2025 (7) TMI 458 - HC - GST

Levy of GST on transfer of rights - scope of supply - Jurisdiction to issue SCN - challenge to impugned order and SCN - HELD THAT - The issue involved in the present petition remains no more res integra. In the case of Gujarat Chamber of Commerce and Industries and others Vs Union of India 2025 (1) TMI 516 - GUJARAT HIGH COURT it is held that GST would not be leviable on the assignment of lease hold rights of plot or the land allotted on lease by the industrial concern and building constructed thereon by the lessee or its successor (assignor) to a third party (assignee) on payment of lumpsum because such an assignment by sale and transfer of leasehold rights of plot for a consideration would be assignment/sale/transfer of benefits arising out of immovable property by lessee assignor in favour of third party assignee who would become lessee of GIDC in place of original allottee lessee and such assignment would not be covered under scope of supply. In the present case also if the copy of the assignment deed dated 24.2.2021 at Annexure E at pages 81 to 85 is perused it would be evident that what has been transpired is merely leasehold rights which were originally in favour of the petitioner now being transferred to M/s Janani Incast and nothing more. In view of the aforesaid facts and circumstances of the present case the case of the petitioner is squarely covered by the decision of this court in the case of Gujarat Chamber of Commerce and Industry. The impugned order being ex-facie illegal and without jurisdiction is hereby quashed and set aside - petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the transfer of leasehold rights in an industrial plot by the petitioner to a third party amounts to a taxable supply of service under the Goods and Services Tax (GST) regime, thereby attracting GST liability.
• Whether the impugned order passed under section 73 of the CGST Act, 2017, demanding GST on such transfer, is legal and within jurisdiction.
• Whether the petitioner was liable to pay GST on the consideration received for the assignment of leasehold rights, despite not charging or recovering GST from the transferee.
• Whether the adjudicating authority was justified in proceeding with the demand despite a prior decision of the same High Court (Special Civil Application No.11345 of 2023) holding that no GST is payable on such transfers, and in light of the Government's intention to challenge that decision.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the transfer of leasehold rights in an industrial plot amounts to a taxable supply of service under GST law.

Relevant legal framework and precedents: The GST framework under the CGST Act, 2017, and relevant notifications, particularly Notification No.11/2017 - State Tax (Rate) dated 30.6.2017, Entry No.16 Heading No.9972, which covers Real Estate Services taxable at 9% SGST and 9% CGST, were considered. The Court relied heavily on prior rulings including Gujarat Chamber of Commerce and Industries Vs Union of India, Kabir Instrument and Technology Vs Union of India, and Alfa Tools Private Limited Vs Union of India, where it was held that assignment or transfer of leasehold rights in industrial plots does not constitute a supply liable to GST.

Court's interpretation and reasoning: The Court interpreted the assignment of leasehold rights as a transfer of benefits arising out of immovable property, which is not covered under the scope of supply under GST. The assignment does not amount to a service but is akin to a sale or transfer of rights in immovable property. The Court emphasized that the lessee-assignor transfers the leasehold rights to a third party-assignee, who steps into the shoes of the original lessee, and such transaction does not attract GST.

Key evidence and findings: The assignment deed dated 24.2.2021 was examined, which clearly indicated that only leasehold rights were transferred. The petitioner had not charged or collected GST on the consideration received. The petitioner's reliance on the decision in Special Civil Application No.11345 of 2023 was noted, which had held similarly.

Application of law to facts: Applying the legal principles and precedents to the facts, the Court found that the petitioner's transaction was squarely covered by the established legal position that no GST is payable on such transfers.

Treatment of competing arguments: The revenue argued that the assignment of leasehold rights constituted a taxable supply of service under GST and that the impugned order was justified. However, the Court rejected this argument based on binding precedents and the nature of the transaction.

Conclusion: The transfer of leasehold rights in the industrial plot by the petitioner to the third party is not a taxable supply under GST and hence no GST liability arises on the consideration received.

Issue 2: Legality and jurisdiction of the impugned order passed under section 73 of the CGST Act, 2017.

Relevant legal framework and precedents: Section 73 of the CGST Act deals with determination of tax not paid or short paid or erroneously refunded. The Court referred to the procedural safeguards and the need for the adjudicating authority to act within jurisdiction and in accordance with law.

Court's interpretation and reasoning: The Court found the impugned order to be ex-facie illegal and without jurisdiction because it contradicted the binding precedent of the High Court and was passed despite the absence of any stay on that precedent. The adjudicating authority's reliance on the Government's intention to challenge the precedent was held to be insufficient justification for proceeding with the demand.

Key evidence and findings: The impugned order dated 28.2.2025 and the show cause notice dated 26.11.2024 were examined. The Court noted the absence of any stay order against the precedent relied upon by the petitioner.

Application of law to facts: Given the binding nature of the precedent and the absence of any stay, the adjudicating authority ought to have dropped the proceedings instead of confirming the demand.

Treatment of competing arguments: The revenue contended that the order was valid as the Government intended to challenge the precedent. The Court rejected this, emphasizing that mere intention to challenge does not override binding judicial decisions.

Conclusion: The impugned order under section 73 is illegal and without jurisdiction and is liable to be quashed.

Issue 3: Liability of the petitioner to pay GST on consideration received without charging or recovering GST from the transferee.

Relevant legal framework and precedents: Under GST law, liability to pay tax arises on supply of goods or services. The Court referred to the principles established in the aforementioned precedents denying GST on assignment of leasehold rights.

Court's interpretation and reasoning: Since the assignment of leasehold rights is not a taxable supply, the petitioner was not liable to pay GST, regardless of whether GST was charged or recovered from the transferee.

Key evidence and findings: The petitioner's admission of not charging or recovering GST was considered. The Court found no legal infirmity in this as no GST was payable.

Application of law to facts: The petitioner's conduct was consistent with the legal position that no GST was payable on the transaction.

Treatment of competing arguments: The revenue's demand for GST was rejected based on the legal principle that no tax liability arises on such transactions.

Conclusion: The petitioner was not liable to pay GST on the consideration received for assignment of leasehold rights.

Issue 4: Whether the adjudicating authority was justified in proceeding despite the prior High Court decision and the Government's intention to challenge it.

Relevant legal framework and precedents: The principle of judicial precedent and binding effect of High Court decisions until set aside or stayed by a competent court was considered.

Court's interpretation and reasoning: The Court held that in the absence of any stay or reversal of the prior decision, the adjudicating authority was bound to follow the precedent and drop the proceedings. The mere intention of the Government to challenge the decision does not empower the authority to ignore it.

Key evidence and findings: No stay order or contrary judicial order was placed on record by the respondents.

Application of law to facts: The adjudicating authority's reliance on the Government's future challenge was misplaced and legally untenable.

Treatment of competing arguments: The respondents' argument was dismissed as lacking legal basis.

Conclusion: The adjudicating authority was not justified in proceeding with the demand and passing the impugned order.

3. SIGNIFICANT HOLDINGS

"GST would not be leviable on the assignment of lease hold rights of plot or the land allotted on lease by the industrial concern and building constructed thereon by the lessee or its successor (assignor) to a third party (assignee) on payment of lumpsum because such an assignment by sale and transfer of leasehold rights of plot for a consideration would be assignment/sale/transfer of benefits arising out of immovable property by lessee - assignor in favour of third party - assignee who would become lessee of GIDC in place of original allottee - lessee and such assignment would not be covered under scope of supply."

"There is no positive order of stay placed on record and considering the judgment of this Court in Special Civil Application No.11345 of 2024, this Court is bound to decide the same in accordance with law. Hence, the said contention of the respondent department that the order is passed because the aforesaid order would be challenged does not hold good."

The Court conclusively held that the impugned order passed under section 73 of the CGST Act, 2017, demanding GST on assignment of leasehold rights, is illegal and without jurisdiction and is hereby quashed and set aside.