2025 (12) TMI 436 - HC - GST

Assignment of GIDC leasehold held not a taxable supply under s.7(1)(a) SGST Act, s.9; GST, s.74 notice quashed

HC held that assignment by sale and transfer of leasehold rights in a GIDC-allotted plot by a lessee to a third-party assignee constitutes transfer of ... Validity of SCN issued u/s 74 of State Goods & Service Tax Act, 2017 - 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 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 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 show-cause notice dated 23.09.2025 issued under Section 74of the Act in form GST DRC 01 is hereby quashed and set aside - Petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether assignment by sale and transfer of leasehold rights in GIDC plot by the lessee to a third-party assignee constitutes 'supply of services' under Section 7(1)(a) of the State Goods and Services Tax Act, 2017, liable to GST under Section 9. 1.2 Whether, in light of the above, a show cause notice issued under Section 74 of the State Goods and Services Tax Act, 2017, demanding GST on such assignment of leasehold rights, is legally sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability under GST of assignment/transfer of GIDC leasehold rights to a third party Legal framework (as discussed by the Court) 2.1 Section 7(1)(a) of the State Goods and Services Tax Act, 2017: Defines 'scope of supply' to include all forms of supply of goods or services or both such as transfer, sale, barter, exchange, license, rental, lease or disposal for a consideration in the course or furtherance of business. 2.2 Schedule II, Clause 5(b) and Schedule III, Clause 5 of the GST Act: Schedule II deals with activities to be treated as supply of goods or services, and Clause 5 addresses land and building; Schedule III, Clause 5 excludes sale of land and sale of building from the scope of supply. 2.3 Sections 2(102), 9 of the GST Act and relevant notifications: 'Service' is defined as anything other than goods, money and securities; Section 9 provides for levy and collection of GST. Notification No. 11/2017 was noted in the precedent as dealing with construction services and treatment of land value. 2.4 Transfer of Property Act provisions and case law (as relied upon in the precedent quoted): Section 105 read with Section 108(j) of the Transfer of Property Act and judicial exposition on 'assignment', leasehold rights and their character as 'immovable property' were referred to and adopted from the earlier decision. Interpretation and reasoning 2.5 The Court noted that the controversy in the petition was identical to that decided in an earlier binding decision, wherein detailed analysis was undertaken on the nature of assignment of GIDC leasehold rights and its treatment under GST law. 2.6 Referring to the extracted passages from the prior judgment, the Court reiterated the distinction between: (a) the initial allotment by GIDC of plots on long-term lease (e.g., 99 years) for premium and lease rent, which was held to be 'supply of service'; and (b) the subsequent assignment by the lessee of its leasehold rights in favour of a third-party assignee, which divests the lessee-assignor of all its rights and results in transfer of interest in immovable property. 2.7 The Court adopted the reasoning that leasehold rights for such long duration, when assigned, constitute transfer/sale of an 'immovable property' or benefits arising out of immovable property, and not a 'supply of services'. The bundle of rights in land and building transferred by such assignment amounts to assignment/sale/transfer of immovable property. 2.8 It was reiterated that Clause 5 of Schedule III expressly excludes 'sale of land' from the ambit of supply, and leasehold rights, being treated as sale/transfer of land (benefits arising out of land and building), fall outside the scope of Section 7(1)(a). Hence, provisions relating to 'supply of services' do not apply to such assignment transactions. 2.9 The Court further noted that the earlier decision had clarified that, in such circumstances, there can be no levy of GST under Section 9 on assignment/transfer of GIDC leasehold rights, and consequently the question of utilisation of input tax credit for such liability does not arise. Conclusions 2.10 Assignment by sale and transfer of leasehold rights of GIDC-allotted plots by the lessee to a third-party assignee for consideration is assignment/sale/transfer of benefits arising out of 'immovable property' and does not constitute 'supply of services' under Section 7(1)(a) of the GST Act. 2.11 Such transactions are outside the scope of supply in view of Clause 5 of Schedule III and are not subject to levy of GST under Section 9 of the GST Act. Issue 2 - Validity of show cause notice under Section 74 demanding GST on such assignment Legal framework (as discussed by the Court) 2.12 Section 74 of the State Goods and Services Tax Act, 2017: Provides for determination of tax not paid or short paid, or erroneously refunded, or input tax credit wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts, and issuance of show cause notice for recovery. 2.13 Section 70 and Section 74(5) of the GST Act: Section 70 empowers issuance of summons; Section 74(5) contemplates intimation in Form GST DRC-01A for voluntary payment before notice. Interpretation and reasoning 2.14 The Court observed that the impugned show cause notice under Section 74 was predicated on treating the assignment of leasehold rights by the petitioner in favour of the purchaser as 'supply of service' liable to GST. 2.15 Since, by applying the binding precedent, the Court held that such assignment/transfer of leasehold rights is transfer of immovable property and not a 'supply' exigible to GST, the foundational assumption of taxability underlying the show cause notice was untenable. 2.16 In absence of any legally sustainable levy, initiation of proceedings under Section 74 for recovery of tax, interest and penalty on such transaction was held to be without authority of law. Conclusions 2.17 The show cause notice issued under Section 74 of the GST Act, demanding GST, interest and penalty on assignment of GIDC leasehold rights for the relevant financial year, is unsustainable as the underlying transaction is not taxable under the GST Act. 2.18 The impugned show cause notice in Form GST DRC-01 is quashed and set aside; the petition is allowed with no order as to costs.