Leasehold Rights Transfer Not Taxable Under GST | HC

Case Details: Life Sciences Chemicals vs. Union of India - [2025] 175 taxmann.com 540 (Gujarat)

Judiciary and Counsel Details

• Bhargav D. Karia & D.N. Ray, JJ.
• Hardik V. Vora for the Petitioner.
• Ankit Shah for the Respondent.

Facts of the Case

The petitioner, a sole proprietorship concern, was assigned leasehold rights in a plot situated in an Industrial Estate, which had originally been allotted to an erstwhile partnership firm. Upon transfer of the leasehold rights, the jurisdictional officer under CGST issued a notice demanding GST on the ground that the transaction constituted a taxable supply. The petitioner submitted that the transfer of leasehold rights was, in substance, a transaction tantamount to a ‘sale of land’, which is excluded from the scope of ‘supply’ under Entry 5 of Schedule III to the CGST Act, 2017.

It was further contended that such a transaction does not fall within Section 7(1)(a) of the CGST Act, 2017 and is thus not exigible to tax under Section 9. Notwithstanding these contentions, an order was passed demanding tax and penalty under Section 74 of the CGST Act, 2017 read with the Gujarat Goods and Services Tax Act, 2017. The matter was accordingly placed before the Gujarat High Court.

High Court Held

The Gujarat High Court held that the assignment of leasehold rights in land is a transaction equivalent to a ‘sale of land’ and is expressly covered by Entry 5 of Schedule III to the CGST Act, 2017, which excludes such transactions from the ambit of supply. Referring to Gujarat Chamber of Commerce and Industry v. Union of India [2025] 170 taxmann.com 251 (Gujarat)/[2025] 94 GSTL 113 (Gujarat), the Court observed that such lease assignments do not fall within Section 7(1)(a), nor are they covered under Entry 2(a) of Schedule II. The Court also relied upon the legal framework under Sections 105 and 108 of the Transfer of Property Act, 1882 to support its interpretation. Accordingly, the order demanding GST and penalty was quashed.

List of Cases Reviewed

• Gujarat Chamber of Commerce and Industry v. Union of India [2025] 170 taxmann.com 251 (Gujarat)/[2025] 94 GSTL 113 (Gujarat)[03-01-2025] (Para 11) followed.

List of Cases Referred to

• Gujarat Chamber of Commerce and Industry v. Union of India [2025] 170 taxmann.com 251/94 GSTL 113 (Gujarat) (para 8.1)
• Alfa Tools (P.) Ltd. v. Union of India [2025] 172 taxmann.com 587/109 GST 403/97 GSTL 125 (Gujarat) (para 10.2)
• BVM Pharma v. Union of India [2025] 174 taxmann.com 1001 (Gujarat) (para 10.2)
• Time Technoplast Ltd. v. Union of India [2025] 173 taxmann.com 868 (Gujarat) (para 10.2).