Supreme Court to Scrutinize GST Levy on Transfer of Land Leasehold Rights.
Issue
Whether the transfer or assignment of leasehold rights in land constitutes a “transfer of land,” which is neither a supply of goods nor a supply of services as per Schedule III of the CGST Act, or if it should be treated as a taxable “supply of service.”
Facts
- A partnership firm transferred its leasehold rights in a piece of land to a sole proprietorship, which was run by one of the firm’s former partners.
- The Gujarat High Court, relying on its earlier judgment in the Gujarat Chamber of Commerce and Industry case, held that such a transfer is equivalent to a transfer of land.
- Consequently, the High Court quashed the levy of GST on the transaction, ruling that it was not a taxable supply.
- The Revenue (tax department) challenged this decision by filing a Special Leave Petition (SLP) before the Supreme Court.
Decision
- The Supreme Court has condoned the delay and admitted the Revenue’s SLP for a full hearing.
- It has framed the central question to be decided as whether the transfer of leasehold rights is a non-taxable transfer of land or a taxable supply of service.
- The Court has tagged this case with the Revenue’s earlier SLP against the Gujarat Chamber of Commerce ruling, indicating that both matters will be heard together to settle the law on this issue.
Key Takeaways
- Legal Uncertainty: The Supreme Court’s decision to admit the SLP has created uncertainty over the GST treatment of leasehold right transfers. The favorable Gujarat High Court ruling is now under challenge.
- Nationwide Implications: By tagging this with a similar key case, the Supreme Court has signaled its intent to deliver a definitive judgment that will have a nationwide impact on real estate and infrastructure transactions involving long-term leases.
- Fundamental Question of Law: The case hinges on the fundamental distinction between an interest in land (which is outside the GST net) and a service related to land (which is taxable). The outcome will provide crucial clarity on this distinction.
- Status Quo Under Challenge: Until the Supreme Court delivers its final verdict, the taxability of such transactions remains a contentious issue, and businesses can no longer solely rely on the High Court’s interpretation.