GST UPDATE

GST cannot be imposed on the assignment of leasehold rights of a plot of land allotted by State Industrial Development Corporation for long term in favour of another person.

Writ Petition No.:1257 of 2026

Court: High Court of Bombay (Nagpur Bench)

Case Title: M/s Hindustan Equipment Craft v/s Assistant Commissioner of State
Tax and State of Maharashtra

Outcome:Writ Petition was allowed and impugned SCN was set aside

Judgement Date: 27.02.2026

BRIEF FACTS OF THE CASE:

M/s Hindustan Equipment Craft (petitioner) constructed factory building on plot of land allotted to it by Maharashtra Industrial Development Corporation (MIDC) and assigned its leasehold rights to another person i.e. M/s Kothari Belting Co. (assignee) against consideration. Consequently, a Show cause notice under Section 75 of CGST Act 2017 was served to the petitioner which purported that GST unpaid to be recovered under Section 73(5) of CGST Act 2017. The allegations purported by the SCN were later confirmed by an order passed by adjudicating authority, from the petitioner, on transfer of leasehold rights. Aggrieved by the impugned order petitioner preferred writ petition before the court.

QUESTION BEFORE HON’BLE COURT:

Whether consideration received for assignment of leasehold rights on industrial plot of land allotted by a state industrial development corporation to third party is leviable to tax under GST or it constitutes immovable property?
Whether judgement given by High Court of a state is binding on the department officials of another state if there is no contradictory judgement?

BRIEF ARGUMENTS BY PETITIONER:
Petitioner submitted following contentions: -

It was argued that the assignment of rights cannot be covered under miscellaneous services like washing, cleaning and dyeing services, beauty and physical well being services. All these are petty services and therefore such miscellaneous services cannot be extended to transfer of leasehold rights.
Furthermore, it was contended that the transfer of leasehold rights was allowed as per the terms of the contract between petitioner and MIDC. Therefore, such transfer was with the permission of MIDC and the transaction on the face of record constitute transfer of immovable property by the petitioner to the assignee. Such transaction has no nexus with the business of the petitioner and therefore, such transaction lacks main element of service in the course or furtherance of business. Therefore, such transaction cannot be subject to GST.
In continuation of above, reliance was placed upon judgment of the Gujarat High Court in the case ofGujarat Chamber of Commerce and Industry Vs. Union of India [(2025) 170 taxmann.com 251 (Gujarat)], wherein it was held that theownership of plot of land allotted by GIDC remains with the GIDC only and there is transfer of rights of possession. Schedule II of the GST act provides for activities or transactions to be treated either as supply of goods or supply of services and that allotment of land will be construed as renting of immovable property and therefore will be covered by clause 5(a) of schedule II of the GST act. Hence, same would be covered under the scope of supply of services as per Section 9 of CGST act. Further, this judgement states that Notification no. 12/2017-Central Tax dated 28.06.2017 was issued in which exemption was granted on one time upfront amount paid in respect of service by granting lease of industrial plots provided by the State Government Industrial Development for more than a period of 30 years. Hence, it was held that even if the granting of a plot of land on lease is covered by clause 5(a) of the Schedule II read with Section 7(1) of CGST Act, one time upfront premium will attract nil rate of tax and such transaction is subject to stamp duty.

Therefore, impugned order should be set aside.

BRIEF ARGUMENTS BY REVENUE DEPARTMENT:

Revenue Department contended that:

Transfer of assignment of rights would amount to supply of services in terms of Section 7(1) read with sub-clause (b) of Clause 2 of Schedule II of CGST Act, 2017.
Furthermore, it was contended that assignment of leasehold rights in favour of another person i.e. assignee does not amount to lease or sub lease, because in such case the rights of the petitioner gets extinguished. Hence, consideration for such transaction amounts to compensation for transferring of rights in favour of the assignee. Hence, tax should be levied on such transaction @18% under GST.
The assignment of leasehold rights is covered under Miscellaneous services and therefore taxable under Notification No. 11/2017 [CT] (rate) dated 28.06.2017.

FINDINGS & JUDGEMENT:

Following are the findings of the Court in the instant case:

It was held that transfer/assignment of the leasehold rights is nothing but a sale/transfer of benefits arising out of immovable property i.e. plot of land which cannot be considered as supply of services because sale, transfer and exchange of benefit arising out of immovable property is nothing but sale, transfer and exchange of the immovable property itself and therefore, such transactions would not be subject to levy of tax under the provisions of GST act.
Further reliance was placed on the judgement given in Commissioner of Income-tax, Vidarbha and Marathwada, Nagpur Vs. Smt. Godavaridevi Saraf Tumsar [1978 (2) ELTJ 624 Bombay], in which,it was held that, the decision of Gujarat HC is binding on the department officials wherein it was held that until a contrary decision is given by any other competent High court, which is binding on the department-. Therefore, department is required to follow the law declared by the judgement even though the judgement is provided by HC of another state. Hence, the decision of Gujarat HC is binding on the instant case also and therefore, assigning of leasehold rights in favour of third party, the transaction would not be subject to levy of GST in terms of the GST act.

Thus, it was held that the writ petition by the petitioner is allowed and impugned order stands to be brushed aside.

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GST update /2026-27/0026

GST UPDATE

BRIEF FACTS OF THE CASE:

QUESTION BEFORE HON’BLE COURT:

BRIEF ARGUMENTS BY REVENUE DEPARTMENT:

FINDINGS & JUDGEMENT:

Opinion

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