Gujarat High Court Holds Assignment of Leasehold Rights in GIDC Land Not Subject to GST as Supply of Service

The Gujarat High Court, in its decision dated 13 March 2026, addressed the validity of GST demands on the assignment of leasehold rights in industrial plots allotted by the Gujarat Industrial Development Corporation (GIDC). The petitioner challenged a show cause notice and an Order-in-Original issued under Section 74 of the State Goods & Service Tax Act, 2017, which treated the assignment of leasehold rights as a taxable supply of service.

The petitioner, having acquired an industrial plot from GIDC and subsequently assigned its leasehold rights to a third party, was subjected to GST proceedings. The authorities issued summons and ultimately demanded GST on the transaction, contending that the assignment constituted a supply of service under Section 7(1)(a) of the Act. The petitioner argued that the issue was already settled by the High Court in Gujarat Chamber of Commerce, Industries & Ors. v. Union of India & Ors., which held that such assignments are not taxable under GST.

The Court examined the legal framework, including the relevant provisions of the GST Act and the reasoning in the earlier Gujarat Chamber of Commerce decision. It was noted that the earlier judgment had comprehensively analyzed the nature of leasehold rights, the definition of ‘supply’ under Section 7, and the exclusions under Schedule III of the GST Act. The Court reiterated that the transfer of leasehold rights by a lessee to a third party amounts to a transfer of immovable property, not a supply of service. The judgment emphasized that such transactions are akin to the sale or transfer of immovable property, which is expressly excluded from the scope of GST by Clause 5 of Schedule III.

The Court further observed that the legislative intent, as reflected in the GST Act and the decisions of the GST Council, was not to tax transfers of immovable property, including leasehold rights. The assignment of leasehold rights, being a transfer of an interest in immovable property, is subject to stamp duty but not to GST. The Court also highlighted that the GST regime continues the principle from the earlier service tax regime, which excluded transfers of immovable property from the tax net.

In conclusion, the Gujarat High Court held that the assignment or transfer of leasehold rights in GIDC land does not constitute a supply of service under the GST Act and is not liable to GST. The impugned Order-in-Original and show cause notice were quashed, and the petition was allowed. The Court reaffirmed that such transactions fall outside the purview of GST, providing clarity and relief to assignees and assignors of leasehold rights in industrial plots allotted by GIDC.