Transfer of Leasehold Rights Not Taxable under GST: Gujarat HC Quashes SCN Issued to KP Green Engineering Limited
The Court relied upon the earlier binding precedent in Gujarat Chamber of Commerce, Industries and Others vs. Union of India.
Transfer of Leasehold Rights - Taxable under GST - Gujarat HC - SCN - KP Green Engineering Limited - taxscan
Transfer of Leasehold Rights - Taxable under GST - Gujarat HC - SCN - KP Green Engineering Limited - taxscan
The Gujarat High Court held that the assignment of leasehold rights in GIDC industrial plots does not constitute a taxable supply under the Goods and Services Tax law and consequently quashed the demand proceedings initiated through a show cause notice.
The Court clarified that such transactions amount to transfer of immovable property and therefore fall outside the purview of the levy of Goods and Services Tax as provided under Section 9 of the Act.
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The petitioner, M/s KP Green Engineering Limited, formerly known as K.P. Buildcon Private Limited, was allotted an industrial plot by the Gujarat Industrial Development Corporation (GIDC) under its leasehold land allotment scheme. The company subsequently assigned its leasehold rights over Plot No. 1716 at Panoli GIDC, Ankleshwar, to M/s Hindustan Enviro Life Protection Services Limited and received consideration of ₹2.20 crores.
Also Read: Sale of Buildings on Leased Land Deemed a Taxable Service, Not aSale, in Major AAR
During investigation for non-payment of GST on the consideration received for transfer of the lease hold rights, the Directorate General of GST Intelligence issued summons and subsequently a show cause notice dated December 29, 2023 under Section 74 of the State Goods and Services Tax Act, 2017 demanding tax of ₹39.60 lakhs on the consideration received, classifying it as taxable supply of services under Section 7(1)(a) of the State Goods and Services Tax Act and classified under Heading 9972 of Tariff Code.
Represented by Mrudul Barot, the petitioner argued that the transfer of leasehold rights results in complete divestment of rights and therefore constitutes transfer of immovable property. It was submitted that Section 7 of the Goods and Services Tax Act, 2017 does not treat such transfer as “supply”, and the transaction falls under Schedule III, which explicitly excludes sale of land from the ambit of tax. It was further contended that the issue is already adjudicated in Gujarat Chamber of Commerce, Industries and Others vs. Union of India (2025), wherein identical demands were held to be incorrect in law.
The Bench of Justice Bhargav D. Karia and Justice Pranav Trivedi held that once the lessee assigns leasehold rights, it is an absolute transfer of rights and interest in property amounting to transfer of immovable property.
The bench observed that the nature of the transaction places it outside the scope of supply under Section 7 and cannot be taxed as a service by invoking Clause 5(b) of Schedule II.
GST Clarity, Direct from the Bare Act! Click here
Therefore, the Court ruled that Schedule III shields such transfer from Goods and Services Tax. Consequently, set aside the show cause notice issued under Section 74 of the State Goods and Services Tax Act, 2017.
Accordingly, the Petition succeeded.
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