GST on transfer of leasehold rights clarified as not leviable for assignment of immovable property; show cause notice quashed.

Assignment by sale and transfer of leasehold rights of a plot constitutes transfer of benefits arising out of immovable property rather than a supply of service; therefore GST is not leviable on such assignments, and the show cause notice challenging non-payment of GST on the transfer is invalid. The reasoning adopts the view that a lessee-assignor transferring leasehold benefits to a third-party assignee who becomes the lessee does not effect a taxable supply under the GST framework, resulting in allowance of the writ petition and quashing of the show cause notice.

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Issues: (i) Whether assignment/transfer of leasehold rights in a long-term lease constitutes a "supply" taxable under the GST law and whether the show cause notice issued under Section 74(1) of the Central Goods and Services Tax Act, 2017 charging GST on such assignment is sustainable.

Analysis: The transaction is an assignment of leasehold rights in a 95-year lease with transfer of benefits arising out of immovable property and prior consent of the lessor. Clause 2(b) of Schedule II and Section 7(1) of the Act classify leases/letting as services, but the facts show a transfer extinguishing the assignor's rights, amounting to transfer of benefits of immovable property rather than a service in the course or furtherance of the petitioner’s business. The Court relied on the reasoning and conclusions of the Gujarat High Court which analysed statutory provisions and notifications, including exemption entries for one-time upfront premiums for long-term leases, and concluded that assignment/sale/transfer of leasehold rights of such plots constitutes transfer of benefits arising out of immovable property and is not chargeable to GST. The respondents' characterization of the assignment as "other miscellaneous services" under the rate notification was found to be inapt for the nature of the transaction.

Conclusion: The assignment/transfer of leasehold rights does not constitute a taxable supply of services under the GST law in the circumstances of this case, and the show cause notice issued under Section 74(1) is unsustainable; conclusion is in favour of the assessee.

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