2025 (5) TMI 732 - HC - GST

Levy of GST - execution of release deeds in favor of the occupants and/or encroachers of the lands belonging to the Petitioner and which was granted to its predecessors by the Secretary of State for India in Council under an indenture of lease dated 7th November 1870 for a period of 999 years - HELD THAT - This is an important issue that needs to be addressed by this Court. In fact this issue has been raised in other Petitions as well one such Petition being Writ Petition No. 14434 of 2023 in Siemens Limited v/s. Union of India Others. In fact in the case of Siemens Limited this Court has stayed the adjudication of the Show Cause Notice issued to Siemens Limited. In the present case the State Authorities have already passed an adjudicating order dated 22nd January 2025 for the year 2017-18 and which is impugned in the present Writ Petition. Further for subsequent years namely for the year 2018-19 upto 2023-2024 Show Cause Notices have been issued dated 5th December 2024 and 9th December 2024. These Show Cause Notices have also been impugned in the present Petition. Considering that the issue referred to above is already pending in this Court in several other Writ Petitions including in Siemens Ltd. the Petitioner here also is entitled to ad-interim relief. Accordingly there shall be ad-interim relief. Stand over to 10th June 2025.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary legal question considered is whether Goods and Services Tax (GST) can be levied on transactions involving the execution of release deeds in favor of occupants or encroachers of lands originally granted under a 999-year lease indenture dating back to 1870. Specifically, the Court examined if such release deeds amount to an assignment of leasehold rights, thereby attracting GST under the relevant provisions of the GST law.

Secondary issues include the applicability of precedents, notably a Division Bench decision of the Gujarat High Court, which held that assignment or transfer of leasehold rights of industrial plots allotted by a government agency does not constitute a supply liable to GST. The Court also considered procedural aspects concerning the issuance of adjudication orders and Show Cause Notices by State Authorities for various financial years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether execution of release deeds in favor of occupants/encroachers constitutes assignment of leasehold rights liable to GST

Relevant legal framework and precedents: The GST Act, specifically Section 7(1)(a) defining the scope of supply, Section 9 relating to levy of GST, and Schedule II and Schedule III clauses governing treatment of immovable property transactions, form the statutory backdrop. The Gujarat High Court's Division Bench ruling in Gujarat Chambers of Commerce and Industry v. Union of India is a pivotal precedent. That ruling clarified that assignment by sale or transfer of leasehold rights of land allotted by a government agency to a third party for consideration does not amount to supply under GST and hence is not taxable.

Court's interpretation and reasoning: The Court recognized that the State treated the release deeds as assignments of leasehold rights, thereby attracting GST. However, the Petitioners contended that release deeds cannot be construed as assignments. Even if construed as assignments, the Gujarat High Court decision squarely covers such transactions as exempt from GST. The Court noted no contrary judicial authority was placed before it, thereby lending weight to the Petitioners' argument.

Key evidence and findings: The Petitioners relied on the historical 999-year lease indenture and the nature of release deeds executed. The State's adjudication order and Show Cause Notices for multiple years were examined. The Court observed that the Gujarat High Court had already addressed a similar issue in the context of leasehold rights granted by a government agency.

Application of law to facts: Applying the Gujarat High Court precedent and the statutory provisions, the Court found that the release deeds in question, even if treated as assignments, would not fall within the taxable supply under GST. The Court emphasized that the nature of the transaction and the identity of the lessor (government agency) are critical factors in determining GST applicability.

Treatment of competing arguments: The State argued for GST levy treating release deeds as assignments. The Petitioners countered with the legal distinction between release deeds and assignments and relied on binding precedent exempting such transactions from GST. The Court favored the Petitioners' position due to the absence of any conflicting authority and the persuasive reasoning of the Gujarat High Court.

Conclusions: The Court indicated that GST cannot be levied on the release deeds treated as assignments of leasehold rights granted under the historical lease indenture, aligning with the Gujarat High Court's interpretation.

Issue 2: Interim relief and procedural status of adjudication orders and Show Cause Notices

Relevant legal framework: Principles governing interim relief in writ petitions and stay of tax proceedings pending adjudication were considered. The Court's inherent powers to grant injunctions to prevent irreparable harm pending final disposal were relevant.

Court's interpretation and reasoning: Given the ongoing litigation on similar issues in other writ petitions, including one involving a major corporate entity, the Court found it appropriate to grant ad-interim relief to the Petitioner. This was to stay the operation of the impugned adjudication order dated 22nd January 2025 and the Show Cause Notices issued for subsequent years.

Key evidence and findings: The existence of multiple pending writ petitions on the same issue and the prior stay granted in a similar case were significant. The Court noted that the adjudication order and notices pertain to different financial years but arise from the same legal question.

Application of law to facts: The Court applied the principle of consistency and fairness in tax adjudication, granting interim protection to prevent enforcement of disputed tax demands until the issue is conclusively decided.

Treatment of competing arguments: The State's interest in revenue collection was balanced against the Petitioner's right to challenge the tax demand. The Court favored preserving status quo pending final adjudication.

Conclusions: The Court granted an interim injunction staying the implementation and operation of the impugned order and Show Cause Notices until further orders.

Issue 3: Coordination of related pending matters and future directions

Relevant legal framework: Judicial case management principles and consolidation of related matters for efficient adjudication were considered.

Court's interpretation and reasoning: Recognizing the multiplicity of writ petitions raising identical or similar issues, the Court directed that the present petition be heard along with other connected petitions, including the one involving Siemens Limited.

Key evidence and findings: The Court noted the pendency of several petitions on the same question of law and the existence of prior interim orders in related cases.

Application of law to facts: To avoid conflicting rulings and duplication of effort, the Court scheduled a joint hearing and final disposal of all connected matters on a fixed date.

Conclusions: The Court posted the matter for directions and eventual hearing on 10th June 2025, ensuring coordinated adjudication.

3. SIGNIFICANT HOLDINGS

"The assignment by sale or transfer of leasehold rights of the plot of land allotted by the Gujarat Industrial Development Corporation (GIDC) to the lessee or its successor (assignor) in favour of a 3rd party (assignee) for consideration, shall be an assignment/sale/transfer of benefits arising out of 'immovable property' by the lessee-assignor in favour of a 3rd party who would then become a lessee of GIDC in place of the original allottee-lessee. In such circumstances, the 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 a transaction and the same would not be subject to levy of GST as provided under Section 9 of the GST Act."