2025 (5) TMI 374 - HC - GST

Levy of GST - transfer of leasehold rights of industrial land by the petitioner to a third party - applicability of N/N. 09/2023 dated 31.03.2023 and N/N. 56/2023-Central Tax dated 28.12.2023 - HELD THAT - It is an admitted factual position that the petitioner transferred the leasehold rights of its industrial plots to one M/s. Dayaram Pharma Chem based upon which the Corporation has issued final transfer order No. GIDC/RM/ANK/TRF/FTO/DAH5/118 dated 24.12.2019 in favour of the purchaser of such leasehold rights. In view of such undisputed factual position the decision of this Court in the case of Gujarat Chamber of Commerce and Industry Vs. Union of India 2025 (1) TMI 516 - GUJARAT HIGH COURT will squarely apply. In Gujarat Chamber of Commerce this Court has 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. In such circumstances provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable to such transaction of assignment of leasehold rights of land and building and same would not be subject to levy of GST as provided under section 9 of the GST Act. The order passed by the Respondent No. 3 is hereby quashed and set aside - petition allowed.

Issues presented and considered in the judgment primarily revolve around the applicability of Goods and Services Tax ("GST") on the transfer of leasehold rights of industrial land by the petitioner to a third party. The core legal questions examined include:

1. Whether the assignment or transfer of long-term leasehold rights in industrial plots constitutes a taxable supply under the GST Act, 2017.

2. Whether the notifications issued-specifically Notification No. 09/2023 dated 31.03.2023 and Notification No. 56/2023-Central Tax dated 28.12.2023-are valid and within the jurisdiction of the authorities, or whether they are arbitrary, illegal, and violative of Section 168A of the CGST Act.

3. The legality and jurisdictional competence of the order passed under Section 73 of the GST Act demanding tax, interest, and penalty on the transfer fees received for assignment of leasehold rights.

4. Whether the amendment vide Notification 28/2019 dated 31.12.2019, which amended Entry No. 41 of Notification 12/2017 dated 28.06.2017 to exempt subsequent leases, is clarificatory and applicable retrospectively.

5. Whether recovery proceedings pursuant to the impugned order should be stayed pending final disposal of the petition.

Issue-wise detailed analysis:

1. Applicability of GST on transfer of leasehold rights of industrial land

The legal framework centers on the GST Act, 2017, particularly Section 7(1)(a) defining the scope of "supply," Section 9 dealing with levy of GST, and the relevant Schedules II and III which classify various transactions. The petitioner contended that the assignment of leasehold rights does not amount to a taxable supply under GST.

The Court relied heavily on its prior decision in Gujarat Chamber of Commerce and Industry Vs. Union of India, where it was held that the assignment or sale of leasehold rights of plots allotted by GIDC (Gujarat Industrial Development Corporation) does not constitute a supply of goods or services under the GST Act. The Court reasoned that such a transaction is essentially an assignment of benefits arising out of immovable property, which is outside the ambit of taxable supply as per the GST framework. Specifically, the Court noted:

"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'... provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable... and same would not be subject to levy of GST as provided under section 9 of the GST Act."

The Court also observed that since no GST liability arises, the question of utilizing input tax credit to discharge such liability does not arise.

Applying this precedent to the facts, the Court noted the undisputed fact that the petitioner transferred leasehold rights by a final transfer order issued by GIDC. This factual matrix squarely fell within the scope of the Gujarat Chamber decision, thereby negating the applicability of GST on the transaction.

2. Validity and jurisdiction of notifications impugned by the petitioner

The petitioner challenged Notification No. 09/2023 and Notification No. 56/2023-Central Tax as being ultra vires, arbitrary, and violative of Section 168A of the CGST Act. Section 168A deals with the power to issue notifications for certain amendments or clarifications.

The Court, while not extensively elaborating on the detailed legal framework of these notifications, implicitly found the notifications to be dehors and without jurisdiction by virtue of the primary finding that the transaction itself is not taxable under GST. Since the transaction is not a supply liable to GST, any notification purporting to impose such tax or clarify its applicability retrospectively becomes irrelevant and invalid.

3. Legality and jurisdiction of the order under Section 73 demanding GST, interest, and penalty

The impugned order under Section 73 of the GST Act demanded a tax amount of Rs. 25,32,746 along with interest and penalty aggregating to Rs. 49,26,850. Section 73 empowers the tax authorities to recover tax not paid or short paid due to reasons other than fraud or willful misstatement.

The Court found that since the transaction of assignment of leasehold rights is not a taxable supply, the issuance of the show cause notice and subsequent demand order lacked jurisdiction and was ex-facie illegal. The Court noted that the respondents failed to provide any substantive legal or factual basis to controvert the petitioner's submissions or the binding precedent.

Hence, the Court quashed and set aside both the show cause notice and the demand order, holding them to be without jurisdiction and illegal.

4. Retrospective applicability of Notification 28/2019 dated 31.12.2019

The petitioner argued that the amendment exempting subsequent leases under Entry No. 41 of Notification 12/2017 is clarificatory and should be applied retrospectively.

The Court, while not elaborating extensively on this point, accepted the petitioner's submission implicitly by quashing the demand and recognizing the amendment as applicable retrospectively. This aligns with the principle that clarificatory amendments are to be construed as having retrospective effect unless expressly stated otherwise.

5. Interim relief restraining recovery proceedings

The petitioner sought interim relief restraining the respondents from initiating recovery proceedings pending final disposal of the petition.

The Court granted this relief by quashing the impugned order and show cause notice, which effectively stayed any recovery action. The Court's decision to set aside the orders rendered any further recovery proceedings impermissible.

Competing arguments and treatment thereof

The petitioner's submissions were supported by binding precedents from this Court, notably Gujarat Chamber of Commerce and Industry and Alfa Tools Pvt. Ltd., which had been followed consistently. The respondents, particularly Respondent Nos. 1 and 2, did not controvert these submissions effectively, and the Assistant Government Pleader representing Respondent No. 3 failed to establish any contrary legal position or factual dispute.

The Court thus found no merit in the respondents' case and relied on the established legal position to reach its conclusions.

Significant holdings:

The Court conclusively held that the transaction of assignment of leasehold rights does not constitute a taxable supply under the GST Act, thereby negating any GST liability, interest, or penalty thereon.

The Court quashed and set aside the show cause notice dated 28.05.2024 and the order dated 29.08.2024 demanding GST, interest, and penalty.

It further held that the impugned notifications relied upon by the respondents are without jurisdiction and violative of the statutory provisions.

The principles established reaffirm that the transfer of leasehold rights in industrial plots allotted by GIDC is outside the ambit of GST levy, and clarificatory amendments exempting such transactions have retrospective effect.

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