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 benefits arising out of immovable property and is not a supply of services under the GST Act. Consequently, such transactions are not subject to GST levy under Section 9. The Court set aside the impugned Order-in-Original issued under Section 74, quashing the show cause notice and related proceedings. The petition was allowed.

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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.

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