GST UPDATE

Hon’ble Court: HIGH COURT OF GUJARAT AT AHMEDABAD
Case Title: M/S.KOR CHEMS VS ASSISTANT COMMISSIONER
Petition No. & Citation: SPECIAL CIVIL APPLICATION NO. 6623 of 2026

Hon’ble Judge(s)	JUSTICE A.S. SUPEHIA & JUSTICE VAIBHAVI D. NANAVATI
Date of Order	03/09/2026
Outcome	Petition Allowed

Brief Facts of the Case

M/s Kor Chems, the petitioner, acquired leasehold rights in an industrial plot.The supplier issued tax invoice and charged GST on the transaction. The petitioner, under a bona fide belief that the GST paid on acquisition of the leasehold rights was eligible for input tax credit, availed ITC in its GSTR-3B and duly reflected the credit in the books of account and GST returns. Later, an inspection under Section 67(1) of the CGST Act was conducted. During the inspection, the statement of the partners were recorded wherein they admitted that ITC had been availed on the GST paid towards leasehold rights and was duly reflected in the books and GST returns and stated that the credit had been availed under a bona fide belief after discussion and consultation with the Chartered Accountant. The petitioner voluntarily reversed the entire ITC along with the interest through DRC-03 in order to avoid further litigation. Subsequently, the Department issued DRC-01A alleging that the ITC constituted blocked credit under Section 17(5)(d) calling upon the petitioner to make payment of penalty. The petitioner replied that all requisite information and documents had been furnished during the investigation and that there was no wilful misstatement, suppression of facts or fraudulent intent to evade tax. The petitioner accordingly contended that no penalty was leviable. The petitioner filed a detailed reply but the same was not contended and the demand was confirmed in the Order-in-Original and later upheld by the Order in Appeal. The petitioner thereafter approached the Gujarat High Court

Relevant Section

Section 17(5)(d) of the CGST Act.

Question before Hon’ble Court / Authority

Whether ITC availed on GST charged in respect of assignment/acquisition of leasehold rights in a GIDC industrial plot could be treated as blocked ITC under Section 17(5)(d) of the CGST Act.

Whether Section 74(1) could be invoked on the allegation of fraud, wilful misstatement or suppression of facts.

Brief Arguments by Petitioner

ITC availed under bona fide belief and all transactions duly disclosed

The petitioner contended that the ITC was availed under a bona fide belief regarding its admissibility and all the transactions were duly disclosed in Form GSTR-3B and duly reflected in Form GSTR-2A. The petitioner, being a bona fide recipient, had paid the GST amount to the supplier as part of the contractual consideration and availed the corresponding ITC on the basis of a valid tax invoice. Therefore, there was neither any fraud nor suppression of facts nor any wilful misstatement in availing the credit. Reliance was placed on Uniworth International Limited v. Commissioner of Central Excise, Nagpur.

Voluntary reversal of ITC and payment of interest under Protest

The petitioner submitted that, during the departmental proceedings, the entire ITC was voluntarily reversed through Form DRC-03 under protest along with the interest prior to issuance of the Show Cause Notice. Such reversal and payment were made to demonstrate bona fide compliance and to avoid further litigation.

Section 17(5)(d) not applicable in absence of construction activity

The petitioner contended that Section 17(5)(d) of the CGST Act restricts ITC only where goods or services are received for the purpose of construction of an immovable property. The bar on credit applies to construction-related expenditure. In the present case, the petitioner had not undertaken any construction activity and had merely acquired leasehold rights in the GIDC plot as it was. Therefore, in the absence of any construction of immovable property, invocation of Section 17(5)(d) was erroneous. Reliance was placed on the decision of the Gujarat High Court in Special Civil Application No. 18068 of 2025, dated 10.02.2026.

Assignment of leasehold rights not subject to GST

The petitioner submitted that the core issue related to ITC availed on acquisition of leasehold rights in the GIDC plot. It was contended that, as held by the Gujarat High Court in Gujarat Chamber of Commerce and Industry & Ors., Section 7(1)(a) of the CGST Act read with clause 5(b) of Schedule II and clause 5 of Schedule III would not apply to assignment of leasehold rights of land and building, and such transaction would not be subject to levy of GST under Section 9 of the CGST Act.

GST was charged by the supplier under a mistaken interpretation of law

It was submitted that the supplier had charged GST on the consideration under a mistaken interpretation of law, treating the assignment of leasehold rights as a taxable transaction. The petitioner, being a bona fide recipient, paid the GST amount to the supplier as part of the contractual consideration and availed the corresponding ITC, since the tax was charged through a valid tax invoice and duly reflected in Form GSTR-2A.

Tax paid without authority of law as the transaction was not taxable

The petitioner further submitted that once it was judicially held that assignment/transfer of leasehold rights in allotted land by GIDC was not liable to GST, the GST charged by the supplier and paid by the petitioner was tax paid without authority of law. When the charging provision itself did not apply, any amount collected or retained by the department, whether directly as tax or indirectly by way of ITC reversal and interest, had no legal sanctity.

Brief Arguments by Respondent

The respondents submitted that the ITC availed on leasehold rights was blocked credit under Section 17(5)(d), and therefore liable to be recovered along with interest and penalty under Section 74(1). The respondents alleged that the petitioner had suppressed material facts with intent to evade payment of tax.
However, the respondents could not controvert that the issue was covered by Gujarat Chamber of Commerce and Industry & Ors. and Special Civil Application No. 18068 of 2025.

Cases Relied Upon

Case Law	Citation
Gujarat Chamber of Commerce and Industry & Ors.	2025 (94) G.S.T.L. 113 (Guj.) / (2025) 26 Centax 150 (Guj.)

Findings and Judgement

Assignment of Leasehold Rights

The Court held that assignment of leasehold rights in the GIDC industrial plot amounts to transfer of benefits arising from immovable property. Relying on its earlier decision in Gujarat Chamber of Commerce and Industry & Ors., the Court held that such transaction does not qualify as a “supply” under Section 7 of the CGST Act and is consequently not leviable to GST under Section 9.

Section 17(5)(d) Not Applicable

The Court held that Section 17(5)(d) presupposes a taxable inward supply on which GST is lawfully leviable and paid. Since the assignment of leasehold rights itself was not taxable, the question of treating the GST as “blocked credit” under Section 17(5)(d) did not arise.

No Construction Activity by the Petitioner

Relying upon its earlier decision in SCA No.18068 of 2025, the Court observed that Section 17(5)(d) concerns expenditure relating to construction of an immovable property. As the Department had not established that the petitioner had undertaken any construction activity, the provision was held to be inapplicable.

Section 74 Proceedings Unsustainable

The Court found no fraud, wilful misstatement or suppression of facts on the part of the petitioner. The ITC had been duly disclosed in the books and GST returns, and the petitioner had voluntarily reversed the credit. Therefore, the statutory prerequisites for invoking Section 74(1) were absent.
Accordingly, the Court directed the respondents to refund the amount towards ITC and interest as it was held that the amount paid was without the authority of law and therefore the same could not be legally retained by the DepartmenTop of Form

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GST update /2026-27/0089

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Cases Relied Upon

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