In a recent decision, the Gujarat High Court addressed the issue of whether the transfer of leasehold rights in an industrial plot allotted by the Gujarat Industrial Development Corporation (GIDC) constitutes a taxable supply under the Goods and Services Tax (GST) law. The case involved Gopal Iron and Steel Co. (Guj.) Ltd., which, due to financial difficulties, entered into a One-Time Settlement with its bank. This settlement involved assigning its leasehold rights to a third party through a tripartite agreement with the purchaser and GIDC. The State GST authorities issued a show-cause notice under Section 74 of the CGST/GGST Act, arguing that this assignment was a taxable service.
The petitioner contested this notice, asserting that the assignment represented a transfer of immovable property, which falls under Schedule III as "neither supply of goods nor supply of services," and thus should not be subject to GST. The court examined whether the assignment of leasehold rights in the GIDC plot was indeed a taxable supply or merely a transfer of immovable property. The High Court concluded that the transaction was a complete assignment of leasehold rights, effectively transferring an interest in immovable property.
Reaffirming its earlier decisions, the court noted that such transactions are excluded from the definition of supply under Schedule III, as they align with the sale of land. Consequently, the show-cause notice was deemed to lack jurisdiction, and the proceedings initiated under Section 74 were quashed. The court's decision underscores the legal distinction between the transfer of leasehold rights and taxable supplies under GST, emphasizing the non-taxable nature of such property transfers.
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.
