Gujarat High Court
M/S Life Sciences Chemicals vs Union Of India on 30 April, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 2086 of 2025
With
R/SPECIAL CIVIL APPLICATION NO. 4065 of 2025
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
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M/S LIFE SCIENCES CHEMICALS
Versus
UNION OF INDIA & ORS.
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Appearance:
MR. HARDIK V VORA(7123) for the Petitioner(s) No. 1
GOVERNMENT PLEADER for the Respondent(s) No. 3
MR ANKIT SHAH(6371) for the Respondent(s) No. 1,2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 30/04/2025
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. Heard learned advocate Mr. Hardik V. Vora for the Petitioner and learned advocate Mr. Ankit Shah for the Respondents in the Special Civil Application No. 2086 of 2025. Heard learned advocate Mr. Puneet Aggarwal with learned advocate Ms. Mansi Khurana and learned advocate Mr. Prateek S. Bhati for Page 1 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined the Petitioners and learned advocate Mr. Deepak Khanchandani for the Respondents in the Special Civil Application No. 4065 of 2025.
2. Both these petitions involve a common issue and the prayers made therein are also similar. Consequently, both these petitions were heard analogously and are being disposed of by this common judgment and order dated 30.04.2025.
3. Rule returnable forthwith. Learned advocate Mr. Ankit Shah waives service of notice of rule on behalf of the Respondents in Special Civil Application No. 2086 of 2025 and learned advocate Mr. Deepak Khanchandani waives service of notice of rule on behalf of the Respondents in Special Civil Application No. 4065 of 2025.
4. Having regard to the controversy involved in these petitions, which is in narrow compass, with the consent of learned advocates for the respective parties, both the petitions are taken up for final hearing.
5. For the sake of convenience, Special Civil Application No. Page 2 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined 2086 of 2025 is treated as the lead matter. The facts of the said petition are recorded hereinbelow for the purpose of this common judgment and order.
6. The brief facts of the case are as follows:
6.1 The Petitioner is a sole proprietorship concern, owned and managed by Ms. Anishaben Sureshbhai Paneliya. The said proprietorship was registered under the applicable provisions of the Goods and Services Tax (GST) laws with effect from 15.03.2018 bearing GST Registration No. 24ATTPP4559P1ZL. The registration was subsequently surrendered on 31.03.2020. 6.2 It appears from the record that, prior to the formation of the aforesaid proprietorship, a partnership firm named M/s. Life Science Chemicals was constituted, comprising Ms. Anishaben Sureshbhai Paneliya (holding a 60% share) and Mr. Dharmeshbhai B. Kinani (holding a 40% share), and was originally allotted Plot No. 905-11- 20 situated at Panoli Industrial Estate on 05.01.2013. Subsequently, Ms. Anishaben Sureshbhai Paneliya commenced her own proprietorship business under the same trade name, M/s. Life Page 3 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined Science Chemicals, and the said industrial plot was formally transferred from the partnership firm to her sole proprietorship vide a final transfer order dated 27.10.2017.
6.3 Pursuant to the said transfer, a notice bearing DIN 20240665VB00000069E4 dated 26.06.2024 came to be issued to the erstwhile partnership firm M/s. Life Science Chemicals for recovery of government dues. The notice sought payment of GST at the rate of 18% on the alleged consideration of ₹20,78,550/- purportedly20,78,550/- purportedly received by Mr. Anishaben Sureshbhai Paneliya for the transfer of leasehold rights in respect of Plot No. 905-11-20 at GIDC Estate, Panoli, Ankleshwar.
6.4 In response thereto, the taxpayer submitted a reply asserting, inter alia, the following contentions:
i. That the amount in question constituted an upfront consideration reflecting the fair market value of the land, and that the assignment of leasehold rights was, in substance, a transaction analogous to the sale of land. It was Page 4 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined urged that, by virtue of Entry No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017, the sale of land is excluded from the ambit of supply and, therefore, not exigible to GST.
ii. In the alternative, it was contended that the leasehold rights were originally held by the partnership firm consisting of Ms. Anishaben Sureshbhai Paneliya and Mr. Dharmeshbhai B. Kikani, and the transfer thereof to the sole proprietorship
--both bearing the same trade name--constituted a mere internal reorganization. The Petitioner claimed that such restructuring did not involve a distinct legal transfer to a third party and, accordingly, it is not subject to GST. iii. Arguendo, and without prejudice to the above submissions, it was contended that Ms. Anishaben Sureshbhai Paneliya already held a 60% stake in the said plot in her capacity as a partner. Upon dissolution of the partnership, her share effectively increased to 100%. Therefore, assuming GST was applicable, it could be levied, if at all, only on the Page 5 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined remaining 40% share transferred to her, and not on the entire consideration amount, as sought to be levied. 6.5 Thereafter, a show cause notice dated 03.08.2024 was issued to the Petitioner by Respondent No. 3, requiring her to show cause as to why GST should not be levied on the consideration amount involved in the transfer of leasehold rights. It is the case of the Petitioner that she was unaware of the issuance of the said show cause notice and, consequently, could not respond to the same. 6.6 It is contended by the Petitioner that, without taking into account the Petitioner's status as a sole proprietorship concern and the transferee of the subject plot, Respondent No. 3 proceeded to pass an order under Section 74 of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017.
The order dated 07.11.2024, issued in Form GST DRC-07, determined a tax demand of ₹20,78,550/- purportedly2,61,144/-, along with interest of ₹20,78,550/- purportedly3,32,648/- and a penalty of ₹20,78,550/- purportedly2,61,144/-, aggregating to a total sum of ₹20,78,550/- purportedly8,54,936/-. Page 6 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025
NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined
7. Being aggrieved by the order dated 07.11.2024, passed by the Respondent No. 3 under Section 74 of the Goods and Services Tax, 2017, the Petitioner has filed this petition under Section 226 of the Constitution of India with the following prayers:
"a. A writ of certiorari, or any other appropriate writ, order and/or directions in the nature of certiorari and hold that the order u/s 74 passed by the Respondent no. 3 on 07.11.2024 (Annexure A) is ex-facie illegal and without jurisdiction and hence, liable to be quashed.
b. A writ of mandamus, or any other appropriate writ, order and/or directions in the nature of mandamus holding and declaring that the respondents are not entitled to charge GST on the transaction of assignment of the long-term Leasehold rights under the provisions of the Goods and Service Tax, 2017; c. A writ of mandamus, or any other appropriate writ, order and/or directions in the nature of mandamus declaring the amendment vide Notification 28/2019 dated 31.12.2019 (Annexure G), amending Entry no. 41 of Notification 12/2017 dated 28.06.2017 (Annexure E) exempting the subsequent lease & the said amendment being clarificatory in nature, is applicable retrospectively;
d. Pending the admission, hearing and final disposal of this petition, restrain the respondent from initiating recovery proceedings pursuant to the impugned order (Annexure A); e. Pass any other order(s) as this Hon'ble Court may deem fit and more appropriate in order to grant interim relief to the Petitioner, f. Any other and further relief deemed just and proper be granted in the interest of justice;"
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8. Learned advocate Mr.Hardik. Vora for the Petitioner has submitted that, Section 7 of the Central Goods and Services Tax Act, 2017 delineates the scope of "supply." In terms of Section 7(1)(a) of the CGST Act, read with Entry No. 2(a) of Schedule II thereof, any lease, tenancy, or license to occupy land is expressly classified as a supply of service. Conversely, Section 7(2)(a), when read in conjunction with Entry No. 5 of Schedule III, stipulates that the sale of land and, subject to the provisions of paragraph 5(b) of Schedule II, the sale of a building, shall neither be treated as a supply of goods nor a supply of services. Accordingly, such transactions are excluded from the purview of GST. In light of the foregoing, only lease, tenancy, or license arrangements concerning land fall within the taxable ambit under the CGST framework, whereas other transactions pertaining to immovable property including, but not limited to, the sale of land and building stand exempt from the levy of Goods and Services Tax.
8.1 Learned advocate Mr. Vora has submitted that the assignment of leasehold rights of lands and buildings will not fall within the Page 8 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined meaning of taxable supply and no GST can be levied under the GST Act as held by this court in the case of Gujarat Chamber of Commerce and Industry & Ors. v. Union of India & Ors. (SCA No. 11345 of 2023) dated 03.01.2025 reported in 2025 SCC OnLine Guj 537.
8.2 Mr. Puneet Aggarwal, learned advocate appearing for the Petitioners in Special Civil Application No. 4065 of 2025 has made his submissions on similar lines.
9. On the other-hand, Mr.Ankit Shah and Mr. Deepak Khanchandani, learned advocates appearing for the respective Respondents are unable to controvert the aforesaid submissions made by Mr. Vora and Mr. Aggarwal, learned advocates appearing for the respective Petitioners.
10. DISCUSSION & FINDINGS:
10.1 This Court in the case of Gujarat Chamber of Commerce and Industry & Ors. v. Union of India & Ors. (SCA No. 11345 of Page 9 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined 2023) dated 03.01.2025 reported in 2025 SCC OnLine Guj 537, held as under:-
"83. In view of foregoing reasons, assignment by sale and transfer of leasehold rights of the plot of land allotted by GIDC to the lessee in favour of third party-assignee for a consideration shall be assignment/sale/ transfer of benefits arising out of "immovable property" by the lessee-assignor in favour of third party-assignee who would become lessee of GIDC in place of original allottee-lessee. In such circumstances, provisions of section 7(1)(a) of the GST Act providing for scope of supply read with clause 5(b) of Schedule II and Clause 5 of Schedule III would not be applicable to such transaction of assignment of leasehold rights of land and building and same would not be subject to levy of GST as provided under section 9 of the GST Act.
84. In view of above, question of utilisation of input tax credit to discharge the liability of GST on such transaction of assignment would not arise."
10.2 In the given circumstances and factual matrix, the decision of this court in the case of Gujarat Chamber of Commerce (Supra) will squarely apply, as the issue involved in this case is identical. This Court had the occasion to follow to same reasoning as given in the Gujarat Chamber of Commerce (Supra) in various decisions by this Court, notably in the recent decisions of Alfa Tools Pvt. Ltd. v. Union of India & Another reported in 2025:GUJHC;15785-C, in M/s. BVM Pharma Through Partner Alkaben Paneri v. Union of Page 10 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025 NEUTRAL CITATION C/SCA/2086/2025 JUDGMENT DATED: 30/04/2025 undefined India & Ors. passed in the Special Civil Application No. 2429 of 2025, and also followed the same in the case of Time Technoplast Limited v. Union of India & Ors. passed in the Special Civil Application No. 14293 of 2024.
11. Following the aforesaid judgment in Gujarat Chamber of Commerce (Supra) and the decisions in various cases of this court on similar lines, this Court deems it fit to hereby quash and set aside the following:-
A. Order dated 07.11.2024 passed by the Respondent No.3 under Section 74 of the Goods and Services Tax Act, 2017 in Special Civil Application No. 2086 of 2025. B. Order dated 02.01.2025 passed by the Respondent No. 4, the Show Cause Notice dated 26.07.2024 and the Circular No. 44/18/2018-CGST dated 02.05.2018 in Special Civil Application No. 4065 of 2025.
12. These petitions therefore succeed. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) (D.N.RAY,J) BINA SHAH Page 11 of 11 Uploaded by BINA SHAH(HC00353) on Wed May 21 2025 Downloaded on : Sat May 24 01:59:29 IST 2025