Assignment of leasehold rights is not liable to GST: Gujarat HC
Gujarat HC has recently delivered a landmark judgement by holding that assignment of leasehold rights is not liable to GST. The issue was otherwise full of controversy and litigation. The judgement has given a relief to the taxpayers who has purchased or purchasing the land from MIDC and other industrial corporation across India. The recent ruling has resolved a longstanding dispute, favoring taxpayers. Distinguishing assignment from lease, the ruling emphasized on treating benefits arising out of land as immovable property.
Businesses may need to consider whether the principles established by the High Court can be applied to determine the taxability of development rights under GST framework.
Taxpayers who have paid taxes on such assignments may explore the possibility of seeking refunds. An important consideration would be whether the two-year time limit for claiming refunds applies under given circumstances. It remains to be seen whether the Department will challenge the ruling before the Supreme Court.
The key observations of the HC are:
Immovable property is not defined under the CGST Act, however, the same is defined in the other enactments and it includes benefits arising out of land.
The petitioner has transferred 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.
Under the Service Tax law, even the development rights which are the benefits arising from land were not liable to tax. Leasehold right is in fact a greater right and interest in land than development rights. The principle under the service tax regime continues to apply under the GST regime.
What is assigned by the assignor to the assignee is not only the land on lease but the entire land along with building which was constructed on such land. The same is a capital asset in the form of an immovable property.
Accordingly, HC held that assignment of leasehold rights is not leviable to GST.
Notably, the Telangana High Court in the case of Prahitha Construction Private Limited [TS-60-HC(TEL)-2024-GST] concluded that the transfer of development rights does not equate to the sale of land. Instead, it falls within the scope of “service” and thus, subject to GST.
The Copy of the order is as under:
SCA113452023_GJHC240409552023_3_03012025-2025_GUJHC_1117-DB (1)
