Bombay High Court: In a writ petition challenging a show cause notice issued under Section 74(1) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’), the Division Bench of Anil L. Pansare* and Nivedita P. Mehta, JJ., upheld the petitioner’s stand that assignment of leasehold rights in an industrial plot, together with the building constructed thereon, does not amount to supply of services. The Court held that such assignment constitutes transfer of immovable property and therefore lies outside the ambit of Goods and Services Tax (‘GST’). Consequently, the show cause notice demanding tax was quashed.
Background:
The dispute arose from a show cause notice demanding GST of Rs 27,00,000 on the transfer of leasehold rights in an industrial plot. The transaction involved assignment of leasehold rights with the prior consent of the industrial development corporation and payment of an additional premium.
The respondents contended that the assignment amounted to a supply of services under Section 7(1) of the CGST Act, read with Clause 2(b) of Schedule II, and was classifiable as “other miscellaneous services” taxable at 18 per cent. They argued that the compensation received for transfer of rights constituted a taxable service.
The petitioner, however, maintained that the transaction was a transfer of immovable property and not a service, thereby falling outside the scope of GST.
Analysis and Decision:
The Court emphasised that Clause 2(b) of Schedule II covers any lease or letting out of a building for business or commerce as supply of services. In this case, the transaction is assignment of leasehold rights, which is neither a lease nor a sub-lease. The show cause notice itself stated that the petitioner’s rights stood extinguished and recognised the transaction as compensation for transfer of rights to the assignee. The authority classified it under miscellaneous services taxable at 18 per cent under the Notification.
The Court noted that the entry includes other services such as washing, cleaning, dyeing, beauty and physical well-being services, and other miscellaneous services nowhere else classified. It was highlighted that such petty services cannot be extended to assignment of leasehold rights in immovable property, and therefore the notice could be said to be bad in law on this count alone.
The Court observed that the petitioner held a lease for 95 years, which in that sense amounted to leasehold ownership property. It was noted that the rights under the lease were transferable in terms of clause 2(u) of the lease executed with the Corporation, and accordingly the petitioner transferred those rights with prior consent of the Corporation. The Court emphasised that the transaction pertained exclusively to transfer of benefits arising out of an immovable property and had no nexus whatsoever with the business of the petitioner company. Consequently, the essential element of supply of service in the course of business or in furtherance of business was completely absent.
The Court referred to Gujarat Chamber of Commerce & Industry v. Union of India, (2025) 139 GSTR 390 which held that assignment by sale and transfer of leasehold rights of the plot of land allotted by the Corporation to the lessee in favour of a third party-assignee for consideration shall be assignment/sale/transfer of benefits arising out of immovable property, and in such circumstances, would not be subject to levy of GST in terms of the provisions of the GST Act.
The Court further noted that the law laid down by the Gujarat Chamber of Commerce & Industry (supra) is binding on the authorities in terms of the judgment in Commissioner of Income-Tax v. Godavari Devi Saraf, (1978) 113 ITR 589, wherein it was held that until a contrary decision is given by any other competent High Court, it is binding on a Tribunal in the State of Bombay. In that sense, the Court held that the decision in the Gujarat Chamber of Commerce & Industry (supra) is binding on the authorities below.
The Court further subscribed to the finding of the Gujarat Chamber of Commerce & Industry (supra) that assignment by sale and transfer of leasehold rights of the plot of land allotted by the Corporation to the lessee in favour of third party-assignee for consideration shall be assignment/sale/transfer of benefits arising out of immovable property, and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act.
Accordingly, the Court quashed the show cause notice, holding that the assignment of leasehold rights in immovable property is not subject to levy of GST under the CGST Act.
[Aerocom Cushions (P) Ltd. v. Commissioner, 2026 SCC OnLine Bom 134, decided on 09-01-2026]
*Judgment authored by: Justice Anil L. Pansare
Advocates who appeared in this case:
For the Petitioner: Vinay Shraff, Counsel with Darshana Bhaiya
For the Respondent: K.K. Nalamwar