The Supreme Court has dismissed the Revenue’s Special Leave Petition (SLP) agaisnt the Bombay High Court’s ruling that the assignment of leasehold rights in an industrial plot allotted by the Maharashtra Industrial Development Corporation (MIDC), along with the factory building constructed thereon, does not constitute a “supply of service” under the Goods and Services Tax (GST) regime.

The Bench of Justice Dipankar Datta and Justice Satish Chandra Sharma dismissed the SLP filed by the Assistant Commissioner (Anti Evasion) against the Bombay High Court Judgement wherein it was observed that the transaction was neither a lease nor a sub-lease. Instead, it involved a complete transfer and assignment of the petitioner’s leasehold rights, resulting in the extinguishment of all rights held by the transferor.

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The Nagpur-based manufacturing company, assigned its leasehold rights in an industrial plot allotted by MIDC to M/s Rishita Industries for a consideration of ₹1.5 crore. The transfer was carried out with MIDC’s prior approval and upon payment of the prescribed transfer premium. The industrial land had originally been allotted to the company on a long-term lease of 95 years, and the assignment included both the leasehold rights and the factory building standing on the property.

Despite the transfer being approved by MIDC, the CGST Anti-Evasion Wing issued a show cause notice on December 20, 2024, under Section 74(1) of the CGST Act, 2017. The department alleged that the transfer amounted to a taxable supply of services involving the assignment of leasehold rights and sought to levy GST at the rate of 18%, raising a demand of approximately ₹27 lakh. The transaction was classified under the category of “other miscellaneous services.”

Challenging the notice, the assessee approached the Nagpur Bench of the Bombay High Court, contending that the assignment was not a service transaction but a transfer of rights in immovable property. The company argued that the transaction resulted in complete extinguishment of its leasehold rights and therefore could not be treated as a supply under GST.

The Bench noted that even the department had acknowledged in the show cause notice that the transaction was not a sub-lease because the petitioner ceased to retain any rights in the property after the assignment. In such circumstances, treating the transfer as a taxable service was legally untenable.

The Court further criticised the department’s classification of the transaction as “other miscellaneous services,” observing that the relevant notification entries primarily cover activities such as cleaning, washing, dyeing, packaging, beauty treatment and similar services. According to the Bench, equating the transfer of substantial rights in immovable property with such services was manifestly erroneous.

Inputs By Rajeev Maniar, Former Superintendent of CEX, Customs & CGST

A crucial aspect of the judgment was the Court’s finding that the transaction lacked any nexus with the petitioner’s regular business activities. The Bench held that for a transaction to qualify as a taxable supply under Section 7 of the CGST Act, it must be undertaken “in the course or furtherance of business.” Since the assignment of leasehold rights represented a transfer of capital assets rather than a business activity, this statutory requirement was not satisfied.

The High Court placed considerable reliance on the Gujarat High Court’s landmark decision in Gujarat Chamber of Commerce and Industry v. Union of India, which held that the assignment of leasehold rights in industrial land constitutes a transfer of benefits arising from immovable property and not a supply of services under GST law.

Endorsing the reasoning adopted by the Gujarat High Court, the Bombay High Court observed that long-term industrial leases extending for 30 years or more effectively confer leasehold ownership rights upon the allottee. Consequently, the assignment of such rights is akin to the transfer or sale of immovable property and falls outside the ambit of Sections 7 and 9 of the CGST Act.

The Court also emphasised the principle of judicial discipline, holding that in the absence of any contrary decision from another High Court or the Supreme Court, tax authorities within Maharashtra were bound to follow the Gujarat High Court’s ruling on the issue.

Accordingly, the Court quashed the show cause notice and set aside the proposed GST demand of ₹27 lakh against Aerocom Cushions Private Limited. The Supreme Court’s subsequent dismissal of the Revenue’s SLP has now lent further strength to the legal position that assignment of long-term leasehold rights in industrial land, resulting in transfer of benefits arising from immovable property, cannot be subjected to GST as a supply of services.

When an SLP is dismissed “in limine” at the threshold stage, the Court may simply be refusing to exercise its discretionary jurisdiction under Article 136. Such dismissal may occur without a full appellate examination of the controversy.

Therefore, an order such as: “We are not inclined to interfere” does not automatically mean that the Supreme Court has affirmed every proposition of law in the impugned judgment.

Because binding precedent emerges from a considered declaration of law after examination of the issue — not merely from refusal to grant leave.

General principles:
•⁠ ⁠Mere dismissal of SLP is not declaration of law.
•⁠ ⁠Dismissal with speaking order assigning legal reasons means that those reasons may have precedential value.
•⁠ ⁠Leave granted and appeal decided means that doctrine of merger applies and

Supreme Court decision becomes binding under Article 141.

Such in limine dismissal strengthens the position of the successful party in HC because it becomes binding between the parties. But since the HC judgment doesn’t merge with SC judgment, other HCs can still take a contrary view.

Thus the above Supreme Court order can be made applicable for the State of Maharashtra and not for other states

It is to further submit that till date the similar matter decided by the Gujarat High Court in the case of The State of Gujarat V/s. Gujarat Chamber of Commerce and Industry is pending before Supreme Court. (Dairy No: 25536/2025)

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