Over the last few years there has been an ongoing controversy regarding applicability of GST in respect of Transfer of Leasehold Rights for property situated at MIDC/GIDC etc.
While the Department has issued show cause notices in a large no. of such transactions; treating such transactions as Supply of Service; liable for GST, the tax payers (most of whom were caught unaware) have argued all along; that these transactions are nothing but transfer of immoveable property not liable for GST.
While the High Courts have already quashed some of such notices or held demand in abeyance, including Honorable Gujarat High Court and Bombay High Court the issue is a burning issue for small and medium size businesses as quantum of GST with Interest and Penalty can be huge.
The Honorable Bombay High Court, Nagpur Bench very recently i.e on 9th January 2026 in the case of Aerocom Cushions Pvt. Ltd. v. Assistant Commissioner (Anti-Evasion), CGST, have categorically held that assignment of leasehold rights does not constitute a “supply of services” under Section 7 read with Schedule II of the CGST Act, and GST cannot be demanded on such transactions.
The Bombay High Court has heavily relied upon the principles laid down in the case of Gujarat Chamber of Commerce and Industry v. Union of India, (2025) 170 taxmann.com 251 (Gujarat), wherein identical issue was involved.
The ratio emanating from the said decision of the Honorable Bombay High Court is:
1. Assignment of leasehold rights is not a lease or sub-lease
- Once leasehold rights are assigned, the assignor’s rights are extinguished.
- Therefore, such transactions cannot be treated as lease, letting, or renting under Schedule II.
2. Assignment of leasehold rights is transfer of immovable property
- Long-term lease (95 years) creates leasehold ownership rights.
- Transfer of such rights amounts to transfer of benefits arising from immovable property, not provision of a service.
3. No “supply” under Section 7(1)(a) without business nexus
- The transaction had no nexus with the petitioner’s business or furtherance of business.
- Hence, an essential ingredient of “supply” under GST law was absent.
4. Misclassification as “other miscellaneous services” is invalid
- Assignment of leasehold rights cannot be artificially classified under “other miscellaneous services” taxable @ 18%.
- Such category is meant for petty/ancillary services, not immovable property transactions.
5. Schedule II cannot expand scope of taxation beyond Section 7
- Schedule II only classifies activities; it does not independently create a taxable supply.
- If a transaction does not fall within Section 7(1), Schedule II cannot be invoked to tax it.
6. Assignment ≠ renting of immovable property
- Renting/letting presupposes retention of ownership and recurring consideration.
- Assignment involves permanent transfer of rights for lump-sum consideration.
7. Reliance on Gujarat High Court judgment upheld
- Assignment of leasehold rights is sale/transfer of immovable property, outside GST.
- GST applies only to:
- Lease premium charged by development authority (often exempt), and
- Transfer fee charged by authority for permission (taxable service by authority).
8. Judgment of another High Court is binding in absence of contrary view
- As per Godavari Devi Saraf, (1978) 113 ITR 589 until a contrary ruling exists, High Court decisions from other States are binding on tax authorities.
Summary of the Decision
- Assignment of leasehold rights in industrial land (with building):
- Not a supply of services
- Not taxable under GST
- Section 74 show cause notice invalid
While these decisions of High Courts are binding on the Department in the respective states and other states (unless a contrary judgement is delivered by the jurisdictional High Court), the matter is expected to remain a burning issue till the same is set at rest by the Honorable Supreme Court.
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