Supreme Court Reviews GST on Leasehold Rights, Eyes Impact

Supreme Court Examines GST on Leasehold Rights: A Case That Could Reshape Real Estate Taxation

Bench weighs if leasehold transfers are “land transactions” or “supply of services”

Businesses, developers, and tax authorities await clarity on a long-disputed issue

By Our Legal Reporter

New Delhi: October 25, 2025: The Supreme Court of India has begun hearing a case that could have far-reaching consequences for the real estate, infrastructure, and industrial sectors. The central question: Does the transfer or assignment of leasehold rights in land attract Goods and Services Tax (GST), or should it be treated as a transfer of land, which is exempt from GST?

A two-judge Bench comprising Justice Pankaj Mithal and Justice Prasanna B. Varale is examining appeals filed by the Union of India against a 2023 Gujarat High Court ruling. That ruling had held that the assignment of leasehold rights in land does not attract GST, as it amounts to a transfer of immovable property rather than a taxable supply of services.

The outcome of this case will directly impact land developers, industrial estates, special economic zones, and companies engaged in long-term leasehold transactions, many of whom have faced uncertainty and conflicting rulings in recent years.

Background of the Dispute

The controversy began when the Gujarat High Court, in the case of Alfa Tools Pvt. Ltd. vs Union of India (2023), ruled that the assignment of leasehold rights in land was essentially a transfer of land. Since the transfer of land is specifically excluded from the scope of GST under Schedule III of the Central GST Act, 2017, the High Court held that no GST could be levied.

The Union of India challenged this decision, arguing that the assignment of leasehold rights is not the same as the sale of land. Instead, it should be treated as a supply of service, which falls within the ambit of GST.

This dispute has now reached the Supreme Court, where multiple petitions have been clubbed together for a consolidated hearing.

The Legal Question

At the heart of the matter lies a fundamental interpretative question:

Does transferring leasehold rights amount to a “supply of service” under GST law?
Or is it simply a transfer of interest in immovable property, which should be exempt from GST?

The GST Council and the Union government argue that leasehold rights are time-bound interests in land, not outright ownership. Therefore, they should be treated as a service provided for consideration and taxed accordingly.

On the other hand, businesses and industry bodies argue that leasehold rights are inseparable from land ownership interests. They contend that taxing such transactions would amount to double taxation, since stamp duty and registration charges are already levied under state laws.

Diverging Views Across India

The issue has been a grey area since the introduction of GST in 2017. Different High Courts and Advance Ruling Authorities have taken conflicting positions:

Gujarat High Court (2023): Held that assignment of leasehold rights is not taxable under GST.
Advance Ruling Authorities (various states): Some rulings have treated leasehold transfers as taxable services, creating confusion.
Industry perspective: Developers and industrial units argue that taxing leasehold rights increases costs and discourages investment in long-term projects.

This divergence has created legal uncertainty, prompting the need for a clear ruling from the Supreme Court.

Arguments Before the Supreme Court

Union of India’s Position

Leasehold rights are limited rights, not absolute ownership.
Their transfer is akin to a service, since the lessee enjoys land use for a fixed period.
Exempting such transactions would create a tax loophole and reduce GST revenue.

Assessees’ Position (Businesses and Developers)

Leasehold rights are interests in immovable property, not services.
Taxing them under GST would amount to double taxation, since stamp duty already applies.
The Gujarat High Court ruling correctly interpreted the law and should be upheld.

Why This Case Matters

The Supreme Court’s decision will have wide-ranging implications:

Real Estate Sector: Developers often acquire land on long-term leases. If GST applies, project costs will rise significantly.
Industrial and Infrastructure Projects: Many industrial estates and SEZs operate on leasehold land. Taxation could affect investment decisions.
Tax Administration: A ruling in favor of GST could boost government revenues but may also trigger disputes over past transactions.
Legal Clarity: The judgment will settle years of conflicting interpretations and provide certainty to businesses.

Expert Opinions

Tax experts note that the case highlights the tension between GST law and property law.

CA Manish Watmode, writing in TaxGuru, observed that the debate boils down to whether leasehold rights are “supply” or “immovable property”.
Legal commentators on JurisHour stressed that the Supreme Court’s ruling will set a precedent for future cases involving land-related transactions.
Industry associations argue that taxing leasehold rights would discourage long-term investments in infrastructure and manufacturing.

Possible Outcomes

The Supreme Court could take one of three approaches:

Uphold Gujarat High Court ruling: Leasehold rights are part of land transfer, exempt from GST.
Reverse the ruling: Leasehold rights are taxable as services under GST.
Middle path: Differentiate between short-term leases (taxable) and long-term assignments (exempt).

Whichever way the Court rules, the decision will reshape the taxation landscape for land transactions in India.

Conclusion

The Supreme Court’s hearing on whether leasehold rights attract GST is more than a technical tax dispute. It is a case that will determine how India balances taxation, property rights, and economic growth.

For businesses, the ruling could mean the difference between higher compliance costs and greater certainty. For the government, it could mean billions in revenue. For the judiciary, it is an opportunity to bring much-needed clarity to one of the most contentious issues in GST law.

As the hearings continue, all eyes are on the Supreme Court to deliver a judgment that will shape the future of real estate and infrastructure development in India.