Bombay High Court Holds Assignment of Leasehold Rights in Industrial Plots Not Liable to GST as Supply of Services

Background and Challenge
The petitioners challenged a show cause notice dated 18 June 2025, issued under Section 74(1) of the Central Goods and Services Tax Act, 2017 (“GST Act”), demanding GST and interest on the alleged non-payment of GST on the transfer of leasehold rights in a plot allotted by the Maharashtra Industrial Development Corporation (MIDC). The authorities contended that the assignment of leasehold rights for consideration amounted to a supply of services under Section 7(1) of the GST Act, read with Schedule II, and was taxable at 18% as miscellaneous services.

Court’s Analysis of Statutory Provisions
The Court examined the relevant statutory framework, including Section 7 of the GST Act and Clause 2(b) of Schedule II, which treats any lease or letting out of buildings for business or commerce as a supply of services. However, the Court noted that the transaction in question was not a lease or sub-lease, but an assignment of leasehold rights, resulting in the extinguishment of the petitioner’s rights in favor of the assignee.

The Court further scrutinized the classification of the transaction as “other miscellaneous services” under Sr. No. 35 of Notification No. 11/2017 CT (Rate), observing that such a classification, which includes services like washing, cleaning, and beauty services, could not reasonably be extended to the assignment of leasehold rights in immovable property.

Nature of the Transaction and Reference to Gujarat High Court
The Court emphasized that the petitioner held a long-term lease (95 years) and that the rights under the lease were transferable with MIDC’s consent. The transaction, therefore, constituted a transfer of benefits arising out of immovable property and had no nexus with the business activities of the petitioner. The essential element of supply of service in the course or furtherance of business was found to be absent.

In support of its reasoning, the Court relied on the Gujarat High Court’s decision in Gujarat Chamber of Commerce and Industry v. Union of India, which held that the assignment or transfer of leasehold rights in industrial plots by the lessee to a third party for consideration is a transfer of benefits arising out of immovable property and does not amount to a supply of services under the GST Act. The Gujarat High Court had further clarified that such transactions are not subject to GST, as they fall outside the scope of supply as defined in Section 7 of the Act.

Binding Nature of Precedent and Final Decision
The Bombay High Court affirmed that the law laid down by the Gujarat High Court is binding on authorities in Maharashtra, in the absence of any contrary decision from a competent court. The Court expressly subscribed to the Gujarat High Court’s view, holding that the assignment or transfer of leasehold rights in industrial plots, along with buildings thereon, is not liable to GST.

Accordingly, the Court quashed the impugned show cause notice and adjudication order, making the rule absolute in favor of the petitioners.

Conclusion
This judgment clarifies that the assignment of leasehold rights in industrial plots, even when accompanied by the transfer of buildings, is a transfer of benefits arising out of immovable property and does not constitute a supply of services under the GST Act. As such, these transactions are not subject to GST liability.