Gujarat High Court Directs GST Refund on Leasehold Transfer, Warns of Costs for Delay

Aquaeva Chemtech Private Limited purchased an industrial plot originally allotted by GIDC to M/s Dayaram Pharma Chem, pursuant to a Final Transfer Order issued by GIDC. The transfer was completed through an agreement dated 19 July 2024, and the consideration was paid in two installments. At the time of transfer, GST was paid on the transaction.

The petitioner applied for a refund of the GST paid under Section 54 of the CGST Act. However, the refund applications were repeatedly returned by the department through Deficiency Memos in Form GST RFD-03, citing illegible documents and stating that there was no specific notification or circular providing for a refund in such cases. Left with no remedy, the petitioner approached the High Court.

Main Issue: Whether the GST authorities were justified in issuing repeated deficiency memos and denying refund of GST paid on transfer of leasehold rights in land, despite clear judicial precedents holding such transactions to be non-taxable.

HC Ruled: The Hon’ble High Court disposed of the writ petition by following the judgment in Gujarat Chamber of Commerce and Industry v. Union of India, which categorically held that assignment or transfer of leasehold rights in land is equivalent to the sale of land and does not constitute a “supply” under Section 7 of the CGST Act. As a result, GST is not leviable on such transactions.

The Court directed the petitioner to submit a refund application and ordered the department to release the refund within two weeks from the date of receipt. The Court further made it clear that if the refund is not paid within the stipulated time, the petitioner would be entitled to revive the petition, and in such an event, exemplary costs of Rs. 25,000 would be imposed on the erring officer.

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