Detailed Judgment Summary: Gujarat Chamber of Commerce and Industry & Ors vs. Union of India & Ors
Key Issues Addressed
Whether the assignment of leasehold rights in immovable property constitutes a "supply of goods or services" under Section 7 of the Central Goods and Services Tax (CGST) Act, 2017.
Whether the transaction of assignment of leasehold rights by the lessee-assignor to a third party-assignee attracts GST as per the provisions of the CGST Act.
Background Facts
Role of GIDC and Leasehold Rights: The Gujarat Industrial Development Corporation (GIDC), a nodal agency under the Gujarat Industrial Development Act, 1962, allocates industrial plots to businesses on a long-term lease (typically 99 years). The lease agreements allow lessees to assign their leasehold rights to third parties, provided they obtain GIDC’s approval.
Introduction of GST on Leasehold Rights: Following the implementation of GST in July 2017, the tax authorities began issuing GST notices to lessees assigning their leasehold rights, alleging that such transactions fall under the scope of “supply of services” and are taxable at 18%.
Petitioners’ Case: Petitioners, including the Gujarat Chamber of Commerce and Industry (GCCI), challenged these notices, arguing that assignments of leasehold rights constitute transfers of immovable property, which are not liable for GST.
Key Arguments from Petitioners
Leasehold Rights are Immovable Property:
Leasehold rights are "benefits arising out of land," qualifying as immovable property under:
Section 3(26) of the General Clauses Act, 1897
Section 105 of the Transfer of Property Act, 1882
The Registration Act, 1908
Immovable property is explicitly excluded from GST under Schedule III of the CGST Act.
Absolute Nature of Assignment:
Assignments of leasehold rights involve the complete transfer of ownership, extinguishing all rights of the original lessee (assignor) and transferring them to the assignee.
This transaction is akin to the sale of immovable property and cannot be categorized as a “supply of service.”
No GST on Leasehold Rights:
The petitioners emphasized that the scope of GST on leasehold rights cannot extend to what is legally recognized as immovable property.
Section 7(1)(a) of the GST Act, which defines “supply,” does not include transactions involving absolute transfers of immovable property.
Double Taxation Concern:
Stamp duty is already levied on such assignments. Imposing GST on the same transaction creates double taxation, which is against the spirit of GST as a mechanism to avoid cascading taxes.
Support from Legal Precedents:
In Sri Tarkeshwar Sio Thakur Jiu v. Dar Dass Dey & Co. (1979), leasehold rights were held to be immovable property.
In State of West Bengal v. Gautam Sur (2008), it was clarified that the transfer of leasehold rights amounts to the transfer of ownership, not a service.
Arguments by Respondents (GST Authorities)
Assignment as a Supply of Services:
The authorities argued that leasehold rights are not immovable property but a “right to use.” This, they claimed, falls squarely within the definition of “services” under Section 2(102) of the GST Act.
Exclusions Limited to Land and Buildings:
They contended that the exclusion under Schedule III of the CGST Act applies only to the outright sale of land and buildings, not leasehold assignments.
GST Notices Justified:
As per tariff notifications, assignments of leasehold rights are taxable. GST authorities argued that their demand notices and summons were in line with GST law.
Court’s Observations and Findings
Nature of Leasehold Rights:
Leasehold rights are unequivocally classified as immovable property, being benefits arising from land. The court relied on Section 105 of the Transfer of Property Act to conclude that such rights amount to the transfer of interest in immovable property.
Assignment is Not a Service:
The assignment of leasehold rights involves a complete transfer of ownership. Once assigned, the original lessee has no residual interest in the property, making this a sale of immovable property.
Transactions involving immovable property are outside the ambit of “goods” or “services” as per Sections 2(52) and 2(102) of the CGST Act.
GST Exemption for Leasehold Assignments:
The court held that GST on leasehold rights cannot be levied as these transactions do not qualify as “supply” under Section 7(1)(a).
Double Taxation Issue:
Imposing GST on top of stamp duty violates the GST Act’s core principle of eliminating cascading tax burdens.
Support from Legislative Intent and Precedents:
The court referred to various judgments and legislative provisions to reinforce that GST returns cannot include transactions involving immovable property, such as leasehold assignments.
Judgment
Relief to Petitioners:
The court held that the assignment of leasehold rights constitutes a transfer of immovable property and not a “supply of goods or services.”
Accordingly, all GST notices issued to the petitioners were quashed.
Direction to Authorities:
GST authorities were directed not to levy GST on similar transactions involving leasehold rights in immovable property.
Implications of the Judgment
Clarity on GST Scope:
This landmark decision reinforces the exclusion of immovable property transactions from GST, safeguarding businesses from undue demands.
Relief from Double Taxation:
By quashing GST demands on leasehold assignments, the court has ensured that businesses are not burdened with overlapping taxes, such as stamp duty and GST.
Precedent for Future Cases:
The ruling provides a robust legal foundation for businesses to challenge similar GST notices in the future.
Ease of Compliance:
Taxpayers can now file GST returns with greater clarity, knowing that transactions involving immovable property, including leasehold rights, are outside the purview of GST.
This judgment sets a critical precedent, emphasizing that GST on leasehold rights cannot be levied when such rights are legally recognized as immovable property. It upholds the principles of fair taxation and aligns with the core objectives of the GST regime.
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