No GST on Assignment of Leasehold Rights: Bombay High Court Provides Clarity

 In a significant ruling that provides relief to taxpayers and clarifies the scope of the Goods and Services Tax (GST) law, the Nagpur Bench of the Bombay High Court has held that the assignment of leasehold rights in immovable property does not constitute a "supply of services" and is therefore not liable to GST.

Background of the Case

The case, Aerocom Cushions Private Limited vs. Union of India, involved a straightforward transaction. Aerocom Cushions, in its regular course of business, assigned its leasehold rights in a plot of land allotted by the Maharashtra Industrial Development Corporation (MIDC) to another party for a consideration of ₹1.5 crore.

The tax department, however, viewed this transaction through a different lens. Contending that the assignment amounted to a "lease or tenancy," it classified it as a 'supply of services' under Schedule II of the CGST Act, 2017. Consequently, the department issued a show-cause notice demanding GST of ₹27 lakh (at 18%) on the transaction value.

The Core Legal Question

The pivotal question before the Hon’ble Court was whether the one-time, permanent transfer of leasehold rights via an assignment deed could be equated with "giving the right to use" land under a lease or license agreement—a transaction explicitly deemed a supply of services under the GST law.

The High Court’s Reasoning and Decision

The Bombay High Court, in its ruling, delivered a clear and decisive judgment in favour of the taxpayer. The Court’s reasoning rested on two fundamental pillars:

1. Absence of Business Nexus: The Court meticulously examined the nature of the transaction. It observed that the assignment involved the transfer of benefits arising from an immovable property and found no nexus between this transfer and the ordinary business operations of Aerocom Cushions. Since the essential precondition of a supply being made "in the course or furtherance of business" was absent, the transaction fell outside the ambit of taxable supply under Section 7 of the CGST Act.

2. Precedent and Principle: The Court drew strength from a similar and recent judgment of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India (2025). The Gujarat HC had already held that an assignment of leasehold rights is effectively a transfer of an interest in immovable property, not a service. Agreeing with this rationale, the Bombay HC reinforced the principle that such an assignment is a sale of property rights, not a provision of a service like leasing.

Based on this analysis, the Court quashed the GST demand and the accompanying show-cause notice, providing definitive relief to the petitioner.

Implications and Key Takeaways

1. Clarity for Taxpayers: This judgment offers much-needed clarity for businesses and individuals involved in the transfer of leasehold rights. It establishes a clear distinction between a one-time assignment (sale of property interest) and a recurring lease/license (service).

2. Strengthens Legal Position: The ruling strengthens the legal position of taxpayers facing similar GST demands on assignment transactions, providing a solid precedent to challenge such notices.

3. A Note of Caution – The Final Word Awaits: While this is a positive development, practitioners advise cautious optimism for two reasons:

   • Jurisdictional Consistency: Similar petitions are pending before the Bombay Bench of the High Court. It remains to be seen if it will adopt the same view as the Nagpur Bench.

   • Supreme Court Appeal: The Department's appeal against the aforementioned Gujarat High Court judgment is currently pending before the Supreme Court of India. Therefore, the matter has not attained finality, and the legal position could evolve based on the Apex Court's decision.

Conclusion

The Bombay High Court's ruling is a welcome interpretation that aligns with the commercial understanding of property transactions. It prevents the undue tax burden of treating a capital asset transfer as a recurring service. For now, taxpayers can rely on this precedent, but all stakeholders must stay vigilant for the final verdict from the Supreme Court, which will ultimately settle this contentious issue under the GST regime.