2025 (1) TMI 516 - HC - GST

Levy of goods and service tax - assignment of leasehold rights of the plot of land allotted on lease by Gujarat Industrial Development Corporation (GIDC) and building constructed thereon by the lessee or its successor (assignor) to a third party (assignee) on payment of lump-sum consideration considering the same as supply of service under the provisions of Central/State Goods and Service Tax Act, 2017 - whether the transfer/assignment of leasehold rights is a transaction of sale pertaining to immovable property or is supply of goods or supply of services in the course or furtherance of business so as to levy GST as per section 9 (1) of the GST Act at the rate which may be notified by the Government on recommendations of the GST Council? HELD THAT - Sub-clause(a) of section 14 of the GIDC Act empowers the GIDC to acquire and hold such property, both movable and immovable as may be necessary for the performance of any of its activities and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Corporation. In exercise of such powers, GIDC enters into lease agreement of 99 years for allotment of land for industrial purpose in the industrial estate developed by it - The ownership of the plot of land allotted by GIDC remains with it and only the right of possession and occupation are transferred by way of leasehold rights in favour of allottee-lessee. Even if the assignment of leasehold rights on the land on charge of one time upfront amount by the GIDC for allotment of plot of land to the industrial unit is covered within the scope of supply of services as per clause 5(a) of the Schedule II read with section 7 (1) of the GST Act, charging of one time upfront amount as premium by the GIDC would attract Nil rate of tax as per the aforesaid notification. Therefore, when the industrial unit is allotted land by the GIDC, no GST is required to be paid under the provisions of GST Act as per entry no. 41 of Notification No. 12/2017. It is pertinent to note that what the petitioner has transferred by way of assignment/sale is leasehold rights which is over and above the actual physical plot of land and building, encompasses incorporeal ownership right in such land and building such as the right to possess, to enjoy the income from, to alienate, or to recover ownership of such right from one who has improperly obtained the title. Therefore, immovable property includes in addition to right of ownership, aggregate of rights that are guaranteed and protected by the further agreement or contract between the owner and the lessee. The place of supply of service may be at the location of the immovable property, however when the lessee-assignor transfers absolute right by way of sale of leasehold rights in favour of the assignee, the same shall be transfer of immovable property as leasehold rights is nothing but benefits arising out of immovable property which according to the definition contained in other statutes would be immovable property . Therefore, the question of supply of services or place of supply of services does not arise in view of the above analysis of the provisions of the GST Act as the term immovable property is not defined under the GST Act - it is clear that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words and entire matter is governed only by the language of the provision. In view of the legislative intention, section 7 of the GST Act which provides for the scope of supply of good or services or both for the purpose of the GST Act includes all forms of supply of goods or services or both by any form such as transfer, sale, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Therefore, considering the settled legal position as held by the Hon ble Supreme Court and other High Courts from time to time, it is true that any lease or letting out of a building including commercial, industrial, residential complex for business either wholly or partly would be supply of service . Therefore, reading the provisions of the Act together and harmoniously to understand the nature of levy and the object and purpose of its imposition, no activity of the nature mentioned in the inclusive provision of section 7 of the GST Act can be left out of the net of tax - when the GIDC allots the plot of land on lease of 99 years and charges premium for such allotment followed by periodical lease rent to be paid, is to be considered as supply of service in relation to land and building read with clause 5(a) of Schedule-II which specifically provides that renting of immovable property shall be treated as supply of services. Thus, the scope of supply of services would not include transfer of leasehold rights as supply of service as it would be transfer of immovable property being a benefit arising out of immovable property consisting of land and building. GIDC had only allotted the plot of land to the lessee who constructed the building and developed the land to run the business or industry for which such plot of land was allotted. Therefore, what is assigned by the lessee/assignor to the assignee for a consideration is not only the land allotted by GIDC on lease but the entire land along with building thereon which was constructed on such land. The entire land and building is therefore, transferred along with leasehold rights and interest in land which is a capital asset in form of an immovable property and the lessee/assignor earned benefits out of land by way of constructing and operating factory building/shed which constitutes a profit a pendre which is also an immovable property and therefore, would not be subject to tax under the GST Act. Conclusion - Assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of immovable property by the lessee-assignor in favour of third party-assignee who would become lessee of GIDC in place of original allottee-lessee. In such circumstances, provisions of section 7 (1) (a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable to such transaction of assignment of leasehold rights of land and building and same would not be subject to levy of GST as provided under section 9 of the GST Act. The impugned show cause notices and orders in original or appeal as the case may be, are hereby quashed and set aside - petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this judgment is whether the assignment of leasehold rights of land and buildings by the lessee (allottee) to a third party (assignee) under a long-term lease agreement with the Gujarat Industrial Development Corporation (GIDC) is subject to Goods and Services Tax (GST) as a "supply of service" under the Central/State Goods and Service Tax Act, 2017.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The GST Act defines "supply" to include all forms of supply of goods or services, such as sale, transfer, barter, exchange, license, rental, lease, or disposal made for a consideration in the course or furtherance of business. The Act also includes specific provisions and schedules that determine whether a transaction is considered a supply of goods or services.

The Transfer of Property Act, 1882, defines a "lease" as a transfer of a right to enjoy immovable property for a certain period in consideration of a price paid or promised. The General Clauses Act and the Registration Act include definitions of "immovable property" that encompass benefits arising out of land.

Court's Interpretation and Reasoning

The court examined whether the assignment of leasehold rights constitutes a "supply of service" or a transfer of immovable property. It considered the nature of the transaction, the definitions provided in relevant statutes, and the legislative intent behind the GST Act.

The court noted that the assignment of leasehold rights involves an absolute transfer of rights in immovable property, which extinguishes the rights of the transferor and transfers them to the assignee. This transaction is akin to a sale or transfer of immovable property rather than a service.

Key Evidence and Findings

The court analyzed the lease agreements, the nature of the rights transferred, and the legislative framework governing GST. It found that the assignment of leasehold rights is a transfer of an interest in immovable property and not a supply of service.

Application of Law to Facts

The court applied the definitions and provisions of the GST Act, Transfer of Property Act, and other relevant statutes to determine that the assignment of leasehold rights is a transfer of immovable property. It emphasized that the transaction does not fall within the scope of supply of services under the GST Act.

Treatment of Competing Arguments

The court considered the arguments of the respondents, who contended that the assignment of leasehold rights is a supply of service subject to GST. It rejected these arguments, emphasizing that the transaction involves the transfer of an interest in immovable property, which is not subject to GST.

Conclusions

The court concluded that the assignment of leasehold rights by the lessee to a third party is a transfer of immovable property and not a supply of service. Therefore, it is not subject to GST under the provisions of the GST Act.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

"Assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of 'immovable property'."

Core Principles Established

The court established that the assignment of leasehold rights constitutes a transfer of immovable property, not a supply of service. The transaction involves the transfer of an interest in land, which is outside the scope of GST.

Final Determinations on Each Issue

The court determined that the assignment of leasehold rights is not subject to GST as it is not a supply of service. The impugned show cause notices and orders related to GST on such transactions were quashed and set aside.

The petitions were allowed, and the rule was made absolute to the extent that the assignment of leasehold rights is not subject to GST.