The Bombay High Court has clarified a critical ambiguity in GST jurisprudence by holding that the assignment of leasehold rights in industrial plots does not constitute a supply of services under the GST Act. This ruling resolves a long-standing dispute between taxpayers and tax authorities over whether such transfers attract GST, and establishes a clear doctrinal boundary between transactions involving immovable property and those classified as services.
Background & Facts
The Dispute
The petitioner, M/s. Hindustan Equipment Craft, held a 95-year lease of an industrial plot from MIDC, Nagpur, with express permission to transfer leasehold rights. It assigned these rights to M/s. Kothari Belting Company for Rs. 1.15 crore, with MIDC’s prior consent. The tax authorities issued a show cause notice under Section 73(5) of the Maharashtra GST Act, 2017, alleging that this transfer constituted a taxable supply of services under Schedule II, Clause 2(b), and demanded GST at 18% under Sr. No. 35 of Notification No. 11/2017.
Procedural History
- 22 September 2025: Show cause notice issued by Assistant Commissioner of State Tax, Nagpur.
- 30 December 2025: Impugned order passed demanding GST on the transfer.
- 2026: Writ petition filed before the Bombay High Court, Nagpur Bench, challenging the legality of the notice and order.
Relief Sought
The petitioner sought quashing of the show cause notice and impugned order, arguing that the transaction was a transfer of benefits arising from immovable property, not a supply of services, and therefore outside the scope of GST.
The Legal Issue
The central question was whether the assignment of leasehold rights in an industrial plot, with prior consent of the granting authority, constitutes a supply of services under Section 7(1) read with Schedule II, Clause 2(b) of the GST Act, or whether it amounts to a transfer of immovable property exempt from GST.
Arguments Presented
For the Petitioner
The petitioner relied on the Gujarat High Court’s judgment in Gujarat Chamber of Commerce and Industry v. Union of India, arguing that assignment of leasehold rights is a transfer of benefits arising from immovable property, not a service. It contended that Section 7(1) requires the supply to be in the course or furtherance of business, which was absent here. The transaction was a one-time alienation of a long-term proprietary interest, akin to sale of land, and thus excluded from GST. It further argued that extending Sr. No. 35 of Notification No. 11/2017 to such transfers would be an unreasonable expansion of the term "miscellaneous services."
For the Respondent
The State contended that the transfer of leasehold rights, even if not a sub-lease, amounted to a service under the residuary category of "other miscellaneous services" under Sr. No. 35 of Notification No. 11/2017. It argued that since the petitioner was not the original lessor (MIDC), the transaction was a commercial assignment of rights, and thus fell within the scope of Section 7(1) as a service rendered in the course of business.
The Court's Analysis
The Court undertook a rigorous statutory interpretation of Section 7(1) and Schedule II, Clause 2(b). It emphasized that Clause 2(b) applies only to "lease or letting out of a building," not to assignment of leasehold rights by a lessee. The Court noted that the transaction extinguished the petitioner’s rights entirely, indicating a transfer of ownership interest, not a temporary grant.
"Assignment by sale and transfer of leasehold rights of the plot of land... shall be assignment/sale/transfer of benefits arising out of 'immovable property'... and same would not be subject to levy of GST."
The Court adopted the reasoning of the Gujarat High Court in Gujarat Chamber of Commerce and Industry, which had analyzed the definitions under the Transfer of Property Act, 1882, and the Registration Act, 1908, concluding that leasehold rights in industrial plots, when transferred, are treated as interests in immovable property. The Court further held that the absence of any nexus between the transaction and the petitioner’s business operations negated the essential element of "supply in the course or furtherance of business."
It also rejected the State’s reliance on Sr. No. 35, noting that "miscellaneous services" listed therein - such as washing, cleaning, or beauty services - could not logically encompass the transfer of industrial land rights. The Court affirmed that the Gujarat High Court’s interpretation was binding under the doctrine of comity of courts, citing Commissioner of Income-tax v. Smt. Godavaridevi Saraf.
The Verdict
The petitioner succeeded. The Court quashed the impugned order dated 30/12/2025 and held that assignment of leasehold rights in industrial plots is not a supply of services under the GST Act, but a transfer of immovable property. Consequently, no GST is leviable on such transactions.
What This Means For Similar Cases
Transfer of Leasehold Rights Is Not Taxable Under GST
- Practitioners must now argue that any transfer of leasehold rights under long-term industrial leases (30+ years) is a transfer of immovable property, not a service.
- Tax authorities cannot classify such transfers under residuary service categories like Sr. No. 35 of Notification No. 11/2017.
- The burden now shifts to the revenue to prove that a transaction is a service, not merely a property transfer.
Precedent from Other High Courts Is Binding in Maharashtra
- Judgments from other High Courts on identical legal issues are binding on Maharashtra tax authorities unless contradicted by a Bombay High Court ruling.
- Practitioners may cite Gujarat Chamber of Commerce with confidence in pending proceedings across Maharashtra.
Business Nexus Must Be Proven for GST Applicability
- Any transaction lacking a direct nexus to the taxpayer’s business activities cannot be classified as a supply under Section 7(1).
- This reinforces the principle that GST applies only to commercial activities, not incidental or proprietary transfers.
