Facts of the Case:

In this case, the petitioner filed the present writ petition challenging Deficiency Memos issued by the respondent authority in Form GST RFD-03, whereby the petitioner’s refund claim under Section 54 of the CGST Act, 2017 was not processed. 

The dispute arose from the transfer/assignment of leasehold rights in an industrial plot allotted by GIDC. Originally, M/s Dayaram Pharma Chem was the lessee of the plot allotted by GIDC. Upon obtaining a Final Transfer Order from GIDC, the said leasehold rights were transferred/sold to the petitioner under an agreement dated 19.07.2024, against consideration paid in two instalments. GST was paid on such transfer. Subsequently, relying upon the law declared by the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India , the petitioner contended that assignment/transfer of leasehold rights in land is at par with sale of land, which is covered under Schedule III to the CGST Act and does not constitute “supply” under Section 7, and therefore GST was not leviable.

On this basis, the petitioner applied for refund of GST already paid. However, the refund application was not adjudicated on merits and was instead disposed of by issuing Deficiency Memos, citing reasons such as supporting documents being not legible, and absence of any notification or circular by the GST Council regarding refund of GST paid on lease transactions. Aggrieved by repeated issuance of Deficiency Memos without examining the binding judicial precedents, the petitioner approached the High Court

Issue:

Whether the respondent authorities were justified in issuing Deficiency Memos and denying processing of the refund claim, despite the settled legal position that transfer/assignment of leasehold rights in land is not exigible to GST, and whether the petitioner was entitled to a direction for grant of refund.

Held that:

The Court noted that the controversy involved in the present petition was squarely covered by its earlier judgment in Gujarat Chamber of Commerce and Industry v. Union of India, wherein it was conclusively held that assignment/sale/transfer of leasehold rights in land and building amounts to transfer of immovable property, falling under Schedule III, and therefore does not constitute supply under Section 7 of the CGST Act nor attract levy under Section 9.

The Court reiterated that such a transaction does not constitute “supply” within the meaning of Section 7(1)(a) of the CGST Act, 2017, when read with Clause 5 of Schedule III, which specifically excludes sale of land from the scope of supply. Consequently, Section 9 of the CGST Act, which is the charging provision, would have no application, and no GST could have been levied or collected on such transfer of leasehold rights. The Court further observed that once it is held that the levy itself is without authority of law, the corollary is that any tax paid pursuant thereto becomes refundable, subject to compliance with the procedural requirements under Section 54 of the CGST Act, 2017. The refund authority, while examining such a claim, is bound by the law declared by this Court , and cannot refuse or defer the refund on the pretext that there is no specific notification or circular issued by the GST Council governing refund in such cases.

The Court found fault with the approach of respondent No. 3 in issuing Deficiency Memos in Form GST RFD-03 without adverting to or applying the binding judgment in Gujarat Chamber of Commerce and Industry (supra). The Court held that administrative authorities are duty-bound to follow judicial precedents, and failure to do so amounts to non-application of mind and arbitrariness.

Accordingly, the Court held that if the petitioner files a fresh refund application, the respondent authorities shall process and grant the refund expeditiously, strictly in accordance with law and the binding judicial pronouncements. The Court directed that the refund amount shall be paid within a period of two weeks from the date of receipt of such application. The Court further held that the petitioner cannot be made to suffer on account of administrative delay or inaction, and therefore provided a safeguard by observing that, in the event the refund is not granted within the stipulated period. 

Case Name: Aquaeva Chemtech Private Limited Versus State of Gujarat & Ors. dated 22.01.2026

To read the complete judgement 2026 Taxo.online 165