The Gujarat High Court directed refund of GST paid on transfer of leasehold rights and cautioned authorities against delay. The Court was hearing a writ petition challenging Deficiency Memos in Form GST RFD-03 that stalled a refund claim under Section 54 of the CGST Act, 2017.
GUJARAT: The Gujarat High Court has ordered GST refund on leasehold transfer and also warned cost imposition in case of delay in such refund.
The order was passed by Justice A.S. Supehia and Justice Pranav Trivedi.
In the present matter, the petitioner approached the High Court by way of a writ petition assailing the Deficiency Memos issued by the respondent authority in Form GST RFD-03, through which the petitioner’s refund claim filed under Section 54 of the CGST Act, 2017 was not processed.
Factual Backgrounds
The controversy raised from the transfer or assignment of leasehold rights in an industrial plot originally allotted by the Gujarat Industrial Development Corporation (GIDC) to M/s Dayaram Pharma Chem. After obtaining a Final Transfer Order from GIDC, the leasehold rights were assigned to the petitioner pursuant to an agreement dated 19.07.2024, for consideration paid in two instalments. GST was discharged on the said transaction at the time of transfer.
Subsequently, placing reliance on the judgment of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India, the petitioner asserted that the assignment/transfer of leasehold rights in land is equivalent to sale of land, which falls under Schedule III to the CGST Act and does not amount to “supply” within the meaning of Section 7. Consequently, it was contended that GST was not leviable on such transaction.
On this premise, the petitioner sought a refund of the GST already paid. However, instead of adjudicating the refund claim on merits, the respondent authority issued Deficiency Memos, citing grounds such as illegibility of supporting documents and the absence of any notification or circular from the GST Council governing refund of GST paid on lease transactions. Aggrieved by the repeated issuance of Deficiency Memos without consideration of binding judicial precedents, the petitioner invoked the writ jurisdiction of the High Court.
ISSUE:
Whether the GST authorities were justified in repeatedly issuing deficiency memos and denying the GST refund for the transfer of leasehold rights in land, even though clear judicial rulings indicated that such transactions are non-taxable?
Observations of the Court:
The Court observed that the issue raised in the present petition was fully covered by its earlier decision in Gujarat Chamber of Commerce and Industry v. Union of India, wherein it had conclusively ruled that the assignment, sale, or transfer of leasehold rights in land and buildings amounts to a transfer of immovable property. Such transactions fall under Schedule III and, consequently, do not qualify as “supply” under Section 7 of the CGST Act, nor do they attract tax under Section 9.
Reaffirming this position, the Court reiterated that such transfers do not constitute “supply” within the meaning of Section 7(1)(a) of the CGST Act, 2017, when read along with Clause 5 of Schedule III, which expressly excludes sale of land from the scope of taxable supply. As a result, Section 9 of the CGST Act, being the charging provision, would not apply, and GST could neither be levied nor collected on the transfer of leasehold rights.
The Court further noted that once the levy itself is found to be without authority of law, it necessarily follows that any tax collected pursuant to such levy becomes refundable, subject to fulfilment of the procedural requirements prescribed under Section 54 of the CGST Act, 2017. While scrutinising such refund claims, the refund authority is bound by the law declared by this Court and cannot deny or postpone the refund on the ground that no specific notification or circular has been issued by the GST Council for refund in such circumstances.
The Court criticised the conduct of respondent No. 3 for issuing Deficiency Memos in Form GST RFD-03 without considering or applying the binding precedent laid down in Gujarat Chamber of Commerce and Industry (supra). It held that administrative authorities are under a legal obligation to adhere to judicial pronouncements, and failure to do so reflects non-application of mind and arbitrariness.
Consequently, the Court directed that upon the petitioner filing a fresh refund application, the respondent authorities shall process and sanction the refund expeditiously, in strict conformity with law and binding judicial decisions. It was ordered that the refund amount be released within two weeks from the date of receipt of such application. The Court emphasised that the petitioner cannot be penalised for administrative delay or inaction and, therefore, provided a safeguard by observing that, in the event the refund is not granted within the prescribed period, appropriate consequences would follow.
Final Order:
The Hon’ble High Court resolved the writ petition by referencing the judgment in Gujarat Chamber of Commerce and Industry v. Union of India, which clearly stated that the assignment or transfer of leasehold rights in land is treated as a sale of land and does not qualify as a “supply” under Section 7 of the CGST Act. Consequently, GST is not applicable to such transactions.
The Court instructed the petitioner to reapply for the refund and ordered the department to process the request within two weeks of receipt.
Furthermore, the Court specified that if the refund is not processed within this timeline, the petitioner would have the right to revive the petition, and in such cases, exemplary costs of Rs 25,000 would be levied on the responsible officer.
Case Title: Aquaeva Chemtech Private Limited Versus State of Gujarat & Ors.R/SCA/621/2026
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