18% GST on transfer of leasehold Industrial land not applicable, says Gujarat HC
Gujarat High Court Rules GST Not Applicable on Leasehold Rights Transfer
The Gujarat High Court has delivered a significant ruling stating that Goods and Services Tax (GST) does not apply to the transfer of leasehold rights on land allocated by the Gujarat Industrial Development Corporation (GIDC). This decision provides substantial relief to industries engaged in leasehold land transactions.
The verdict addresses a crucial issue regarding the applicability of GST in the context of leasehold rights transfers, alleviating a contentious tax burden for businesses with leased land holdings. Furthermore, it is anticipated that this ruling will set a favorable precedent for similar disputes in various jurisdictions.
Numerous cases involving analogous issues are currently pending in other courts, including the Bombay High Court, where questions surrounding the transfer of industrial land by the Maharashtra Industrial Development Corporation (MIDC) are being contested.
A central point in these cases is whether GST should apply to leasehold or industrial land transfers, especially considering that such transactions are already liable for state-imposed stamp duties. Petitioners have argued that these deals should be categorized as sales of land, which are specifically exempt from GST according to existing legislation. The imposition of an 18% GST on each transfer escalates the tax burden disproportionately, resulting in tax cascading and making numerous transactions financially unviable.
The ruling was issued by Justices Bhargava D Karia and D N Ray on January 3, with the final order text pending release.
Abhishek A. Rastogi, founder of Rastogi Chambers, noted, “The issue of GST applicability to these transactions warranted thorough examination, not just within the GST framework but also relating to the concern of double taxation. The situation grows increasingly complicated when show cause notices are dispatched, leading to the confirmation of demands by adjudicating authorities, which necessitates pre-deposit for appeal filings.
This decision underscores the need for enhanced clarity on GST applicability in such matters, aiming to mitigate extended litigation and foster a more conducive environment for industrial investments.
Saurabh Agarwal, Tax Partner at EY, remarked, “The Gujarat High Court’s verdict offers essential relief and clarity for businesses. The GIDC’s retroactive demand for 18% GST on lease transfers previously imposed an undue liability of approximately ₹8,000 crore, significantly affecting MSMEs and jeopardizing business sustainability. This ruling touches upon the broader debate of whether long-term leases equate to land sales—a discussion that pre-dates the GST system. While this landmark decision provides temporary clarity and will serve as a key precedent for similar legal issues across India, achieving maturity in GST law and obtaining a definitive ruling from the Supreme Court is crucial to conclusively address these matters. It would be advantageous for the industry if the CBIC could clarify this issue, thus preventing the industry from having to await the Supreme Court’s final judgment.
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