Facts of the Case:

The petitioner challenged a show-cause notice dated 23.09.2025 issued under Section 74 of the Gujarat Goods & Services Tax Act, 2017 (in Form GST DRC 01), which treated the assignment of leasehold rights by the petitioner in favor of M/s Metlax International Private Limited as a “supply of service” under Section 7(1)(a) of the Act and classified under Tariff Heading 9972.

The petitioner was allotted a plot by Gujarat Industrial Development Corporation (GIDC) on lease (Plot No. 1401/2 at Kerala Industrial Estate), executed a registered lease deed in 1996, and constructed buildings on the plot. Due to financial difficulties, the petitioner mortgaged the plot with Punjab National Bank (PNB) and later entered into a One Time Settlement (OTS) with PNB. Pursuant to the OTS, the petitioner sold the mortgaged plot to M/s Metlax International Pvt. Ltd. via a tripartite agreement (Petitioner, Vendor, PNB) and obtained GIDC’s permission for transfer. The registered deed of assignment was executed on 20.06.2019.

The respondent issued summons under Section 70 for documents relating to sub-leases for FY 2019-20 and subsequently issued the impugned show-cause notice to levy GST on the assignment transaction.

Issue:

Whether the assignment/sale/transfer of leasehold rights of the plot, including buildings constructed thereon, by the lessee-assignor to a third-party assignee constitutes a “supply of service” under the GST Act, and whether GST liability can be levied on such a transaction.

Held that:

The High Court held that the assignment by sale or transfer of leasehold rights of a GIDC plot for consideration amounts to a transfer of immovable property and not a supply of service. The Court observed that such transfer extinguishes all rights of the original lessee and passes the full interest in the property to the assignee, who becomes the new lessee under the lease with GIDC.

The provisions of Section 7(1)(a), Schedule II Clause 5(b), and Schedule III Clause 5, which define the scope of supply under the GST Act, are not applicable to such transactions. The Court further noted that leasehold rights, when sold, are treated as benefits arising out of immovable property, and the transaction cannot be taxed under GST as per Section 9 of the Act. In consequence, the show-cause notice dated 23.09.2025 issued under Section 74 of the State GST Act in Form GST DRC-01 was quashed and set aside, and the petition was allowed.

Case Name: Gopal Iron And Steel Co (Guj) Limited Versus Office of Assistant Commissioner of State Tax dated 28.11.2025

To read the complete judgement 2025 Taxo.online 3171