2026 (1) TMI 701 - HC - GST

Assignment of leasehold rights in plot not taxable as service; s.74(1) show-cause notice quashed and writ allowed

Dominant issue: whether transfer/assignment of leasehold rights attracts GST and whether the show-cause notice under s.74(1) was valid. Reasoning: ... Scope of supply so as to levy GST - Validity of Show cause notice issued under Section 74(1) - Demand - non-payment of GST on transfer of leasehold rights - essential element of supply of service - HELD THAT:- The Gujarat High Court Gujarat Chamber of Commerce and Industry v. Union of India, [2025 (1) TMI 516 - GUJARAT HIGH COURT], held that assignment by sale and transfer of leasehold rights 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 favour of third party, assignee who would become lessee of GIDC in place of original allottee-lessee and in such circumstances, would not be subject to levy of GST in terms of provisions of the GST Act. We subscribe to this view for the reasons quoted is earlier part of our judgment so also because the view, in our considered opinion, is in consonance with the provisions of law on supply of services. Further, the law laid down by Gujarat High Court is binding on the authorities i.e. the respondents in terms of the judgment of this Court in the case of Commercial of Income-Tax, Vidarbha v. Smt. Godavari Devi Saraf [1977 (9) TMI 24 - BOMBAY HIGH COURT], wherein the Court held that until a contrary decision is given by any other competent High Court, it is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of land. In that sense, the decision of Gujarat High Court is binding on the authorities below. Further we subscribe to the finding of Gujarat High Court that the assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC 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 favour of third party and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act. The writ petition is accordingly allowed. Show cause notice issued by respondent No. 1 is quashed and set aside. 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.