Dhiraj Can Co. Pvt. Ltd vs The — Gujarat HC 2025 GST Ruling

AI Legal Insights

This GST case law, Dhiraj Can Co. Pvt. Ltd vs The Union Of India, decided by the Gujarat High Court in 2025, addresses the applicability of GST on the assignment of long-term leasehold rights. The court considered whether the transfer of rights to an industrial plot, originally leased by GIDC, constitutes a "supply of service" under the CGST Act. The ruling quashed the order issued under Section 73, providing clarity on the taxability of such transactions and offering relief to businesses involved in similar assignments. This case is crucial for understanding GST implications on property transfers.

This GST case law provides relief to taxpayers involved in the assignment of leasehold rights, clarifying that such transactions are not subject to GST. It impacts how businesses structure property transfers, particularly those involving industrial plots initially allotted by GIDC or similar bodies.

Assignment of long-term leasehold rights is not a taxable supply of service under GST.
Section 73 orders related to GST on such assignments can be challenged.
Consideration received for the transfer of leasehold rights is not subject to GST.
Ensure proper documentation of the original lease agreement and assignment deed.
Review past GST payments on similar transactions for potential refund claims.

QIs GST applicable on transfer of leasehold rights?

According to the Gujarat High Court in Dhiraj Can Co., the assignment of long-term leasehold rights of an industrial plot does not constitute a "supply of service" and is therefore not subject to GST.

QWhat is Section 73 of the CGST Act?

Section 73 of the CGST Act deals with the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or willful misstatement or suppression of facts.

QHow to challenge a GST demand order?

A GST demand order can be challenged by filing an appeal before the appropriate appellate authority. The specific procedure and timelines for filing an appeal are outlined in the CGST Act and Rules, and typically involve submitting the required forms and paying a portion of the disputed tax amount.

⚖ Headnote

The Gujarat High Court quashed the order under Section 73 of the CGST Act, holding that the assignment of long-term leasehold rights of an industrial plot is not a "supply of service" liable to GST.

Ruling Summary

1. Outcome

The petition succeeded. The impugned order dated 29.08.2024 passed under Section 73 of the Act, Form GST DRC-07 dated 29.08.2024, and Show-cause Notice Form GST DRC-01 dated 30.05.2024 were quashed and set aside.

2. Core Issue

The core issue was whether the assignment by sale and transfer of long-term leasehold rights of an industrial plot, originally allotted by GIDC to a lessee, in favour of a third-party assignee for a consideration, constitutes a "supply of service" liable to Goods and Services Tax (GST) under the State Goods & Service Tax Act.

3. Key Facts

The petitioner, Dhiraj Can Co. Pvt. Ltd., was allotted industrial plot No. 7901/1-2B by Gujarat Industrial Development Corporation (GIDC) on a long-term lease (99 years) via an office order dated 13.10.1982 and a Lease Deed/Conveyance Deed dated 25.10.1982.
The petitioner applied to GIDC on 03.03.2020 to transfer the plot to M/s. Acquire Chemicals, which was approved on 16.03.2020.
A Deed of Assignment was executed on 30.06.2020, for which the petitioner received a consideration of Rs. 75 lakhs in 2019-2020.
The petitioner did not charge or recover any GST from M/s. Acquire Chemicals on this transaction.
The petitioner was served with a summons dated 24.05.2021, followed by a Show-Cause Notice in FORM DRC-01 dated 30.05.2024, demanding GST of Rs. 13,50,000/- on the premise that the transfer of leasehold rights constituted a taxable supply of services under Section 1-1(A) of the Act, classified under heading 9972.
An order in FORM GST DRC-07 dated 29.08.2024 confirmed the demand made in the show-cause notice.

4. Arguments

Taxpayer (Dhiraj Can Co. Pvt. Ltd.):
- The issue is no longer res integra (settled) by the decision of the High Court in Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023).
- The assignment of leasehold rights is a transfer of "immovable property" or benefits arising out of immovable property, and therefore, it falls outside the purview of "supply of services" under the GST Act.
Revenue (Union of India & Ors.):
- The assignment of leasehold rights constitutes a "supply of service" under the GST Act and is therefore taxable.
- The learned Assistant Government Pleader, however, was unable to controvert the proposition that the issue was covered by the decision in Gujarat Chamber of Commerce (supra).

5. Court’s Reasoning

The High Court primarily relied on its own decision in Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023), which held:
* A distinction must be drawn between the initial allotment of land on lease by GIDC (which is a supply of service) and the subsequent transfer of leasehold rights by the lessee-assignor to a third-party assignee.
* When a lessee-assignor transfers long-term leasehold rights (e.g., 99 years) through a deed of assignment, it divests the assignor of all absolute rights in the property. Such a transaction is considered a transfer of "immovable property" itself, or benefits arising out of immovable property.
* Lease for 99 years or a long term, for a premium, is an alienation akin to a sale or mortgage.
* The term "property" in legal parlance includes not just physical objects but also rights or estates acquired in them. Assignment, as defined, involves the transfer of the whole of any property, real or personal, or any estate or right therein.
* The levy of stamp duty on such assignments further supports its characterization as a transfer of "immovable property."
* Notification No. 11/2017, which relates to construction services, excludes 1/3rd of the total amount charged for the transfer of land or undivided share of land (including by way of lease or sub-lease) for GST calculation, implying that the value of land (immovable property) is excluded from GST even in mixed supplies.
* 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. Leasehold rights, when transferred absolutely, are akin to the sale of land or interest therein and thus fall outside Section 7 of the GST Act.
* The legislative intent behind GST, evidenced by GST Council minutes and the definition of "service" (Section 2(102) GST Act) compared to the Finance Act, 1944 (Service Tax regime), shows no intention to impose tax on the transfer of immovable property.
* The transfer of leasehold rights, along with the constructed building thereon, amounts to the transfer of a capital asset in the form of immovable property, including any "profit a pendre" derived from developing the land.
* Therefore, the provisions of Section 7(1)(a) of the GST Act, read with Clause 5(b) of Schedule II and Clause 5 of Schedule III, are not applicable to the assignment of leasehold rights, and such transactions are not subject to GST under Section 9 of the GST Act.

6. Statutory References

Articles 226 and 227 of the Constitution of India
Section 73 of the State Goods & Service Tax Act (The Act)
Section 1-1(A) of the Act (as cited in original text)
Gujarat Industrial Development Act, 1962
Section 17(1) of the Act
FORM DRC-01 and FORM GST DRC-07
Section 2(119) of the GST Act (defining "works contract")
Section 17(5)(c) and (d) of the GST Act
Section 12 of the Integrated Goods and Service Tax Act, 2017 (IGST Act)
Section 2(120) of the GST Act
Sub-section (3) of Section 12 of the IGST Act
Section 7 of the GST Act (scope of supply)
Clause 5(a) of Schedule-II of the GST Act
Section 105 of the Transfer of Property Act
Section 108(j) of the Transfer of Property Act
Subsections (1), (3), and (4) of Section 9 of the GST Act
Subsection (1) of Section 11 of the GST Act
Sub-section (5) of Section 15 of the GST Act
Sub-section (1) of Section 16 of the GST Act
Notification No. 11/2017
Clause 5 of Schedule III of the GST Act
Section 2(102) of the GST Act (defining "service")
Section 65B(44) of the Finance Act, 1944

7. Precedents Cited

Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023)
Gopal Saran v. Satya Narayana (1989) 3 Supreme Court Cases 56
Byramjee Jeejeebhoy (P) Ltd vs State Of Maharashtra AIR 1965 Supreme Court 590

Sections Referenced in This Case

IGST

Dhiraj Can Co. Pvt. Ltd vs The Union Of India on 4 July, 2025