Sale of lease hold rights: Landmark 280 page order by Gujarat HC




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Sale of lease hold rights: Landmark 280 page order by Gujarat HC

 

Here are the are key points summarized hereunder of the 280 page order by the Gujarat HC wherein it has been held that Sale of lease hold rights is not liable for GST.

1.  Key Issue: Whether the assignment of leasehold rights qualifies as a “supply of services” under the GST Act, thereby attracting GST, or whether it constitutes a transfer of immovable property, exempt from GST.

2. Petitioner’s Arguments

2.1 Assignment as Immovable Property:
Reference: Section 105 of the Transfer of Property Act and the Supreme Court’s judgment in Sri Tarkeshwar Sio Thakur Jiu v. Dar Dass Dey & Co.

Argument: Leasehold rights are immovable property, and their assignment is a sale of immovable property, not a service.

2.2 GST on Services, Not Immovable Property:
Reference: Definitions under Section 2(102) and Section 7(1)(a) of the GST Act.

Argument: Absolute transfer of property rights does not amount to a service. GST applies to services, not immovable property transactions.

2.3 Legislative Intent to Exclude Immovable Property:
Reference: Entry 5 of Schedule III of the GST Act, which excludes the sale of land and buildings.

Argument: The exclusion indicates that immovable property, including leasehold rights, cannot be taxed as services.

3. Respondent’s Arguments

3.1 Classification as Service:
Reference: Section 7(1) of the GST Act defines “supply,” which includes leases and licenses.

Argument: Assignment of leasehold rights is akin to the supply of services and attracts GST.

3.2 Council Directive:
Reference: Council Directive of 28.11.2006.

Argument: Assignments can be taxed under GST depending on the transaction’s nature.

4. Legal Provisions Analyzed

4.1 GST Act:
Section 7(1): Defines “supply,” which includes leases and assignments.

Section 2(102): Defines “service” as anything other than goods.

Schedule III: Excludes the sale of land and buildings from GST.

4.2 Transfer of Property Act:
Section 105: Defines a lease as a transfer of a right to enjoy immovable property.

Section 108(j): Discusses lessee’s right to transfer interests unless restricted by the lease agreement.

4.3 Constitutional Provisions:
Article 246A: Gives states and Parliament the power to levy GST.

Article 366(12A): Defines GST as a tax on supply, excluding alcoholic liquors

5. Analysis by the Court

5.1 Nature of Assignment:
Argument: Assignment of leasehold rights is a permanent transfer akin to a sale of immovable property.

Judgments Cited: Gopal Saran v. Satyanarayana and State of West Bengal v. Gautam Sur support the view that leasehold assignments are immovable property transfers.

5.2 Scope of “Service” under GST:
Analysis: Absolute transfers, like assignments of leasehold rights, do not fit the definition of service under Section 2(102) of the GST Act.

5.3 Legislative Intent:
Observation: Exclusion of “land” and “building” under Schedule III indicates the legislature’s intention to keep immovable property outside GST’s ambit.

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The Copy of the order is as under:

SCA113452023_GJHC240409552023_3_03012025-2025_GUJHC_1117-DB (1) 




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