The Goods and Services Tax Appellate Tribunal (GSTAT), Surat Bench, has held that GST is not leviable on the assignment of leasehold rights in industrial plots allotted by the Gujarat Industrial Development Corporation (GIDC) to third parties. Dismissing three departmental appeals, the Tribunal upheld the appellate orders that had set aside tax demands against the recipients of such rights.
The Division Bench comprising Sanjaykumar Dwivedi (Judicial Member) and Rameshkumar Gokalbhai Hadvani (Technical Member) has observed that the Gujarat High Court’s judgment on the issue continued to bind the Tribunal. The department’s stated intention to file a review petition could not dilute its binding effect in the absence of an order staying or recalling the judgment.
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The department sought to levy GST under the reverse charge mechanism on the assignees who had acquired leasehold rights in GIDC plots. The appellate authorities had set aside the demands by following the Gujarat High Court’s January 3, 2025 judgment in Gujarat Chamber of Commerce and Industry v. Union of India.
The central issue was whether the assignment of such leasehold rights constituted a taxable transaction under the GST law.
Taking the facts of Pragna Chemical Industries as the representative case, the Tribunal recorded that GIDC had allotted Plot No. 7311 at its Ankleshwar Industrial Estate to an individual under a licence agreement in 1990.
The Central Excise and Customs Department subsequently attached the property to recover outstanding Central Excise and Service Tax dues of Tulsi Alloys Private Limited.
MSTC Limited conducted an e-auction on behalf of the department on April 26, 2018. Raj Enterprise emerged as the successful bidder and was declared the purchaser. It subsequently nominated Pragna Chemical Industries as the person to whom the property was to be transferred.
The order recorded that GIDC transferred the leasehold rights to Pragna Chemical Industries through an office order dated January 24, 2019. It also referred to an agreement between Raj Enterprise and Pragna Chemical Industries dated March 5, 2019.
The department issued a show cause notice alleging that Pragna Chemical Industries had deliberately withheld information concerning a supply of service and that the transaction came to its notice only during an investigation. Sections 74 and 122(2)(b) of the Central GST Act, 2017, were invoked on that basis.
The Tribunal specifically recorded that these allegations were made despite the transaction having taken place through an auction conducted by the department itself.
It further noted that the Deputy Commissioner of Division IX, who also exercised GST jurisdiction over the respondent, had issued the relevant certificate in Form Appendix IX. The department had also authorised GIDC to transfer the lease to the respondent.
The adjudicating authority nevertheless confirmed the tax demand with interest. It imposed a penalty equal to the tax under Section 74(1) and a further penalty of an equal amount under Section 122(2)(b).
The appellate authority set aside the demand by applying the Gujarat High Court’s ruling.
The Tribunal found that the transactions were squarely covered by Gujarat Chamber of Commerce and Industry.
In that judgment, the Gujarat High Court had examined whether the assignment of leasehold rights in GIDC land and buildings to a third party for lump-sum consideration could be treated as a supply of service.
The High Court held that such an assignment represented the sale or transfer of benefits arising from immovable property. The assignee would become the lessee of GIDC in place of the original allottee.
Applying that reasoning, the High Court held that the transaction was not subject to GST under Section 9. It also concluded that the question of using input tax credit to discharge GST on such an assignment did not arise.
The Tribunal also referred to the Bombay High Court’s January 9, 2026 judgment in Aerocom Cushions Private Limited v. Assistant Commissioner (Anti-Evasion), Nagpur.
The Bombay High Court had agreed with the Gujarat High Court’s reasoning that the assignment of leasehold rights in land allotted by corporations such as GIDC or MIDC involved the transfer of benefits arising from immovable property and was not subject to GST.
According to the Supreme Court orders reproduced in the Tribunal’s decision, the department’s special leave petition against Aerocom Cushions was dismissed on May 22, 2026. Its challenge to the Gujarat High Court’s judgment was subsequently dismissed on July 21, 2026, with reference to the dismissal of the similar petition.
The department’s authorised representative, Maya Shanker Prabhat, submitted that the appeals had been filed because the department had challenged the Gujarat High Court’s judgment before the Supreme Court.
He acknowledged that the special leave petitions had since been dismissed but stated that the department was in the process of filing a review petition.
Advocate Vinay Kansara, appearing for Pragna Chemical Industries, maintained that the Gujarat High Court’s judgment continued to prevail and was binding.
The Tribunal accepted that position. It held that the jurisdictional High Court’s judgment continued to govern the issue because there was no order staying or recalling it. A proposed review, by itself, did not alter that position.
Holding that GST was not leviable on the transactions in question, the Tribunal dismissed all three departmental appeals and upheld the respective Orders-in-Appeal.
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