Bombay High Court rules GST not leviable on assignment of leasehold rights

 This Tax Alert summarizes a recent ruling of the Bombay High Court (HC)¹ on applicability of Goods and Services Tax (GST) on assignment of leasehold rights in an industrial plot.

The petitioner, who had acquired industrial plot for a 95-year lease period, assigned its leasehold rights to a third party for a consideration, with prior consent of the lessor. Revenue issued a show cause notice demanding GST on the transaction, treating it as a supply of services under Section 7(1) read with Schedule II of the Central Goods and Services Tax Act, 2017 (CGST Act). Aggrieved, the petitioner filed a writ petition before the Nagpur Bench of the HC.

The key observations of the HC are:

• As per clause 2(b) of Schedule II to the CGST Act, any lease or letting out of the building for business or commerce, either wholly or partly, is a supply of services. However, the transaction in the present case is an assignment of leasehold rights, not a lease or sub-lease.
• The essential element of “supply” under Section 7(1) — that it must be in the course or furtherance of business — was absent, as the transaction pertained to transfer of benefits arising out of an immovable property and had no nexus with the petitioner’s business.
• Gujarat HC in the case of Gujarat Chamber of Commerce and Industry² had held that assignment of leasehold rights constitutes transfer of benefits arising out of immovable property and is outside the scope of “supply” under GST.
• Court is aligned with the decision of Gujarat HC and the said decision is binding on authorities below, until a contrary view is taken by another competent HC³.

Basis above, HC allowed the writ petition and consequently, show cause notice issued by Revenue was quashed and set aside.

Comments:

• This ruling reaffirms the Gujarat High Court’s decision and is expected to benefit the industry, given that the matter is an industry-wide concern.
• Businesses may review past and ongoing transactions basis this ruling to assess GST implications and evaluate seeking refunds where tax was already paid.
• It is to be noted that Revenue has filed a special leave petition before the Supreme Court challenging the decision of Gujarat HC [SLP (C) (D) No. 52380/2025].