Assignment Of Leasehold Rights Is Transfer of Immovable Property, Not Taxable as GST Supply: Bombay High Court

The Bombay High Court at Nagpur, recently following a Gujarat High Court ruling, has held that assignment of leasehold rights in an industrial plot amounts to transfer of benefits arising out of immovable property and does not constitute “supply of services” under the GST law, and therefore GST cannot be levied on such transactions.

A division bench of Justices Anil L. Pansare and Nivedita P. Mehta passed the ruling while allowing a writ petition filed by Vidarbha Beverages and its partners challenging a show cause notice issued under Section 74(1) of the CGST Act, 2017 demanding GST of Rs 59.40 lakh along with interest of Rs 40.98 lakh on the alleged non-payment of GST on the transfer of leasehold rights.

Relying on the Gujarat High Court's decision in Gujarat Chamber of Commerce and Industry v. Union of India, the bench observed that assignment of leasehold rights constitutes transfer of benefits arising out of immovable property and therefore falls outside the scope of “supply” under the GST regime.

The Court observed, "We subscribe to the finding of Gujarat High Court that the assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC to the lessee in favour of third partyassignee for a consideration shall be assignment/sale/transfer of benefits arising out of immovable property by the lessee-assignor in favour of third party and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act."

Vidarbha Beverages held a plot of land on a long-term lease of 95 years from the Maharashtra Industrial Development Corporation (MIDC). With MIDC's consent and after paying an additional premium, the firm assigned its leasehold rights in the plot to a third party for Rs 3.30 crore.

The GST department issued a show cause notice dated June 18, 2025, alleging that the transaction amounted to “supply of services” under Section 7 of the CGST Act read with Schedule II, and therefore GST was payable.

The bench noted that the transaction was not a lease or sub-lease but an assignment of leasehold rights, which resulted in extinguishment of the firm's rights and transfer of benefits arising from immovable property.

It further observed that such a transaction cannot be classified as “other miscellaneous services” taxable under GST notifications, as suggested by the department.

The court held that the transaction pertained exclusively to transfer of benefits arising out of immovable property and had no nexus whatsoever with the business of Vidarbha Beverages, meaning the essential element of “supply in the course or furtherance of business” under Section 7 of the CGST Act was absent.

The bench also observed that until a contrary decision is rendered by another competent High Court, authorities are required to follow the law declared by a High Court.

The High Court therefore allowed the writ petition and quashed the show cause notice dated June 18, 2025 and the adjudication order dated December 30, 2025 issued by the GST authorities.

For Petitioners: Advocates Shantanu Khedkar with Surendra Chichbankar

For Respondents: Advocate C. J. Dhumane for the UOI, AGP for the State/respondent nos. 2 and 3