GST Not Leviable on Assignment of GIDC Leasehold Rights, Gujarat HC Reiterates

M/s Jubilee Engineers was allotted an industrial plot by the Gujarat Industrial Development Corporation (GIDC) at Makarpura, Vadodara, on a 99-year lease commencing from 16.04.2018. Shortly thereafter, the petitioner executed a deed of assignment dated 08.05.2018, transferring its leasehold rights in the plot to M/s Kabir Instruments & Technology for a total consideration of Rs. 6.48 crore.

For the tax periods FY 2021–22 and FY 2022-23, the petitioner was issued a show cause notice dated 09.07.2024 under Section 74 of the CGST Act, proposing to treat the assignment of leasehold rights as a taxable supply of service under Section 7(1)(a), classifiable under tariff heading 99792. Aggrieved by the proposed levy of GST, the petitioner approached the Gujarat High Court challenging the validity of the show cause notice.

Main Issue: Whether assignment of long-term leasehold rights in industrial land allotted by GIDC amounts to a “supply of service” under Section 7 of the CGST Act and is exigible to GST.

HC’s Order: The High Court held that the issue stood squarely covered by its earlier judgment in Gujarat Chamber of Commerce, Industries & Ors., wherein it was conclusively held that transfer or assignment of long-term leasehold rights constitutes transfer of an interest in immovable property.

The Court observed that while initial allotment of land by GIDC on lease may amount to supply of service, subsequent assignment by the lessee divests the assignor of all rights and amounts to transfer of immovable property. Such transactions fall outside the scope of “supply” under Section 7 and are expressly excluded by Clause 5 of Schedule III of the CGST Act. Thus, the impugned show cause notice issued under Section 74 was quashed, and the petition was allowed with no order as to costs.

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