Gujarat HC strikes Down GST demand u/s 74 ruling No GST leviable on Leasehold Assignments [Read Order]

The Gujarat High Court ruled that assignment of long-term leasehold rights amounts to transfer of immovable property and subsequently, falls outside the scope of supply. Therefore quashed the show cause notice issued under Section 74 Central Goods and Services Tax Act, 2017 (CGST Act).

The petitioner, M/s Siemens Ltd., had acquired two leasehold land parcels originally allotted by the Gujarat Industrial Development Corporation (GIDC) to Hindustan Motors Limited on a 99-year lease beginning in January 1985. Siemens purchased these leasehold rights through Deeds of Assignment transferring them along with structures built on the land to M/s. LM Wind Power Blades India Private Limited through two Deed of Assignment: (I) dated 04.07.2019 and (II) dated 06.08.2019 for which they received a consideration of ₹193.5 crore.

The proceedings began when the Superintendent of CGST requested the petitioner to provide documents and proof of GST payment on the said assignment. The petitioner replied that assignment of leasehold rights was equivalent to sale of land and therefore not taxable. Nevertheless, a show cause notice was issued under Section 74 of the CGST Act, 2017 demanding ₹34.83 crore, treating the transaction as supply of service under Section 7(1)(a).

Represented by Tushar Jarwal, Krishal H. Patel, Rahul Sateeja, Daliya Singh, and Faraahat Ashar Shahab, the petitioner placed reliance on the Court’s earlier ruling in Gujarat Chamber of Commerce, Industries and Others v. Union of India and Others rendered in Special Civil Application No. 11345 of 2023, wherein it was held that transfer of leasehold rights extinguishes the assignor’s interest and amounts to transfer of immovable property. It was submitted that such transactions are excluded from the definition of supply in view of Schedule III of the Central Goods and Services Tax Act, 2017.

The Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi held that the controversy was no longer open for adjudication, as the issue had already been conclusively settled in the Court’s earlier ruling in Gujarat Chamber of Commerce, Industries and Others v. Union of India and Others (supra). The Bench reiterated that assignment of leasehold rights for the unexpired period of a long-term lease results in complete divesting of the assignor’s rights and is legally equivalent to transfer of immovable property.

The Court observed that such transfer cannot be categorised as supply of service under Section 7(1)(a) of the Central Goods and Services Tax Act, 2017. It further noted that Clause 5 of Schedule III expressly excludes sale of land from the scope of supply, and assignment of leasehold rights falls within that exclusion, as it constitutes transfer of an interest in immovable property.

The High Court ruled that the show cause notice issued under Section 74 lacked legal foundation, as no tax liability could arise on transfer of leasehold rights which are outside the purview of GST.

Accordingly, the Court quashed and set aside the show cause notice.

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