A bench of the Gujarat High Court on Thursday quashed notices issued by the GST department that sought to recover tax on the transfer of GIDC plots to third parties from their original allottees. The court held that GST is not applicable on such transactions and also rejected a government plea to stay the order so it could approach the Supreme Court.
Notices Issued to 500 industries
Sources indicate that the GST department had issued notices to 500 industries for the recovery of Rs 5,500 crore, including the original amount plus interest and penalty. The government had protested the petition, claiming it would incur a loss of a whopping Rs 8,000 crore in GST revenue. Now, the government is preparing to file an appeal before the Supreme Court.
Last year, the High Court had issued notices to the Union government, Chief Commissioner of Central Tax, and Special Commissioner of State Tax, among others, in response to a petition filed by the Gujarat Chamber of Commerce and Industry (GCCI) and four industries against the notices issued to them by the GST department.
The core issue revolves around the levy of GST from industries that had assigned their leasehold rights of GIDC-allotted plots to third parties. The department considered the transaction between them as a service liable to GST and issued notices for the quantification of service tax to the original allottees.
Widespread Impact on allottees
Apart from the GCCI, four industries have challenged the notices by the department. However, there are 400 such allottees in different GIDC areas across the state who face hefty service tax bills if the department proceeds with the notice.
The GCCI raised the issue before the court that its members had been allotted plots by the Gujarat Industrial Development Corporation (GIDC) in different regions across the state on a lease basis. As per GST law, the first transaction was exempt from the law, and the transferor (GIDC) was not liable to pay any tax. However, many allottees transferred their lease rights to third parties after obtaining permission from the GIDC in 2017.
Delayed action by GST department
This type of transaction came to the attention of the GST department, and after seven years, they started issuing notices to furnish the documents of the transactions to quantify the tax.
The GCCI further submitted to the court that the GST department relied upon a recent judgment issued by the Bombay High Court that considered such transactions as ‘GST leviable’. Hence, they sought details for levying service tax, which the GCCI argued was illegal. They requested the High Court to quash the notices as not being legal under GST law.
