Transfer of Leasehold Rights in Land Not Attracting GST - A Landmark Judgment by Gujarat High Court

In a significant and much-awaited decision, the Gujarat High Court in the case of Gujarat Chamber of Commerce and Industry & Ors. v. Union of India & Ors. [(2025) 1 TMI 516; (2025) 170 taxmann.com 251 (Guj.)], clarified the GST implications on the transfer of leasehold rights in land.

Background of the Case

The Gujarat Industrial Development Corporation (GIDC) had allotted industrial plots on a long-term lease (99 years) for industrial purposes. As per the lease terms, lessees were permitted to assign their leasehold rights to third parties, subject to GIDC’s approval. However, the GST Department sought to levy GST at 18% on such assignments, treating them as "supply of services" under Section 7(1)(a) of the CGST Act, 2017 read with Clause 5(b) of Schedule II.

Court’s Observations and Reasoning

The Hon’ble High Court held that such transfer of leasehold rights for consideration constitutes an assignment of benefits arising out of immovable property, and therefore, does not qualify as a ‘supply of services’ under the CGST Act.

Key findings:

• The leasehold rights over land and the constructed building amount to transfer of immovable property.
• Even if GIDC charges one-time premium upfront, no GST is applicable due to exemption under Entry 41 of Notification No. 12/2017-Central Tax (Rate).
• Clause 5(b) of Schedule II (relating to construction service) does not apply when the entire consideration is received after the issuance of a completion certificate.
• Clause 5 of Schedule III explicitly states that sale of land is neither a supply of goods nor of services.

Detailed Legal Interpretation

The Court observed that the assignment includes not just the right to use land, but also the full enjoyment of ownership-like rights, including construction and usage for business. This bundle of rights amounts to a capital asset and qualifies as immovable property.

Further, the lessee-assignor had constructed buildings and was transferring the entire interest, including the building, land rights, and leasehold benefits. Such a transfer constitutes an assignment/sale of immovable property, not a taxable supply of service.

Reference to GST Provisions

• Section 7(1)(a) defines the scope of supply under GST.
• Clause 5(a) of Schedule II talks about renting of immovable property as a supply of service.
• Clause 5(b) of Schedule II treats under-construction sale of property as service unless completed.
• Clause 5 of Schedule III excludes sale of land and completed building from GST ambit.

Conclusion by the High Court

The Hon’ble Gujarat High Court held that:

• The transfer/assignment of leasehold rights along with constructed property constitutes a transfer of immovable property.
• Such transaction falls outside the purview of GST.
• The impugned show cause notices and original/appeal orders were quashed and set aside.

Significance of the Judgment

This judgment settles the long-standing confusion on GST applicability in land lease transfers and provides relief to industrial allottees and assignees. It affirms that benefits arising from immovable property are not subject to GST, reinforcing the principles of substance over form.

This landmark ruling serves as a precedent for other cases involving leasehold transfers, particularly in industrial zones managed by state authorities.

Prepared by: Dr Muhammed Mustafa C T
BRQ Associates - Tax & Legal Insights Team