Gujarat Chamber of Commerce v. Union of India: GIDC leasehold assignment is not a GST supply

The facts in brief

The Gujarat Industrial Development Corporation (GIDC) allots industrial plots on long-term lease — typically running for decades — to industrial units that set up operations across the State's industrial estates. When a unit sells its undertaking, winds down, or otherwise exits, it does not surrender the plot to GIDC. Instead, subject to GIDC's transfer policy, it assigns its leasehold rights to an incoming assignee for consideration — a premium or transfer fee negotiated between the parties.

After the Goods and Services Tax regime came into force in July 2017, the GST department took the view that this assignment of leasehold rights was a "supply of service" — a transfer of a benefit or right — attracting GST at 18%. On that footing the department issued a wave of show-cause notices and demand orders to assignors and assignees across Gujarat's industrial belts.

The Gujarat Chamber of Commerce and Industry, joined by numerous affected allottees and industrial units, filed a batch of Special Civil Applications challenging the levy. Their case was that the assignment of leasehold rights is a transfer of immovable property — a benefit arising out of land — and therefore falls squarely within Schedule III's sale-of-land exclusion, not within the definition of a taxable service. The department defended the levy as a taxable transfer of rights.

The Division Bench of Justices Bhargav D. Karia and Niral R. Mehta heard the consolidated batch — the lead matter being R/Special Civil Application No. 11345 of 2023 — and, on 3 January 2025, allowed the petitions, quashing the impugned notices and orders.

The statutory architecture

The dispute turns on the definition of "supply." Section 7(1) of the CGST Act is the gateway: GST is levied on a "supply" of goods or services, and the section sweeps in all forms of supply made for consideration in the course or furtherance of business. But Section 7(2) carves out activities listed in Schedule III, which "shall be treated neither as a supply of goods nor a supply of services."

Entry 5 of Schedule III reads: "Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building." A sale of land is therefore a constitutional and statutory blind spot for GST — it is neither goods nor services, and the levy never attaches.

The question the Bench had to answer was whether the assignment of a long-term leasehold interest in a GIDC plot is, in substance, a sale of land (or of a benefit arising out of land) that lands within Entry 5, or whether it is a distinct service — the transfer of a contractual right — that remains within Section 7(1).

What the Court held

The Bench held that the assignment of leasehold rights by a GIDC lessee-assignor to a third-party assignee, for consideration and with complete divestment of the lessee's interest, is a transfer of a benefit arising out of immovable property and is therefore akin to a sale of land. As such it is excluded from the scope of "supply" by Entry 5 of Schedule III, and no GST is leviable on it.

The doctrinal pivot is the distinction between the grant of a lease and the assignment of one. When GIDC grants a lease, it parts with possession for a term while retaining the reversion — that grant may be characterised as a service. But when the lessee assigns its entire leasehold interest to an assignee, retaining no reversion and divesting all of its rights, the transaction is not the rendering of a service at all; it is an alienation of an interest in immovable property. Once the assignor keeps nothing back, the substance of what changes hands is an interest in land, not a contractual service.

The Bench accordingly quashed the show-cause notices and demand orders that had treated the assignment as a "supply of service," holding the 18% levy untenable.

The "benefit arising out of immovable property" lineage

The reasoning imports a concept with a long pedigree in property law into GST classification. The Transfer of Property Act, 1882 has always treated benefits arising out of immovable property as themselves immovable property — a right of way, a right to collect rents, a right to take produce from land. A leasehold interest, once carved out and capable of being assigned for a premium, is a benefit that arises out of the land itself.

By anchoring the assignment to that lineage, the Bench placed the transaction on the land side of the goods-services-land trichotomy that the CGST Act builds. A long-term lease assigned outright for a premium is, in economic and legal substance, an alienation of an interest in immovable property — closer to a sale or a mortgage than to the supply of any service. That characterisation is what brings Entry 5 into play and takes the transaction outside the charging section altogether.

Why this matters

The ruling is among the most consequential GST decisions to come from any High Court in 2025. It reset the taxation of leasehold-assignment transactions for GIDC plots and for analogous industrial-estate transfers across the country, where the same departmental view — that assignment is a taxable service — had spawned demands running into large sums against allottees and assignees who had treated their transactions as land deals.

For practitioners, the decision is the anchor authority in any GST dispute over the assignment of long-term leases, sub-leases, or transfers of development rights where the question is whether the transferor has divested its entire interest. The test the Bench applied — complete divestment, no retained reversion — is the line that separates an immovable-property alienation outside Section 7 from a taxable service within it.

The wider trajectory

The decision did not end the controversy; it relocated it. The Bombay High Court subsequently adopted the same reasoning on the leasehold-rights line, and a clutch of leasehold-GST petitions has moved toward joint hearing before the Supreme Court, with Gujarat Chamber of Commerce standing as the lead High Court authority feeding that reference.

The eventual apex-court pronouncement will either ratify the Schedule III / immovable-property analysis or recalibrate it — and a clarificatory circular from the tax administration may follow in either direction. Until then, the Gujarat ruling supplies the governing framework: outright assignment of a long-term leasehold interest, with full divestment, is a sale of land for GST purposes and bears no tax. Assignees holding demands raised on the contrary view have a strong basis to resist them, and assignors who paid under protest have a foundation for refund claims.

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Sources

1. Taxmann — "Transfer of Leasehold Rights Not Liable to GST | Gujarat HC": https://www.taxmann.com/post/blog/transfer-of-leasehold-rights-not-liable-to-gst-gujarat-hc
2. SCC Times — "Levy of GST on Assignment of Leasehold Rights: Aftermath of Gujarat High Court's verdict": https://www.scconline.com/blog/post/2025/02/07/levy-of-gst-on-assignment-of-leasehold-rights-aftermath-of-gujarat-high-courts-verdict/
3. TaxO — "Transfer of leasehold rights is not a taxable supply under GST as it is akin to sale of land": https://taxo.online/latest-news/11-07-2025-transfer-of-leasehold-rights-is-not-a-taxable-supply-under-gst-as-it-is-akin-to-sale-of-land-which-is-excluded-under-schedule-iii-gujarat-high-court/
4. LiveLaw — Gujarat High Court coverage: https://www.livelaw.in/high-court/gujarat-high-court