The levy of GST on assignment of long-term leasehold rights in industrial plots has been one of the most debated issues in the real estate and industrial infrastructure space since the introduction of GST.

For several years, tax authorities have consistently taken the position that such assignments constitute a taxable supply of services, typically attracting GST at 18%. Businesses transferring leasehold rights in plots allotted by industrial development corporations such as GIDC, MIDC and others were therefore issued notices demanding GST on the assignment premium or consideration received.

However, a series of recent judgments delivered by the Gujarat High Court and the Bombay High Court between 2025 and 2026 has significantly reshaped the legal landscape. These rulings have largely held that the assignment of long-term leasehold rights is a transfer of benefits arising from immovable property, and therefore does not fall within the scope of GST.

While the matter may ultimately be settled by the Supreme Court, the emerging judicial trend has provided much-needed clarity for businesses involved in industrial land transactions. This article examines the legal principles behind these decisions and the practical implications for taxpayers.

Understanding the Transaction: Lease, Sub-Lease, and Assignment

Before examining the legal controversy, it is important to understand the difference between a lease, a sub-lease, and an assignment of leasehold rights.

Lease or Sub-Lease

In a lease arrangement, the owner of land (the lessor) grants the right to use the property to another person (the lessee) for a specified period in return for rent or lease consideration. A sub-lease arises when the lessee grants a similar right of use to a third party while still retaining their own leasehold interest. In both situations, the original lessee continues to hold rights in the property. From a GST perspective, leasing or renting of immovable property is treated as a supply of service under Schedule II of the CGST Act.

Assignment of Leasehold Rights

An assignment is fundamentally different. In an assignment, the original lessee transfers their entire remaining leasehold interest to a third party. Once the assignment takes effect, the assignor exits the arrangement and the assignee steps into the shoes of the original lessee. In many industrial plots allotted by development corporations, leases are granted for long periods such as 95 or 99 years. When such rights are assigned, the assignee effectively acquires control and enjoyment of the property for the balance lease period.

The central legal question therefore arises:

Is such an assignment merely a service, or is it a transfer of immovable property rights?

Why the Department Has Treated Assignments as Taxable

Tax authorities have generally relied on Section 7 of the CGST Act read with Schedule II, which classifies certain activities involving immovable property as supply of services.

Based on this approach, authorities argued that:

  • The transfer of leasehold rights does not amount to sale of land.

  • The original lessee merely transfers a right to use land.

  • Therefore, the transaction should be treated as a taxable service.

In some cases, the department has also attempted to classify these transactions under residual service categories such as “other miscellaneous services” taxable at 18%. This interpretation resulted in large-scale litigation across industrial estates where businesses transferred leasehold plots.

The Turning Point: Gujarat High Court in GCCI

A major turning point came with the decision of the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India (2025). The case concerned assignment of leasehold rights in plots allotted by Gujarat Industrial Development Corporation (GIDC). The Court examined whether the assignment of leasehold rights by an existing allottee to a new party could be treated as a taxable service. The High Court held that such transactions involve assignment or transfer of benefits arising out of immovable property, rather than the provision of a service.

The Court relied on well-established principles under property law, noting that immovable property includes not only land itself but also benefits arising from land. Since long-term leasehold rights constitute an interest in land, the Court concluded that assignment of such rights should not be treated as a supply of service under GST. This judgment became a landmark ruling and laid the foundation for subsequent decisions on the issue.

Bombay High Court Reinforces the Principle

Following the Gujarat decision, the Bombay High Court delivered a series of rulings that further strengthened the taxpayer position. These cases involved assignments of leasehold rights in plots allotted by the Maharashtra Industrial Development Corporation (MIDC).

Panacea Biotec (2025)

In this case, the Bombay High Court set aside the GST demand raised on the assignment of leasehold land. The Court accepted the taxpayer’s argument that the transaction involved transfer of leasehold rights rather than provision of a service.

Aerocom Cushions Pvt. Ltd. (2026)

In another important ruling, the Court examined the department’s attempt to classify assignment of leasehold rights as “other miscellaneous services.” The Court rejected this approach, observing that a residual service category cannot be stretched to cover transactions involving transfer of valuable immovable property rights. The Court also emphasised that an assignment is neither a lease nor a sub-lease, since the assignor’s rights are completely extinguished once the transaction is completed.

Hindustan Equipment Craft (2026)

The most recent ruling further reinforced the same legal principle. The Court again held that assignment of leasehold rights in an industrial plot amounts to transfer of an interest in immovable property, and therefore cannot be treated as a taxable service under GST. These decisions collectively indicate a clear judicial trend favouring non-taxability of such assignments.

The Legal Principle Emerging from the Courts

Across these judgments, several common legal principles can be identified.

1. Leasehold Rights Are an Interest in Land

Courts have recognised that long-term leasehold rights represent benefits arising from immovable property. Therefore, transfer of such rights is closely linked to land itself.

2. Assignment Is Different from Leasing

Unlike a lease or sub-lease, an assignment transfers the entire remaining interest of the assignor. Once the assignment takes place, the assignor ceases to have any rights in the property.

3. Substance of the Transaction Matters

The courts have emphasised that GST should be applied based on the real nature of the transaction. If the transaction effectively transfers control and enjoyment of land for decades, it cannot be artificially treated as a service.

4. Residual Service Entries Cannot Be Misused

Attempts to classify such transactions under miscellaneous service categories have also been rejected. Courts have held that residual classifications cannot override the true nature of the transaction.

Important Distinction: Transfer of Development Rights

It is also important to note that not all transactions involving land rights receive the same treatment under GST. For example, earlier litigation such as Prahitha Constructions before the Telangana High Court dealt with transfer of development rights under joint development agreements. That case involved a different commercial structure and the Court held the transaction to be taxable.

Therefore, taxpayers must distinguish between:

  • Assignment of leasehold rights, and

  • Transfer of development rights or other property-related arrangements

The GST treatment may vary depending on the nature of the transaction.

Practical Implications for Businesses

The recent High Court rulings provide significant relief for industries dealing with long-term leasehold land. However, businesses should still approach the issue carefully.

Review Transaction Structure

The documentation should clearly reflect an outright assignment of leasehold rights rather than a permission to use the property. Proper drafting is critical in supporting the legal position.

Evaluate Pending Disputes

Businesses that have received GST notices on assignment premiums may consider relying on these High Court judgments while responding to the authorities.

Assess Past Payments

Where GST has already been paid, companies may examine whether the facts support potential litigation or refund strategies, subject to legal and procedural considerations.

Monitor Supreme Court Developments

The issue may eventually reach the Supreme Court, which will provide final clarity on the subject. Until then, the High Court rulings remain important precedents, particularly within their respective jurisdictions.

Conclusion

The taxation of leasehold assignments under GST has been a complex and evolving issue. For several years, businesses faced uncertainty as tax authorities treated these transactions as taxable services. However, the recent rulings of the Gujarat High Court and the Bombay High Court have significantly altered that narrative. The courts have consistently recognised that assignment of long-term leasehold rights represents transfer of benefits arising from immovable property, rather than provision of a service.

While the final word may still come from the Supreme Court, the current judicial trend provides meaningful clarity and relief for industries involved in industrial land transactions. For businesses, the key takeaway is clear: the structure and documentation of leasehold assignments will play a decisive role in determining their GST treatment. Careful legal analysis and well-drafted agreements remain essential in navigating this evolving area of law.