Leasehold Rights & GST: Diverging Views, Legal Battles and Need for Clarity

The Goods and Services Tax (GST) regime, since its inception, has introduced a uniform taxation framework across India. Yet, certain grey areas persist—one such debate surrounds the taxability of leasehold rights in land. Recent judicial pronouncements from different High Courts and Advance Ruling Authorities have sparked intense discussions on whether the transfer or assignment of leasehold rights attracts GST.

The Legal Crossroads: Supply vs. Immovable Property

At the heart of the debate lies a fundamental question: Does transferring leasehold rights amount to a ‘supply of service’ under GST, or is it merely a transfer of interest in immovable property, which should fall outside the ambit of GST?

Gujarat High Court’s Landmark Ruling

In a significant judgment delivered in Gujarat Chamber of Commerce and Industry & Ors. v. Union of India, the Gujarat High Court took a progressive stance. The court clarified that the transfer or assignment of leasehold rights in land constitutes a transfer of immovable property and is therefore not liable to GST under Schedule III of the CGST Act, 2017.

The court emphasized that leasehold rights are inseparable from land ownership interests and do not amount to a supply of goods or services. This ruling came as a relief to many businesses engaged in long-term leasing of industrial plots—especially those in manufacturing and logistics sectors—where land leasing is common.

Bombay High Court’s Directive for Reconsideration

Shortly after, the Bombay High Court, in the case of Panacea Biotec Ltd. v. Union of India, echoed similar sentiments. The petitioner had challenged a Show Cause Notice and corresponding GST demand order regarding leasehold rights.

Noting procedural lapses and failure to consider the Gujarat High Court’s reasoning, the Bombay High Court set aside the GST demand and remanded the case back for reconsideration. The court emphasized the importance of consistent legal interpretation and due consideration of existing judicial precedents.

The Other Side: Diverging Views from Advance Ruling Authorities

Despite the High Court rulings, there remains a stark contrast in interpretations from other authorities:

• The Uttar Pradesh Authority for Advance Rulings (AAR) held that the transfer of leasehold rights against a lump sum premium qualifies as a service and attracts 18% GST.
• The Jharkhand AAR echoed a similar sentiment, treating such transfers as taxable under leasing services.

These rulings reflect a more conservative interpretation of the GST law, treating the transaction as an actionable claim or service provision, liable to tax.

Why This Matters: Practical Impact on Businesses

The implications of these divergent views are far-reaching. Taxability directly affects the cost of doing business, particularly in industrial townships and Special Economic Zones (SEZs), where land is frequently leased for extended durations.

If such lease transfers are brought under GST, lessees may suffer significant tax outflows upfront, thereby distorting the neutrality principle of GST and increasing compliance and litigation burdens.

Conclusion: A Call for Uniformity and Clarification

The current scenario—where High Courts and AARs interpret the same issue differently—has led to uncertainty and confusion among taxpayers. This highlights the urgent need for the GST Council to issue a clear circular or amendment to settle the debate conclusively.

Until then, businesses should proceed with caution, seek professional advice, and stay updated with emerging jurisprudence. A consistent and harmonized approach across jurisdictions is not just a legal necessity—it is a prerequisite for ease of doing business under the GST regime.