Assignment of leasehold rights not amount to supply of service under GST Act.

In a recent judgment, Bombay High Court held that assignment of leasehold rights for consideration would not amount to supply of service under GST Act.

In a recent judgment, Bombay High Court held that assignment of leasehold rights for a consideration shall be assignment/sale/transfer of benefits arising out of immovable property and would not amount to supply of services under GST Act.

ABCAUS Case Law Citation:
4980 (2026) (01) abcaus.in HC

In the instant case, the Petitioner assessee had challenged the show cause notice issued by the Assistant Commissioner (Anti-Evasion) GST calling upon the petitioner to show cause as to why goods and services tax should not be demanded and recovered from the petitioner under sub-section (1) of Section 74 of the Central Goods and Services Tax Act, 2017 (GST Act) towards non payment of GST on transfer of leasehold rights.

The case of the GST Authorities was that transfer of assignment of rights would amount to supply of services in terms of Section 7(1) of the Act read with sub-clause (b) of Clause 2 of Schedule II.

The Hon’ble High Court observed that sub-clause(b) of clause 2 of Schedule II indicates any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

The Hon’ble High Court observed that transaction under question was assignment of leasehold rights by the petitioner in favour of assignee which admittedly was not a lease nor did it amount to sub-lease. In fact, in the show cause notice it had been categorically mentioned that the transaction under question did not amount to sub-lease as the petitioner’s right stands extinguished by the said transaction. However, the AC had recognized this transaction as seeking compensation to transfer rights in favour of the assignee. According, this activity was considered as amounting to service classifiable under other miscellaneous services and is taxable at 18% under Sr.No. 35 of the Notification No.11/2017 CT (Rate) dated 28-06-2017.

However, the Hon’ble High Court opined that the miscellaneous services included services like washing, cleaning, dyeing, beauty, physical well-being, etc. Such petty services, could not be extended to assignment of leasehold rights in an immovable property, to term it to be other miscellaneous services as classified under clause at Sr. No.35 of the Notification. Therefore, the notice could be said to be bad in law on this count alone.

The Hon’ble High Court observed that admittedly, the petitioner held a lease for 95 years. Thus, it was a long term lease and in that sense was a leasehold ownership property. The rights under the lease were transferable in terms the lease executed between Development Corporation (MIDC) and the petitioner. Accordingly, the petitioner had transferred the rights to one party with prior consent of MIDC.

The Hon’ble High Court opined that the transaction on the face of record constituted transfer of immovable property by the petitioner. The transaction pertained exclusively to transfer of benefits arising out of an immovable property and has no nexus whatsoever with the business of the petitioner company. Consequently, the essential element of supply of service in the course of business or in furtherance of business was completely absent.

The Hon’ble High Court noted that Gujarat High Court had the occasion to address the question as to whether assignment of the leasehold rights of the land along with the building thereon would be covered by the scope of supply so as to levy GST as per the provisions of section 9 of the GST Act?

The Gujarat High Court held that assignment by sale and transfer of leasehold rights of the plot of land allotted by Corporation 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 Corporation in place of original allottee-lessee and in such circumstances, would not be subject to levy of GST in terms of provisions of the GST Act.

The Hon’ble High Court expressed full agreement to the view of the Gujarat HC and opined that was in consonance with the provisions of law on supply of services and the law laid down by Gujarat High Court is binding on the authorities.

Accordingly, the Hon’ble High Court held that assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC 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 and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act.

As a result, the Petition was allowed and SCN issued to Petitioner was set aside.

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