GST on Transfer of Leasehold Rights: Allahabad HC HC Stays Recovery, Says Matter Needs Consideration [Read Order]

With regards to the applicability of Goods and Services Tax ( GST ) on the transfer of leasehold rights, the Allahabad High Court has stayed the recovery of tax until further orders, observing that such transactions may fall outside the ambit of supply under Section 7(1)(a) of the CGST Act, 2017.

The high court's decision is based largely on a Gujarat High Court precedent that stated that, once granted, these transfers of leasehold rights do not qualify as taxable supplies under GST rules.

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The petitioner, BKP Media Vision Pvt. Ltd., had originally been allotted a 99-year lease by the New Okhla Industrial Development Authority (NOIDA). Subsequently, after obtaining requisite permissions, it transferred all its rights in the leased land to another party.

While the transaction involved payment of stamp duty and was duly registered, GST authorities initiated proceedings under Section 74 of the CGST Act, alleging suppression of facts and non-payment of GST on the transaction.

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Represented by senior advocate Mr. Anurag Khanna, the petitioner contended that the transfer of leasehold rights did not amount to a "supply" as envisaged under Section 7(1)(a) of the Act. The petitioners relied on the judgment of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India, which had ruled that transfer of such rights post-execution of the lease deed does not attract GST. The petitioner also highlighted that a similar view had been entertained by the Bombay High Court, which granted interim relief in comparable circumstances.

On the other hand, counsel for the Union of India and state authorities opposed the petition, relying on the judgment in Builders Association of Navi Mumbai v. Union of India, which had upheld the applicability of GST on long-term lease transactions. It was pointed out that the said decision had been affirmed by the Supreme Court in 2024.

However, the Division Bench comprising Chief Justice Arun Bhansali and Justice Kshitij Shailendra observed that the Bombay High Court’s decision pertained to lease deeds executed by authorities in favor of lessees, whereas the present matter related to the transfer of rights after the lease was already executed. The Court found the Gujarat High Court’s reasoning more directly applicable to the petitioner’s case.

Recognizing the need for detailed examination, the Court issued notice to the respondents and directed them to file counter affidavits within six weeks. Importantly, it granted interim relief by staying the recovery proceedings initiated via order-in-original dated 31.01.2025, until further orders.

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