Bombay High Court Quashes GST Demand on Leasehold Assignment, Rules It Is Not a Supply of Service
Court Aligns with Gujarat HC on Industrial Land Transfers
Relief for Businesses Facing GST Demands on Leasehold Assignments
By Our Legal Correspondent
New Delhi: January 15, 2026:
In a landmark judgment, the Bombay High Court has quashed a Goods and Services Tax (GST) demand that classified the assignment of leasehold rights in industrial land as a “supply of service.” The ruling, delivered by the Nagpur Bench of the Bombay High Court, provides clarity on how GST applies to long-term industrial leases and assignments, and offers significant relief to businesses across Maharashtra.
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The Court’s decision is particularly important because tax authorities had been treating such assignments as taxable services, leading to heavy demands on companies. By ruling that leasehold assignments are not “supply of service,” the Court has reinforced the principle that GST should not apply to transactions that are essentially transfers of property rights.
Background of the Case
The case involved businesses that had acquired industrial plots from the Maharashtra Industrial Development Corporation (MIDC) on long-term lease. Later, these businesses assigned their leasehold rights to third parties.
Tax authorities argued that such assignments amounted to a “supply of service” under the GST law and raised demands accordingly. In one case, a demand of ₹27 lakh was raised against a company for assigning its leasehold rights.
The businesses challenged these demands, arguing that:
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- Assignment of leasehold rights is a transfer of property, not a service.
- GST law does not cover such transactions.
- Earlier rulings, including those of the Gujarat High Court, had already clarified that long-term industrial leases and their assignments are not taxable under GST.
Court’s Observations
The Bombay High Court made several key observations:
- Assignment Not a Service: The Court held that assignment of leasehold rights in industrial land does not constitute a “supply of service” under GST law.
- Reliance on Gujarat HC Ruling: The Court referred to the Gujarat High Court’s ruling in the GIDC land transfer case, which had held that such transactions are not taxable.
- Failure of Revenue: The Court noted that the adjudicating authority had failed to consider the reply filed by the assessee and wrongly recorded that no submissions were made.
- Quashing of Demand: The Court quashed the GST demand and directed the Revenue to reconsider the matter, giving the assessee a personal hearing.
Similar Judicial Trends
This ruling is consistent with other judicial decisions:
- Gujarat High Court (GIDC Case): Held that transfer of long-term industrial leases by Gujarat Industrial Development Corporation (GIDC) to third parties is not taxable under GST.
- Delhi High Court: In similar cases, courts have emphasized that property transfers cannot be treated as services under GST.
- Bombay HC Interim Orders: Earlier, the Bombay High Court had stayed GST demands on leasehold assignments, pending final adjudication.
Impact of the Ruling
The ruling has wide implications for businesses and tax authorities:
- Relief for Businesses: Companies that had faced heavy GST demands on leasehold assignments will now be protected.
- Clarity in Law: The judgment clarifies that GST does not apply to property transfers disguised as services.
- Revenue Implications: Tax authorities may need to revisit pending demands and refund amounts already collected.
- Precedent for Other States: The ruling will influence similar disputes in other states where industrial development corporations allot land on long-term leases.
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Why This Matters
The case highlights the importance of judicial clarity in taxation. By ruling that leasehold assignments are not services, the Court has prevented double taxation and ensured fairness in the GST regime.
It also underscores the need for tax authorities to carefully distinguish between property transactions and service transactions, rather than applying GST indiscriminately.
Conclusion
The Bombay High Court’s ruling quashing GST demands on leasehold assignments is a landmark decision in GST jurisprudence. By aligning with the Gujarat High Court’s earlier ruling, the Court has provided much-needed clarity and relief to businesses.
For companies, the message is clear: assignment of leasehold rights in industrial land is not a taxable service under GST. For tax authorities, the ruling is a reminder to respect judicial precedents and ensure fair application of tax laws.
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