No GST On Assignment Of Industrial Leasehold Rights: Bombay High Court Grants Relief To Industrial Lessees Holding MIDC Plots

In¹ Aerocom Cushions Private Limited v. Assistant Commissioner (Anti-Evasion), CGST & CX, Nagpur-1, the ² Nagpur Bench of the Bombay High Court quashed a Show Cause Notice demanding Goods and Services Tax (“GST”) on the assignment of leasehold rights in an industrial plot allotted by the Maharashtra Industrial Development Corporation (“MIDC”). The Court held that such an assignment constitutes a transfer of benefits arising out of immovable property and does not amount to a “supply of service” under the Central Goods and Services Tax Act, 2017 (“CGST Act”).

Factual Background

The petitioner, Aerocom Cushions Private Limited, held a 95-year lease from MIDC over Plot No. F-14/2, MIDC, Hingna Road, Nagpur. Clause 2(u) of the lease deed expressly permitted transfer of leasehold rights with MIDC’s consent. The petitioner assigned its leasehold rights to Sumit Madanlal Pagariya, proprietor of M/s Rishita Industries, for a consideration of Rs. 1,50,00,000/-, with MIDC's prior consent, and paid an additional premium of Rs. 3,95,640/- to MIDC towards the transfer.

On 20 December 2024, the Assistant Commissioner (Anti-Evasion), CGST & CX, Nagpur-1 issued Show Cause Notice No. 47/AC/GST/NGP-I/2024 (“Show Cause Notice”) under Section 74(1) of the CGST Act, demanding Rs. 27,00,000/- as GST on this transaction, alleging that the petitioner had concealed it. The petitioner challenged the notice by way of a writ petition, and with the consent of both parties, the Court took up the matter for final hearing at the admission stage itself.

Issues Before the Court

The Court was called upon to determine whether:

1. the assignment constituted a “supply of service” under Section 7(1) of the CGST Act read with Schedule II;
2. it could be classified under the residuary “other miscellaneous services” entry (Serial No. 35, Notification No. 11/2017-Central Tax (Rate));
3. it was in substance a transfer of benefits arising out of immovable property, outside the scope of “supply”; and
4. the Gujarat High Court’s decision in³ Gujarat Chamber of Commerce and Industry v. Union of India, on an identical question concerning plots allotted by the Gujarat Industrial Development Corporation (“GIDC”), was binding on the respondent authorities.

Petitioner’s Contentions

The petitioner contended that it made the assignment with MIDC’s prior consent, paid the requisite additional premium, and did not conceal the transaction as alleged. It submitted that the transaction was neither a lease nor a sub-lease because the assignment extinguished its rights. Instead, the assignment transferred benefits arising out of immovable property and had no nexus to the petitioner’s business. The petitioner therefore contended that the transaction lacked the essential element of “supply in the course or furtherance of business” under Section 7(1)(a) of the CGST Act. It relied on the Gujarat High Court’s decision in Gujarat Chamber of Commerce and Industry v. Union of India, which held on the same issue that such an assignment did not attract GST.

Revenue's Contentions

The department's position rested on Section 7(1) of the CGST Act read with clause 2(b) of Schedule II, which treats any lease or letting out of a building for business or commerce as a supply of service. On this basis, the notice classified the assignment as “other miscellaneous services” under Serial No. 35 of Notification No. 11/2017-Central Tax (Rate), taxable at 18%.

However, the notice itself acknowledged that the transaction was not a sub-lease, since the petitioner's rights stood extinguished on assignment. Having conceded this, the department sought to tax the transaction through a residuary entry covering unrelated services such as washing, cleaning, dyeing, and beauty treatments.

The Court's Analysis

Rejection of the Classification

The Court found it untenable to extend a residuary entry covering personal care and cleaning services to the assignment of leasehold rights in an industrial plot. On this ground alone, the notice was held to be bad in law.

Assignment as Transfer of Immovable Property

The Court then examined whether the assignment amounted to a supply of service. It noted that the petitioner held a 95-year lease, constituting a long-term leasehold ownership interest, and that the lease permitted transfer of rights with MIDC's consent. On the facts, the petitioner had transferred those rights to M/s Rishita Industries with MIDC's prior consent.

The Court held that the transaction constituted a transfer of immovable property involving only the transfer of benefits arising from that property and had no nexus to the petitioner's business. Because the transaction was not made in the course or furtherance of the petitioner’s business, it fell outside the scope of “supply” under Section 7. The Court thus distinguished between a fresh grant of a lease, which constituted a supply of service, and an assignment of an existing leasehold interest, which constituted a transfer of immovable property outside the scope of supply.

Reliance on Gujarat High Court Judgement

The Bench relied on the Gujarat High Court's judgment in Gujarat Chamber of Commerce and Industry v. Union of India, which considered an identical question involving GIDC-allotted plots. The Bombay High Court noted that the facts were closely comparable in both cases: in each, the lessee had constructed a factory building on the allotted land and assigned the rights in the land along with the building.

The Gujarat High Court had held that ownership of GIDC-allotted plots remains with the corporation, and only the right of possession and occupation passes to the lessee. It recognised that the one-time upfront premium charged for a long-term lease of 30 years or more by a state industrial development corporation is exempt from GST at Nil rate under Entry 41 of Notification No. 12/2017-Central Tax (Rate). By contrast, the fee charged by the corporation for permitting a transfer of leasehold rights to a third party is a separate service rendered by the corporation, taxable at 18%.

The Gujarat High Court distinguished this transfer permission fee, payable to the corporation, from the assignment transaction between the outgoing and incoming lessee. It concluded that assignment by sale of leasehold rights in the plot and building, from the lessee to a third-party assignee for consideration, is a transfer of benefits arising out of immovable property and does not fall within the scope of supply under the CGST Act. The Bombay High Court expressly adopted this reasoning, holding it to be in consonance with the law on supply of services.

The convergence of two High Courts on this issue reinforces the proposition that assignment consideration received by a lessee from a private assignee is not taxable, as distinct from the transfer permission fee charged by the development corporation, which remains subject to GST at 18%.

Binding Nature of the Precedent

The Bombay High Court invoked the principle from⁴ Commissioner of Income-Tax, Vidarbha v. Smt. Godavari Devi Saraf, that until a contrary view is taken by another competent High Court, the law declared by any High Court is binding on tax authorities across the country. Applying this, the Bench held that the Gujarat High Court's ruling was binding on the respondent authorities.

The practical effect is that tax authorities cannot disregard the ruling of another High Court on an identical question solely because it originated in a different jurisdiction.

Outcome

The Bombay High Court allowed the writ petition, quashed the Show Cause Notice, and made the Rule absolute. The petitioner's GST exposure of Rs. 27,00,000/- on this transaction stands eliminated.

Significance

Industrial units that have assigned, or intend to assign, their leasehold rights in plots allotted by MIDC, GIDC, or similar state corporations now have judicial support from two High Courts for the position that such assignments do not attract GST. The ruling also reduces tax uncertainty in exit and consolidation transactions in industrial estates.

The Court's rejection of the “miscellaneous services” classification underscores that residuary entries cannot serve as a catch-all to tax transactions that do not fit more specific categories.

Conclusion

The ruling establishes that assignment of long-term industrial leasehold rights, made with the lessor’s consent, constitutes a transfer of benefits arising out of immovable property and falls outside the scope of supply under the CGST Act. While the decision provides a firm legal basis for lessees to resist GST demands on such transactions, the possibility of a challenge before the Supreme Court by the Revenue cannot be ruled out, and lessees should bear this in mind.

Footnotes

^{1 Writ Petition No. 2145 of 2025, decided on 9 January 2026}

^{2 Justices Anil L. Pansare and Nivedita P. Mehta}

^{3 (2025) 170 taxmann.com 251 (Gujarat)}

^{4  (1978) 113 ITR 589}

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