No GST on Transfer/ Assignment of leasehold rights as it involves transfer of immovable property

Summary

The Gujarat High Court recently ruled that the transfer or assignment of leasehold rights in immovable property, such as industrial plots, is not subject to GST. The case, involving the Gujarat Industrial Development Corporation (GIDC), clarified that these transactions are categorized as the sale of land or building, which is exempt from GST under Schedule 3 of the CGST Act. The Court also ruled that no input tax credit (ITC) can be claimed for such transactions, as they fall outside the scope of GST. This decision is significant for businesses and could have wider implications across other states.

Takeaways

• 😀 The Gujarat High Court ruled that the transfer or assignment of leasehold rights in immovable property is not subject to GST.
• 😀 The case centers on the assignment of industrial plots by the Gujarat Industrial Development Corporation (GIDC) for 99 years, and whether this transaction is taxable under GST.
• 😀 The primary legal question was whether transferring leasehold rights in immovable property constitutes a supply of services under GST, which the court ultimately ruled it does not.
• 😀 The court examined the definition of 'goods' and 'services' under the GST Act and concluded that the transfer of leasehold rights is akin to the sale of land and building.
• 😀 The judgment emphasized that immovable property, as defined under the General Clauses Act, includes benefits arising from land and buildings, thus exempting the transaction from GST.
• 😀 The court found that the transaction is outside the scope of GST and, therefore, no GST credit can be availed or utilized on such transactions.
• 😀 According to the ruling, assignment of leasehold rights is considered a sale of immovable property under Schedule 3 of the CGST Act, specifically Part 5, which excludes such sales from GST.
• 😀 The Gujarat High Court's decision reinforces the principle of avoiding conflict between transactions subject to stamp duty and those subject to GST.
• 😀 The ruling is expected to have a significant impact on businesses, particularly in the real estate and industrial development sectors, by providing clarity on GST obligations related to leasehold rights.
• 😀 Although the Gujarat High Court has made its decision, this matter may still go up to the Supreme Court, as it remains a disputed issue across several Indian states, including Uttar Pradesh and Karnataka.

Q & A

What was the primary legal issue discussed in the Gujarat High Court judgment?

The primary legal issue was whether the transfer or assignment of leasehold rights in immovable property, such as industrial plots, is chargeable to GST, and if so, whether input tax credit (ITC) can be availed.

What role did the Gujarat Industrial Development Corporation (GIDC) play in the case?

The GIDC allotted industrial plots for 99 years for industrial purposes under specific conditions, and the lessees, after fulfilling these conditions, assigned their leasehold rights to third parties, which triggered the GST dispute.

What was the GST department's argument regarding the assignment of leasehold rights?

The GST department argued that the assignment of leasehold rights was a supply of services and, therefore, should be subject to GST, issuing notices and passing orders to this effect.

How did the Gujarat Chamber of Commerce and Industry respond to the GST department's argument?

The Gujarat Chamber of Commerce and Industry argued that the assignment of leasehold rights in immovable property is not a supply of services and should not be subject to GST, as it falls outside the scope of GST law.

What did the Gujarat High Court conclude regarding the assignment of leasehold rights?

The Gujarat High Court concluded that the assignment of leasehold rights in immovable property is not a supply of services under GST. It is instead treated as the sale of land and building, which is exempt from GST under Schedule 3 of the CGST Act.

What legal definitions did the Gujarat High Court rely on to make its decision?

The Gujarat High Court relied on the definitions of 'goods' and 'services' under the GST Act and referenced Schedule 3 (Part 5) of the CGST Act, which exempts the sale of land and buildings from GST.

What was the significance of the General Clauses Act in the judgment?

The General Clauses Act was referenced by the Gujarat High Court for the definition of 'immovable property,' which includes both land and buildings, reinforcing the decision that the assignment of leasehold rights is a transfer of immovable property, and thus, outside GST.

Can input tax credit (ITC) be availed on GST paid for the assignment of leasehold rights?

No, the Gujarat High Court ruled that since the assignment of leasehold rights is not a taxable supply under GST, there is no question of availing input tax credit (ITC) on the GST paid for such transactions.

What was the potential broader impact of this ruling beyond Gujarat?

The judgment has wider implications for the real estate and industrial sectors across India, particularly in states like Uttar Pradesh and Karnataka, where similar disputes regarding leasehold rights and GST may arise. The ruling may also be appealed to the Supreme Court for further clarification.

What are the broader legal principles reinforced by this judgment?

This judgment reinforces the principle of avoiding conflict between transactions subject to stamp duty and GST, as well as the interpretation of immovable property transactions under the GST law, specifically in relation to leasehold rights.