Parties: Gopal Iron and Steel Co. (Guj.) Ltd. v. Assistant Commissioner of State Tax

Order Date: 28 November 2025

Facts –

• The petitioner was the leasehold owner of an industrial plot allotted by the Gujarat Industrial Development Corporation (GIDC). Due to financial distress, the petitioner entered into a One-Time Settlement (OTS) with its lending bank, under which the property was agreed to be assigned to a third party purchaser.
• A tripartite agreement was executed between the petitioner, the purchaser, and GIDC, culminating in the lawful transfer of leasehold rights in favour of the transferee.
• The State GST authorities issued a show-cause notice under Section 74 of the CGST/GGST Act, alleging that the petitioner had supplied taxable services by way of assigning leasehold rights and was therefore liable to pay GST on the transaction. The authorities relied on Entry 2(a) of Schedule II, treating the transaction as “lease/tenancy as supply of service.”
• The petitioner challenged the SCN, contending that the assignment of leasehold rights constituted transfer of immovable property, which is covered by Schedule III as “neither supply of goods nor supply of services.”

Issue –

• Whether the assignment or transfer of long-term leasehold rights in a GIDC industrial plot constitutes a taxable supply under the GST law or is a transfer of immovable property falling outside the scope of GST?

Order –

• The High Court held that the transaction involved a complete assignment of leasehold rights and, therefore, constituted a transfer of an interest in immovable property.
• The Court reaffirmed its earlier ruling in Gujarat Chamber of Commerce & Industry and observed that once the rights in land are permanently transferred, the transaction cannot be treated as a supply of service under Schedule II.
• The Court noted that Schedule III expressly excludes “sale of land” and similar transactions from the definition of supply. Assigning leasehold rights with all incidents of ownership is substantially equivalent to transferring immovable property and cannot attract GST.
• Since the very basis of the SCN — treating the transaction as a taxable service — was contrary to the established legal position, the Court held that the proceedings initiated under Section 74 were without jurisdiction. The show-cause notice was quashed in its entirety, and all consequential actions stood set aside.