Department considered further litigation.

This does not prevent the Department from pursuing any remedy available under law. It means that, while doing so, it must respect the existing judgment unless a competent court stays, recalls or changes it. The Tribunal cannot decide covered cases on the assumption that the ruling might be reversed later. A possible future outcome cannot replace today's binding legal position.

The Suppression Allegation and Penalty Questions Were Not Independently Decided

The notice alleged that Pragna Chemical Industries had deliberately withheld information about the transaction and that the facts emerged only through investigation. The Tribunal recorded the circumstances surrounding that allegation: the Department itself had conducted the auction; the Deputy Commissioner, who also had jurisdiction over the respondent under GST, had issued the purchase certificate; and the Department had authorised GIDC to transfer the lease.

Those circumstances were relevant to understanding the dispute. However, the Tribunal did not finally decide whether the requirements of Section 74 of the CGST Act, 2017 or Section 122(2)(b) of the CGST Act, 2017 had independently been satisfied. Once the binding precedent held the transactions not liable to GST, those questions did not survive for consideration. The decision should therefore not be described as laying down a separate rule that every departmental auction excludes suppression or prevents penalty proceedings.

The same qualification applies to reverse charge. The Tribunal did not independently resolve every question concerning the scope of that mechanism. It concluded that GST was not leviable on these transactions, so the Tribunal did not need to examine the proposed recovery through reverse charge. The ruling cannot be used as general authority that reverse charge never applies to property-related transactions or assignments of other kinds.

Dismissal of the Appeals Preserved the Appellate Relief

The Tribunal dismissed the three departmental appeals and upheld the Orders-in-Appeal. The result preserved the setting aside of the demands concerning the covered assignments. The operative part was pronounced in open court on 29.09.2026, while the reported final order bears the date 06.10.2026, with Final Order Nos. GUJ/SRT/048 to 50/2026.

The order also corrected the cause titles appearing on the GSTAT portal. The portal had displayed an individual officer's name as appellant, whereas the correct appellant was the Assistant Commissioner of Central GST, Division-IX, Ankleshwar, Vadodara-II. The remaining identifying particulars, including addresses and GSTINs, were unchanged. This correction concerned accurate identification of the parties; it did not supply the substantive ground for dismissal.

The relief should not be enlarged beyond the order. No separate refund amount, interest award or payment deadline was prescribed. Nor did the Tribunal undertake a fresh examination of every possible payment associated with GIDC property. The appeals failed because the transactions before it were covered by the binding no-GST ruling, not because all industrial-property dealings were declared outside GST.

The Transaction Must Be Examined and the Binding Decision Applied

For taxpayers, the practical starting point is the documentation: the original allotment, the rights held by the outgoing party, the assignment instrument, the corporation's approval, and the rights acquired by the incoming party. These records help determine whether the transaction is an assignment covered by the governing decision or a different arrangement requiring separate examination. Merely describing a payment as consideration for leasehold rights cannot replace that inquiry.

For the Department and appellate authorities, the corresponding obligation is to apply the jurisdictional High Court's ruling to cases it covers. A proposed review is not a reason to keep an otherwise unsustainable demand alive. The judgment combines two clear principles: the legal nature of the transferred rights determines taxability, and a binding decision remains binding until a competent court changes its effect.

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