The Gujarat High Court has held that Gujarat Industrial Development Corporation (GIDC) lease land sale is not subject to GST.
The bench of Justice Bhargav D. Karia and Justice Niral R. Mehta has observed that 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.
The bench held that 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 question of utilisation of input tax credit to discharge the liability of GST on such transaction of assignment would not arise.
The issue pertained to levy of goods and service tax on 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.
GIDC is established under the Gujarat Industrial Development Act, 1962 and acts as Nodal agency of Government of Gujarat for the purpose of development of industrial estates in the State of Gujarat.
GIDC acquires land and developed it as industrial estate by creating infrastructure thereon such as road, water supply, street light, drainage, etc. and allots plot of land to an industrial entity/person on long term lease for a period of 99 years.
The terms and conditions of the allotment letter issued by the GIDC includes the method and manner in which premium and lease rent is required to be paid by the allottee/lessee.
A licensing agreement is also executed between GIDC and the allottees/lessees to set up an industrial unit subject to approval and permission from the regulatory authorities. Licensing agreement also contains a clause whereby GIDC agrees to execute lease deed for a period of 99 years in favour of the allottee/lessee upon fulfilling the terms and conditions of licensing agreement.
On fulfilling the terms and conditions of the license agreement, a registered lease deed is executed by GIDC in favour of the allottee/lessee after payment of applicable stamp duty wherein all terms and conditions of the allotment letter and licensing agreement are incorporated. Lease deed also permits the allottees/lessee to assign the leasehold rights and interest in the plot to any other person subject to approval of GIDC.
After coming into force of the the GST Act with effect from 1.07.2017, respondent authorities have issued the summons/show cause notices to the members of the petitioner no.1 and others who have assigned the leasehold rights and interest in their plots allotted by GIDC to assignee to show cause as to why GST at the rate of 18% should not be levied on such transaction of assignment of leasehold rights.
The petitioner Gujarat Chamber of Commerce and Industries made several representations before the respondents to clarify that the levy of tax under the GST Act is not attracted on transfer of leasehold rights in the plot of land or in alternative in any case input tax credit of such tax would be admissible under the GST Act. However, the respondent authorities have not considered such representations and hence the present petition is filed.
The court rejected the department’s contention that by excluding only sale of land and building as per Schedule-III would not amount to transfer of leasehold rights as the interest in immovable property being an intangible form would be covered by the scope of supply of service, is not tenable as transaction of assignment is nothing but absolute transfer of right and interest arising out of the land which would amount to transfer/sale of immovable property which cannot be said to be “service” as contemplated under the provisions of GST Act.
Case Details
Case Title: Gujarat Chamber Of Commerce And Industry & Ors. Versus Union Of India & Ors.
Case No.: R/SPECIAL CIVIL APPLICATION NO. 11345 of 2023
Date: 03/01/2025
Counsel For Petitioner: Mr.S.N.Soparkar, Senior Advocate with Mr.Monal Davawala, Senior Advocate Mr.Mihir Joshi with Mr.Tarak Damani and Mr.Aditya Joshi, Senior Advocate Mr.Deven Parikh with Mr.Nirav P. Shah, Mr.Manav Gupta with Mr.Parth Shah, Mr.Rajat Bose with Mr.Sarvaswa Chhajer and Ms.Shohini Bhattacharya, Mr.Hardik Modh, Mr.Uchit Sheth, Mr.V. Sreedharan, Senior Advocate, Mr.Sahil Pargi, Mr.Avinash Poddar, Mr.Hardik Vora with Ms.Palak Kshatriya and Mr.S.S.Iyer
Counsel For Respondent: Advocate General Mr.Kamal Trivedi with Assistant Government Pleader Mr.Vinay Bairagra and Mr.Raj Batada and Ms.Nidhi Vyas
