2025 (8) TMI 395 - HC - GST

Assignment of GIDC Leasehold Rights Not a Supply of Service Under Section 7(1)(a), No GST Levy Under Section 9

The HC held that the assignment of leasehold rights by the petitioner, involving the transfer of benefits arising from immovable property allotted by ... Classification of service - assignment of lease hold rights by the petitioner - supply of service under Section 7(1)(a) of the Act or not - HELD THAT:- This Court in various decisions have already decided that assignment by sale and transfer of lease hold right 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 such circumstances, the provision of Section 7(1)(a) of the Act providing for scope of supply read with Clause 5(b) of Schedule 2 and Clause 5 of Schedule 3 of the Act would not be applicable to such transaction of assignment of lease hold rights and the same would not be subject to levy of GST as provided under Section 9 of the Act. The impugned order dated 29.12.2023 passed under Section 74 of the Act is hereby quashed and set aside - Petition allowed. ISSUES: Whether the assignment by sale and transfer of leasehold rights in industrial plots allotted by a government development corporation constitutes a 'supply of service' under Section 7(1)(a) of the State Goods & Service Tax Act, 2017.Whether such assignment/transfer of leasehold rights amounts to transfer of 'immovable property' and is therefore excluded from the scope of GST levy under the Act.Whether GST is leviable on the consideration received for transfer of leasehold rights of industrial plots.Whether input tax credit can be utilized to discharge any alleged GST liability arising from such transfer of leasehold rights. RULINGS / HOLDINGS: The assignment by sale and transfer of leasehold rights of industrial plots allotted by the government development corporation is a transfer of 'immovable property' and not a 'supply of service' under Section 7(1)(a) of the GST Act.Clause 5 of Schedule III of the GST Act explicitly excludes the sale of land from being treated as supply of goods or services, thereby excluding leasehold rights transfers from GST levy.The transaction of assignment of leasehold rights extinguishes the estate of the transferor-lessee and transfers absolute rights to the assignee, constituting an alienation akin to sale or mortgage, and thus outside the scope of GST.Input tax credit utilization to discharge GST liability on such assignment does not arise as no GST liability exists on the transfer of leasehold rights.The impugned show cause notice and orders demanding GST on transfer of leasehold rights are quashed and set aside. RATIONALE: The Court applied the legal framework under the State Goods & Service Tax Act, 2017, particularly Section 7 (scope of supply), Clause 5 of Schedule II (treatment of certain activities as supply of service), and Clause 5 of Schedule III (exclusions from supply), alongside relevant provisions of the Integrated Goods and Service Tax Act, 2017.The Court relied on the settled legal position that leasehold rights for a long term (e.g., 99 years) are tantamount to transfer of immovable property, supported by precedents including authoritative Supreme Court decisions and established legal definitions of 'assignment' and 'property.'The decision referenced legislative intent and GST Council minutes clarifying that sale or transfer of immovable property is excluded from GST, consistent with the principle that GST subsumes indirect taxes but excludes transactions akin to sale of immovable property.The Court distinguished lease or letting out of property (which is supply of service) from assignment or sale of leasehold rights (which is transfer of immovable property), emphasizing that absolute transfer of leasehold rights extinguishes the assignor's estate and legal relationships.The Court noted that prior rulings of the same High Court have consistently held that assignment of leasehold rights is outside the scope of GST levy, reinforcing the doctrinal position.