2025 (5) TMI 539 - HC - GST

Suppy or not - assignment of long-term leasehold rights in an industrial plot by the Petitioner to its subsidiary - levy of GST on transfer fee received for the leasehold rights of the GIDC plot - HELD THAT - The said Deed of Assignment is nothing but a complete transfer/sale of the entire leasehold rights in favour of the assignee by the present petitioner/original lesseee for valuable consideration. In such circumstances and factual premise the decision of this Court in the case of Gujarat Chamber of Commerce (Supra) will squarely apply. In Gujarat Chamber of Commerce 2025 (1) TMI 516 - GUJARAT HIGH COURT 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. Conclusion - The assignment of leasehold rights is not subject to GST. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the assignment of long-term leasehold rights in an industrial plot by the Petitioner to its subsidiary constitutes a "supply" liable to Goods and Services Tax (GST) under the GST Act, 2017.

- Whether the issuance of the Show Cause Notice under Section 74 of the GST Act demanding GST on the transfer fee received by the Petitioner is legal and within jurisdiction.

- Whether the retrospective applicability of Notification 28/2019 dated 31.12.2019, amending Entry No. 41 of Notification 12/2017, which exempts subsequent leases, applies to the transaction in question.

- Whether interim relief should be granted restraining the Respondent from proceeding further with the GST demand pending final disposal of the petition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Assignment of Leasehold Rights under GST Act

Relevant Legal Framework and Precedents:

The GST Act defines "supply" under Section 7(1)(a) and specifies certain transactions in Schedule II and exemptions in Schedule III. Entry No. 41 of Notification 12/2017 initially exempted lease of land and building, with subsequent amendment by Notification 28/2019 clarifying exemption for subsequent leases. The Court relied heavily on the Gujarat Chamber of Commerce and Industry judgment, which interpreted these provisions in the context of assignment of leasehold rights in industrial plots allotted by Gujarat Industrial Development Corporation (GIDC).

Court's Interpretation and Reasoning:

The Court examined the Memorandum of Understanding (MOU) and Deed of Assignment executed between the Petitioner and its subsidiary, TPL. The MOU explicitly conveyed and assigned all leasehold rights, interests, and title in the industrial plot to TPL for valuable consideration. The Deed of Assignment formalized the transfer and confirmed that the assignee became liable for all future obligations under the lease agreement with GIDC.

By applying the precedent set in Gujarat Chamber of Commerce, the Court held that such assignment by sale and transfer of leasehold rights is a transfer of benefits arising out of immovable property and does not constitute a taxable supply under GST. The Court reasoned that the assignee steps into the shoes of the original lessee, and the transaction is essentially a transfer of immovable property rights rather than a supply of goods or services as contemplated under the GST Act.

Key Evidence and Findings:

The MOU and Deed of Assignment clauses were pivotal, demonstrating the complete transfer of leasehold rights and responsibilities to the assignee. The Court also noted the conditional approval and final transfer orders issued by GIDC, confirming the legitimacy and completeness of the transfer.

Application of Law to Facts:

Applying the legal framework and binding precedents to the facts, the Court concluded that the transaction does not attract GST liability. The assignment is outside the scope of taxable supply under Section 7(1)(a) and the relevant schedules of the GST Act.

Treatment of Competing Arguments:

The Respondent No. 1 and 2 did not controvert the Petitioner's submissions based on the Gujarat Chamber of Commerce decision. The Court did not find any contrary legal argument or evidence to justify the GST demand.

Conclusion:

The assignment of leasehold rights by the Petitioner to TPL is not a taxable supply under the GST Act and hence not liable to GST.

Issue 2: Legality and Jurisdiction of the Show Cause Notice Issued under Section 74 of the GST Act

Relevant Legal Framework:

Section 74 of the GST Act empowers authorities to issue Show Cause Notices for recovery of tax in cases of tax evasion or failure to pay tax. The notice in Form DRC-01 was issued demanding GST on the transfer fee.

Court's Interpretation and Reasoning:

Since the Court held that the transaction is not liable to GST, the issuance of the Show Cause Notice demanding GST was without jurisdiction and legally unsustainable. The demand was based on an incorrect interpretation of the transaction as a taxable supply.

Key Evidence and Findings:

The intimation and Show Cause Notice issued by Respondent No. 3 were challenged on the ground of jurisdiction and legality. The Court found that the tax demand was predicated on an incorrect classification of the transaction.

Application of Law to Facts:

Given the transaction's non-taxable nature, the Show Cause Notice lacked jurisdiction and was liable to be quashed.

Treatment of Competing Arguments:

No opposing arguments were advanced effectively by the Respondents to uphold the notice.

Conclusion:

The Show Cause Notice issued under Section 74 of the GST Act is ex-facie illegal and without jurisdiction and is quashed.

Issue 3: Retrospective Applicability of Notification 28/2019

Relevant Legal Framework:

Notification 28/2019 dated 31.12.2019 amended Entry No. 41 of Notification 12/2017 to clarify exemption for subsequent leases. The Petitioner contended that this amendment is clarificatory and applies retrospectively to the present transaction.

Court's Interpretation and Reasoning:

The Court accepted the contention that the amendment is clarificatory in nature and applies retrospectively, reinforcing the exemption of subsequent lease assignments from GST. This supports the Petitioner's case that no GST liability arises on the assignment of leasehold rights.

Key Evidence and Findings:

The Court referred to the text of the amendment and its legislative intent to clarify the taxability of such lease assignments.

Application of Law to Facts:

The retrospective applicability of the amendment further negates any GST liability on the transaction executed prior to the amendment.

Treatment of Competing Arguments:

No contesting arguments were presented against the retrospective application.

Conclusion:

The amendment notification applies retrospectively and exempts the assignment transaction from GST.

Issue 4: Grant of Interim Relief

The Petitioner sought interim relief restraining the Respondents from proceeding further pursuant to the Show Cause Notice.

The Court granted the interim relief by quashing the Show Cause Notice and restraining any further action on the GST demand pending final disposal of the petition.

3. SIGNIFICANT HOLDINGS

"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 show cause notice issued by the Respondent No.3 in Form DRC-01 dated 31.07.2024 is hereby quashed and set aside."

Core principles established include that assignment of long-term leasehold rights in immovable property, when constituting a complete transfer of rights and title, does not amount to a taxable supply under GST. The retrospective applicability of exemption notifications further supports non-taxability. Tax demands based on contrary interpretation are without jurisdiction and liable to be quashed.

Final determinations:

- The assignment of leasehold rights is not subject to GST.

- The Show Cause Notice demanding GST on the assignment is illegal and quashed.

- The amendment notification exempting subsequent leases applies retrospectively.

- The Petitioner is entitled to interim relief restraining further proceedings on the GST demand.