The Nagpur Bench of the Bombay High Court in Aerocom Cushions Private Limited v. Assistant Commissioner (Anti Evasion), CGST & CX, Nagpur on 9 January 2026) has held that assignment of long term leasehold rights in an industrial plot does not constitute a taxable supply under the CGST Act, 2017.
The petitioner was allotted an industrial plot by MIDC under a 95 year lease. With prior consent of MIDC and upon payment of prescribed transfer premium, the petitioner assigned its leasehold rights along with the factory building standing thereon to a third party for consideration. A show cause notice under section 74 of the CGST Act was issued alleging suppression and proposing to levy GST on the transaction.
According to the department, the assignment of leasehold rights amounted to a supply of services classifiable under “other miscellaneous services” and was taxable at 18 percent under Sr. No. 35 of Notification No. 11/2017 CT (Rate) dated 28 June 2017. The Court examined the relevant entries under the notification and noted that the heading “other services” at Sr. No. 1 covers activities such as washing, cleaning, dyeing services, beauty and physical well being services, and similar miscellaneous services.
The Court categorically rejected the attempt to stretch such entries to cover assignment of leasehold rights in immovable property. It observed that services of the nature contemplated under the notification are petty and routine service activities, and cannot by any interpretative exercise be extended to transactions involving transfer of valuable rights in immovable property. Classification of assignment of leasehold rights as “other miscellaneous services” was held to be wholly misconceived and legally unsustainable.
On merits, the Court further held that the transaction was neither a lease nor a sub lease. The petitioner’s rights stood extinguished upon assignment, with the assignee stepping into the shoes of the lessee. The transaction was therefore a transfer of benefits arising out of immovable property and not a supply of services under section 7 read with Schedule II of the CGST Act. The essential requirement that the activity be in the course or furtherance of business was also found to be absent.
The Court placed reliance on the judgment of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India (2025) 170 taxmann.com 251 and expressly adopted its reasoning. It reiterated that assignment or sale of leasehold rights granted by industrial development corporations amounts to transfer of immovable property and falls outside the scope of GST.
Reaffirming the principle in CIT v. Godavari Devi Saraf, the Court held that in the absence of a contrary view by the jurisdictional High Court, the law declared by another High Court is binding on departmental authorities. The show cause notice was accordingly quashed in its entirety.
The ruling has wide ramifications for industrial land transactions and decisively curtails the recurring tendency of tax authorities to invoke residuary or miscellaneous service entries to bring transfers of immovable property within the GST net.
The matter was argued by Advocate Vinay Shraff assisted by Ms. Darshana Bhaiya for the petitioner.
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