Gujarat High Court Rules Assignment of Leasehold Rights Is Transfer of Immovable Property, Not Subject to GST

Background and Context
The petitioner challenged a show cause notice issued under Section 74 of the Central Goods & Service Tax Act, 2017 (GST Act), which treated the assignment of leasehold rights in industrial plots as a supply of service liable to GST. The Gujarat Industrial Development Corporation (GIDC) had allotted industrial plots to the petitioner on a long-term lease, and the petitioner subsequently assigned these leasehold rights to a third party for consideration. The tax authorities contended that this assignment constituted a taxable supply of service under Section 7(1)(a) of the GST Act, classified under the relevant tariff code.

Legal Issue
The core issue before the Court was whether the assignment of long-term leasehold rights in land amounts to a ‘supply of service’ under the GST Act, or whether it constitutes a transfer of immovable property, which is excluded from the scope of GST.

Court’s Reasoning
The Court relied extensively on its earlier decision in Gujarat Chamber of Commerce, Industries & Ors. v. Union of India & Ors., which had analyzed the legislative intent and statutory provisions governing the scope of supply under the GST Act. The Court observed that while the initial allotment of land by GIDC on a long-term lease is treated as a supply of service, the subsequent assignment of leasehold rights by the lessee to a third party is fundamentally different.

The Court emphasized that such an assignment divests the original lessee of all rights in the property, effectively transferring the interest in immovable property to the assignee. Citing statutory definitions and judicial precedents, the Court held that leasehold rights for a long term are a benefit arising from land and are treated as immovable property for the purposes of registration and stamp duty. The Court further noted that Clause 5 of Schedule III to the GST Act expressly excludes the sale of land from the scope of supply, and that the assignment of leasehold rights is akin to a sale of land.

The Court also referred to the GST Council’s deliberations and the legislative history, which indicated a clear intention not to impose GST on transfers of immovable property. The Court rejected the tax authorities’ argument that only the sale of land and building is excluded, clarifying that the absolute transfer of leasehold rights extinguishes the assignor’s interest and constitutes a transfer of immovable property.

Decision and Legal Principle
Applying these principles, the Court held that the assignment or transfer of leasehold rights in land by the lessee to a third party is not a supply of service under Section 7(1)(a) of the GST Act. Instead, it is a transfer of immovable property, which is outside the ambit of GST. Accordingly, the impugned show cause notice issued under Section 74 of the Act was quashed.

Conclusion
This judgment reaffirms the legal position that the assignment of leasehold rights in land, when it amounts to an absolute transfer of interest, is not liable to GST as it constitutes a transfer of immovable property. The decision provides clarity for similar transactions and underscores the importance of distinguishing between supply of service and transfer of property rights under the GST regime.