No GST on Transfer of Leasehold Rights by State Industrial Development Corporation: Bombay HC holds it Not ‘Supply of Services’ [Read Order]

The Bombay High Court held that the sale and transfer of leasehold rights in respect of industrial plot allotted by Maharashtra Industrial Development Corporation (MIDC) in favour of third party for consideration and such benefits arising out of the immovable property thereof does not attract levy under Goods and Service Tax (GST) Act, 2017.

The petitioner, Aerocom Cushions Private Limited, represented by Darshana Bhaiya, contended that it had transferred the leasehold rights of the plot allotted to it by the state industrial development corporation to M/s. Rishita Industries for ₹1,50,00,000 after obtaining consent from MIDC upon payment of an additional premium of ₹3,95,650. The petitioner contended that the above transaction does not amount to the lease or sub-lease of property as the petitioner’s rights in the property were extinguished through the transaction.

Counsel K K Nalamwar, argued in favor of the respondent Revenue that issuance of the show cause notice demanding Goods and service Tax under the category of supply of services amounting to Rs. 27,00,000 is sustainable. As per the respondents this transfer of rights amounts to supply of services under Section 7(1) of the GST Act read with 2(b) of Schedule II.

As per the clause, any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partially subjected to supply of services. The respondent contended that transfer of leasehold property amounts to service and is taxable at 18%.

Justice Anil L Pansare and Justice Nivedita P Mehta observed that the transaction constituted neither a lease nor sub-lease but rather resulted in a transfer of leasehold rights like transfer of immovable property rights. Therefore, it lacked the essential elements required for supply of service under section 7 of GST Act.

The court relied on a decision of Gujarat High Court in the case of Gujarat Chamber of Commerce and Industry v. Union of India (2025 TAXSCAN (HC) 116), where identical issues were examined.

The Gujarat High Court held that when the plot allocated by state development corporation is sold or transferred for consideration to the third party, then such transfer of leasehold rights would not be subjected to GST.

Taking into consideration the decision rendered by the Gujarat High Court, the Bombay High Court accordingly allowed the writ petition and quashed and set aside the impugned show cause notice.

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