Assignment of GIDC Leasehold Rights Non-Taxable Under GST and Suppression Penalties Disallowed

By | October 29, 2026
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Assignment of GIDC Leasehold Rights Non-Taxable Under GST and Suppression Penalties Disallowed

Issue

Whether (1) the assignment or transfer of leasehold rights in a GIDC industrial plot constitutes a taxable supply of services under GST, and (2) invocation of Section 74 alongside penalties under Section 74 and Section 122 is sustainable when the taxpayer initially treated the transaction as non-taxable based on a bona fide belief.

Facts

  • Transaction Details: The respondent, a partnership firm manufacturing chemical intermediates, held GIDC leasehold rights over an industrial plot and assigned these rights to a third party for consideration during the period 2020–21. GIDC issued provisional and final transfer orders in 2020.
  • Initial Non-Taxable View & Payment: The respondent initially treated the transaction as non-taxable. Following an audit, it issued a tax invoice dated March 31, 2021, and paid GST along with interest in April 2021. The invoice, returns, and Form DRC-03 were furnished to the DGGI in May 2021.
  • SCN & Assessment Order: The Revenue issued a Show Cause Notice (SCN) dated October 2022 invoking Section 74 alleging suppression of facts, proposed classification under SAC 99979 at 18% under Sr. No. 35 of Notification No. 11/2017-CT (Rate), and proposed penalties on the firm and its partners. The Assessing Officer confirmed the demand under Section 74 with multiple penalties.
  • Appellate Order & Appeal: The Appellate Authority re-characterized the case under Section 73, upheld the tax demand with interest, set aside Section 74 penalties, and imposed a penalty under Section 73. The Department appealed seeking the restoration of Section 74 along with penalties.

Decision

  • Assignment of Leasehold Rights Non-Taxable (In Favour of Assessee):
    • The assignment or transfer of leasehold rights in GIDC or MIDC plots constitutes a transfer of benefits arising out of immovable property and does not amount to a taxable supply of service under GST.
    • Residual entries such as Sr. No. 35 (“Other Miscellaneous Services”) cannot be extended to cover the assignment of leasehold rights in immovable property.
    • The issue is squarely covered by the binding judgments of the High Court of Gujarat in Gujarat Chamber of Commerce and Industry v. Union of India and the Bombay High Court in Aerocom Cushions (P.) Ltd. v. Asstt. Commissioner, where Special Leave Petitions (SLPs) filed by the Revenue were dismissed by the Supreme Court.
  • Suppression Penalties Disallowed (In Favour of Assessee):
    • The facts do not establish any intent to evade payment of tax. The case rests solely on a delay in issuing the tax invoice and a minor delay in tax payment.
    • The respondent’s initial bona fide belief—subsequently affirmed by High Courts and upheld by the Supreme Court—demonstrates good faith.
    • Mere non-payment or delayed payment does not amount to deliberate suppression. Penal provisions under Section 74 or Section 122 target intentional contraventions and cannot be used to penalize bona fide taxpayers.
    • The Department’s appeal was dismissed.

Key Takeaways

  • Immovable Property Benefit: The assignment or transfer of long-term leasehold rights in industrial land (GIDC/MIDC) represents a benefit arising from immovable property, falling outside the purview of “supply” under Section 7 of the CGST Act.
  • Inapplicability of Residual Entries: Residual entry classifications like SAC 99979 (“Other Miscellaneous Services”) under Sr. No. 35 of Notification No. 11/2017-CT (Rate) cannot be stretched to tax property-related assignment transactions.
  • Bona Fide Belief vs. Intentional Suppression: The invocation of Section 74 requires clear, deliberate intent to evade tax. A legal view held in good faith—especially one subsequently validated by judicial precedents—precludes the levy of suppression penalties.
GOODS AND SERVICE TAX APPELLATE TRIBUNAL , SURAT BENCH
Assistant Commissioner of CGST & Central Excise
v.
Riddhi Pharma
Sanjaykumar Dwivedi, Judicial Member
and Ramesh Kumar Gokalbhai Hadvani, Technical Member
APL/57/SRT/2026
OCTOBER  8, 2026
Maya Shanker Prabhat, Superintendent AR for the Appellant. Ajay Banerjee, Adv. for the Respondent.
ORDER
Sanjaykumar Dwivedi, Member Judicial.- This appeal has been filed by the department against Orderin-Appeal No. VAD-CGST-002-APP-ADC-332-2023-24, dated 29.02.2024 passed by the Additional Commissioner (Appeals), Central GST & Central Excise, Vadodara. By the impugned order, the Appellate Authority set aside the invocation Section 74(1), reclassified the demand under Section 73(1), set aside the penalties imposed under Section 74(1), Section 74(8), Section 122(1)(i)/(xv), Section 122(1A), and Section 122(3) on the firm and its partners, and imposed a penalty under 73(1) read with Section 122(2)(a) on the firm.
2. Before proceeding further, we wish to clarify that the name of the Appellant in the cause title appearing on the GSTAT Portal is erroneous. It shows the name of the officer instead of the official designation. We are informed that this is on account of the present design of the portal and that the Registry is unable to correct it. We have, therefore, corrected the cause title as follows:
• Cause Title as appearing on the portal: K Dharamveer Chowhan Versus Riddhi Pharma
• Cause Title as corrected in this order: Assistant Commissioner of CGST and Central Excise, Division IX, Vadodara-II Versus Riddhi Pharma
3. Briefly stated, the facts are that the Respondent, M/s Riddhi Pharma, is a partnership firm registered under GST, engaged in the manufacture of chemical intermediates. The Respondent held leasehold rights over industrial Plot No. 6120/2 allotted by the Gujarat Industrial Development Corporation (GIDC).
3.1. During the Financial Year 2020-21, the Respondent entered into an agreement/deed of assignment to transfer its leasehold rights in the said plot to one K. D. Chemicals Pvt. Ltd. for a consideration of Rs.1,81,00,000/- (excluding GST). It received Rs. 1,25,00,000/- in October 2020 and Rs. 88,58,000/- in July 2022 (total Rs. 2,13,58,000/-which includes GST of Rs. 32,58,000/-). GIDC issued its Provisional Transfer Order on 26.08.2020 and the Final Transfer Order on 28.09.2020.
3.2. The Directorate General of GST Intelligence (DGGI), Vadodara Regional Unit, initiated an inquiry regarding nonpayment of GST on the consideration received for the transfer of leasehold rights and issued summons dated 16.04.2021. In response, the Respondent, by its letter dated 31.05.2021, informed that they have paid the tax through its GSTR-3B return for April 2021 and have also paid interest through Form DRC-03 dated 25.05.2021. It also submitted, amongst other things, a copy of the Tax Invoice no. 01/20-21, dated 31.03.2021 wherein GST was charged on the transaction, copy of GSTR-1 and GSTR-3B for April 2021, and the DRC-03 evidencing payment of interest.
3.3. During the course of inquiry, the Respondent submitted that at the time of receipt of consideration, it had treated the transaction as non-taxable. However, at the end of the financial year, when its books were audited, the issue came to its notice; and thereafter it issued the Tax Invoice on 31.03.2021 and paid the GST through the return for the month of April 2021, along with interest.
3.4. A Show Cause Notice dated 17.10.2022 was issued invoking the provisions of Section 74(1) of the CGST/SGST Act, 2017. The SCN alleged that the Respondent had suppressed material facts with an intention to evade tax by not disclosing the transaction in its returns for October 2020. The notice alleged that transaction amounted to supply of service classifiable under the Services Accounting Code 99979 as “Other Miscellaneous Services” and that tax at the rate of 18% was leviable thereon under Sr. No. 35 of the Notification No. 11/2017-CT (Rate), dated 28.06.2017. The notice, accordingly, demanded tax along with interest. Since both tax and interest had already been paid before issuance of the notice, it proposed appropriation thereof. The notice further proposed imposition of penalty on the Respondent firm under Sections 74(1), 122(1)(i), and 122(1)(xv) of the CGST Act, 2017 read with the corresponding provisions of the SGST Act, 2017. It also proposed imposition of personal penalties on the Partners, Shri Kiran Z. Modi and Smt. Sangita D. Modi, under Section 122(1A) and also under Section 122(3)(a), 122(3)(c), and 122(3)(e) of the CGST Act, 2017 read with the corresponding provisions of the SGST Act, 2017.
3.5. The Adjudicating Authority upheld all the allegations in the SCN, confirmed the demand under Section 74(1), appropriated the tax and interest paid, and imposed the full slate of penalties on the firm as well as personal penalties on both partners. Apart from imposing penalty equal to tax (Rs. 32,58,000/-) under Sec 74(1) on the firm, the Adjudicating Authority also imposed penalty of Rs. 8,14,500/- (being 25% of the tax) under Section 74(8); the aggregate of the two penalties has been posted in the liability register, as is apparent from the summary in Form GST APL-04 issued by the Appellate Authority. A penalty equal to tax was imposed on each of the two partners under Section 122(1A) and a further penalty of Rs. 50,000/- was imposed on each of them under Sections 122(3)(a), 122(3)(c), and 122(3)(e).
3.6. The Appellate Authority held that:
5.22 From the facts mentioned above, I am inclined to conclude that it is the case of failed to discharge their GST liabilities and failed to deposit the amount of Goods & Services Tax, leviable on the supply made by them under the bonafide belief which did not involve fraud or any wilful misstatement or suppression of facts to evade tax, therefore, provisions of Section 73 of the CGST Act, 2017 should have been invoked for demand and recovery of the liability and not the provisions of Section 74 of the CGST Act, 2017.
3.7. He, accordingly modified the demand by re-classifying it from Section 74(1) to Section 73(1), upheld the demand for tax Rs. 32,58,000/- and interest under Section 73(1) and Section 50 respectively, and appropriated the amounts already paid. All penalties imposed under Section 74(1), Section 74(8), Section 122(1)(i)/(xv), Section 122(1A), and Section 122(3) on the firm and partners were set aside. However, he imposed a penalty of Rs.3,25,800/- (being 10% of tax) was imposed under Section 73(1) read with Section 122(2)(a) of the CGST Act.
Grounds
4. In the appeal filed by the department, the Grounds of Appeal starts with the following paragraph:
8.1 The Commissioner has examined the aforesaid Impugned Order dated 29.02.2024 (received in this office on 22.07.2024) and is of the opinion that the impugned order-in-appeal is not correct, legal and proper to the extent mentioned as under:
(i) Setting aside of the demand of GST of Rs. 32,58,000/- (CGST Rs. 16,29,000/- + SGST Rs. 16,29,000/-) under Section 74(1) of the CGST/SGST Act, 2017 and upholding of the demand of Rs. 32,58,000/- under Section 73(1) of the CGST Act, 2017 and under Section 73(1) of the SGST Act, 2017.
(ii) Setting aside of the penalty of Rs. 8,14,500/-(CGST Rs. 4,07,250/- + SGST Rs. 4,07,250/-) imposed under Section 74(8) of the CGST/SGST Act, 2017.
(iii) Setting aside of the penalty of Rs. 32,58,000/-(CGST Rs. 16,29,000/- + SGST Rs. 16,29,000/-) imposed under Section 122(1)(i) and Section 122(1)(xv) read with Section 74(1) of the CGST/SGST Act, 2017 and imposing penalty of Rs. 3,25,800/- under Section 73(1) of the CGST/SGST Act, 2017 read with Section 122(2)(a) of the CGST Act, 2017 of the Orderin-Appeal passed by the Appellate Authority.
4.1. Thus, by way of the present appeal the department seeks to revert the classification of demand back to Section 74 and as a consequence seeks imposition of penalty equal to the tax under Section 122(1)(i) and Section 122(1)(xv) read with Section 74(1). It also seeks to impose an additional penalty under Section 74(8), which merely provides an option to that if tax, interest and penalty equivalent to twenty-five per cent. of the tax is paid within thirty days of issue of the notice, then “all proceedings in respect of the said notice shall be deemed to be concluded”. It is clear that its not a penalty in addition to the penalty equivalent to the tax referred in the sub-section (1) of the Section 74.
5. In its reply (presented as a “cross-objection” – but without challenging any portion of the impugned order of the Appellate Authority), the Respondent has submitted that by its judgment dated 03.01.205 inGujarat Chamber of Commerce and Industry v. Union of India [2025]  94 GSTL 113 (Gujarat)/(R/Special Civil Application No. 11345 of 2023 ), the Hon’ble Gujarat High Court has held GST is not leviable on the assignment of lease of plot of GIDC to third parties; that the department’s Special Leave Petition (SLP) has already been dismissed by the Hon’ble Supreme Court by order dated 21.07.2026 (Diary No. 3327 012025; that the allegations of suppression of facts with intent to evade are incorrect.
6. Mr. Maya Shanker Prabhat, learned Superintendent (Authorised Representative), appearing for the department, reiterates the grounds of appeal and submits that the appeal was filed because the department had filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court against the judgment in Gujarat Chamber of Commerce and Industry, (supra). He further submits that although the SLPs filed by the department have since been dismissed by the Hon’ble Supreme Court, the department is in the process of filing a review petition.
7. Mr. Ajay Banerjee, learned Advocate appeared for the Respondent. He submits that the Respondent had paid the tax and interest before issuance of Show Cause Notice; the transaction was recorded in the account books; Section 74 is not applicable because during the material time the Respondent believed bona fide that tax was not payable. He also relied on theG.R. Infra Projects Ltd. v. State of Madhya Pradesh  112 GSTL 273 (SC)[order dated 19.08.2026 in Civil Appeal No.11277 of 2026).
8. We have heard both sides and perused the record.
9. It is not in dispute that the present case is squarely covered by the judgment in Gujarat Chamber of Commerce and Industry, (supra). In that case, the issue was whether GST is leviable on assignment of leasehold rights of the plot of land allotted on lease by Gujarat Industrial Development Corporation (GIDC) and building constructed thereon, by the lessee or its successor (assignor) to a third party (assignee) on payment of lump-sum consideration considering the same as supply of service under the provisions of Central/State Goods and Service Tax Act, 2017. The Hon’ble High Court held:
83. In view of foregoing reasons, assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of “immovable property” by the lessee-assignor in favour of third party-assignee who would become lessee of GIDC in place of original allottee-lessee. In such circumstances, provisions of section 7(1)(a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable to such transaction of assignment of leasehold rights of land and building and same would not be subject to levy of GST as provided under section 9 of the GST Act.
84. In view of above, question of utilisation of input tax credit to discharge the liability of GST on such transaction of assignment would not arise.
85. The petitions accordingly succeed and impugned show cause notices and orders in original or appeal as the case may be, are hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.
10. The issue also came up before the Hon’ble Bombay High Court in Aerocom Cushions (P.) Ltd. v. Asstt. Commissioner (Anti-Evasion), CGST & CX, Nagpur-1  106 GSTL 145 (Bombay)[2026:BHC-NAG:348-DB]. Agreeing with the decision of the Hon’ble Gujarat High Court in Gujarat Chamber of Commerce and Industry, (supra), the Hon’ble Bombay High Court by its judgment dated 09.01.2026, held:
13…… We subscribe to this view for the reasons quoted in earlier part of our judgment so also because the view, in our considered opinion, is in consonance with the provisions of law on supply of services.
14……. Further we subscribe to the finding of Gujarat High Court that the assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/transfer of benefits arising out of immovable property by the lessee-assignor in favour of third party and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act.
15. The writ petition is accordingly allowed. Show cause notice No.47/AC/GST/NGP-I/2024 dated 2012-2024 issued by respondent No.1 is quashed and set aside.
11. On the question of applicability of Sr. No. 35 of Notification No. 11/2017-CT (Rate), the Hon’ble Bombay High Court observed1:
8. Our attention is invited to the entry at Sr.No.1 which includes other services (washing, cleaning and dyeing services; beauty and physical wellbeing services, and other miscellaneous services including services nowhere else classified). As could be seen, the services include miscellaneous services like washing, cleaning, dyeing, beauty, physical well-being, etc. Such petty services, in our view, cannot be extended to assignment of leasehold rights in an immovable property, to term it to be other miscellaneous services as classified under clause at Sr. No.35 of the Notification.
12. The Asstt. Commissioner (Anti Evasion) v. Aerocom Cushions (P.) Ltd.  116 GST 80/109 GSTL 289 (SC)/Special Leave Petition (SLP (C) No. 18772/2026) filed by the department against the judgment in Aerocom Cushions was dismissed by the Hon’ble Supreme Court by order dated 22nd May 2026, which reads:
We are not inclined to interfere with the impugned judgment and order of the High Court, hence, the special leave petition is dismissed.
13. The Union of India v. Gujarat Chamber of Commerce and Industry 117 GST 159/111 GSTL 97 (SC)/Special Leave Petitions (Diary No. 33270/2025), filed by the department against the judgment in Gujarat Chamber of Commerce and Industry, (supra), were dismissed by the Hon’ble Supreme Court by order dated 21st July 2026, which reads:
1. Delay condoned.
2. This Court, vide order dated 22.05.2026, has already dismissed a Special Leave Petition, being SLP (C) No. 18772/2026.
3. In view of the fact that a similar SLP has been dismissed, the instant special leave petitions are dismissed.
4. Pending application(s), if any, shall stand disposed of.
14. In view of the above, the judgment of the Hon’ble Gujarat High Court, which is the jurisdictional High Court, holds the field and binds the Tribunal. The department’s stated intention to seek a review does not dilute its binding effect, there being no order staying or recalling it.
15. Thus, the Respondent has paid the tax, which in terms of the above judgments, was not payable at all. In the circumstances, the question of restoring or enhancing the penalty, as sought by the department, does not arise. The Respondent has not challenged the Order-in-Appeal. The confirmation of tax and interest under Section 73 and the penalty of Rs. 3,25,800/- are therefore not before us, and we express no opinion on any remedy available to the Respondent in law.
16. Even otherwise, the facts of the case do not establish any intent to evade tax. The department’s case rests entirely on two instances of delays: firstly, there was a delay of about six months in issuing the Tax Invoice; and secondly, after the Invoice was issued in March 2021, there was further delay of one month in paying the tax. We note that initially, the Respondent regarded the transaction as non-taxable and later changed its view on advice of its auditor. That initial view of non-taxability has later found support in the judgments of High Courts, against which the department’s SLPs have been dismissed. It is well settled that where a taxpayer held a genuine, reasonable belief that no tax was payable, the element of intent to evade is absent. An opinion founded on plausible interpretation of law, supports taxpayer’s bona fides. It is well settled position that mere non-payment of tax is not suppression. Further, suppression alone is not sufficient to invoke Section 74. It has to be a “suppression to evade tax”. In other words, suppression must be a deliberate act of non-disclosure aimed at evading tax.
17. In Padmini Products v. CCE, Bangalore (SC)/[1989 INSC 247 , 1989 SCR (3) 873] Hon’ble Supreme Court held:
“We are unable to accept this position canvassed on behalf of the revenue. As mentioned hereinbefore, mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract section 11-A of the Act. In the facts and circumstances of this case, there were materials, as indicated to suggest that there was scope for confusion and the appellants believing that the goods came within the purview of the concept of handicrafts and as such were exempt. If there was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that belief, when there was no contrary evidence that the producer or the manufacturer knew that these were excisable or required to be licenced, would not attract the penal provisions of section 11-A of the Act. If the facts are otherwise, then the position would be different.”
18. In Stemcyte India Therapeutics (P.) Ltd. v. CCE and Service Tax, Ahmedabad-III [2025] 8 S.C.R. 70 : 2025 INSC 841 ) Hon’ble Supreme Court held:
13.1…..It is a well settled legal position that penal provisions are meant to deter deliberate contravention of statutory provisions and are not intended to penalize bona fide taxpayers. In this context, the imposition of penalties and interest appears arbitrary, unjust, and unsustainable in law.
19. In view of the above, the appeal filed by the department is dismissed.