2025 (8) TMI 562 - HC - GST

Assignment and transfer of leasehold rights in industrial plots not a GST supply under Section 9

The HC held that the assignment by sale and transfer of leasehold rights of industrial plots allotted by a government agency constitutes transfer of ... Classification of supply - supply of services or not - assignment by sale and transfer of leasehold rights of industrial plots allotted by a government agency - HELD THAT:- This Court in various decisions has 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 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. In view of the fact that this Court has already set aside the show cause notice dated 03.08.2024 in Special Civil Application No. 12828 of 2024 and considering the decision of this Court in the case of Gujarat Chamber of Commerce and Industry [2025 (1) TMI 516 - GUJARAT HIGH COURT], the impugned Order-in- Original dated 31.12.2024, is required to be quashed and set aside. The impugned Order-in-Original dated 31.12.2024 passed under Section 74 in Form GST DRC-07 issued by respondent is hereby quashed and set aside - Petition allowed. ISSUES: Whether the assignment by sale and transfer of leasehold rights of industrial plots allotted by a government agency constitutes 'supply of service' under Section 7(1)(a) of the GST Act.Whether such assignment/transfer of leasehold rights amounts to transfer of 'immovable property' and thus falls outside the scope of GST levy under Section 9 of the GST Act.Whether the impugned show cause notice and Order-in-Original passed under Section 74 of the GST Act without considering pending writ petitions and objections is valid.Whether input tax credit utilization arises in respect of GST liability on assignment of leasehold rights. RULINGS / HOLDINGS: The assignment by sale and transfer of leasehold rights of industrial plots is a transfer of 'immovable property' and not a 'supply of service' as contemplated under Section 7(1)(a) of the GST Act.Clause 5 of Schedule III of the GST Act excludes sale of land from supply of goods or services, and leasehold rights, being akin to sale of immovable property, fall outside the scope of GST levy under Section 9 of the Act.The impugned Order-in-Original dated 31.12.2024 passed under Section 74 of the GST Act without considering the quashing of the show cause notice and pending writ petitions is liable to be quashed and set aside.Since the transaction is not subject to GST, the question of utilization of input tax credit to discharge GST liability does not arise. RATIONALE: The Court applied the legal framework under the Gujarat/State Goods & Service Tax Act, 2017, particularly Section 7(1)(a) defining 'supply,' Section 9 relating to levy of tax, and relevant clauses of Schedule II and Schedule III excluding sale of land from taxable supply.Precedents including the decision in Gujarat Chamber of Commerce and Industry and authoritative interpretations of 'assignment' and 'immovable property' under the Transfer of Property Act and Supreme Court rulings were relied upon to establish that transfer of leasehold rights for a long term (e.g., 99 years) constitutes an absolute transfer of immovable property.The Court noted the legislative intent to subsume indirect taxes into GST but recognized that transfer of immovable property, including leasehold rights, was deliberately excluded from GST levy as per Schedule III and consistent with prior service tax regime exclusions.The Court emphasized that the assignment extinguishes the lessee-assignor's estate and transfers all rights and liabilities to the assignee, thereby amounting to sale/transfer of immovable property rather than supply of service.Procedurally, the Court held that adjudication without considering pending writ petitions and objections violated principles of natural justice and rendered the impugned order invalid.