2025 (5) TMI 723 - HC - GST

Levy of GST - taxable supply or not - assignment or transfer of long-term leasehold rights in an industrial plot allotted by the Gujarat Industrial Development Corporation (GIDC) - HELD THAT - It is an admitted factual position that the petitioner transferred the leasehold rights of its industrial plots to one Karunasagar Chemicals Industries based upon which the Corporation has issued final transfer order No. GIDC/RM/ANK/TRF/FTO/PAN1/0035 dated 24.10.2017 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 show cause notice dated 18.07.2024 issued by the Respondent No.3 is hereby quashed and set aside - Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the assignment or transfer of long-term leasehold rights in an industrial plot allotted by the Gujarat Industrial Development Corporation (GIDC) constitutes a taxable supply under the Goods and Services Tax (GST) regime;

(b) Whether GST can be levied on the consideration received for transfer of leasehold rights in immovable property under the relevant provisions of the GST Act, 2017;

(c) Whether the amendment introduced by Notification 28/2019 dated 31.12.2019, which exempts subsequent leases from GST, is clarificatory and applies retrospectively;

(d) Legality and jurisdictional validity of the show-cause notice issued under Section 74 of the GST Act demanding GST, interest, and penalty on the transfer fees for assignment of leasehold rights;

(e) Whether interim relief restraining further proceedings pursuant to the show-cause notice is warranted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Taxability of Assignment of Leasehold Rights under GST

Relevant Legal Framework and Precedents:

The GST Act, 2017, defines "supply" in Section 7(1)(a) and provides the scope of taxable supplies. Schedule II and Schedule III of the Act distinguish between goods and services and specify activities considered as supply or exempt. Clause 5(b) of Schedule II and Clause 5 of Schedule III are particularly relevant in determining whether transfer of leasehold rights amounts to supply of goods or services. Section 9 of the GST Act deals with levy of GST on taxable supplies.

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 transfer of leasehold rights in land allotted by GIDC does not amount to a taxable supply under GST. The Court held that such transaction is essentially a transfer of benefits arising out of immovable property and thus outside the ambit of GST levy.

Court's Interpretation and Reasoning:

The Court examined the nature of the transaction-the transfer of leasehold rights in an industrial plot. It emphasized that the lessee-assignor transfers its benefits as a lessee to a third party-assignee who steps into the shoes of the original lessee. The Court interpreted the provisions of Section 7(1)(a) read with Schedule II and III to conclude that such assignment is not a supply liable to GST.

Key Evidence and Findings:

It was undisputed that the petitioner transferred the leasehold rights by an agreement dated 08.01.2008 and the transfer was registered with GIDC only in October 2017. The transfer order issued by GIDC in favor of the purchaser further substantiated the factual position of assignment of leasehold rights.

Application of Law to Facts:

Applying the legal framework and precedent, the Court found that the transaction falls outside the scope of GST levy. The consideration received for transfer of leasehold rights cannot be subjected to GST as per the Court's earlier ruling and the statutory provisions.

Treatment of Competing Arguments:

The petitioner's counsel argued that GST is not leviable on such transactions as per the binding precedent. The respondents' counsel did not controvert this submission, effectively conceding the position. The Court noted the absence of any substantive contrary argument from the respondents.

Conclusion:

The Court concluded that the assignment of leasehold rights in the GIDC plot does not constitute a taxable supply under GST and hence, GST cannot be levied on the transaction.

Issue (c): Applicability and Retrospective Effect of Notification 28/2019

Relevant Legal Framework:

Notification 28/2019 dated 31.12.2019 amended Entry no. 41 of Notification 12/2017 dated 28.06.2017 to exempt subsequent leases from GST. The question was whether this amendment is clarificatory and applies retrospectively.

Court's Interpretation and Reasoning:

The petitioner sought a declaration that the amendment is clarificatory and retrospective in effect. Although the Court did not extensively elaborate on this point in the oral judgment, it implicitly accepted the petitioner's contention by relying on the precedent and the exemption notification to hold that GST is not leviable on subsequent assignment of leasehold rights.

Application of Law to Facts:

The petitioner transferred the leasehold rights prior to the issuance of the show-cause notice, and the amendment notification supports exemption on such subsequent leases. Therefore, the amendment applies to the petitioner's transaction.

Conclusion:

The amendment notification is applicable retrospectively and exempts the petitioner's transaction from GST liability.

Issue (d): Legality and Jurisdiction of Show-Cause Notice

Relevant Legal Framework:

Section 74 of the GST Act empowers authorities to issue show-cause notices for recovery of tax, interest, and penalty in cases of tax evasion or non-compliance. The petitioner challenged the jurisdiction and legality of the show-cause notice dated 18.07.2024 demanding GST on the transfer fees.

Court's Interpretation and Reasoning:

Since the Court held that the transaction does not attract GST liability, the issuance of the show-cause notice demanding GST and allied charges was held to be without jurisdiction and ex-facie illegal.

Key Evidence and Findings:

The show-cause notice was based on the transfer fees of Rs. 15,49,600/-, with GST demand of Rs. 2,78,928/-. The factual record showed the transfer was completed and registered with GIDC, and the petitioner had surrendered its GST registration effective 17.07.2023.

Application of Law to Facts:

Given the absence of taxable supply, the show-cause notice lacked a legal foundation and was liable to be quashed.

Treatment of Competing Arguments:

The respondents failed to provide any substantive legal basis to sustain the show-cause notice once the precedent and statutory provisions were applied.

Conclusion:

The show-cause notice dated 18.07.2024 was quashed and set aside.

Issue (e): Interim Relief

The petitioner sought interim relief restraining the respondents from proceeding pursuant to the show-cause notice. The Court granted this relief pending final disposal of the petition, effectively staying further action on the GST demand.

3. SIGNIFICANT HOLDINGS

The Court's key legal reasoning is encapsulated in the following verbatim excerpt from the Gujarat Chamber of Commerce and Industry decision, which was applied herein:

"83. In view of foregoing reasons, 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.

84. In view of above, question of utilisation of input tax credit to discharge the liability of GST on such transaction of assignment would not arise."

The core principles established are:

- Assignment or transfer of long-term leasehold rights in immovable property allotted by a government authority is not a taxable supply under GST.

- GST cannot be levied on consideration received for such transfer under the GST Act, 2017.

- Amendments exempting subsequent leases from GST are clarificatory and apply retrospectively.

- Show-cause notices demanding GST on such transactions are without jurisdiction and liable to be quashed.

The Court's final determination was to quash the impugned show-cause notice and uphold that no GST liability arises from the assignment of leasehold rights in the facts of this case. The petition was allowed accordingly, and no costs were imposed.