Important GST Judgment on Transfer of Leasehold Rights

14Jan 2026 by admin

Important GST Judgment on Transfer of Leasehold Rights

Bombay High Court Rules No GST Applicable on Assignment of Leasehold Rights in MIDC Land.

1. Executive Summary

In a significant relief to industries operating on leasehold plots (such as MIDC/GIDC), the Hon’ble Bombay High Court (Nagpur Bench) has ruled that the assignment or transfer of leasehold rights in a plot of land to a third party does not attract GST. The Court quashed a demand of Rs. 27 Lakhs raised against the assessee, holding that such a transaction amounts to the transfer of immovable property benefits and not a supply of service.

2. Case Details

  • Case Name: Aerocom Cushions Private Limited Vs Assistant Commissioner (Anti-Evasion).
  • Court: Bombay High Court.
  • Date of Order: January 9, 2026.

3. Facts of the Case

  • The petitioner (Aerocom Cushions) held a 95-year lease for a plot from the Maharashtra Industrial Development Corporation (MIDC).
  • The petitioner assigned their leasehold rights in the plot to a third party (M/s. Rishita Industries) for a consideration of Rs. 1.5 Crores, with the prior consent of MIDC.
  • The GST Department issued a Show Cause Notice (SCN) demanding GST at 18% under the category of “Other Miscellaneous Services,” claiming this assignment was a “supply of service.

4. Key Rulings & Observations

The High Court set aside the department’s notice based on the following legal principles:

  • Transfer of Immovable Property: The Court observed that the transaction constitutes a transfer of benefits arising out of immovable property. Since the transfer of immovable property is outside the ambit of GST, it cannot be taxed as a service.
  • Not a “Service” in Course of Business: The Court noted that the transfer of these benefits had no nexus with the assessee’s regular business. Consequently, the essential element of “supply of service in the course or furtherance of business” was completely absent.
  • Incorrect Classification: The Department attempted to classify this under “Other miscellaneous services” (like washing, cleaning, beauty services). The Court ruled that such an entry cannot be extended to cover the assignment of leasehold rights in immovable property.
  • Reliance on Precedent: The Court relied on the Gujarat Chamber of Commerce and Industry (GCCI) judgment by the Gujarat High Court, which held that assignment of leasehold rights is a sale of benefits arising out of immovable property and is not subject to GST. The Bombay High Court affirmed that this view is binding on authorities in Maharashtra in the absence of a contrary decision.

5. Impact on Your Business

  • No GST on Land Transfer: If your unit is located in an industrial estate (like MIDC) and you intend to sell/assign your leasehold rights to a buyer, this judgment clarifies that GST is not applicable on the assignment consideration received.
  • Distinction from Renting: This must be distinguished from “renting” or “leasing” of immovable property, which remains a taxable service. This ruling specifically applies to the assignment (permanent transfer) of leasehold rights.