No GST on Assignment of GIDC Leasehold Rights: Gujarat High Court Clarifies

ByJigar Shah

Brief analysis of the Gujarat High Court judgment dated 6 March 2025, in the case of Alfa Tools Private Limited vs. Union of India, [2025] 172 taxmann.com 587 (Gujarat):

Background:

Alfa Tools Pvt. Ltd., a manufacturer of cutting tools, was allotted an industrial plot by the Gujarat Industrial Development Corporation (GIDC) under a 99-year lease deed dated 27.09.1978. After holding this land for nearly 39 years, the company assigned its leasehold rights to Beta Poly Plast Pvt. Ltd. via a Deed of Assignment dated 28.03.2018, for ₹75 lakh. GIDC confirmed the transfer on 30.03.2018.

Subsequently, Alfa Tools applied for cancellation of its GST registration, which was formally accepted on 18.01.2021. However, more than three years later, the petitioner received a letter dated 27.06.2024 from the tax authorities demanding GST on the consideration received from the transfer of leasehold rights. A show cause notice (SCN) dated 11.07.2024 followed, prompting this writ petition under Article 226 of the Constitution of India.

Key Issues:

  1. Whether the transfer of leasehold rights in immovable property for consideration constitutes a “supply” under Section 7(1)(a) of the CGST Act.
  2. Whether such a transaction attracts GST under Section 9 of the CGST Act.
  3. Whether the SCN issued in July 2024 is barred by limitation under Section 73(10) of the CGST Act.

Petitioner’s Arguments (Alfa Tools Pvt. Ltd.):

  • The transfer of leasehold rights does not constitute a “supply” under Section 7 of the CGST Act and is excluded from the GST net.
  • Relied heavily on the precedent set by the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India, which held that assignment of leasehold rights in GIDC land amounts to a transfer of benefits in immovable property, not subject to GST.
  • Argued that Section 73(10) provides a 3-year limitation for issuance of show cause notices. Since the transaction occurred in March 2018 and GST registration was cancelled in January 2021, the July 2024 notice was clearly time-barred.
  • Also contended that Section 74, which allows a longer limitation if fraud or suppression is involved, was not applicable, as there were no allegations of fraud.

Court’s Observations:

  • Upon examining the Deed of Assignment, the Court found that the transaction involved a complete transfer of leasehold interest in the property, along with all related rights and liabilities.
  • Referring to the Gujarat Chamber of Commerce case, the Court reiterated that such a transfer is akin to a transfer of immovable property, and thus, outside the purview of GST, especially not covered by Section 7(1)(a), Schedule II clause 5(b), or Schedule III clause 5 of the CGST Act.
  • The SCN issued was beyond the 3-year limitation under Section 73, and the Court found no fraud or misstatement to invoke Section 74 either.

Conclusion:

The Gujarat High Court held that:

  • The assignment of leasehold rights of GIDC-allotted land in favour of a third-party does not qualify as a taxable “supply” under the CGST Act.
  • The impugned SCN was time-barred under Section 73.
  • There was no basis in law or fact to sustain the SCN issued by the GST department.

Accordingly, the show cause notice dated 11.07.2024 was quashed, and the petition was allowed in favour of Alfa Tools Pvt. Ltd.

Legal Significance:

This judgment reaffirms that long-term lease assignments of industrial plots allotted by GIDC are essentially transfers of immovable property rights, and not subject to GST. It reinforces the principle of interpreting “supply” narrowly when dealing with immovable property, and strictly applying limitation periods under tax law.

Limitation: The purpose of this article is for knowledge sharing purpose. Views expressed in this note are personal views of the author. The same should not be construed as professional advise.

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