�CA NITIN PATHAK

�Past PRESIDENT ISACA CHAPTER AHMEDABAD

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M. 98258 04094

GST: Leasehold right taxable : GST regime

• The provision: �Mainly: Gujarat (HC Judgment)
• Section74(1) CGST Act: SCN
• Schedule II- Clause 2(b) of GST
• " under Sr. No. 35 of Notification No.11/2017 CT (Rate) dated 28-06-2017
• Section 7(1) of 2017
• Section 7(1)(a) of 2017
• Section 9 of GST
• Notification 12/2017, dated 28.06.2017: Entry No. 41
• General clause Act/TP Act/ Registration Act
• of Gujarat High Court in a case of Gujarat Chamber of Commerce and Industry v. Union of India, (2025) 170 taxmann.com 251 (Gujarat)
•  Commercial of Income-Tax, Vidarbha v. Smt. Godavari Devi Saraf, (1978) 113 ITR 589, �

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�Aerocom Cushions Pvt. Ltd. v. AC :Bombay (HC)�

• Aerocom Cushions Pvt Ltd was allotted an industrial plot by MIDC, Hingna, Nagpur under a 95-year lease
• The company assigned its leasehold rights (along with factory building) to M/s Rishita Industries
• Prior consent from MIDC was obtained and prescribed additional premium was paid
• CGST department issued a show cause notice under Section 74(1) demanding GST of ₹27,00,000
• Department treated the transaction as "supply of services" under Section 7(1) read with Schedule II
• Classification was "other miscellaneous services" taxable at 18%

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Keyholdings

• Assignment of leasehold rights is NOT a lease or sub-lease
• The transaction amounts to transfer of benefits arising from immovable property
• Cannot be classified as "other miscellaneous services"
• Transaction had no nexus with petitioner's business activity
• Failed the requirement of "supply in course or furtherance of business"
• Relied on Gujarat HC decision in Gujarat Chamber of Commerce and Industry v. Union of India
• Show cause notice was QUASHED

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Impact Analysis

• Tax Relief: Businesses transferring MIDC/GIDC/industrial plots to third parties won't face GST liability
• Precedential Value: Binding on Maharashtra authorities; may influence other states
• Industry Impact: Major relief for industrial units transferring leasehold rights
• Classification Issue: Prevents GST authorities from misclassifying property transfers as services. Residual "miscellaneous services" category cannot be used as a catch-all
• Business Certainty: Removes long-standing ambiguity on GST applicability
• Similar Cases: Many pending notices may be quashed based on this ruling
• Classification Clarity

 Legal Principle Established

• Transfer of leasehold rights = Transfer of immovable property (outside GST scope)
• NOT = Supply of services (inside GST scope)

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Court`s Decision

• Assignment of leasehold rights is neither a lease nor sub-lease - the original lessee's rights are extinguished
• The transaction constitutes transfer of immovable property benefits, not a taxable supply of services
• The "other miscellaneous services" classification cannot be stretched to cover property transfers
• The transaction had no nexus with the company's business activity and failed the "in course or furtherance of business" test�The Court relied on the Gujarat High Court decision in Gujarat Chamber of Commerce and Industry v. Union of India.

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GST: Leasehold right taxable : GST regime

• Impugned Action: 
• SCN dated 20-12-2024 issued by respondent No.1, demanding GST amounting to Rs.27,00,000/- for non-payment of GST on transfer of leasehold rights, under sub-section (1) of Section 74 of the Central Goods and Services Tax Act, 2017.
• Petitioner's Argument: The petitioner contended that the assignment of 95-year leasehold rights in an MIDC plot for Rs.1,50,00,000/- is a transfer of immovable property, not a supply of services. It was argued that the transaction lacked the essential element of being "in the course or furtherance of business."
• Core Question of Law: Whether the assignment of long-term leasehold rights in an immovable property constitutes a "supply of services" under Section 7(1) of the Central Goods and Services Tax Act, 2017 read with Schedule II, making it liable for GST.

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GST: Leasehold right taxable : GST regime

• Interpretation of "Supply of Services" for Leasehold Rights
• The Court relied on precedents, including Gujarat Chamber of Commerce and Industry v. Union of India, (2025) 170 taxmann.com 251 (Gujarat), for its findings:
• Nature of transaction: The assignment of long-term (95 years) leasehold rights is considered a leasehold ownership property, and these rights are transferable with the consent of authorities like MIDC or GIDC.
• Immovable Property: The transaction constitutes a transfer of benefits arising out of immovable property and not a supply of services, thus falling outside the scope of Section 7(1)(a) of the CGST Act, 2017, and Schedule II, particularly clause 2(b).
• No Nexus with Business: The transfer of leasehold rights lacks any nexus with the petitioner's business, thereby missing the crucial element of being "in the course or furtherance of business" required for it to be a supply of services.
• Misclassification of Service: The Revenue's attempt to classify the assignment of leasehold rights as "other miscellaneous services" under Sr. No. 35 of Notification No.11/2017 CT (Rate) dated 28-06-2017 was deemed incorrect, as such a broad classification cannot encompass transfers of immovable property rights.
• Binding Precedent: The High Court affirmed that the decision of the Gujarat High Court on an identical issue, which held that the assignment of leasehold rights for consideration is a transfer of benefits arising out of "immovable property" and not subject to GST, is binding on the authorities in the State of Bombay until a contrary decision is given by another competent High Court

GST: Leasehold right taxable : GST regime

• Department’s View:�This transfer of assignment of rights would amount to supply of services in terms of Section 7(1) of the Act of 2017 read with sub-clause (b) of Clause 2 of Schedule II.
• For the purpose of ready reference, we reproduce relevant parts of Section 7 and Clause 2(b) of Schedule II.

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GST: Leasehold right taxable : GST regime

• “7. Scope of supply-
• (1) For the purposes of this Act, the expression – “supply” includes-
• (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
• [(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II]

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GST: Leasehold right taxable : GST regime

• SCHEDULE II- [See section 7]
• ACTIVITIES 1 [OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES.
• 2. Land and Building.
• (a) any lease, tenancy, easement, licence to occupy land is a supply of services:
• (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.”
• As could be seen, sub-clause(b) of clause 2 of Schedule II indicates any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

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GST: Leasehold right taxable : GST regime

• In the case before us, the transaction under question is assignment of leasehold rights by the petitioner in favour of assignee-M/s. Rishita Industries, which admittedly is not a lease nor does it amount to sub-lease. In fact, in the show cause notice issued by respondent No.1, he has categorically mentioned that the transaction under question does not amount to sub-lease as the petitioner’s right stands extinguished by the said transaction.
• Respondent No.1 has recognized this transaction as seeking compensation to transfer rights in favour of the assignee. According to respondent No.1, this activity amounts to service classifiable under other miscellaneous services and is taxable at 18% under Sr. No. 35 of the Notification No.11/2017 CT (Rate) dated 28-06-2017.

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GST: Leasehold right taxable : GST regime

• Our attention is invited to the entry at Sr.No.1 which includes other services (washing, cleaning and dyeing services; beauty and physical well­being services, and other miscellaneous services including services nowhere else classified). As could be seen, the services include miscellaneous services like washing, cleaning, dyeing, beauty, physical well-being, etc. Such petty services, in our view, cannot be extended to assignment of leasehold rights in an immovable property, to term it to be other miscellaneous services as classified under clause at Sr. No.35 of the Notification

GST: Leasehold right taxable : GST regime

• In that view of the matter, the notice could be said to be bad in law on this count alone.
• We, however, find it necessary to consider whether the assignment of leasehold rights would amount to supply of service. �Admittedly, the petitioner holds a lease for 95 years.� Thus it is a long term lease and in that sense is a leasehold ownership property. The rights under the lease are transferable in terms of clause 2(u) of the lease executed between MIDC and the petitioner. �Thus the rights are transferable. �Accordingly, the petitioner has transferred the rights to M/s. Rishita Industries with prior consent of MIDC.

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GST: Leasehold right taxable : GST regime

• This transaction on the face of record constitute transfer of immovable property by the petitioner to M/s. Rishita Industries. �The transaction pertains exclusively to transfer of benefits arising out of an immovable property and has no nexus whatsoever with the business of the petitioner company. �Consequently, the essential element of supply of service in the course of business or in furtherance of business is completely absent. �On this point, a profitable reference could be had to the judgment of Gujarat High Court in a case of Gujarat Chamber of Commerce and Industry v. Union of India, (2025) 170 taxmann.com 251 (Gujarat), wherein identical issue was considered which finds place in para 27, which reads as under :

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GST: Leasehold right taxable : GST regime

• Therefore, moot question which arises for consideration is whether assignment of the leasehold rights of the land along with the building thereon would be covered by the scope of supply so as to levy GST as per the provisions of section 9 of the GST Act or not?”
• Thus, the question before the Gujarat High Court was, whether assignment of the leasehold rights of the land along with the building thereon would be covered by the scope of supply so as to levy GST as per the provisions of section 9 of the GST Act.

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GST: Leasehold right taxable : GST regime

• . In the case before the Gujarat High Court, the lease was executed by GIDC whereas in the case before us it is executed by MIDC.� In the present case also the petitioner has constructed factory building on the land allotted to it and has assigned the rights of the land along with building standing thereon. The Gujarat High Court considered provisions of the GST Act with Schedule II and held thus;
• “31. The functions and powers of the GIDC are prescribed under Chapter III of the GIDC Act for growth and development of industries in the State of Gujarat by establishing and managing the industrial estate and develop such industrial area.
• 32. Sub-clause (a) of section 14 of the GIDC Act empowers the GIDC to acquire and hold such property, both movable and immovable as may be necessary for the performance of any of its activities and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Corporation. In exercise of such powers, GIDC enters into lease agreement of 99 years for allotment of land for industrial purpose in the industrial estate developed by it.

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GST: Leasehold right taxable : GST regime

• The ownership of the plot of land allotted by GIDC remains with it and only the right of possession and occupation are transferred by way of leasehold rights in favour of allottee lessee.
• 34. Schedule-II of the GST Act provides for activities or transactions to be treated either as supply of goods or supply of services. As per clause 5(a) of Schedule II renting of immovable property is to be treated as supply of services. Therefore, allotment of land which is undisputedly an immovable property on lease would be covered by clause 5(a) of the Schedule II of the GST Act and therefore, the same would be covered by the scope of supply of services liable to levy of tax under the provisions of section 9 of the GST Act.

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GST: Leasehold right taxable : GST regime

• However, by Notification no.12/2017-Central Tax (Rate) dated 28.06.2017 issued in exercise of powers conferred by sub­section (1) of section 11 of the GST Act, on recommendations of the GST Council, levy of tax under sub-section(1) of section 9 of the GST Act on intra-State supply of services mentioned therein has been exempted. At Serial No.41 of the said notification, under Chapter Heading 9972, Nil rate is prescribed for one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) leviable in respect of the service, by way of granting long term (30 years, or more) lease of industrial plots, provided by the State Government Industrial Development Corporations or Undertakings to industrial units.

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GST: Leasehold right taxable : GST regime

• Therefore, even if the assignment of leasehold rights on the land on charge of one time upfront amount by the GIDC for allotment of plot of land to the industrial unit is covered within the scope of “supply of services” as per clause 5(a) of the Schedule II read with section 7(1) of the GST Act, charging of one time upfront amount as premium by the GIDC would attract Nil rate of tax as per the aforesaid notification. Therefore, when the industrial unit is allotted land by the GIDC, no GST is required to be paid under the provisions of GST Act as per entry no. 41 of Notification No. 12/2017.

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GST: Leasehold right taxable : GST regime

• As per the lease deed executed by GIDC in favour of industrial unit for allotment of plot of land, the industrial unit is entitled to transfer such leasehold land in favour of any third party with the prior permission of the GIDC on payment of transfer charges as prescribed by GIDC. However, such transfer fee would be subject to levy of GST at the rate of 18% under the GST Act as it would amount to supply of services by GIDC giving permission to transfer the leasehold rights by the industrial unit in favour of a third party who will become the lessee-assignee in place of the original allottee-assignor of the plot by the GIDC. Deed of assignment of leasehold rights which is executed by the lessee-assignor in favour of the third party is also subjected to levy of stamp duty under the provisions Gujarat Stamp Act, 1958 as well as it is compulsorily required to be registered under the provisions of the Registration Act, 1908.

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GST: Leasehold right taxable : GST regime

• Hence the contention on behalf of the petitioner that transfer/assignment of the leasehold rights is nothing but a sale and transfer of benefits arising out of immovable property i.e. plot of land which cannot be considered as supply of services because sale, transfer and exchange of benefit arising out of immovable property is nothing but sale, transfer and exchange of the immovable property itself and, therefore, such transactions would not be subject to levy of tax under the provisions of GST Act as same cannot be covered within the scope of supply as per section 7 of the GST Act is required to be considered by analyzing various provisions of the GST Act vis-a-vis provisions of different Acts as to what is an “immovable property” and whether leasehold rights can be said to be benefits arising out of such immovable property.”

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GST: Leasehold right taxable : GST regime

• . The Gujarat High Court thereafter considered various provisions of the General Clauses Act, 1987, Transfer of Property Act, 1882 and the Registration Act, 1908 and other such provisions and rendered the following conclusion :
• “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.”

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GST: Leasehold right taxable : GST regime

• .Thus, the Gujarat High Court 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 and in such circumstances, would not be subject to levy of GST in terms of provisions of the GST Act. We subscribe to this view for the reasons quoted is earlier part of our judgment so also because the view, in our considered opinion, is in consonance with the provisions of law on supply of services.

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GST: Leasehold right taxable : GST regime

• Further, the law laid down by Gujarat High Court is binding on the authorities i.e. the respondents in terms of the judgment of this Court in the case of Commercial of Income-Tax, Vidarbha v. Smt. Godavari Devi Saraf, (1978) 113 ITR 589, wherein the Court held that until a contrary decision is given by any other competent High Court, it is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of land. In that sense, the decision of Gujarat High Court is binding on the authorities below. Further we subscribe to the finding of Gujarat High Court that the assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC 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 and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act

GST: Leasehold right taxable : GST regime

• Assignment of Long-Term Leasehold Rights in Industrial Land Treated as Transfer of Immovable Property and Held Outside GST Levy

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LEGAL ANALYSIS

Aerocom Cushions vs. Assistant Commissioner

Taxation of Assignment of Leasehold Rights under GST Regime

IN THE HIGH COURT OF JUDICATURE AT BOMBAY, NAGPUR BENCH

Writ Petition No. 2145 of 2025 | Judgment Date: January 9, 2026

Executive Summary

A comprehensive quashing of the GST demand on leasehold assignment transactions.

Case Profile: Petitioner Entities

Aerocom Cushions Private Limited

Representation: Mr. Vinay Shraff, Counsel with Ms. Darshana Bhaiya.

Subject Plot: Plot F-14/2, MIDC Hingna Road, Nagpur.

Transaction: Assignment of leasehold rights for ₹1,50,00,000 to M/s. Rishita Industries.

Compliance: Undisputed payment of additional premium (₹3,95,640) with MIDC consent.

Nature of the Transaction

Long-Term Lease

Petitioner held a lease for 95 years, categorizing it as "leasehold ownership property."

Transfer Rights

Rights were transferable under Clause 2(u) of the original lease executed with MIDC.

Non-Sub-Lease

Court noted that the Petitioner's rights stood extinguished; it was not a sub-lease arrangement.

Demand and Recovery Notice

₹27L

GST DEMAND

Show Cause Notice (SCN)

Respondent No.1 (Assistant Commissioner, Anti-Evasion) issued SCN dated 20-12-2024.

Classification: Demanded tax at 18% under Sr. No. 35 of Notification No. 11/2017 CT (Rate).

Grounds: Alleged "concealment of transaction" for assigning rights for ₹1.50 Crores.

Relevant Statutory Framework

Section 7(1) CGST Act: Defines scope of "supply," including all forms of transfer made for consideration in the course of business.

Schedule II, Clause 2(b): Treats leasing or letting out of buildings for commerce as a supply of services.

Notification 11/2017: Respondent attempted to classify assignment as "Other Miscellaneous Services" (e.g., beauty, washing).

Analysis: Classification Error

Respondent's Logic

Classified assignment of leasehold rights under "Other Miscellaneous Services."

Compared the transaction to washing, cleaning, and beauty services under Sr. No. 35.

Court's Rebuttal

Assignment of rights in immovable property is a substantial legal transaction.

Terms "Petty Services" in the notification cannot be extended to cover multimillion-rupee property rights.

"Whether assignment of leasehold rights... would be covered by the scope of supply so as to levy GST?"

— Key Legal Issue addressed by the Hon'ble High Court

Reliance on Gujarat High Court

Case: Gujarat Chamber of Commerce vs. Union of India (2025)

The Gujarat High Court held that assignment of leasehold rights for consideration constitutes a "benefit arising out of immovable property."

Such benefits fall under Schedule III and are neither a supply of goods nor a supply of services.

The Bombay High Court subscribed to this view, noting its binding nature on authorities.

Court's Decisive Findings

Immovable Property

The transaction pertains exclusively to transfer of benefits arising out of immovable property.

Business Nexus

The assignment has no nexus with the Petitioner's core manufacturing business; thus, no "furtherance of business" exists.

Binding Precedent

Authorities must follow the law declared by other High Courts (Gujarat HC) until a contrary local decision exists.

Verdict: SCN Quashed

The Writ Petition is ALLOWED.

Show Cause Notice No. 47/AC/GST/NGP-I/2024 dated 20-12-2024 is set aside. The transaction is not subject to GST as per the Act of 2017.