Case Note & Summary
The dispute arose from a show cause notice issued under Section 74 of the Central Goods and Services Tax Act, 2017, to the petitioner, a company that had assigned leasehold rights of industrial plots to another entity. The petitioner held leasehold rights for plots in an industrial estate developed by the Gujarat Industrial Development Corporation (GIDC), which were leased for 99 years. The respondent authorities contended that the assignment of these leasehold rights constituted a supply of service under Section 7(1)(a) of the CGST Act, classified under a specific tariff code, and thus attracted GST liability. The petitioner challenged the notice via a writ petition under Articles 226 and 227 of the Constitution of India, arguing that long-term leasehold rights are benefits arising from land and treated as immovable property, exempt from GST. The core legal issue was whether such assignment qualifies as a supply of service under the GST Act. The petitioner relied on a prior decision of the same High Court in Gujarat Chamber of Commerce, Industries & Ors. v. Union of India & Ors., which held that transfer of leasehold rights by a lessee to an assignee is a transfer of immovable property, not a supply of service. The respondents did not contest this precedent. The court analyzed the legislative intent of the GST Act, provisions on supply, and property law principles, concluding that assignment of leasehold rights extinguishes the assignor's estate and transfers an interest in immovable property, akin to alienation by sale or mortgage. It emphasized that such transactions fall outside the scope of supply under Section 7. Consequently, the court quashed the show cause notice, holding it invalid as the issue was squarely covered by binding precedent, thereby relieving the petitioner of any GST liability on the assignment.
Headnote
A) Taxation - Goods and Services Tax - Scope of Supply - Central Goods and Services Tax Act, 2017, Section 7 - Petition challenged show cause notice under Section 74 of CGST Act treating assignment of leasehold rights as supply of service - Court held assignment of long-term leasehold rights is transfer of immovable property, not supply of service, thus no GST liability arises - Relied on precedent Gujarat Chamber of Commerce case (Paras 4-8). B) Property Law - Leasehold Rights - Immovable Property Characterization - Transfer of Property Act, 1882, Sections 105, 108(j) - Dispute involved assignment of leasehold rights for industrial plots leased for 99 years by GIDC - Court reasoned long-term leasehold rights are interest in immovable property, constituting absolute transfer extinguishing assignor's estate - Assignment deemed transfer of immovable property, not service supply (Paras 5.2, 8). C) Constitutional Law - Writ Jurisdiction - Quashing of Show Cause Notice - Constitution of India, Articles 226, 227 - Petitioner filed writ petition under Articles 226 and 227 to assail show cause notice under CGST Act - Court exercised jurisdiction to quash notice as issue was covered by binding precedent, rendering notice invalid (Paras 4, 8).
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Issue of Consideration: Whether assignment of leasehold rights by a lessee to a third party constitutes supply of service under Section 7 of the Central Goods and Services Tax Act, 2017, making it taxable under GST
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Final Decision
Court quashed the show cause notice dated 08.01.2025 issued under Section 74 of the CGST Act, holding that assignment of leasehold rights is transfer of immovable property and not supply of service under GST
