Technofy Digital Private Limited ... vs Union Of India on 11 July, 2025

Outcome
The petition succeeded. The impugned order dated 27.02.2025, passed under Section 73 of the SGST Act, 2017 in FORM GST DRC-07, and the Show Cause Notice in FORM GST DRC-01 dated 28.11.2024, demanding GST on the transfer of leasehold rights, were quashed and set aside.

Core Issue
Whether the assignment/transfer of long-term leasehold rights (99 years) of industrial plots by a lessee-assignor to a third-party assignee constitutes a "supply of service" liable to Goods and Services Tax (GST) under Section 7(1)(a) of the SGST Act, 2017.

Key Facts

• Gujarat Industrial Development Corporation (GIDC) allots industrial plots on long-term lease, typically for 99 years, to industries.
• The petitioner, Technofy Digital Private Limited, was allotted industrial plots (No. 10-21 and 30-42/1-50 at GIDC-Bilimora) on long lease, some initially from Mira Cycles and some directly from GIDC.
• The petitioner subsequently sub-leased/assigned these leasehold rights to various other persons/entities.
• Based on information, the respondent authorities initiated proceedings, issuing an advisory, then summons under Section 17(1) of the Act.
• A Show Cause Notice (FORM DRC-01) was issued on 28.11.2024, demanding GST of Rs. 1,48,48,766/- on the "transfer fees received on transfer of lease hold rights", treating it as a taxable supply of services under Section 7(1)(a) of the SGST Act, classified under heading 9972.
• Despite the petitioner's detailed reply, an order (FORM GST DRC-07) was passed on 27.02.2025, confirming the demand.
• The petitioner challenged this order and the Show Cause Notice before the High Court.

Arguments (Taxpayer vs Revenue)

• Taxpayer (Technofy Digital Private Limited): Argued that the issue is no longer res integra (a matter of first impression) and is covered by the decision of the Gujarat High Court in Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (Special Civil Application No. 11345 of 2023). In that case, it was held that the transfer of long-term leasehold rights amounts to a transfer of "immovable property" and therefore falls outside the scope of "supply of services" under the GST Act.
• Revenue (Union of India & Ors.): While the initial show cause notice and order treated the transaction as a "supply of service" liable to GST, the learned advocate for the respondent was "unable to controvert the proposition that the issue is now covered by the decision of Gujarat Chamber of Commerce and Industry (supra)" during the hearing.

Court’s Reasoning
The Court primarily relied on and extensively quoted its own previous judgment in Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors. (SCA No. 11345 of 2023), stating that the issue is already decided. The reasoning adopted from the precedent case is as follows:

• Distinction between original lease and assignment: The initial allotment of land by GIDC on long-term lease with premium and periodical rent is considered a "supply of service" (renting of immovable property) under Section 7 read with Clause 5(a) of Schedule-II of the GST Act.
• Assignment as transfer of immovable property: However, when a lessee-assignor transfers such long-term leasehold rights to a third-party assignee through an assignment deed, it is not a "supply of service" but a transfer of "immovable property."
• Nature of long-term lease: A lease for 99 years or a long term, for a premium, is considered an alienation akin to a sale or mortgage. Leasehold rights are considered an "interest in immovable property" under Section 105 read with Section 108(j) of the Transfer of Property Act.
• Effect of assignment: Such an assignment divests the lessee-assignor of all absolute rights, extinguishes their estate, and severs their legal relationship with the original lessor (GIDC), making the assignee the new lessee. This transaction is considered a transfer of the whole property or rights therein, similar to a sale.
• Exclusion from GST: Clause 5 of Schedule III of the GST Act explicitly excludes the "sale of land" from being treated as a supply of goods or services. The Court held that leasehold rights, when transferred as an alienation, are to be considered akin to the sale of land and thus fall outside the scope of supply under Section 7.
• Legislative Intent: Referring to the definition of "service" in Section 2(102) of the GST Act, Section 65B(44) of the Finance Act, 1944 (erstwhile service tax regime), and minutes of the 5th and 7th GST Council meetings, the Court concluded that the legislative intent was not to impose GST on the transfer of immovable property.
• Conclusion: Therefore, the assignment/transfer of leasehold rights, being a transfer of benefits arising out of "immovable property," is outside the ambit of "supply of services" under Section 7(1)(a) read with Clause 5(b) of Schedule II and Clause 5 of Schedule III, and is not subject to GST under Section 9 of the Act.

Statutory References

• Constitution of India: Articles 226, 227
• State Goods & Service Tax Act, 2017 (SGST Act):
  • Section 2(102) (Definition of "service")
  • Section 2(119) (Definition of "works contract")
  • Section 7 (Scope of Supply)
  • Section 7(1)(a)
  • Section 9 (Levy and collection)
  • Section 11(1) (Power to grant exemption)
  • Section 15(5) (Value of taxable supply)
  • Section 16(1) (Eligibility and conditions for taking ITC)
  • Section 17(1) (Power to issue summons)
  • Section 17(5)(c), (d) (Blocked ITC)
  • Section 73 (Determination of tax not paid or short paid or erroneously refunded where there is no fraud or wilful misstatement or suppression of facts)
  • Schedule-II, Clause 5(a), 5(b) (Activities or Transactions to be treated as Supply of Goods or Supply of Services)
  • Schedule-III, Clause 5 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services)
• Integrated Goods and Service Tax Act, 2017 (IGST Act):
  • Section 2(120) (Definition of "works contract" as per GST Act applies to IGST Act)
  • Section 12, Section 12(3) (Place of supply of services where location of supplier and recipient is in India)
• Gujarat Industrial Development Act, 1962
• Transfer of Property Act: Section 105 (Lease defined), Section 108(j) (Rights and liabilities of lessor and lessee)
• Finance Act, 1944: Section 65B(44) (Definition of "service" under erstwhile Service Tax regime)
• Notification No. 11/2017: (Relating to rates for construction services and exclusion of land value)

Precedents Cited

• Gujarat Chamber of Commerce, Industries & Ors Vs. Union of India & Ors., Special Civil Application No. 11345 of 2023 (Gujarat High Court) - Primary precedent on which the present judgment is based.
• Gopal Saran v. Satya Narayana, (1989) 3 Supreme Court Cases 56 (Supreme Court) - Cited within the Gujarat Chamber of Commerce judgment for the definition of "assignment".
• Byramjee Jeejeebhoy (P) Ltd vs State Of Maharashtra, AIR 1965 Supreme Court 590 (Supreme Court) - Cited within the Gujarat Chamber of Commerce judgment for what a lease contemplates.