GST Refund Directed as Deficiency Memo on leasehold transfer Found Unsustainable

Payal Plastichem Private Limited Vs State of Gujarat & Ors. (Gujarat High Court)

The petitioner approached the Gujarat High Court seeking to quash a Deficiency Memo dated 09.06.2025 and for a direction to sanction a GST refund. The petitioner, a subsidiary engaged in manufacturing plasticisers and PVC compounds, had purchased a leasehold industrial plot originally allotted by the Gujarat Industrial Development Corporation (GIDC) on a long-term lease. The plot was transferred through successive transfer orders and ultimately sold to the petitioner under an agreement dated 19.07.2024, with consideration paid in two instalments.

Relying on an earlier judgment of the same Court, the petitioner contended that the assignment by sale and transfer of leasehold rights of land and building constitutes a transfer of benefits arising out of immovable property. Such a transaction, according to the petitioner, falls outside the scope of “supply” under Section 7 of the CGST Act, read with Schedule II and Schedule III, and is therefore not exigible to GST. On this basis, the petitioner applied for refund of the GST paid on the leasehold transfer under Section 54 of the GST Act.

However, the refund applications were not processed and were instead disposed of by issuance of Deficiency Memos in Form RFD-03. The reasons cited were that supporting documents were not legible and that no notification or circular had been issued by the GST Council regarding refund of GST paid on lease transactions. As both refund applications were closed in this manner, the petitioner filed the present writ petition.