The recent landmark case of Gujarat Chamber of Commerce and Industry and Ors v Union of India and Ors has eased real estate sector fears of goods and services tax (GST) being levied on assignments of leasehold rights.

The Gujarat Industrial Development Corporation (GIDC) executed a lease in favour of the lessee that permitted the lessee to assign their leasehold rights in the land to a third party. The tax authority issued a notice to the lessee to show cause why GST at 18% should not be levied on the further assignment of leasehold rights in the land on the basis that the assignment of leasehold rights constituted a supply of services under 7(1)(a) of the Central Goods and Services Act, 2017 (act).

The main issue before the Gujarat High Court was whether the assignment of leasehold rights was a supply of services and, therefore, subject to GST. The Gujarat Chamber of Commerce and Industry contended that leasehold rights were only the transfer of an interest in immovable property and were not a supply of services. Such transfers were explicitly excluded from GST as provided in schedule III of the act. The petitioners further argued that the act had to be interpreted in accordance with its object and purpose.

Another contention was that levying GST on such transactions would be double taxation because stamp duty had already been paid on those assignments under individual state legislation.

The court, referring to the Transfer of Property Act, 1882, and citing the case of Sri Tarkeshwar Sio Thakur Jiu among others, held that assigning rights on the land involved a transfer of an interest in immovable property and could not be equated with the supply of services under the act. Immovable property was nothing but a bundle of rights, and the right to assign such property on a leasehold basis was one of thema. The transfer or assignment of leasehold rights was equivalent to the transfer of immovable property.

Following the decision of the Allahabad High Court in Greater Noida Industrial Development Authority v Commisioner of Customs, the court further held that merely renting immovable property for commercial purposes rather than an outright assignment of leasehold rights was a supply of services and, therefore, subject to GST. Assignment by sale or transfer of leasehold rights of the land leased by GIDC to the lessee to a third party or assignee for a lump sum consideration should be treated as the assignment, sale or transfer of benefits arising out of land. The third party or assignee would become the subsequent lessee of GIDC in place of the original lessee and not subject to GST.

The Bombay High Court in Panacea Biotech v Union of India and Ors, on learning of the Gujurat Chamber of Commerce case earlier in the month, remitted the matter to the GST authority for reconsideration in the light of the decision by the Gujarat High Court. The MIDC had assigned leasehold rights to the land to Panacea Biotec. The company subsequently assigned the rights to Mankind Pharma in 2022. The GST authority in 2024 levied GST at 18%. The issue was whether the assignment of leasehold rights constituted a supply of services or whether such a transaction fell within schedule III of the act, which excludes the sale of land and buildings.

The Uttar Pradesh Real Estate Regulatory Authority issued a circular in January 2025, the same month as the Gujurat and Bombay High Court cases were heard, providing that a long-term lease of land for the construction of residential apartments was exempt from GST. However, the long-term lease of land for the construction of commercial structures was subject to GST at 18%. The circular did not differentiate between an assignment in favour of a third party and a sub-lease.

These judgments have given comfort to the real estate sector. The clarity they provide will allow similar disputes with the tax authorities involving the assignment of leasehold rights on a long-term basis to be resolved in the same equitable way. They will also ensure fairness because double tax will not be levied. The courts have provided a boost for business in general and the real estate sector in particular. Holding that the assignment of leasehold rights is not subject to GST will ensure a robust and consistent tax framework that benefits commerce. It also serves as a warning against administrative overreach.

This article has been authored by Sadhav Mishra, Partner & Head of Real Estate at SNG.