M/S Bansi Industries vs State Tax Officer on 1 August, 2025

1. Outcome

The petition succeeded. The impugned Order-in-Original dated 31.12.2024, issued under Section 74 in Form GST DRC-07, was quashed and set aside.

2. Core Issue

The core issue was two-fold:
1. Legal Issue: Whether the assignment/transfer of long-term (e.g., 99 years) leasehold rights of industrial plots, originally allotted by GIDC, by a lessee-assignor to a third-party assignee constitutes a 'supply of service' liable to GST under Section 7(1)(a) of the Gujarat/State Goods & Service Tax Act, 2017.
2. Procedural Issue: The validity of an Order-in-Original passed when the underlying Show Cause Notice had subsequently been quashed by the High Court.

3. Key Facts

• The petitioner, M/s. Bansi Industries, was allotted an Industrial Plot (No. 227) by the Gujarat Industrial Development Corporation (GIDC) on a long-term lease (99 years) in 2018.
• Due to a change in the firm's constitution, the petitioner executed a deed of assignment on 28.06.2018, transferring the leasehold rights of the plot to M/s. Bansi Industries (with new partners).
• On 26.07.2024, the State Tax Officer (respondent) issued an intimation (DRC-01A) demanding GST at 18% on the consideration received by the petitioner for the transfer of leasehold rights, treating it as a supply of service.
• Despite the petitioner filing objections, the respondent issued a Show Cause Notice (DRC-01) on 03.08.2024 under Section 74(1) of the GST Act, demanding GST, interest, and penalty.
• The petitioner challenged this Show Cause Notice in Special Civil Application No. 12828 of 2024, and the High Court quashed the SCN on 03.01.2025.
• Crucially, before the SCN was quashed (on 03.01.2025), the respondent passed the Order-in-Original (DRC-07) on 31.12.2024, confirming a total demand including interest and penalty.
• The petitioner initially filed a Misc. Civil Application to quash the Order-in-Original but later withdrew it with liberty to file a fresh writ petition, leading to the present Special Civil Application.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (M/S Bansi Industries):
  • The issue is no longer res integra (settled law) following the High Court's decision in Gujarat Chamber of Commerce and Industry & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023), which held that assignment of long-term leasehold rights is a transfer of immovable property and not a supply of service liable to GST.
  • The Order-in-Original dated 31.12.2024 is void and unsustainable because the underlying Show Cause Notice on which it was based had already been quashed by the High Court on 03.01.2025 (even though the order was passed three days prior to the SCN being quashed).
• Revenue (State Tax Officer):
  • The Assistant Government Pleader was unable to controvert the taxpayer's submission that the legal issue regarding the taxability of leasehold transfers was covered by the Gujarat Chamber of Commerce precedent. The Revenue's initial stance (reflected in the intimation and SCN) was that the assignment of leasehold rights constituted a 'supply of service' under Section 7(1)(a), classified under Heading 9972.

5. Court’s Reasoning

The High Court's reasoning was primarily based on its own earlier comprehensive decision in Gujarat Chamber of Commerce and Industry & Ors. Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023), which was extensively quoted and relied upon:

1. Nature of Lease vs. Assignment: The Court distinguished between the initial grant of a long-term lease by GIDC (which is a 'supply of service' as renting of immovable property) and the subsequent assignment/transfer of such leasehold rights by the lessee.
2. Assignment as Immovable Property Transfer: An assignment of a long-term lease (e.g., 99 years) for a premium is akin to a sale or mortgage and constitutes a transfer of an "immovable property" or benefits arising out of immovable property. Such a transfer extinguishes the transferor's estate and makes the assignee the new lessee.
3. Legal Definitions and Intent:
   • Definitions of "property" and "assignment" from legal parlance and precedents (like Gopal Saran) confirm that assignment of leasehold rights involves the transfer of significant interests in property.
   • Assignment of leasehold rights is subject to stamp duty, reinforcing its character as a transfer of immovable property.
   • The Transfer of Property Act (Sections 105, 108(j), 54) supports this interpretation, noting that assignment conveys the whole interest in the property.
4. GST Act Provisions:
   • Clause 5 of Schedule III of the GST Act explicitly excludes "sale of land" from the ambit of 'supply of goods or services'. The Court held that the transfer of long-term leasehold rights, given its nature, falls within the spirit of this exclusion as it amounts to a transfer/sale of immovable property.
   • The legislative intent of GST, as gathered from the definition of 'service' (Section 2(102)) and GST Council meeting minutes, was to not levy tax on the transfer of immovable property, continuing the principle from the pre-GST Service Tax regime.
   • Even for construction services (Heading No. 9954, Notification No. 11/2017), the value of land (including transfer by way of lease/sub-lease) is explicitly excluded from the taxable value, indicating that the value of land itself is considered immovable property.
5. Procedural Flaw: Additionally, the Court noted that the Show Cause Notice dated 03.08.2024, which formed the basis for the Order-in-Original, had already been quashed by the High Court on 03.01.2025. An adjudication order cannot stand if the foundation (SCN) has been removed.

Based on the binding precedent of Gujarat Chamber of Commerce and the procedural flaw of an Order-in-Original being based on a quashed SCN, the Court concluded that the assignment of leasehold rights by the petitioner was not subject to GST.

6. Statutory References

• Constitution of India:
  • Articles 226, 227
• Gujarat/State Goods & Service Tax Act, 2017 (GST Act):
  • Section 2(102) (Definition of 'service')
  • Section 2(119) (Works contract)
  • Section 7(1)(a) (Scope of supply)
  • Section 9 (Levy and collection)
  • Section 11(1) (Power to grant exemption)
  • Section 15(5) (Value of supply)
  • Section 16(1) (Eligibility for ITC)
  • Section 17(5)(c), 17(5)(d) (ITC restrictions)
  • Section 74(1), 74(5) (Determination of tax)
  • Schedule II, Clause 5(a) (Renting of immovable property)
  • Schedule II, Clause 5(b) (Construction services involving land)
  • Schedule III, Clause 5 (Sale of land and building excluded from supply)
  • FORM GST DRC-01 (Show Cause Notice)
  • FORM GST DRC-01A (Intimation of tax)
  • FORM GST DRC-07 (Summary of order)
• Integrated Goods and Service Tax Act, 2017 (IGST Act):
  • Section 2(120) (Services definition - applies to IGST Act)
  • Section 12, 12(3) (Place of supply of services related to immovable property)
• Gujarat Industrial Development Act, 1962
• Transfer of Property Act:
  • Section 54 (Sale)
  • Section 105 (Lease)
  • Section 108(j) (Rights and liabilities of lessee)
• Finance Act, 1944:
  • Section 65B(44) (Definition of 'service' under erstwhile Service Tax)
• Notifications:
  • Notification No. 11/2017 (Relating to GST rates for construction services, including transfer of land value)

7. Precedents Cited

1. M/s. Gujarat Chamber of Commerce and Industry & Ors. Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023) - Hon'ble Gujarat High Court. This was the primary and controlling precedent that resolved the substantive legal issue.
2. Gopal Saran v. Satya Narayana (1989) 3 Supreme Court Cases 56 - Hon'ble Supreme Court. Cited for the definition of "assignment" (referencing Black's Law Dictionary).
3. Byramjee Jeejeebhoy (P) Ltd vs State Of Maharashtra AIR 1965 Supreme Court 590 - Hon'ble Supreme Court. Cited for distinguishing a lease from a sale and the nature of rights transferred.