The Supreme Court has dismissed a batch of Special Leave Petitions (SLPs) filed by the Union of India challenging the Gujarat High Court’s landmark judgment holding that GST is not leviable on the assignment of long-term leasehold rights in industrial plots allotted by the Gujarat Industrial Development Corporation (GIDC).
The Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe dismissed the petitions after noting that an identical Special Leave Petition had already been rejected on 22 May 2026. Consequently, all connected SLPs challenging the Gujarat High Court’s decision dated January 3, 2025, were dismissed, bringing finality to one of the most significant GST disputes concerning industrial leasehold transfers.
Background of the Dispute
The litigation arose from a series of notices issued by GST authorities to industries that had assigned their leasehold rights in GIDC industrial plots to third parties. The authorities sought to levy GST at 18% on the lump-sum consideration received by the original lessees, treating the assignment of leasehold rights as a “supply of services” under Section 7 of the Central Goods and Services Tax Act, 2017.
The Gujarat Chamber of Commerce and Industry, along with numerous industrial entities, challenged the notices before the Gujarat High Court. The petitioners argued that GIDC grants industrial plots on long-term leases of 99 years and permits lessees to assign those rights, subject to GIDC’s approval. According to them, such assignment amounts to an outright transfer of an interest in immovable property and therefore falls outside the scope of GST.
Core Legal Issue
The principal question before the Gujarat High Court was whether the assignment of leasehold rights in industrial land, together with buildings constructed thereon, constitutes a taxable “supply of services” under the GST Act or whether it is essentially a transfer of immovable property outside the ambit of GST.
The Court examined the definition of “supply” under Section 7 of the GST Act, Schedule II relating to supply of services, Schedule III excluding certain transactions from GST, and provisions of the Transfer of Property Act dealing with leasehold interests and assignment of leases.
Gujarat High Court’s Findings
The Gujarat High Court concluded that the assignment of leasehold rights by a lessee is fundamentally different from renting or leasing of immovable property.
According to the Court, when a lessee transfers all of its leasehold rights and the building standing on the industrial plot to another person, the transaction amounts to an absolute transfer of all rights in the immovable property. It is not a case of rendering a service but rather a transfer of an interest in land, which constitutes immovable property under settled legal principles.
The Court emphasized that such an assignment completely divests the original lessee of all rights in the property. The assignee steps into the shoes of the original lessee and becomes directly liable to the lessor under the lease covenants. Since there is no continuing relationship between the assignor and the property after the assignment, the transaction cannot be characterised as a supply of service.
Rejecting the revenue’s contention that leasehold rights constitute an intangible asset taxable as a service, the Court held that assignment of leasehold rights coupled with the transfer of the building is nothing but transfer of immovable property and therefore falls outside Section 7(1)(a) of the GST Act.
Distinction Between Initial Lease and Subsequent Assignment
The High Court drew a clear distinction between the original allotment of industrial plots by GIDC and subsequent transfers by lessees.
It observed that the initial grant of a long-term lease by GIDC is treated as a supply of service under GST but enjoys exemption under Entry 41 of Notification No. 12/2017-Central Tax (Rate), which exempts one-time premium paid for long-term leases of industrial plots granted by State Industrial Development Corporations.
However, once the industrial plot has been allotted and the lessee subsequently assigns its leasehold rights to another person, that subsequent transaction is no longer a leasing service. Instead, it represents a transfer of an interest in immovable property akin to sale and therefore falls outside GST.
The Court nevertheless clarified that transfer charges collected by GIDC for granting permission to transfer leasehold rights constitute consideration for services rendered by GIDC and remain liable to GST. The exemption applies only to the consideration exchanged between the assignor and assignee for transfer of leasehold rights, not to administrative or permission charges recovered by GIDC.
Supreme Court Affirms the Position
When the Union of India challenged the Gujarat High Court judgment before the Supreme Court, the apex court declined to interfere.
The Supreme Court recorded that a similar Special Leave Petition had already been dismissed earlier and, following that precedent, dismissed the present batch of SLPs as well. All pending applications were disposed of accordingly.
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