GST Not Payable On Transfer Of Leasehold Rights: Gujarat High Court Directs Refund

The Gujarat High Court, recently relying on its earlier ruling, reiterated that transferring or assigning leasehold rights in land is equivalent to the sale of land and therefore does not constitute a taxable 'supply' under the GST framework

A Bench of Justice A. S. Supehia and Justice Pranav Trivedi was hearing a petition filed by Aquaeva Chemtech Private Limited, which had challenged the withholding of its GST refund relating to the transfer of leasehold rights in an industrial plot.

The court directed that the refund be released within two weeks and cautioned that the failure to process the refunds within the stipulated time, would result in “exemplary costs of Rs.25,000/-”.

The case arose from the transfer of leasehold rights in an industrial plot originally allotted by the Gujarat Industrial Development Corporation (GIDC) to Dayaram Pharma Chem. In 2024, the petitioner, as a third-party assignee, bought the plot from Dayaram Pharma, who had obtained a Final Transfer Order from the GIDC allowing the sale. Subsequently, the petitioner claimed a refund under Section 54 of the CGST Act.

The tax authority issued two Deficiency Memos dated 10 March 2025 and 19 May 2025, which effectively stalled the refund process on the ground that supporting documents submitted by the petitioner were not legible. It also noted that there was no specific notification or circular from the GST Council regarding refunds for GST paid on lease transactions, prompting the present appeal.

The Court rebuked the tax authorities, observing that the deficiency memos had been issued “without applying the mind to the law enunciated by this Court” in the binding precedent of Gujarat Chamber of Commerce & Industry v. Union of India.

It clarified that the assignment of leasehold rights for consideration, such as the plot sold to the petitioner, is an assignment of benefits arising out of immovable property. Therefore, the levy of GST under Section 9 does not apply to it.

Although the Department initially denied the refund, it eventually submitted a communication assuring that Court that as soon as the petitioner files a new refund application, it will be considered and the refund paid.

The Court noted the Department's communication and accordingly disposed of the case, directing the refund in two weeks. To streamline the refund process, it permitted the petitioner to revive the petition by filing a simple note before the registry.

For Appellant: Advocates Paresh V Sheth

For Respondent: AGP Tanushree Shrimali