Case Law Details
Assistant Commissioner (Anti Evasion) & Anr. Vs Aerocom Cushions Private Limited (Supreme Court of India)
The dispute concerned a show cause notice issued under Section 74(1) of the Central Goods and Services Tax Act, 2017 demanding GST of Rs. 27 lakh on the transfer of leasehold rights in an MIDC industrial plot. The tax authorities alleged that the transfer of leasehold rights amounted to a “supply of services” under Section 7(1) of the CGST Act read with Clause 2(b) of Schedule II.
The petitioner had assigned its leasehold rights in an MIDC plot to another industrial unit for consideration of Rs. 1.5 crore after obtaining MIDC’s consent and paying additional premium charges. The authorities contended that the assignment constituted a taxable service and classified it under “other miscellaneous services” taxable at 18% under Notification No. 11/2017-CT (Rate).
The Bombay High Court examined Section 7 of the CGST Act and Clause 2(b) of Schedule II, which treats leasing or letting out of buildings for business or commerce as supply of services. The Court observed that the transaction in question was not a lease or sub-lease. The show cause notice itself admitted that the petitioner’s rights stood extinguished after the assignment, meaning it was not a sub-lease arrangement. The Court noted that the transaction was an outright assignment of leasehold rights and not a continuing lease service.
The Court further held that the attempt to classify the transaction as “other miscellaneous services” was legally unsustainable. The notification entry relied upon by the department covered services such as washing, cleaning, dyeing, beauty, physical well-being and similar miscellaneous activities. According to the Court, such services could not be extended to cover assignment of leasehold rights in immovable property.
The High Court then considered whether assignment of leasehold rights itself could amount to supply of services. It observed that the petitioner held a 95-year lease, making it in the nature of leasehold ownership property. The lease deed expressly permitted transfer of rights with MIDC’s consent, and the petitioner had accordingly transferred those rights to the assignee.
The Court held that the transaction essentially constituted transfer of immovable property and transfer of benefits arising from immovable property. It emphasized that the transaction had no nexus with the petitioner’s business activities and therefore lacked the essential requirement of a supply made “in the course or furtherance of business” under Section 7 of the CGST Act.
The Bombay High Court relied extensively on the Gujarat High Court decision in Gujarat Chamber of Commerce and Industry v. Union of India, which dealt with assignment of leasehold rights in GIDC plots. The Gujarat High Court had held that although the original grant of long-term lease by an industrial development corporation could fall within the scope of supply of services, assignment of leasehold rights by the lessee to a third party amounted to transfer of benefits arising from immovable property and therefore did not attract GST.
The Gujarat High Court had also examined provisions of the General Clauses Act, Transfer of Property Act and Registration Act before concluding that assignment of leasehold rights constituted sale or transfer of benefits arising out of immovable property. Consequently, such transactions fell outside the scope of taxable supply under Section 7 of the GST Act and were not liable to GST under Section 9.
Adopting this reasoning, the Bombay High Court held that assignment and transfer of leasehold rights in MIDC plots by a lessee to a third-party assignee amounted to transfer of benefits arising from immovable property and therefore could not be subjected to GST. The Court also observed that, in the absence of any contrary decision, the Gujarat High Court ruling was binding on authorities in Maharashtra in light of the principle laid down in Commissioner of Income-Tax, Vidarbha v. Smt. Godavari Devi Saraf.
Accordingly, the Bombay High Court allowed the writ petition and quashed the show cause notice dated 20 December 2024 issued by the GST authorities.
The matter subsequently reached the Supreme Court through a Special Leave Petition filed by the GST department. The Supreme Court condoned the delay but declined to interfere with the Bombay High Court judgment. The Court dismissed the Special Leave Petition and disposed of all pending applications. As a result, the Bombay High Court ruling holding that GST was not leviable on assignment of MIDC leasehold rights remained undisturbed.
Read Bombay HC order in this case: Bombay HC Quashed GST Demand for Treating Leasehold Assignment as Supply of Service
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. We are not inclined to interfere with the impugned judgment and order of the High Court, hence, the special leave petition is dismissed.
3. Pending application(s), if any, shall stand disposed of.
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