Gujarat High Court
M/S Bansi Industries vs State Tax Officer on 1 August, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/8060/2025 JUDGMENT DATED: 01/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 8060 of 2025
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
=================================================
Approved for Reporting Yes
No
✔
==================================================
M/S BANSI INDUSTRIES
Versus
STATE TAX OFFICER
==================================================
Appearance:
MR. HARDIK V VORA(7123) for the Petitioner(s) No. 1
MS SHRUNJAL SHAH ASSISTANT GOVERNMENT PLEADER for the
Respondent(s) No. 1
==================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 01/08/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI)
1. Heard learned advocate Mr. Hardik Vora for the petitioner
and learned Assistant Government Pleader Ms. Shrunjal Shah
for the respondent.
2. Having regard to the controversy arising in the petition
which is in narrow compass, with the consent of the learned
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advocates for the respective parties, the matter is taken up for
hearing.
3. Present petition preferred under Articles 226 and 227 of
the Constitution of India assails the correctness and validity of
Order-in-Original dated 31.12.2024 rendered under Section 74
(1) of the Gujarat/State Goods & Service Tax Act, 2017
(hereinafter referred to as ‘the Act’ for short). The impugned
order passed in FORM GST DRC-07 inter alia considers the
assignment of lease hold rights by the petitioner in favour of
M/s. Bansi Industries as supply of service under Section 7(1)(a)
of the Act and, therefore, classified under Heading 9972 of
classification scheme for services under the Act.
4. Brief facts leading to filing of the present petition is that
Gujarat Industrial Development Corporation (hereinafter
referred to as ‘GIDC’), which is established under the Gujarat
Industrial Development Act, 1962, acts as a nodal agency of
Government of Gujarat for the purpose of development of
industrial areas / estates. GIDC gives lands to industries on
lease, generally for a period of 99 years. GIDC issues an
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allotment letter to the industry desiring to take plots developed
by the GIDC. Allotment letter would set various terms and
conditions on which the allotment is being made, including the
method and manner in which premium is required to be paid.
4.1 It is the case of the petitioner that the petitioner was
allotted Industrial Plot No. 227 at Panoli Industrial Estate
admeasuring 3596.74 sq.mtrs vide order dated 10.08.2018,
which initially consisted of partners namely Bipinbhai
Pravinbhai Kakadiya, Dineshbhai Muljibhai Kakadiya, and
Hiteshbhai Natvarbhai Kakadiya. Thereafter on account of
change in the constitution of the firm, to reflect the change in
the records of GIDC, the petitioner applied for the transfer of
the plot in the name of petitioner firm with new partners and
executed a deed of assignment on 28.06.2018.
4.2. In view of the aforesaid development, on 26.07.2024, the
respondent issued an intimation of tax ascertained as being
payable under Section 74(5) of the Act in Form DRC-01A asking
the petitioner to pay GST at the rate of 18% of Rs.57,54,800/-
being the amount received by the petitioner as consideration for
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transfer of aforesaid plots to M/s. Bansi Industries along with
interest and penalty. In response to the same, the petitioner
filed objections on 02.08.2024. However, without considering
the same, the respondent issued show cause notice under
Section 74(1) of the Act in Form DRC-01 on 03.08.2024 asking
the petitioner to show cause as to why GST amounting to
Rs.10,35,864/- should not be demanded and recovered along
with interest and penalty on the consideration received by the
petitioner on transfer of leasehold rights of GIDC plot in
question.
4.3. Being aggrieved by the said show cause notice, the
petitioner preferred writ petition being Special Civil Application
No. 12828 of 2024 on 20.08.2024, which came to be decided on
03.01.2025. It is the case of the petitioner that pending the writ
petition, the respondent without considering the request or
providing any opportunity of hearing, passed an order under
Section 74 of the GST Act on 31.12.2024 along with Form GST
DRC-07 determining total demand of Rs.32,37,458/- including
interest and penalty. However, despite the fact that the show
cause notice was challenged and quashed by this Court in the
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writ petition, the respondent authorities went ahead to
adjudicate the show cause notice which is three days prior to
the decision rendered in Special Civil Application No. 12828 of
2024. Thereafter, being aggrieved by the Order-in-Original
dated 31.12.2024 passed by the respondent, the petitioner was
subjected to file Misc. Civil Application No. 1 of 2025 inter alia
praying to quash the impugned Order-in-Original dated
31.12.2024. This Court vide order dated 25.04.2025 permitted
the applicant to withdraw the Misc. Civil Application with liberty
to file fresh writ petition. In view of such fact, the petitioner has
preferred the present writ petition challenging the Order-in-
Original dated 31.12.2024.
5. Mr. Hardik Vora, learned advocate for the petitioner has
submitted that the issue is no more res integra pursuant to the
decision of the Hon’ble Supreme Court in the case of Gujarat
Chamber of Commerce and Industry & Ors Vs. Union of
India & Ors., rendered in Special Civil Application No. 11345
of 2023. Learned advocate Mr. Hardik Vora has further
submitted that when the show cause notice itself was quashed
by this Court in Special Civil Application No. 12828 of 2024, the
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subsequent Order-in-Original is required to be quashed and set
aside.
6. Ms. Shrunjal Shah, learned Assistant Government Pleader
was unable to controvert the proposition that the issue is now
covered by the decision of Gujarat Chamber of Commerce
(supra).
7. This Court, in the case of Gujarat Chamber of Commerce
and Industry (supra), held as under:
“51. This submission seems to be very attractive at the first blush,
however, there are two transactions, one when the GIDC allots
plot of land along with right to occupy, right to construct, right to
possess on long term lease basis, it is nothing but supply of service
as right of ownership of plot in question remains with the GIDC
which will revert back on expiry of lease period whereas
transaction of sale and transfer of leasehold rights by the lessee-
assignor in favour of assignee divest lessee-assignor of all the
absolute rights in the property. Therefore, interest in the
immovable property in form of leasehold rights cannot be said to
be different than the immovable property itself. Section 2(119) of
the GST Act defines “works contract” being a contract for building,
construction, fabrication, completion, erection etc., of any
immovable property wherein transfer of property in goods is
involved in execution of such contract. Therefore, there is no
reference to the interest in immovable property in works contract.
Similarly section 17(5)(c) and (d) of the GST Act refers to the
immovable property regarding works contract services and goods
or services both received by taxable person for construction of an
immovable property. Section 12 of the Integrated Goods and
Service Tax Act,2017 (for short ‘the IGST Act‘) refers to place of
supply of services in reference to section 2(120) of the GST Act
which applies to the IGST Act also and as per sub-section(3) of
section 12, place of supply of services in relation to immovable
property includes services provided by architect, interiorPage 6 of 13
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decorators etc. and includes any service provided by way of grant
of right to use immovable property or for carrying out or
coordination of construction work by way of lodging
accommodation by a hotel, by way of accommodation in any
immovable property for organizing marriage or any services
ancillary to the services referred to in other clauses, shall be the
location at which the immovable property is located.
XXX XXX XXX
61. A bare perusal of the above Statement of Object and Reasons,
clearly indicates the legislative intention to subsume all the
existing indirect taxes in a single tax called Goods and Services
Tax to be levied on supply of goods or services or both at each
stage of supply chain by converging any tax that was being levied
on the supply of goods or services to be converged in Goods and
Service tax to be levied under the GST Act.
62. In view of the legislative intention, section 7 of the GST Act
which provides for the scope of supply of good or services or
both for the purpose of the GST Act includes all forms of supply
of goods or services or both by any form such as transfer, sale,
barter, exchange, license, rental, lease or disposal made or
agreed to be made for a consideration by a person in the course
or furtherance of business. Therefore, considering the settled
legal position as held by the Hon’ble Supreme Court and other
High Courts from time to time, it is true that any lease or letting
out of a building including commercial, industrial, residential
complex for business either wholly or partly would be “supply of
service”. Therefore, reading the provisions of the Act together
and harmoniously to understand the nature of levy and the object
and purpose of its imposition, no activity of the nature mentioned
in the inclusive provision of section 7 of the GST Act can be left
out of the net of tax. Simultaneously, the provisions of section 7
has to be read in terms of substantive provision and Schedules
which treats the activity as supply of service, particularly, in
relation to land and building and includes a lease. The
consideration, therefore, as premium/one time premium is a
measure on which tax is to be levied, assessed and recovered.
Therefore, when the GIDC allots the plot of land on lease of 99
years and charges premium for such allotment followed by
periodical lease rent to be paid, is to be considered as supply of
service in relation to land and building read with clause 5(a) of
Schedule-II which specifically provides that renting of immovable
property shall be treated as supply of services.
63. However, when such leasehold right is transferred by the
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lessee-assignor in favour of a third person-assignee by execution
of deed of assignment , it would be nothing but transfer of an
“immovable property” in view of the settled legal position to the
effect that lease for 99 years or for a long term in consideration
of premium paid is as much an alienation as sale or mortgage.
64. Corpus Juris Secundum relied upon on behalf of the
petitioner defines the word “property” which depends on the
context with which it is used. Firstly, it is applied to the
external things that are the objects of rights or estates that is
things that are the object of the ownership and secondly, it is
applied to the rights or estates that a person may acquire in or
to things. Therefore, in strict legal parlance “property” is used
to designate a right of ownership or an aggregate of rights that
are guaranteed and protected by the Government and has been
defined as the right of any person to possess, use, enjoy and
dispose of a thing and to exclude everyone else from interfering
with it and more succinctly, it has been defined as any vested
right of any value which refers to both the actual physical
object and various incorporeal ownership rights in the object
i.e. plot of land and building thereon in facts of the case as the
right to possess, to enjoy the income from, to alienate or to
recover ownership from one who has obtained title to the
object.
65. Under the GST Act and IGST Act relating to Rate of Tax,
Exemption, Reverse Charge Scheme and other matters
concerning supply of services are covered by notifications
issued in exercise of powers conferred by subsections (1), (3)
and (4) of section 9, subsection (1) of section 11, sub-section
(5) of section 15 and sub-section (1) of section 16 of the GST
Act on the basis of recommendations of the GST Council.
66. As per the notification no. 11/2017, lease of property is
included in Heading No. 9954 relating to construction services
which provides rates of GST involving transfer of land or
undivided share of land, as the case may be, and value of such
supply shall be equivalent to the total amount charged for such
supply less the value of transfer of land or undivided share of
land, as the case may be, and value of such transfer of land or
undivided share of land shall be deemed to be 1/3rd of the total
amount charged for such supply and total amount means sum
total of consideration charged for the aforesaid service and
amount charged for transfer of land or undivided share of land,
as the case may be, including by way of lease or sublease.
Therefore, levy of GST on construction services are exclusive of
1/3rd of total amount charged for such supply which includes
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transfer by way of lease or sub-lease meaning thereby even for
levy of GST on construction services, value of the land by way of
lease is to be excluded considering such value being the value of
immovable property which is transferred.
67. In such circumstances, the contention raised on behalf of the
petitioner that leasehold rights are nothing but interest in
immovable property as per the provision of section 105 read
with section 108(j) of the Transfer of Property Act constituting
absolute transfer of right in such property because transfer of
such leasehold right extinguishes the estate of the transferor-
lessee-assignor in the immovable property and all legal
relationships with lessor-GIDC are severed and third party-
assignee becomes lessee liable for obligation under the
assignment deed vis-à-vis the lessor-GIDC. As the assignor
transfers leasehold rights after receiving the consideration as
determined on the basis of value of such leasehold rights, such
transaction therefore would of an “immovable property” and
cannot be considered as “supply of services” as held by Hon’ble
Apex Court in case of Gopal Saran v. Satya Narayana reported
in (1989) 3 Supreme Court Cases 56 wherein definition of
“assignment” as stated in Black’s Law Dictionary, Special
Deluxe Edition page 106, is referred to as assignment means “is
a transfer or making over to another of the whole of any
property, real or personal, in possession or in action, or of any
estate or right therein”. It has further been held that assignment
would include “The transfer by a party of all its rights to some
kind of property, usually intangible property such as rights in
lease, mortgage, agreement of sale or a partnership.”
Considering such definition of assignment, assignment of
leasehold rights is also subject to levy of stamp duty being
transfer of “immovable property”.
68. The Hon’ble Apex Court in case of Byramjee Jeejeebhoy (P)
Ltd vs State Of Maharashtra reported in AIR 1965 Supreme
Court 590 while holding as to what a lease contemplates has
observed that a demise or a transfer of a right to enjoy land for
a term or in perpetuity in consideration of a price paid or
promised or services or other things of value to be rendered
periodically or on specified occasions to the transferor. The
words “transfer of right to enjoy such property” indicates that
all the rights of ownership are not transferred. Therefore, the
significance of those words as indicative of the limited estate
transfer is apparent in contrasted which flows in section 54
where a sale is defined as “transfer of ownership in exchange
for a price”. Therefore, while assignment conveys the whole
interest in the property which passes to the assignee along with
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rights and liability to sue and be sued upon the covenants in the
original lease.
XXX XXX XXX
73. Therefore, the scope of “supply of services” would not
include transfer of leasehold rights as supply of service as it
would be transfer of “immovable property” being a benefit
arising out of immovable property consisting of land and
building.
74. Clause 5 of Schedule III of the GST Act clearly provides that
sale of land cannot to be treated as supply of goods or services.
Therefore, leasehold rights which are to be considered as sale of
land would be out of purview of the provisions of scope of supply
as per section 7 of the GST Act.
75. As the GST Act is nothing but a levy of tax upon all the
indirect taxes which were levied under different legislation, it
would be germane to refer to definition of “service” as provided
in section 2(102) of the GST Act to mean as anything other than
goods, money and securities. Considering such definition in
juxtaposition to provisions of section 65B(44) of the Finance Act,
1944, there was specific exclusion of transfer of title in
immovable property from definition of ‘service’ itself which
clearly shows that there was no intention of the legislature to
impose tax on transfer of immovable property. Under the
Service Tax Act, even the development rights which are the
benefits arising from land were not liable to tax. Leasehold right
is in fact a greater right and interest in land than development
rights and the principle under the service tax regime would
therefore, continue even to apply under the GST regime as the
object of introduction of GST is to subsume the existing taxes.
76. It would also be necessary to refer to the Minutes of the
meeting of 5th GST Council to the Agenda 2A which clearly
notes that service tax was not leviable on transfer of immovable
property and a specific proposal was made to impose GST on
sale of immovable property on the ground that there was no
constitutional embargo for imposing such tax and the stamp
duty was leviable on a different aspect. 7th GST Council meeting
held on 22nd and 23rd December, 2016 after a detailed
discussion decided to defer imposition of tax on land and
building and thereafter, clause 5 of Schedule III of the GST Act
clearly excludes sale of land and building which fortifies the
intention of the GST Council not to impose tax on transfer of
immovable property continuing the underlying object of
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erstwhile service tax regime.
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78. Moreover, in the facts of the various cases, GIDC had only
allotted the plot of land to the lessee who constructed the
building and developed the land to run the business or industry
for which such plot of land was allotted. Therefore, what is
assigned by the lessee/assignor to the assignee for a
consideration is not only the land allotted by GIDC on lease but
the entire land along with building thereon which was
constructed on such land. The entire land and building is
therefore, transferred along with leasehold rights and interest in
land which is a capital asset in form of an immovable property
and the lessee/assignor earned benefits out of land by way of
constructing and operating factory building/shed which
constitutes a “profit a pendre” which is also an immovable
property and therefore, would not be subject to tax under the
GST Act.
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81. Therefore, the contention of the respondents that by
excluding only sale of land and building as per Schedule-III
would not amount to transfer of leasehold rights as the interest
in immovable property being an intangible form would be
covered by the scope of supply of service, is not tenable as
transaction of assignment is nothing but absolute transfer of
right and interest arising out of the land which would amount
to transfer/sale of immovable property which cannot be said to
be “service” as contemplated under the provisions of GST Act.
Moreover, assignment/transfer of rights would be out of scope
of supply of service.
82. In view of above discussion and analysis of the provisions of
section 7 read in context of the facts of the case, the decisions
relied upon on behalf of the respondent are required to be dealt
in support of the proposition that interest in immovable
property cannot be considered as an immovable property as it
is not envisaged as such in the GST Act, as immovable property
is nothing but bundle of rights and right to give such property
on lease is one of such rights and further transfer of the right
to occupy or possess will continue to remain as supply of
service which character will not change merely because lessee
of GIDC affects absolute transfer thereof in favor of the
assignee leaving no right whatsoever in respect of such
leasehold land and building.
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83. In view of foregoing reasons, assignment by sale and
transfer of leasehold rights of the plot of land allotted by GIDC
to the lessee in favour of third party-assignee for a consideration
shall be assignment/sale/ transfer of benefits arising out of
“immovable property” by the lessee-assignor in favour of third
party-assignee who would become lessee of GIDC in place of
original allottee-lessee. In such circumstances, provisions of
section 7(1)(a) of the GST Act providing for scope of supply read
with clause 5(b) of Schedule II and Clause 5 of Schedule III
would not be applicable to such transaction of assignment of
leasehold rights of land and building and same would not be
subject to levy of GST as provided under section 9 of the GST
Act.
84. In view of above, question of utilisation of input tax credit to
discharge the liability of GST on such transaction of assignment
would not arise.
85. The petitions accordingly succeed and impugned show cause
notices and orders in original or appeal as the case may be, are
hereby quashed and set aside. Rule is made absolute to the
aforesaid extent. No order as to costs.”
8. This Court in various decisions has already decided that
assignment by sale and transfer of lease hold right of the plot of
land allotted by GIDC to the lessee in favour of third party –
assignee for a consideration shall be assignment/sale/transfer of
benefits arising out of “immovable property” by the lessee –
assignor. In such circumstances, the provision of Section 7(1)(a)
of the Act providing for scope of supply read with Clause 5(b) of
Schedule 2 and Clause 5 of Schedule 3 would not be applicable
to such transaction of assignment of lease hold rights and the
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same would not be subject to levy of GST as provided under
Section 9 of the Act. In view of the fact that this Court has
already set aside the show cause notice dated 03.08.2024 in
Special Civil Application No. 12828 of 2024 and considering the
decision of this Court in the case of Gujarat Chamber of
Commerce and Industry (supra), the impugned Order-in-
Original dated 31.12.2024, is required to be quashed and set
aside.
9. In view of the same, the present petition succeeds. The
impugned Order-in-Original dated 31.12.2024 passed under
Section 74 in Form GST DRC-07 issued by respondent is hereby
quashed and set aside. Rule is made absolute to the aforesaid
extent. No order as to costs.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
phalguni
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