Case Law Details
Saurashtra Tin And Metal Industries Vs Union of India & Ors. (Gujarat High Court)
Gujarat High Court today quashed an order by tax authorities demanding Goods and Services Tax (GST) on the transfer of leasehold rights for an industrial plot. The court reiterated its consistent stance that such assignments do not fall under the purview of “supply of service” and are therefore not subject to GST.
The ruling came in the case of Saurashtra Tin And Metal Industries versus the Union of India and others, where the petitioner challenged a show-cause notice and a subsequent order confirming a GST demand of Rs. 2,46,53,700/-.
Background of the Dispute
Saurashtra Tin And Metal Industries had been allotted an industrial plot (No. G-613, measuring 26210.43 square meters) at the GIDC Industrial Estate in Metoda, Taluka Lodhika, by GIDC Rajkot in 1994. In February 2021, the petitioner applied to GIDC for the transfer of these leasehold rights to M/s Janani Incast. GIDC granted approval, and a deed of assignment was executed on February 24, 2021. Saurashtra Tin And Metal Industries received Rs. 13,69,65,000/- as consideration for this transfer during the financial year 2020-21, but did not charge or recover any GST on this amount.
The dispute began when the petitioner received a summons in September 2023, seeking details of the sub-lease of GIDC plots and any GST paid on such transactions between April 2020 and March 2021. This was followed by a show-cause notice (FORM DRC-01) issued on November 26, 2024, by the tax authorities. The notice contended that the execution of the deed of assignment for the lease of the plot with a third party constituted a “service,” and the consideration received was therefore taxable under real estate services, attracting 9% SGST and 9% CGST as per Notification No. 11/2017 – State Tax (Rate) dated June 30, 2017 (Entry No. 16, Heading No. 9972).
Saurashtra Tin And Metal Industries responded to the show-cause notice in December 2024 and again in February 2025, asserting that no GST was payable on such transactions. They specifically drew the attention of the adjudicating authority to a prior decision of the Gujarat High Court in Special Civil Application No. 11345 of 2023, which had already ruled on this very issue.
Despite the petitioner’s submissions and reference to the High Court’s precedent, the tax authority, on February 28, 2025, issued an order (Form GST DRC-07) confirming the proposed GST demand. The order noted that the government intended to challenge the High Court’s decision in Special Civil Application No. 11345 of 2023 before a higher forum, implying this as a basis for proceeding with the demand. This led Saurashtra Tin And Metal Industries to file the present petition before the Gujarat High Court.
Petitioner’s Arguments
During the hearing, the petitioner’s advocate, Mr. Dhaval Shah, argued that the adjudicating authority’s decision was erroneous, particularly in light of the subsisting High Court judgment. He emphasized that since no stay order had been granted against the High Court’s earlier ruling, the tax authorities were legally bound to follow it and ought to have dropped the proceedings.
Judicial Precedents and Court’s Reasoning
The Gujarat High Court, in its present judgment, firmly stated that “the issue involved in the present petition remains no more res integra,” meaning it is no longer open for debate. The court highlighted a series of its own judgments that have consistently held that GST is not leviable on the assignment of leasehold rights of plots or land.
The primary judicial precedent relied upon was the case of Gujarat Chamber of Commerce and Industries and others Vs Union of India, reported in 2025 (94) GSTL 113 (Guj). In this case, the High Court unequivocally held that:
- GST would not be leviable on the assignment of leasehold rights of a plot or land allotted on lease by an industrial concern, or a building constructed thereon, by the lessee (assignor) to a third party (assignee) for a lumpsum consideration.
- Such an assignment, being a sale and transfer of benefits arising out of immovable property by the lessee-assignor to a third-party assignee (who would become the new lessee of GIDC), does not fall under the “scope of supply” for GST purposes.
The court further noted that the same view was upheld in:
- Kabir Instrument and Technology Vs Union of India (Special Civil Application No. 13526/2024), reported in (2025) 27 Centax 41 (Guj).
- Alfa Tools Private Limited Vs Union of India and another (R/Special Civil Application No. 12047 of 2024), vide judgment dated March 6, 2025.
Addressing the tax authority’s justification for the demand – that the government intended to challenge the earlier High Court order – the bench firmly rejected this argument. The High Court stated, “it is required to be noted that there is no positive order of stay placed on record and considering the judgment of this Court in Special Civil Application No. 11345 of 2024, this Court is bound to decide the same in accordance with law.” This underscores the principle that lower authorities must adhere to existing judicial pronouncements unless they are specifically stayed or overturned by a higher court.
Upon reviewing the assignment deed executed by Saurashtra Tin And Metal Industries, the High Court found that it merely transferred leasehold rights from the petitioner to M/s Janani Incast, consistent with the facts in the previously decided cases. Therefore, the court concluded that the petitioner’s case was “squarely covered” by the precedent set in Gujarat Chamber of Commerce and Industries (Supra).
Verdict
In light of these findings, the Gujarat High Court allowed the petition, declaring the impugned order and the show-cause notice “ex-facie illegal and without jurisdiction.” The court quashed and set aside the GST demand, making the rule absolute without any order as to costs. This judgment reinforces the judicial position that the transfer of leasehold rights in such contexts is a transaction involving immovable property and therefore falls outside the ambit of GST.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned advocate Mr. Dhaval Shah for the petitioner and learned advocate Mr. Dipak Khemchandani for respondent No.1 and learned advocate Ms. Shrunjal Shah for respondent Nos.2 to 4.
2. Rule returnable forthwith. Learned advocate Mr. Dipak Khemchandani waives service of notice of rule for and on behalf of respondent No.1 and learned advocate Ms. Shrunjal Shah waives service of notice of rule for and on behalf of respondent Nos.2 to 4.
3. Having regard to the controversy arising in the present petition in narrow compass, with the consent of learned advocates appearing for the respective parties, the matter is taken for final disposal today.
4. By way of the present petition, the petitioner has prayed for quashing and setting aside impugned order Reference No.ZD240225111984J dated 28.2.2025 passed by respondent No.4 under section 73 and Form GST DRC-07 (Annexure-A) and show cause notice Form GST – DRC-01 Reference No.ZD2411240674125 dated 26.11.2024 (Annexure-B) on the ground that the same is illegal and without jurisdiction.
5. Brief facts of the case are as follow.
5.1 The petitioner was allotted industrial plot No.G- 613 admeasuring 26210.43 square meters at GIDC Industrial Estate at village Metoda, Taluka Lodhika by GIDC Rajkot by entering into agreement dated 6.12.1994 and the lease deed / conveyance deed / license agreement was executed on 6.12.1994.
5.2 The petitioner applied to the GIDC for transfer of the said plot i.e. plot No.G-613 admeasuring 26210.43 square meters at GIDC Industrial Estate at village Metoda, Taluka Lodhika to M/s Janani Incast by filing an application dated 13.2.2021 and accordingly the GIDC granted approval vide its order No.GIDC/RM/RAJ/TRF/ FTO/LODI/342 dated 24.2.2021.
5.3 The petitioner and M/s Janani Incast executed a deed of assignment on 24.2.2021 and the petitioner received consideration of ₹ 13,69,65,000/- in the year 2020-21.
5.4 The petitioner neither charged nor recovered any GST from M/s Janani Incast (transferee company) on the consideration paid to the petitioner under the said deed of assignment / MOU dated 24.2.2021.
5.5 The petitioner was served with the summons under RFN:MA240923099869Z dated 21.9.2023 under the provisions of section 70(1) of the CGST/CGST, 2017 and was required to produce copies of the documents of the sublease of GIDC plot done during the period from 1.4.2020 to 31.3.2021 and the amount received in lieu of the said sublease and GST paid for such transaction.
5.6 The petitioner was served with the show cause notice in FORM DRC-01 under Reference No.ZD241124067412S dated 26.11.2024 by respondent No.4 demanding ₹ 2,46,53,700/- as GST on the transfer of lease hold rights in favour of M/s Janani Incast on the premise that execution of the deed of assignment for the lease of a plot with the third party is considered as service and therefore consideration received under the MOU is considered as taxable value of supply of service and therefore is covered under the Notification No.11/2017 – State Tax (Rate) dated 30.6.2017 as per Entry No.16 Heading No.9972 as Real Estate Services are liable to tax at 9% SGST and 9% CGST.
5.7 The petitioner replied to the said show cause notice dated 24.12.2024 and submitted that no GST was payable. The petitioner also filed submissions vide letter dated 26.2.2025 uploading the same on 26.2.2025 itself and also drew attention towards the decision of this Court in Special Civil Application No.11345 of 2023 bringing it to the notice of the authority that no GST is payable on transfer of rights and thus it was requested to drop the proceedings.
5.8 The petitioner thereafter was served with the order in Form GST DRC-07 under section 73 dated 28.2.2025 and confirmed the proposal as made in the show cause notice dated 26.11.2024. Hence, the present petition.
6. Learned advocate Mr. Dhaval Shah appearing for the petitioner has argued that despite the petitioner having pointed out the decision of this Court, the adjudicating authority has observed that since the Government has decided to challenge the decision rendered in Special Civil Application No.11345 of 2023, passed the impugned order.
6.1 Learned advocate for the petitioner has further submitted that as on date, since there is no stay granted by any competent court against the order passed in Special Civil Application No.11345 of 2023, the adjudicating authority ought to have dropped the proceedings.
7. Learned advocate Mr. Dipak Khemchandani appearing for respondent No.1 and Ld. AGP Ms.Shrunjal Shah appearing for respondent Nos.2 to 4 have supported the impugned order.
8. The issue involved in the present petition remains no more res integra. In the case of Gujarat Chamber of Commerce and Industries and others Vs Union of India, reported in 2025 (94) GSTL 113 (Guj), it is held that GST would not be leviable on the assignment of lease hold rights of plot or the land allotted on lease by the industrial concern and building constructed thereon by the lessee or its successor (assignor) to a third party (assignee) on payment of lumpsum because such an assignment by sale and transfer of leasehold rights of plot for a consideration would be assignment/sale/transfer of benefits arising out of immovable property by lessee – assignor in favour of third party – assignee who would become lessee of GIDC in place of original allottee – lessee and such assignment would not be covered under scope of supply. The same view has been taken in the case of Kabir Instrument and Technology Vs Union of India (Special Civil Application No.13526/2024), reported in (2025) 27 Centax 41 (Guj). In the case of Alfa Tools Private Limited Vs Union of India and another (R/Special Civil Application No.12047 of 2024) vide judgment dated 6.3.2025, the same view has been taken.
9. As far as the finding of the respondent authority with regard to challenge of the order passed in Special Civil Application No.11345 of 2024 before the higher forum is concerned, it is required to be noted that there is no positive order of stay placed on record and considering the judgment of this Court in Special Civil Application No.11345 of 2024, this Court is bound to decide the same in accordance with law. Hence, the said contention of the respondent department that the order is passed because the aforesaid order would be challenged does not hold good.
10. In the present case also, if the copy of the assignment deed dated 24.2.2021 at Annexure E at pages 81 to 85 is perused, it would be evident that what has been transpired is merely leasehold rights which were originally in favour of the petitioner now being transferred to M/s Janani Incast and nothing more. In view of the aforesaid facts and circumstances of the present case, in our considered view the case of the petitioner is squarely covered by the decision of this court, in the case of Gujarat Chamber of Commerce and Industry (Supra).
11. Resultantly, the present petition succeeds and the same is allowed. The impugned order being ex-facie illegal and without jurisdiction is hereby quashed and set aside. Rule is made absolute to the said extent with no order as to cost.
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