The Supreme Court on July 21 ruled in favour of taxpayers by dismissing the Centre’s special leave petitions (SLPs) against a January 2025 Gujarat High Court order, holding that goods and services tax (GST) cannot be charged when companies transfer long-term leasehold rights in industrial plots allotted by the Gujarat Industrial Development Corporation (GIDC).
A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe noted that the court had already dismissed a similar petition on May 22. The order brings finality to a dispute that had left many industrial units in Gujarat facing large tax demands.
“This judgment brings finality; the Supreme Court has twice declined to interfere on the Revenue’s SLP on this issue, ensuring that GST is not applicable on the transfer of long-term leasehold rights and applicable refunds would be available where the amount has been paid during investigation,” an tax expert said who represents taxpayers before the Supreme Court and several other High Courts on this issue.
GIDC allots industrial land to companies on long-term leases, usually for 99 years. Over time, many original allottees transfer these lease rights to other companies for a lump-sum payment, often after constructing a factory or warehouse on the plot. After GST was introduced in 2017, tax authorities began treating such transfers as a taxable service and issued show-cause notices demanding 18 per cent GST.
Companies and the Gujarat Chamber of Commerce and Industry challenged these notices. They argued that transferring full leasehold rights is essentially a sale of an interest in land, which is treated as immovable property and is specifically kept outside GST under Schedule III of the CGST Act. Stamp duty is already paid on such transfers, so charging GST would amount to double taxation.
In January 2025, the Gujarat High Court accepted the taxpayers’ argument. It ruled that when a lessee completely transfers the long-term lease rights and steps out of the picture, the transaction is a transfer of immovable property and not a “supply of service”. Therefore, GST does not apply. The High Court quashed the tax notices issued in a large batch of cases. The Centre challenged this judgment before the Supreme Court through an SLP, which is the legal route to seek the apex court’s permission to appeal.
“Supreme Court has settled the issue for leasehold rights of industrial plots in Gujarat. Companies that had received tax demands for transferring leasehold rights will no longer have to pay the 18 per cent GST on those transactions. It also reinforces the principle that pure transfers of long-term leasehold rights in land are not taxable under GST, though the ruling is fact-specific,” he said.
The order is expected to provide relief to industrial units and clarity to tax authorities dealing with similar transfers of long-term lease rights in industrial estates, he added.
