No GST on MIDC Leasehold Assignment: Supreme Court Upholds Bombay HC

Case Details

Background - What Happened

Aerocom Cushions Private Limited held a 95-year lease of an industrial plot allotted by MIDC at Hingna, Nagpur (F-14/2, MIDC, Hingna Road). The company had constructed a factory building on the plot. It subsequently assigned its entire leasehold rights along with the factory building to Sumit Madanlal Pagariya, Proprietor of M/s. Rishita Industries for a consideration of ₹1,50,00,000 , with prior consent of MIDC Hingna and after paying an additional premium of ₹3,95,640 to MIDC.

The GST department issued Show Cause Notice No.47/AC/GST/NGP-I/2024 dated 20-12-2024 under Section 74(1) of the CGST Act, 2017, demanding GST of ₹27,00,000 . The department classified the assignment as "other miscellaneous services" under Sr. No. 35 of Notification No. 11/2017-CT(Rate) dated 28-06-2017 at 18%.

What the Bombay High Court Held

The HC quashed SCN No.47/AC/GST/NGP-I/2024 on two independent grounds:

Ground 1 - Classification as "miscellaneous services" is bad in law (paras 7–9)

Sr. No. 35 covers services like washing, cleaning, dyeing, beauty and physical well-being - petty personal services. The HC held such a residual entry cannot be stretched to cover assignment of leasehold rights in immovable property. The SCN was bad in law on this ground alone.

Critically, the department's own SCN admitted the transaction was not a sub-lease - the petitioner's rights stood fully extinguished. Since it was neither a lease nor a sub-lease, Schedule II Clause 2(b) - covering leasing or letting out of commercial/industrial buildings - had no application whatsoever.

Ground 2 - Essential element of "supply" absent (para 10)

The HC held that the transaction "pertains exclusively to transfer of benefits arising out of an immovable property and has no nexus whatsoever with the business of the petitioner company. Consequently, the essential element of supply of service in the course of business or in furtherance of business is completely absent."

Section 7(1) of the CGST Act requires a transaction to be made "in the course or furtherance of business" to qualify as a taxable supply. A cushion manufacturing company disposing of its factory premises has no nexus with its manufacturing business. Without this essential element, GST cannot arise regardless of the consideration received.

Key Legal Questions Decided

1. Is assignment of leasehold rights a "supply" under GST?

The Revenue argued the transaction was a supply of services under Schedule II Clause 2(b) - leasing or letting out of commercial/industrial property. The HC rejected this. Assignment is not a lease or sub-lease. When leasehold rights are outright assigned, the original lessee's rights are completely extinguished - there is no continuing relationship between the assignor and the property. Once rights are extinguished, the transaction cannot be classified as supply of services under Schedule II.

2. The "course or furtherance of business" test

The HC found this essential condition of Section 7 completely absent on the facts. The transaction had "no nexus whatsoever" with the petitioner's cushion manufacturing business. This is a factual finding from the HC judgment - the written SC order is a one-line dismissal ("not inclined to interfere") and records no separate reasoning of its own.

3. Transfer of immovable property - outside GST scope

The petitioner held a 95-year lease - effectively a leasehold ownership. Rights were transferable under Clause 2(u) of the MIDC lease deed. An outright assignment of such long-term leasehold rights, with the assignor's interest fully extinguished, constitutes a transfer of immovable property - not a supply of services under the GST Act.

The Gujarat HC Ruling - How the Bombay HC Used It

The Bombay HC relied on and expressly followed Gujarat Chamber of Commerce and Industry v. Union of India, (2025) 170 taxmann.com 251 . The Gujarat HC (para 83) had held that assignment of leasehold rights of land allotted by GIDC to a lessee in favour of a third party assignee is assignment/sale/transfer of benefits arising out of "immovable property" - not subject to GST under Section 9 of the GST Act.

The Bombay HC held this ruling was binding on tax authorities within its jurisdiction, relying on CIT Vidarbha v. Smt. Godavari Devi Saraf, (1978) 113 ITR 589 . It expressly extended the Gujarat HC ruling to MIDC plots: whether the lessor is GIDC or MIDC, the legal character of the transaction is identical.

The Supreme Court Order - May 22, 2026

Revenue filed SLP(C) No. 018772/2026. The bench of Justice Dipankar Datta and Justice Satish Chandra Sharma declined to interfere. The complete operative order reads:

"We are not inclined to interfere with the impugned judgment and order of the High Court, hence, the special leave petition is dismissed."

Delay in filing the SLP was condoned. The SC gave no separate reasoning - the HC judgment stands as the operative law.

Practical Significance

CA Action Points

• Pending SCN on MIDC/industrial leasehold assignment: File reply citing HC judgment (2026:BHC-NAG:348-DB) and SC SLP dismissal (Diary No. 26041/2026). Ensure facts match - outright assignment with MIDC consent and assignor's rights extinguished.
• GST paid under protest: File refund under Section 54 of CGST Act within 2 years of payment. HC judgment and SC dismissal order are key supporting documents.
• Future transactions: Document that (a) assignment is outright with industrial authority's consent, (b) assignor's rights are fully extinguished, (c) assignor's business is not dealing in land or property.
• Other states: GIDC (Gujarat) is covered directly by the Gujarat HC ruling. For KIADB, SIDCO, APIIC - cite both HC judgments as persuasive authority; a state-specific legal analysis is advisable.