M/S Kp Green Engineering Limited vs Union Of India on 25 July, 2025
AI Legal Insights
This GST case law from the Gujarat High Court addresses whether the transfer of long-term leasehold rights of industrial plots constitutes a taxable supply of service under Section 7(1)(a) of the SGST Act, 2017. The core issue revolves around a show-cause notice issued under Section 74. The court examined the legislative intent behind the GST Act, Schedule III exclusions, and GST Council decisions to determine the taxability of such transfers. The judgment provides clarity on the GST implications of transferring leasehold rights, impacting businesses dealing with industrial land transactions.
This ruling clarifies that the GST department cannot levy GST on the assignment of long-term leasehold rights on land, aligning with the principle that transfer of immovable property is outside the scope of GST. This benefits taxpayers involved in such transactions by avoiding unwarranted tax demands.
- Transfer of long-term leasehold rights on GIDC plots is considered a transfer of immovable property.
- Such transfers are not a 'supply of service' under Section 7(1)(a) of the GST Act.
- Sale of land is explicitly excluded from GST under Schedule III of the GST Act.
- GST Council minutes support the exclusion of GST on land and building sales.
- Taxpayers involved in similar transactions should review past assessments for potential refunds.
QIs GST applicable on the sale of land in India?
No, the sale of land is explicitly excluded from the purview of GST as per Schedule III of the GST Act. This exclusion aligns with the legislative intent to maintain the pre-GST position on immovable property transactions.
QWhat is the GST rate on transfer of leasehold rights?
As per M/s. Kp Green Engineering Limited vs Union Of India, the transfer of long-term leasehold rights is considered a transfer of immovable property and not a supply of service. Therefore, GST is not applicable on such transfers.
Ruling Summary
Here's a summary of the judgment:
1. Outcome
The petition was allowed. The impugned show-cause notice dated 29.12.2023, issued under Section 74 of the State Goods & Service Tax Act, 2017, was quashed and set aside.
2. Core Issue
The core issue was whether the assignment (transfer) of long-term leasehold rights (99 years) in industrial plots originally allotted by the Gujarat Industrial Development Corporation (GIDC) constitutes a "supply of service" liable to Goods and Services Tax (GST) under Section 7(1)(a) of the SGST Act, 2017.
3. Key Facts
* The Petitioner (M/s. Kp Green Engineering Limited, erstwhile M/s. K.P. Buildcon Private Limited) was allotted an industrial plot by GIDC on a 99-year lease in 2007.
* The Petitioner subsequently agreed to transfer/assign its leasehold rights in the said plot to M/s. Hindustan Enviro Life Protection Services Limited.
* A sale deed for the transfer was executed on 28.03.2017, and the Petitioner received a consideration of Rs. 2,20,00,000/- for this transfer.
* The Directorate General of GST Intelligence (DGGI) initiated proceedings, leading to a show-cause notice (SCN) dated 29.12.2023.
* The SCN demanded GST of Rs. 39,60,000/-, treating the transfer of leasehold rights as a taxable "supply of services" under Section 7(1)(a) of the SGST Act, 2017, and classified under Heading 9972 of the Tariff Code.
* The Petitioner filed a reply to the SCN on 15.10.2024.
4. Arguments (Taxpayer vs Revenue)
* Taxpayer (M/s. Kp Green Engineering Limited):
* Argued that the issue is no longer res integra (settled law) and is covered by the Gujarat High Court's decision in Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023). This implies that the transfer of leasehold rights is not a supply of service.
* Revenue (Union of India & Ors.):
* The learned Assistant Government Pleader for the respondent was "unable to controvert the proposition that the issue is now covered by the decision of Gujarat Chamber of Commerce, Industries & Ors. (supra)." (The SCN's premise, which the Revenue initially defended, was that the assignment of leasehold rights constituted a taxable supply of services).
5. Court’s Reasoning
The High Court explicitly relied on and affirmed its earlier judgment in Gujarat Chamber of Commerce, Industries & Ors. Vs. Union of India & Ors. (SCA No. 11345 of 2023). The key points of the reasoning, as adopted, are:
- Distinction between Initial Lease and Assignment: While the initial grant of a long-term lease (e.g., 99 years) by GIDC to an industrial unit for a premium and periodical rent is a "supply of service" (renting of immovable property under Schedule II, Clause 5(a) of the GST Act), the subsequent transfer/assignment of such leasehold rights by the lessee-assignor to a third-party assignee is fundamentally different.
- Assignment as Transfer of Immovable Property: The Court held that a lease for 99 years or a long term, for a consideration/premium, amounts to an "alienation as sale or mortgage." Therefore, the transfer of such leasehold rights is considered a transfer of "immovable property" or benefits arising out of "immovable property," not a supply of service. Such a transaction extinguishes the rights of the assignor and establishes the assignee as the new lessee.
- Legislative Intent and Schedule III:
- The GST Act intended to subsume indirect taxes but maintained the principle from the pre-GST Service Tax regime that transfer of immovable property was not liable to tax.
- Minutes of the 5th and 7th GST Council meetings showed a deliberate decision to defer/exclude GST on the sale of land and buildings.
- Clause 5 of Schedule III of the GST Act explicitly states that the "sale of land" shall not be treated as a supply of goods or services. The Court reasoned that the transfer of long-term leasehold rights, being akin to a sale of land, falls within this exclusion.
- Conclusion: The assignment/transfer of leasehold rights arising from a GIDC plot by a lessee to a third-party assignee for consideration is a transfer of "immovable property" and, therefore, does not fall within the scope of "supply of services" under Section 7(1)(a) of the GST Act, nor is it subject to GST under Section 9.
6. Statutory References
* The Constitution of India: Articles 226, 227
* The Gujarat Industrial Development Act, 1962
* The State Goods & Service Tax Act, 2017:
* Section 74
* Section 7(1)(a)
* Section 2(119) ("works contract")
* Section 17(1), 17(5)(c), 17(5)(d)
* Section 2(102) ("service")
* Section 9
* Schedule II, Clause 5(a) & 5(b)
* Schedule III, Clause 5
* The Integrated Goods and Service Tax Act, 2017: Section 12(3)
* The Transfer of Property Act: Section 54, Section 105, Section 108(j)
* The Finance Act, 1944: Section 65B(44)
* Notification No. 11/2017 (related to construction services Heading 9954)
7. Precedents Cited
* Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023, Gujarat High Court)
* Gopal Saran v. Satya Narayana (1989) 3 Supreme Court Cases 56
* Byramjee Jeejeebhoy (P) Ltd vs State Of Maharashtra AIR 1965 Supreme Court 590
Key Legal Principles
- **Legislative Intent and Schedule III:**
- The GST Act intended to subsume indirect taxes but maintained the principle from the pre-GST Service Tax regime that transfer of immovable property was not liable to tax.
- Minutes of the 5th and 7th GST Council meetings showed a deliberate decision to defer/exclude GST on the sale of land and buildings.
- Clause 5 of Schedule III of the GST Act explicitly states that the "sale of land" shall not be treated as a supply of goods or services. The Court reasoned that the transfer of long-term leasehold rights, being akin to a sale of land, falls within this exclusion.
- **Conclusion:** The assignment/transfer of leasehold rights arising from a GIDC plot by a lessee to a third-party assignee for consideration is a transfer of "immovable property" and, therefore, does not fall within the scope of "supply of services" under Section 7(1)(a) of the GST Act, nor is it subject to GST under Section 9.