Quilon Real Industries Pvt. Ltd vs Union Of India on 4 July, 2025
AI Legal Insights
This GST case law, Quilon Real Industries Pvt. Ltd vs Union Of India, decided by the Gujarat High Court in 2025, addresses the applicability of GST on the transfer of long-term leasehold rights of industrial plots. The core issue was whether such a transfer constitutes a "supply of service" under the State Goods & Service Tax Act, 2017, or a transaction involving immovable property outside the scope of GST. The High Court ruled in favour of the petitioner, quashing the impugned order and holding that the transfer is not subject to GST, referencing Section 74 (read with Section 73) of the Act. This decision has significant implications for businesses involved in similar transactions.
This ruling provides significant relief to businesses involved in the transfer of long-term leasehold rights of industrial plots, clarifying that such transfers are not subject to GST. Taxpayers can rely on this judgment to avoid GST liability on similar transactions, while the revenue department is restrained from levying GST on these transfers.
- Assignment of long-term leasehold rights of industrial plots is not a supply of service under GST.
- The High Court's decision aligns with the Gujarat Chamber of Commerce precedent.
- Taxpayers can seek refunds for GST paid on similar transactions, relying on this ruling.
- Revenue authorities cannot initiate GST proceedings based on this type of transaction.
- This case clarifies the distinction between taxable services and transactions involving immovable property under GST.
QIs GST applicable on the sale of leasehold rights?
According to the Gujarat High Court in Quilon Real Industries Pvt. Ltd vs Union Of India, the transfer/assignment of long-term leasehold rights of an industrial plot does not constitute a supply of service and is therefore not subject to GST. This clarifies that such transactions are considered dealings in immovable property, falling outside the purview of GST.
QWhat is the GST rate on transfer of lease rights?
Based on the Quilon Real Industries Pvt. Ltd case, there is no GST applicable on the transfer or assignment of long-term leasehold rights of industrial plots. The Gujarat High Court has specifically ruled that such transfers are not considered a supply of service and are therefore exempt from GST.
QHow to claim GST refund on leasehold rights?
If you have paid GST on the transfer of long-term leasehold rights for an industrial plot, you may be eligible for a refund based on the Quilon Real Industries Pvt. Ltd case. You will need to file a refund claim with the GST authorities, citing this High Court ruling as evidence that the transaction is not subject to GST.
Ruling Summary
1. Outcome
The petition succeeded. The High Court quashed and set aside the impugned order dated 05.02.2025 (Ref No. ZD240225016849B) issued under Section 74 (read as Section 73 in the quashing order) and FORM GST DRC-07, as well as the Show-cause Notice FORM GST DRC-01 dated 26.07.2024, holding that the transfer/assignment of long-term leasehold rights of an industrial plot is not subject to GST.
2. Core Issue
The core issue was whether the assignment by sale and transfer of long-term leasehold rights of an industrial plot by an original lessee (taxpayer) to a third-party assignee constitutes a "supply of service" taxable under the State Goods & Service Tax Act, 2017, or if it is a transaction involving "immovable property" that falls outside the scope of GST.
3. Key Facts
* The petitioner, Quilon Real Industries Pvt. Ltd., was allotted an industrial plot (No. C-292) by the Gujarat Industrial Development Corporation (GIDC) on a long-term lease basis.
* The GIDC, established under the Gujarat Industrial Development Act, 1962, commonly allots lands on lease, typically for 99 years.
* The petitioner obtained GIDC's approval to transfer its leasehold rights in the said plot to M/s. Jay Chemical Industries Limited on 02.11.2017.
* An Agreement for Sale Deed was executed between the petitioner and M/s. Jay Chemical Industries Limited on 30.08.2017, for which the petitioner received a consideration of Rs. 4.26 crore in the financial year 2017-18.
* The petitioner did not charge or recover any GST on this consideration.
* Subsequently, the Revenue Department initiated proceedings, serving summons on 28.09.2022 and a show-cause notice (FORM DRC-01) on 26.07.2024. This notice demanded GST of Rs. 76,68,000/- on the transfer of leasehold rights, contending it was a taxable "supply of services" under Section 7(1A) of the SGST Act, 2017, classified under Heading 9972.
* The demand was confirmed by an order dated 05.02.2025 (FORM GST DRC-07), leading the petitioner to challenge it before the High Court.
4. Arguments (Taxpayer vs Revenue)
* Taxpayer (Quilon Real Industries Pvt. Ltd.): Represented by Mr. Dhaval Shah, argued that the issue was already settled by the Hon'ble Supreme Court and the Gujarat High Court in the case of Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023). This precedent explicitly held that the assignment of long-term leasehold rights of a plot of land constitutes a transfer of "immovable property" and is therefore not subject to GST.
* Revenue (Union of India & Ors.): Represented by Ms. Shrunjal Shah (Assistant Government Pleader) and Mr. Ankit Shah, contended that the transaction was a "supply of service" taxable under GST. However, during the proceedings, the Assistant Government Pleader was unable to controvert the proposition that the issue was covered by the Gujarat Chamber of Commerce decision.
5. Court’s Reasoning
The High Court adopted and reiterated the reasoning from its own comprehensive decision in Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors., which was binding on the present case. Key points of the reasoning included:
* Distinction between Initial Lease and Assignment: The initial grant of a long-term lease (e.g., 99 years) by GIDC is considered a "supply of service." However, the subsequent assignment or transfer of such existing leasehold rights by the lessee-assignor to a third-party assignee is fundamentally different.
* Nature of Leasehold Rights: A long-term lease for a premium, once assigned, divests the original lessee of all absolute rights in the property. Such a transaction is equivalent to an "alienation" like a sale or mortgage and constitutes a transfer of "immovable property" or an interest therein.
* Legal Precedents on Immovable Property: Citing Gopal Saran v. Satya Narayana and Byramjee Jeejeebhoy (P) Ltd vs State Of Maharashtra, the court emphasized that "assignment" involves the transfer of the whole of any property or rights therein, including lease rights. Such transfers are subject to stamp duty, indicating their nature as immovable property transactions.
* GST Act Provisions:
* Section 7 (Scope of Supply) read with 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 interpreted the assignment of leasehold rights as akin to the sale of land, thus falling outside the ambit of GST.
* Notification No. 11/2017, related to construction services, specifically excludes the value of land (including via lease or sub-lease) for GST calculation, further supporting that the value attributable to immovable property is not taxable under GST.
* Legislative Intent: The court referred to the minutes of the GST Council meetings (5th and 7th), which showed a clear intention not to impose GST on the transfer of immovable property, thereby continuing the underlying principle of the erstwhile service tax regime where transfer of title in immovable property was excluded from the definition of 'service'.
* Conclusion: The assignment/sale/transfer of leasehold rights, along with the land and any building thereon, by the original lessee to an assignee for a consideration, represents a transfer of benefits arising out of "immovable property." Therefore, it cannot be considered a "supply of services" under Section 7(1)(a) read with Clause 5(b) of Schedule II and Clause 5 of Schedule III of the GST Act, and consequently, it is not subject to GST under Section 9 of the Act.
6. Statutory References
* Constitution of India: Articles 226, 227
* State Goods & Service Tax Act, 2017: Sections 2(102), 2(119), 7, 7(1)(a), 7(1A), 9, 11(1), 15(5), 16(1), 17(1), 17(5)(c), 17(5)(d), 74; Schedule II (Clause 5(a), 5(b)); Schedule III (Clause 5)
* Integrated Goods and Service Tax Act, 2017: Section 12, 12(3)
* Gujarat Industrial Development Act, 1962
* Transfer of Property Act: Sections 105, 108(j)
* Finance Act, 1944: Section 65B(44)
* Notifications: Notification No. 11/2017
* Forms: FORM GST DRC-01, FORM GST DRC-07
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
Key Legal Principles
- **Revenue (Union of India & Ors.)**: Represented by Ms. Shrunjal Shah (Assistant Government Pleader) and Mr. Ankit Shah, contended that the transaction was a "supply of service" taxable under GST. However, during the proceedings, the Assistant Government Pleader was unable to controvert the proposition that the issue was covered by the `Gujarat Chamber of Commerce` decision.