Gujarat High Court
Quilon Real Industries Pvt. Ltd vs Union Of India on 4 July, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/3585/2025 ORDER DATED: 04/07/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 3585 of 2025
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QUILON REAL INDUSTRIES PVT. LTD.
Versus
UNION OF INDIA & ORS.
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Appearance:
MR DHAVAL SHAH(2354) for the Petitioner(s) No. 1
MS. SHRUNJAL SHAH, ASSISTANT GOVERNMENT PLEADER for the
Respondent(s) No. 2,3,4
MR ANKIT SHAH(6371) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 04/07/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI)
1 The present petition preferred under
Articles 226 and 227 of the Constitution of
India assails the correctness and validity of
order dated 05.02.2024 rendered under Sec.74
of the State Goods & Service Tax Act, 2017
(hereinafter referred to as ‘the Act’ for
short), with FORM GST DRC-07 inter alia
considering the assignment of lease hold
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rights by the petitioner in favour of M/s.Jay
Chemical Industries Limited as supply of
service under Sec.7(1A)of the Act and
classified under heading 9972.
2 The 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 days. GIDC
issues an 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
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premium is required to be paid.
2.1 The petitioner was allotted industrial
plot No. C-292 admeasuring 21591.86 sq.mtrs
vide its Office-cum-Allotment Order dated
30.03.2015. The petitioner had applied to GIDC
for transfer of the plot in question to one
M/s. Jay Chemical Industries, which was
granted vide order dated 02.11.2017.
2.2 Subsequent to the order dated 02.11.2017,
the petitioner and M/s. Jay Chemical
Industries executed an Agreement for Sale Deed
dated 30.08.2017, pursuant to which the
petitioner received consideration of Rs.4.26
crore in the year 2017-18.
2.3 It is the case of the petitioner that it
has neither charged nor recovered any GST from
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M/s. Jay Chemical Industries for the
consideration paid to the petitioner under
Agreement to Sale dated 30.08.2017. However,
petitioner was served with summons dated
28.09.2022 under Sec.17(1) of the Act.
Thereafter, the petitioner was served with a
show-cause notice in FORM DRC-01 on 26.07.2024
which inter alia demanded Rs.76,68,000/- as
GST on transfer of lease hold rights in favour
of M/s. Jay Chemicals Industries on the
premise that execution deed and subsequent
lease is considered as a taxable value of
supply of services.
2.4 Subsequent to the show-cause notice, the
petitioner was served with order in FORM GST
DRC-07 on 05.02.2025 which inter alia
confirmed the proposal made in show-cause
notice dated 26.07.2024. The show-cause notice
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as well as the order dated 05.02.2025 are
subject matter of challenge of the present
writ petition.
3 Mr.Dhaval Shah, 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, Industries & Ors
Vs. Union of India & Ors., rendered in Special
Civil Application No. 11345 of 2023.
4 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).
5 This Court, in the case of Gujarat Chamber
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of Commerce (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 ActPage 6 of 18
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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, interior
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 aPage 7 of 18
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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 lessee-assignor in
favour of a third person-assignee byPage 8 of 18
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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 mattersPage 9 of 18
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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 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
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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 levyPage 11 of 18
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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 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
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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
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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 erstwhile service
tax regime.
XXX XXX XXX
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
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immovable property and therefore, would
not be subject to tax under the GST Act.
XXX XXX XXX
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
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absolute transfer thereof in favor of the
assignee leaving no right whatsoever in
respect of such leasehold land and
building.
XXX XXX XXX
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.”
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6 This Court 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 Sec.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 same would not be
subject to levy of GST as provided under Sec.9
of the Act.
7 In view of the same, the present petition
succeeds. The impugned order being Ref No.
ZD240225016849B dated 05.02.2025 passed under
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Sec.73 and Form GST DRC-07 dated 05.02.2025
issued by respondent No.4 and Show-cause
Notice FORM GST DRC-01 dated 26.07.2024 are
hereby quashed and set aside with no orders as
to costs.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
BIMAL
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