GST Levy on Assignment of Leasehold Rights Stayed Due to Pending Legal Challenges on Classification.
Issue:
Whether Goods and Services Tax (GST) is leviable on the assignment of leasehold rights of a plot of land (allotted on lease by Maharashtra Industrial Development Corporation – MIDC) and the buildings constructed thereon, by the lessee to a third party for a lump sum consideration, given that similar issues are currently under legal challenge before various High Courts.
Facts:
A Show Cause Notice (SCN) dated August 2, 2024, was issued by the respondent no. 3 (department) to the petitioner-assessee, alleging that GST was payable on the assignment of leasehold rights and buildings to a third party. Subsequently, an adjudication order dated January 6, 2025, was passed by respondent no. 3, confirming the GST liability on this transaction. The petitioner filed a writ petition challenging this adjudication order, contending that GST should not be levied on the assignment of leasehold rights of a plot of land allotted on lease by MIDC, along with the buildings constructed thereon, when assigned by the lessee to a third party for a lump sum consideration. The petitioner argued that this transaction constitutes a transfer of immovable property and should not be treated as a supply of goods or services under the GST Act.
Decision:
In favor of the assessee: The court noted that in numerous other cases, the very same issue regarding GST levy on the assignment of leasehold rights was already raised and was pending resolution before various High Courts. Following these precedents, where adjudication of similar show cause notices had been stayed, the court ordered a stay on the effect and implementation of the adjudication order dated January 6, 2025. Furthermore, the instant petition was listed for hearing along with other similar petitions, indicating that a comprehensive resolution is awaited on this contentious issue.
Key Takeaways:
- Controversial Issue of GST on Leasehold Rights Assignment: The taxability of the assignment of long-term leasehold rights (especially for industrial plots from bodies like MIDC) under GST is a highly contentious issue, with various High Courts taking different or interim stances. Many High Courts, including Bombay and Gujarat, have either stayed proceedings or ruled that such assignments are akin to a transfer of immovable property and thus fall outside the scope of “supply” under GST (specifically under Schedule III, which excludes the sale of land and buildings).
- Transfer of Immovable Property vs. Supply of Service: The core of the dispute lies in whether the assignment of leasehold rights constitutes a “supply of services” (taxable under GST) or a transfer of “immovable property” (which is generally outside the ambit of GST as per Schedule III). Courts often lean towards treating long-term leasehold assignments as akin to the sale of land or benefits arising out of land, thereby exempting them from GST.
- Interim Relief During Legal Uncertainty: When a significant legal question is pending before multiple courts, and particularly if there are conflicting views or a major test case is ongoing, courts often grant interim relief (like staying the demand or adjudication) to prevent undue hardship to taxpayers until a definitive legal position is established.
- Need for Clarity from Higher Courts/Legislature: This type of ongoing litigation highlights the need for a clear clarification from the GST Council, CBIC, or ultimately the Supreme Court to provide a uniform interpretation and application of GST law concerning the transfer of leasehold rights.