The Bombay High Court quashed a Rs 27 lakh GST demand, holding that transfer of MIDC leasehold rights to a third party is not taxable. The division bench set aside the anti-evasion notice issued under Section 74 of the CGST Act.
MUMBAI: The Bombay High Court recently quashed a demand notice for Rs 27 lakh, ruling that the assignment of leasehold rights for a plot allocated by the Maharashtra Industrial Development Corporation (MIDC) to a third party is not subject to GST.
The Division Bench, consisting of Justice Nivedita P. Mehta and Justice Anil L. Pansare was reviewing a petition against a notice from the Assistant Commissioner (Anti-Evasion), which sought to collect Rs 27,00,000 in goods and services tax (GST) from the petitioner under Section 74(1) of the Central Goods and Services Tax Act, 2017, related to the alleged non-payment of GST for the transfer of leasehold rights.
Factual Background of the Case
The notice was issued under Section 74(1) on grounds that the petitioner had concealed the assignment of his leasehold rights to the Proprietor of M/s. Rishita Industries for Rs 1,50,00,000. This assignment was made with the consent of MIDC Hingna, Nagpur, and the petitioner paid an additional premium of Rs 3,95,640. The respondents contended that this transfer constituted a supply of services under Section 7(1) along with sub-clause (b) of Clause 2 of Schedule II.
Analysis of the Court:
The Gujarat High Court had considered various provisions of the General Clauses Act, 1987, Transfer of Property Act, 1882 and the Registration Act, 1908 and other such provisions in Gujarat Chamber of Commerce and Industry v. Union of India (2025).
Citing a ruling from the Gujarat High Court , the Division Bench stated,
“Thus, the Gujarat High Court held that assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/transfer of benefits arising out of ‘immovable property’ by the lessee-assignor in favour of third party, assignee who would become lessee of GIDC in place of original allottee-lessee. In such circumstances, would not be subject to levy of GST in terms of provisions of the GST Act. We subscribe to this view for the reasons quoted in the earlier part of our judgment so also because the view, in our considered opinion, is in consonance with the provisions of law on the supply of services.”
- Sub-clause(b) of clause 2 of Schedule II : It provides that any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
Upon examining the Act’s provisions, the Bench noted that sub-clause (b) of clause 2 of Schedule II defines that any lease or letting of a building, whether commercial, industrial, or residential, constitutes a supply of services. The assignment of leasehold rights by the petitioner to M/s. Rishita Industries was determined not to be a lease or sub-lease. The show cause notice itself indicated that the transaction did not qualify as a sub-lease since the petitioner’s rights were extinguished by the transaction.
- The Bench observed that the entry listed at Sr. No.1 included services such as washing, cleaning, and beauty.
It argued that,
“Such petty services, in our view, cannot be extended to assignment of leasehold rights in an immovable property, to term it to be other miscellaneous services as classified under clause at Sr. No.35 of the Notification.”
Consequently, the notice was ruled invalid.
- Long-term lease: The Bench also noted that the petitioner held a long-term lease of 95 years, which represented leasehold ownership.
According to the Bench, the rights under the lease were transferable per clause 2(u) of the lease with MIDC. Since the transaction was solely about transferring benefits tied to immovable property with no connection to the petitioner’s business operations, the Bench found that the essential element of supplying services during or in pursuit of business was entirely lacking.
Final Order:
The court placed reliance on Commercial of Income-Tax, Vidarbha v. Smt. Godavari Devi Saraf, (1978) 113 ITR 589, wherein the Court held that “until a contrary decision is given by any other competent High Court, it is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of land” and concluded that the decision of Gujarat High Court is binding on the authorities below.
The court concluded,
“the assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC to the lessee in favour of third party-assignee for a consideration shall be assignment /sale/transfer of benefits arising out of immovable property by the lessee-assignor in favour of third party and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act.”
Ultimately, the Bench agreed that the assignment by sale and transfer of leasehold rights to a third party is not liable for GST. Thus, the petition was upheld, leading to the quashing of the show cause notice.
Case Title: Aerocom Cushions Private Limited v. Assistant Commissioner (Anti-Evasion) WRIT PETITION NO. 2145 OF 2025
Read Attachment:
FOLLOW US FOR MORE LEGAL UPDATES ON YOUTUBE
