Thane is one of the most industrially significant
districts in India. With the growing demand for a robust economy and expansion
of industrial activities, the transfer of industrial plots allotted by the
Maharashtra Industrial Development Corporation (MIDC) for long-term lease of 99
years has become increasingly common. However, when an allottee transfers or
assigns these leasehold rights to a third party, with the approval of MIDC, GST
authorities have treated the transaction as a taxable supply of service,
attracting 18% GST, which is an additional cost for the assignee.
The GST authorities classified the transfer or
assignment of MIDC leasehold land as a service under Heading 9997 (“other
miscellaneous services”) as per Notification No. 11/2017–Central Tax (Rate)
dated 28/06/2017. However, the recent Bombay High Court ruling through its
Nagpur Bench in the case of Aerocom Cushions Pvt. Ltd. vs Assistant
Commissioner (Anti-Evasion), CGST & CX, Nagpur-1 delivered the
judgement in line with the Gujarat High Court ruling.
The case started with the
petitioner, who initiated to transfer and assign its leasehold rights in the
MIDC plot to a third party, received a show cause notice from the GST
authorities demanding 18% GST i.e. Rs. 27,00,000/- alleging that the transfer
or assignment of the leasehold rights constituted a taxable supply of service under the
Central Goods and Services Tax Act, 2017 as per Heading 9997 (“other
miscellaneous services”).
The petitioner challenged the demand, arguing
that the assignment of leasehold rights amounts to a transfer of an interest in
immovable property and therefore falls outside the scope of GST. It was
contended that such transactions are covered under Schedule III of the CGST
Act, which excludes the sale of land and building from GST.
The Court agreed with this reasoning and held
that long-term leasehold rights granted by MIDC provide substantial proprietary
interests in land. The assignment of such rights, therefore, constitutes a
transfer of interest in immovable property rather than a supply of service. The
Court further clarified that Heading 9997 relating to “other miscellaneous
services” typically applies to minor services such as cleaning or beauty
services and cannot be stretched to cover the transfer of leasehold rights in
land. Accordingly, the GST demand was set aside.
This judgment provides significant relief to
industrial allottees and businesses by clarifying that the assignment of
long-term leasehold rights falls outside the ambit of GST. However, the legal
position is not yet final, as several state authorities have challenged similar
High Court rulings before the Supreme Court.
Until the issue reaches finality, legal and tax
advisors recommend careful structuring of such transactions. Proper segregation
of land and building costs in accounts, appropriate allocation of construction
costs, and prudent tax planning between assignor and assignee remain essential
to mitigate potential GST disputes.
The Author is a founder of Amanchi
Legal & Co, a law firm based out of thane helping businesses and industries
in and around thane district.
