In a significant development, the Supreme Court has dismissed the Revenue’s Special Leave Petition (SLP) challenging a Bombay High Court (Nagpur Bench) ruling in the case of Aerocom Cushions Private Limited v. Assistant Commissioner. The High Court had previously held that the assignment of leasehold rights in an industrial plot allotted by the Maharashtra Industrial Development Corporation (MIDC) does not constitute a “supply of services” under Section 7 of the CGST Act, and therefore is not subject to GST.
Background of the Case
The petitioner held a 95-year lease for an industrial plot from MIDC. With MIDC’s prior consent and upon payment of an additional premium, the petitioner assigned its leasehold rights, along with a factory building constructed on the plot, to a third-party assignee for consideration. The Revenue authorities, however, treated this transaction as a “supply of services” falling under the residual category of “other miscellaneous services,” demanding GST at 18%.
Key Rulings by the Bombay High Court
The High Court rejected the Revenue’s classification on multiple grounds:
Residual entry cannot cover property rights: The Court observed that the residual entry for “other miscellaneous services” typically covers petty services like washing, cleaning, dyeing, and beauty services. It cannot, by any stretch, be extended to the assignment of leasehold rights in immovable property.
Not a lease or sub-lease: The Court clarified that Clause 2(b) of Schedule II of the CGST Act was inapplicable, as the transaction was neither a lease nor a sub-lease. Upon assignment, the petitioner’s own rights stood extinguished.
No nexus with business: The transaction pertained exclusively to the transfer of benefits arising out of immovable property and had no connection with the petitioner’s business. Hence, the essential requirement of a supply being made “in the course or furtherance of business” under Section 7(1)(a) of the CGST Act was entirely absent.
Reliance on Gujarat High Court Precedent
The Bombay High Court also relied on the Gujarat High Court’s judgment in Gujarat Chamber of Commerce and Industry v. Union of India, which dealt with an identical issue concerning GIDC-allotted plots. The Gujarat High Court had concluded that the assignment of leasehold rights in a plot allotted by a statutory corporation to a third party for consideration constitutes an assignment or transfer of benefits arising out of immovable property, falling outside the scope of “supply” under Section 7 of the CGST Act.
Important Caveats Regarding the SC Order
While the Supreme Court’s dismissal of the Revenue’s SLP is a favorable development, it is essential to note:
The dismissal occurred at the preliminary stage, without examining the merits of the issue. Therefore, it does not technically constitute a binding declaration of law.
A separate appeal against the Gujarat High Court’s ruling is still pending before the Supreme Court. Additionally, a batch of writ petitions involving the same issue remains pending before the Principal Bench of the Bombay High Court.
Implications for Taxpayers
Despite these caveats, the Bombay High Court’s decision, read together with the Gujarat High Court ruling, provides strong and reasoned support for taxpayers contesting GST demands on the assignment or transfer of leasehold rights in industrial plots allotted by statutory development corporations such as MIDC, GIDC, and similar bodies.
In Maharashtra and Gujarat: Taxpayers now have a well-founded basis to argue that such transactions do not attract GST.
In other jurisdictions: Taxpayers may rely on these judgments, though they face the attendant risk of litigation pending final adjudication by the Supreme Court.
Businesses currently engaged in, or contemplating, such transactions should revisit their tax positions, contractual documentation, and litigation strategies in light of this evolving jurisprudence.
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