Summary: The article examines whether the Supreme Court’s dismissal of the Revenue’s SLP in the Aerocon Cushions case conclusively settles the GST liability on the assignment of long-term leasehold rights over government industrial land. It argues that although the dismissal upheld the Bombay High Court’s ruling that permanent assignment of leasehold rights amounts to a transfer of benefits arising from immovable property rather than a taxable supply of service, the non-speaking nature of the Supreme Court’s order does not create a binding precedent on the broader legal issue. The article highlights the continuing conflict between Schedule II and Schedule III of the CGST Act, relevant CBIC circulars, and exemption notifications, particularly regarding subsequent assignments between private parties. It concludes that tax authorities are likely to continue issuing GST demands until legislative or policy clarification is issued. However, where GST is paid on such transactions, businesses may have a basis to claim Input Tax Credit (ITC) if the transaction is treated as a taxable supply of service.
The Myth of Certainty:
Why the Supreme Court’s Aerocon dismissal doesn’t solve the GST Leasehold conundrum?
The taxability of assigning long-term leasehold rights for government industrial land has been an ongoing battleground under the Goods and Services Tax (GST) regime.
Industry professionals and corporate taxpayers widely celebrated the landmark ruling of the Hon’ble Supreme Court in the case of Assistant Commissioner (Anti-Evasion) & Anr. v. Aerocom Cushions Private Limited [SLP (Civil) Diary No. 26041 of 2026, dated May 22, 2026].
By dismissing the Revenue’s Special Leave Petition (SLP), the Apex Court left intact the progressive judgment of the Hon’ble Bombay High Court, which held that the assignment of leasehold rights in an industrial plot does not attract GST.
However, beneath the celebratory headlines lies a sobering regulatory reality.
For tax practitioners and corporate advisors, relying blindly on this dismissal order to claim a blanket exemption for subsequent lease assignments is a high-risk strategy.
A meticulous, structural analysis reveals that the core statutory conflict remains unresolved on the ground.
1. The Aerocon Case: A Victory without a “Speaking Order”
In the underlying matter, the taxpayer held a 95-year lease from the Maharashtra Industrial Development Corporation (MIDC) and assigned its rights to a third party for ₹1.50 Crore.
The CGST authorities issued a Show Cause Notice demanding 18% GST, treating the assignment as a “supply of service” under Section 7 read with Schedule II, and squeezing it into the residual category of “other miscellaneous services” under Notification No. 11/2017-Central Tax (Rate).
The Bombay High Court quashed the notice, observing that a permanent assignment where the original lessee’s rights are extinguished is a transfer of benefits arising out of immovable property (and thus equivalent to a sale of land under Schedule III), rather than a lease or sub-lease.
When the Revenue appealed, the Supreme Court issued a terse, one-line order:
“Delay condoned. We are not inclined to interfere with the impugned judgment and order of the High Court, hence, the special leave petition is dismissed.”
While this dismissal effectively settles the dispute for the specific facts of Aerocom Cushions, it does not constitute a “speaking order” – a reasoned judgment on the wider interpretation of the law.
The Supreme Court did not lay down a universal constitutional precedent or dissect the statutory cross-fire between Schedule II and Schedule III of the CGST Act.
From an operational standpoint, field formations and tax officers are legally bound to enforce the literal text of the GST statutes, rules, and departmental circulars.
Historically, administrative tax officers do not alter their assessment patterns based on in limine SLP dismissals. Until the GST Council steps in and issues a formal clarifying notification amending the structural rules of the game, audit wings will continue to issue demands on subsequent lease transfers.
2. The Statutory Cross-Fire:
A Combined Reading of the Law is always needed to construct a robust legal position, an enterprise cannot rely on a single judicial order.
One must holistically synthesize the web of circulars and notifications issued by the CBIC. When read together, these documents demonstrate why tax officers remain aggressive.
A. The Classification of Leasehold Transfers as a Service
The revenue’s primary weapon is Circular No. 44/2018-GST, which explicitly declares the transfer of leasehold rights to be a taxable supply of services:
“..upfront amount (called as premium, salami, cost, price, development charges or by any other name) paid for long term lease of land attributable to the various services inherently provided by the State Government Industrial Development Corporations or Undertakings to the industrial units is a supply of service.”
B. The Boundaries of the Exemption
The basic exemption is carved out under Notification No. 12/2017-Central Tax (Rate). Paragraph 41 provides a specialized exemption, but wraps it in strict parameters:
“Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease (of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or any other entity having 50 per cent. or more ownership of Central Government, State Government or Union territory to the industrial units shall be exempt from tax.”
C. The Structural Traps of Subsequent Amendments
The entry above was systematically tightened over time, creating an insurmountable barrier for subsequent reassignments between private parties:
Notification No. 23/2018-Central Tax (Rate):
Formally introduced rigorous tracking conditions to ensure that the industrial units utilizing the land do not violate the core lease terms. It also imposed a condition that the lessor entity should have atleast 50% share from Government. This reiterates that the GST Exemption is applicable only if the seller / lessor is an Enterprise with 50% of Govt holding.
Notification No. 28/2019-Central Tax (Rate):
While it lowered the government equity benchmark from 50% to 20%, it added a fatal clarification for secondary markets. It restricted the exemption explicitly to transactions flowing from the “original lessor to the original lessee” .
Consequently, when the original lessee steps into the shoes of an assignor and transfers those exact leasehold rights to a “subsequent third-party buyer” , the exemption ceases to apply under the plain reading of the text.
Thus, any lessee who relinquish his rights and transfer his rights to another lessee and the consideration of this transaction is being done between the lessor and lessee and not to the Land Owner (Enterprise with Govt as a stake holder), then this transaction will not eligible for exemption from GST liability as per the Notification above.
So on a combined reading of all GST legal provisions we can arrive at a stand that
- Lease Rights by Enterprises having Govt share of 20% and above are exempted from GST for the first lease
- All subsequent leaseright transfers doesn’t have the exemption and they are liable for GST payment
- Other than Enterprises having Govt share, all other lease by everyone else will have GST liability even though they are Industrial plots, since the Exemption given by Notification 12/2017 will not applicable for the same.
3. The Input Tax Credit (ITC) Silver Lining
Now the important question is, whether GST paid on subsequent leaseright transfers is eligible for availing ITC since it is falling under Schedule II?
If the department vigorously insists on reading the notifications literally – thereby demanding GST on private reassignments by treating them as a “supply of service” under Schedule II-they cannot have it both ways.
If a transaction is structurally barred from being classified as a “sale of land” (which falls under Schedule III and is completely outside the net of GST), it must legally follow the complete architecture of a service.
This unlocks a massive operational lever for Industrial buyers the absolute right to claim Input Tax Credit (ITC).
Under Section 16 of the CGST Act, a registered taxpayer is entitled to take credit of input tax charged on any supply of goods or services used or intended to be used in the course or furtherance of business.
While Section 17(5)(d) blocks ITC on goods or services received by a taxable person for the construction of an immovable property, it does not block the credit of GST paid on the procurement of raw leasehold service rights themselves, provided it is an independent business acquisition.
If the revenue treats the assignment as a taxable “miscellaneous service,” the corresponding tax paid forms a legitimate input asset that can be seamlessly deployed to offset outward output liabilities.
Conclusion: The Path Forward for Corporates
The Aerocon ruling provides a powerful appellate weapon for taxpayers currently battling show-cause notices in litigation.
However, as an advisory directive for future transactions, a single court dismissal cannot override an un-amended statutory framework.
Tax professionals must caution clients against holding onto isolated documents.
A consolidated view of the provisions confirms that while the department will continue to litigate the output liability on reassignments, businesses should leverage the structural nature of the service classification to safeguard their cash flows via Input Tax Credit.
As we all know that “Every transactions are unique and there is one fit solution in case of litigations” .
Hence we should look the legal provisions in totality and also consider the adjudication officer’s point of view, that they will always rely on the existing GST provisions rather than judicial prudence unless they are notified by CBIC.
Your valuable opinions are solicited in this emerging litigation subject
Author Bio
