Bombay High Court Stays Multiple GST Notices On Leasehold Transfers Until Supreme Court Ruling

The Bombay High Court on 25 February granted interim protection to taxpayers facing GST proceedings on the assignment of leasehold rights, directing that recovery actions and adjudication of show cause notices be stayed until the Supreme Court of India decides the issue.

A Division Bench of Justices G.S. Kulkarni and Aarti Sathe was hearing multiple writ petitions filed by companies challenging GST demands on the transfer or assignment of leasehold rights in industrial plots and buildings, which the revenue authorities had treated as “supply” under Section 7(1)(a) read with Schedule II(2) of the CGST Act.

The Judges observed:

“One of the issues arising in these special petitions is whether the assignment of leasehold rights constitutes 'transfer of land' or amounts to 'supply of service' so as to make it liable for payment of GST.”

The petitioners contended that the issue had already been addressed by the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India, which held that the assignment of leasehold rights in land along with the buildings constructed thereon does not constitute “supply” and therefore cannot be subjected to GST.

Despite this ruling, the Department continued issuing show cause notices and passing orders demanding GST, prompting the petitioners to approach the Bombay High Court.

Noting that the matter is currently pending before the Supreme Court, the High Court held that the petitioners are entitled to interim protection. It observed that the question whether such assignments amount to a “transfer of land” or a “supply of service” for GST purposes is under consideration in connected proceedings, and it would be appropriate to await the final outcome.

Accordingly, the Court stayed all recovery actions and the adjudication of pending show cause notices relating to GST demands on the assignment of leasehold rights until the Supreme Court provides a final determination.