Supreme Court dismisses Revenue’s SLPs – No GST on assignment / transfer of long-term leasehold rights in industrial plots – Gujarat Chamber of Commerce ruling attains finality
1. What has happened
By order dated 21.07.2026 in SLP (C) Diary No. 33270/2025 and connected matters (Union of India & Anr. v. Gujarat Chamber of Commerce and Industry & Ors.), a Bench of Hon’ble Mr. Justice Pamidighantam Sri Narasimha and Hon’ble Mr. Justice Alok Aradhe of the Supreme Court has dismissed the entire batch of Special Leave Petitions filed by the Union of India against the judgment of the Gujarat High Court dated 03.01.2025 in R/SCA No. 11345 of 2023 and connected petitions. The Court noted that a similar SLP – SLP (C) No. 18772/2026 – had already been dismissed on 22.05.2026, and, consistently, dismissed the present petitions as well. With this, the Revenue’s challenge to the Gujarat High Court ruling stands closed.
2. Background
Industrial plots allotted by the Gujarat Industrial Development Corporation (GIDC) are typically granted on 99-year leases, with the lessee permitted to assign its leasehold rights to a third party, with GIDC’s approval, for a lump-sum consideration. The GST Department had issued show cause notices and summons across the country treating such assignment of leasehold rights as a taxable ‘supply of service’ and demanding GST at 18% on the assignment consideration. The Gujarat Chamber of Commerce and Industry and a large number of industrial units challenged these proceedings before the Gujarat High Court.
3. What the Gujarat High Court held (03.01.2025)
The High Court held that leasehold rights in land confer valuable rights to possess, enjoy and transfer an interest in land. Such rights constitute ‘benefits arising out of land’ and are therefore immovable property under the Transfer of Property Act, the Registration Act and the General Clauses Act. The assignment or transfer of such leasehold rights by the original lessee to a third party for a lump-sum consideration is, in substance, a transfer of immovable property. It is covered by Entry 5 of Schedule III read with Section 7(2) of the CGST Act, 2017 (sale of land) and is accordingly neither a supply of goods nor a supply of services. No GST is leviable, and the show cause notices were quashed.
4. The earlier Supreme Court dismissal (22.05.2026)
Following the Gujarat ruling, the Bombay High Court in Aerocom Cushions Private Limited v. Assistant Commissioner (Anti-Evasion), W.P. No. 2145 of 2025 (judgment dated 09.01.2026), quashed a similar demand relating to assignment of MIDC leasehold rights. The Revenue’s SLP against that judgment was dismissed by the Supreme Court on 22.05.2026. During the hearing, the Court pointedly asked the Revenue to demonstrate how an outright assignment of leasehold rights amounted to an activity ‘in the course or furtherance of business’, and finding no such nexus, declined to interfere. It is this dismissal that the Supreme Court has now followed in dismissing the Gujarat Chamber batch on 21.07.2026.
5. What this means for you
- No GST is payable on the outright assignment / transfer of long-term leasehold rights in industrial plots (GIDC, MIDC, SIPCOT, SIDCO, KIADB and similar development authorities) by the original allottee to a third party for a lump-sum consideration, with the authority’s approval.
- Pending show cause notices and adjudication proceedings on this issue are directly covered. Replies and appeal grounds should squarely rely on the Gujarat High Court judgment and the Supreme Court’s dismissals of the Revenue’s SLPs dated 22.05.2026 and 21.07.2026.
- Where demands have been confirmed, appellate remedies should press these rulings; where GST was paid under protest or under compulsion on such assignments, the question of refund merits examination on a case-by-case basis, keeping limitation under Section 54 and the unjust enrichment test in view.
- Assignees who were charged GST by assignors and availed input tax credit should review their position, since tax paid on a Schedule III transaction is not tax ‘chargeable’ in law.
6. Points of caution
- The ruling covers outright, permanent assignment of leasehold rights – effectively a sale of the leasehold interest. It does not cover renting, sub-leasing, licensing or grant of fresh leases, including upfront premium charged by development authorities on fresh allotments, which continue to be governed by their own provisions and exemptions.
- The Supreme Court’s dismissals are of SLPs and are not detailed judgments on merits; however, with repeated dismissals and no contrary High Court ruling in the field, the Gujarat High Court judgment holds the field and, as a practical matter, the controversy stands settled in favour of taxpayers.
- Each transaction should still be tested on its documentation – the deed of assignment, the authority’s consent, and the nature of consideration – before concluding non-taxability.
For Sashthi Taxlegal Advisory Services LLP
CA Chandrasekhar Kutty
Founding Partner
Disclaimer: This circular is for general information only and does not constitute professional advice. Readers should seek specific advice before acting on any matter discussed herein.