Background of the Case

The dispute in the present matter revolved around the levy of GST on assignment and transfer of leasehold rights in industrial plots allotted by industrial development corporations. Aerocom Cushions Private Limited had challenged a GST show cause notice issued by the department alleging that transfer of leasehold rights constituted a taxable supply of services under the GST regime.

The Bombay High Court (Nagpur Bench), while deciding the writ petition, relied extensively upon the earlier judgment of the Gujarat High Court delivered in the case concerning assignment of leasehold rights allotted by GIDC and held that such transfer essentially amounted to transfer of benefits arising out of immovable property and therefore could not be subjected to GST. The High Court accordingly quashed the show cause notice issued by the department.

Aggrieved by the decision of the Bombay High Court, the Revenue approached the Hon’ble Supreme Court by way of Special Leave Petition challenging the correctness of the judgment.

Arguments by the Appellant (Revenue)

The Revenue contended that assignment of leasehold rights by an allottee in favour of a third-party assignee amounted to a “supply of service” under Section 7 of the CGST Act read with Schedule II. According to the department, permission granted by industrial development corporations such as MIDC/GIDC for transfer of leasehold rights constituted a taxable activity liable to GST at the applicable rate.

The department further argued that transfer of leasehold rights involved commercial consideration and therefore could not be treated at par with sale of immovable property falling outside the scope of GST. On this basis, the Revenue sought interference with the judgment passed by the Bombay High Court.

Respondent’s Response (Taxpayer)

The respondent relied upon the detailed findings recorded by the Gujarat High Court wherein it was held that assignment and transfer of leasehold rights in industrial plots amounts to transfer of benefits arising out of immovable property. It was argued that such transactions are in substance transfer of immovable property rights and therefore fall outside the scope of “supply” under the GST law.

The respondent further contended that the Bombay High Court had correctly followed the Gujarat High Court ruling and rightly concluded that GST cannot be levied on assignment of leasehold rights in land. It was also submitted that the transaction was already subjected to stamp duty and registration under the applicable laws governing immovable property transactions.

Court Findings and Decision

The Supreme Court dismissed the Special Leave Petition filed by the Revenue and declined to interfere with the judgment of the Bombay High Court. Consequently, the ruling of the Bombay High Court attained finality.

The Bombay High Court had categorically held that assignment by sale and transfer of leasehold rights in industrial plots constitutes transfer of benefits arising out of immovable property and therefore does not amount to taxable supply under the GST law. The Court also observed that the Gujarat High Court’s ruling on the issue was binding in absence of any contrary decision by another competent High Court.

By dismissing the Revenue’s appeal, the Supreme Court has effectively reaffirmed the judicial position that transfer and assignment of leasehold rights in industrial plots allotted by development corporations such as MIDC/GIDC cannot be subjected to GST merely on the ground that consideration is involved in the transaction. The ruling provides significant relief and clarity to industries and businesses dealing in assignment of industrial leasehold rights.

To download official order of Bombay High Court, Click Here and for Supreme Court order, Click Here.

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