Assignment Of Leasehold Rights For Consideration Not Taxable Under GST: Bombay High Court

The High Court was considering a petition challenging a notice issued by the Assistant Commissioner (Anti-Evasion) calling upon the petitioner to show cause as to why goods and services tax amounting to Rs 27,00,000 should not be demanded and recovered from the petitioner under sub-section (1) of Section 74 of the Central Goods and Services Tax Act, 2017 towards the non payment of GST on transfer of leasehold rights.

Referring to the judgment of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India (2025), the Division Bench of Justice Nivedita P. Mehta and Justice Anil L. Pansare held, “Thus, the Gujarat High Court held that assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/transfer of benefits arising out of “immovable property” by the lessee-assignor in favour of third party, assignee who would become lessee of GIDC in place of original allottee-lessee and in such circumstances, would not be subject to levy of GST in terms of provisions of the GST Act. We subscribe to this view for the reasons quoted is earlier part of our judgment so also because the view, in our considered opinion, is in consonance with the provisions of law on supply of services.”

Advocate Vinay Shraff represented the Petitioner, while Advocate K.K. Nalamwar represented the Respondents.

Factual Background

The notice was issued under Section 74(1) on the ground that the petitioner had concealed a transaction where he had assigned his leasehold rights in the plot belonging to MIDC to the Proprietor of M/s. Rishita Industries for Rs.1,50,00,000. The leasehold rights were assigned with the consent of MIDC Hingna, Nagpur, and the petitioner paid an amount of Rs 3,95,640 by way of additional premium. According to the respondents, this transfer of assignment of rights amounted to the supply of services in terms of Section 7(1) read with sub-clause (b) of Clause 2 of Schedule II.

Reasoning

On a perusal of the provisions of the Act, the Bench explained that sub-clause(b) of clause 2 of Schedule II indicates that any lease or letting out of the building, including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. The Bench noted that the transaction under question was the assignment of leasehold rights by the petitioner in favour of assignee-M/s. Rishita Industries, which was not a lease or sub-lease. It was further noticed that in the show cause notice issued by the first respondent, it was mentioned that the transaction under question did not amount to sub-lease as the petitioner’s right stood extinguished by the said transaction.

Considering the entry at Sr.No.1, which includes other services like washing, cleaning, dyeing, beauty, physical well-being, etc, the Bench stated, “Such petty services, in our view, cannot be extended to assignment of leasehold rights in an immovable property, to term it to be other miscellaneous services as classified under clause at Sr. No.35 of the Notification.”

The Bench thus held the notice to be bad in law. It was further noted by the Bench that the petitioner held a lease for 95 years, which was a long-term lease and a leasehold ownership property. As per the Bench, the rights under the lease were transferable in terms of clause 2(u) of the lease executed between MIDC and the petitioner. In light of the fact that the transaction pertained exclusively to the transfer of benefits arising out of an immovable property and had no nexus whatsoever with the business of the petitioner company, the Bench held that the essential element of supply of service in the course of business or in furtherance of business was completely absent.

The Bench concurred with the view that assignment by sale and transfer of leasehold rights of the plot of land to the lessee in favour of a third-party assignee would not be subject to the levy of GST.

Thus, allowing the petition, the Bench quashed the show-cause notice.

Cause Title: Aerocom Cushions Private Limited v. Assistant Commissioner (Anti-Evasion) (Neutral Citation: 2026:BHC-NAG:348-DB)

Appearance

Petitioner: Advocates Vinay Shraff, Darshana Bhaiya

Respondent: Advocate K.K. Nalamwar

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