Facts of the Case:

In this case, the petitioner challenged the impugned order passed by the tax authorities demanding GST under Section 73(5) on the alleged non-payment of GST on transfer of leasehold rights. The petitioner had obtained a 95-year lease of a plot from MIDC (Maharashtra Industrial Development Corporation) and had constructed a factory building on the said land. The department issued a show cause notice dated 22.09.2025 alleging that the assignment of leasehold rights constituted supply of services under Section 7 of the GST Act read with Clause 2(b) of Schedule II, treating it as leasing or letting out of building for business purposes. It was further sought to be classified as “other miscellaneous services” taxable at 18% under Entry 35 of Notification No. 11/2017-CT (Rate). Consequently, GST was demanded from the petitioner.

The petitioner contended that the transaction was not a lease or sub-lease, but a complete assignment of leasehold rights, whereby the petitioner’s rights stood extinguished and the assignee stepped into the shoes of the original lessee. Therefore, it amounted to transfer of benefits arising from immovable property and not a supply of service under GST.

Issue:

Whether assignment of leasehold rights in land and building for consideration constitutes “supply of services” under Section 7 of the GST Act, thereby attracting GST liability.

Held that:

The Court observed that the impugned transaction was neither a lease nor a sub-lease, but an assignment of leasehold rights, whereby the petitioner’s rights in the property were completely extinguished and transferred to the assignee. Such a transaction amounts to transfer of benefits arising from immovable property, which falls outside the ambit of “supply” under the GST framework.

The Court rejected the department’s attempt to classify the transaction under “other miscellaneous services” taxable at 18%, observing that such classification was inappropriate since the entry pertains to petty services such as washing, cleaning, dyeing, beauty services, etc., and cannot be extended to assignment of immovable property rights.

The Court relied upon the judgment of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India, which held that assignment of leasehold rights in industrial plots amounts to transfer of benefits arising out of immovable property and therefore does not fall within the scope of supply under Section 7 of the GST Act.

It further held that the essential ingredient of supply, namely, that the activity must be carried out in the course or furtherance of business was absent, as the transaction merely involved transfer of property rights. Accordingly, the impugned order demanding GST was quashed and set aside, and the writ petition was allowed. The Court held that assignment of leasehold rights does not constitute supply of services under the GST Act and therefore cannot be subjected to GST

Case Name: M/s. Hindustan Equipment Craft Versus Assistant Commissioner of State Tax, Nagpur, Maharashtra, State of Maharashtra through The Commissioner of State Tax, Maharashtra. dated 27.02.2026

To read the complete judgement 2026 Taxo.online 522