Gujarat High Court
M/S Kp Green Engineering Limited vs Union Of India on 25 July, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6144 of 2025
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes No
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M/S KP GREEN ENGINEERING LIMITED & ANR.
Versus
UNION OF INDIA & ORS.
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Appearance:
MR.MRUDUL M BAROT(3750) for the Petitioner(s) No. 1,2
DEEPAK N KHANCHANDANI(7781) for the Respondent(s) No. 1,3,4,5,6,7
MS SHRUNJAL SHAH ASSISTANT GOVERNMENT PLEADER for the
Respondent(s) No. 2
DS AFF.NOT FILED (N) for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 25/07/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI)
1. Heard learned advocate Mr. Mrudul Barot for the
petitioners, Ms. Shrunjal Shah, learned Assistant Government
Pleader for respondent no. 2 and learned Senior Standing
Counsel Mr. Deepak Khanchandani for the respondent nos. 1, 3
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to 7.
2. Having regard to the controversy arising in the
petition which is in narrow compass, with the consent of the
learned advocates for the respective parties, the matter is
taken up for hearing.
3. Rule returnable forthwith. Learned advocates waives
service of notice of rule on behalf of the respective parties.
4. The present petition preferred under Articles 226 and 227
of the Constitution of India assails the correctness and validity
of show cause notice dated 29.12.2023 rendered under Section
74 of the State Goods & Service Tax Act, 2017 (hereinafter
referred to as 'the Act' for short), inter alia considering the
assignment of lease hold rights by the petitioner in favour of
M/s. Hindustan Enviro Life Protection Services Limited as
supply of service under Section 7(1)(a)of the Act and classified
under Heading 9972 of Tariff Code.
5. The brief facts leading to filing of the present petition is
that Gujarat Industrial Development Corporation (hereinafter
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referred to as 'GIDC'), which is established under the Gujarat
Industrial Development Act, 1962, acts as a nodal agency of
Government of Gujarat for the purpose of development of
industrial areas /estates. GIDC gives lands to industries on
lease, generally for a period of 99 years. GIDC issues an
allotment letter to the industry desiring to take plots developed
by the GIDC. Allotment letter would set various terms and
conditions on which the allotment is being made, including the
method and manner in which premium is required to be paid.
5.1 The petitioner (erstwhile M/s. K.P. Buildcon Private
Limited) was allotted industrial plot No. 1716 situated at Panoli,
GIDC, Ankleshwar vide Office-cum-Allotment Order dated
14.12.2007. Thereafter the petitioner agreed to transfer his
interest to M/s. Hindustan Enviro Life Protection Services
Limited under certain terms and conditions as stipulated under
deed of assignment. Further on application preferred to transfer
the lease hold rights, provisional transfer order dated
25.03.2019 was issued on fulfillment of conditions mentioned in
the provisional transfer order. The provisional transfer order
further stated that permission of transfer can be granted as
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provided in clause of license agreement of sale executed with
the petitioner. Therefore the sale deed for transfer of industrial
plot between M/s. K.P. Buildcon Private Limited and M/s.
Hindustan Enviro Life Protection Services Limited was executed
on 28.03.2017.
5.2. On fulfillment of the aforesaid conditions final transfer
order was issued on 22.04.2017. The petitioner received the
total consideration amounting to Rs.2,20,00,000/- from M/s.
Hindustan Enviro Life Protection Services Limited for
transferring his lease hold rights.
5.3. It is the case of the petitioner that Directorate General of
GST Intelligence (DGGI), Vadodara Regional Unit had initiated
a case for non-payment of GST on the consideration received for
transfer of the lease hold rights in relation to GIDC plots vide
summons dated 24.05.2021 under Section 17(1) of the Act. In
response to the said summons, the petitioner submitted various
relevant documents in relation to the transfer of GIDC plot. It is
the case of the petitioner that thereafter, the petitioner was
served with a show-cause notice on 29.12.2023 which inter alia
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demanded Rs.39,60,000/- as GST on transfer of lease hold rights
in favour of M/s. Hindustan Enviro Life Protection Services
Limited on the premise that execution deed and subsequent
lease is considered as a taxable value of supply of services.
Thereafter the petitioner has also filed reply to the show cause
notice issued on 15.10.2024
6. Mr. Mrudul Barot, learned advocate for the petitioner has
submitted that the issue is no more res integra pursuant to the
decision of this Court in the case of Gujarat Chamber of
Commerce, Industries & Ors Vs. Union of India & Ors.,
rendered in Special Civil Application No. 11345 of 2023.
7. Ms. Shrunjal Shah, learned Assistant Government Pleader
was unable to controvert the proposition that the issue is now
covered by the decision of Gujarat Chamber of Commerce,
Industries & Ors.,(supra).
8. This Court, in the case of Gujarat Chamber of Commerce,
Industries & Ors., (supra), held as under:
"51. This submission seems to be very attractive at the
first blush, however, there are two transactions, one when
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the GIDC allots plot of land along with right to occupy,
right to construct, right to possess on long term lease
basis, it is nothing but supply of service as right of
ownership of plot in question remains with the GIDC
which will revert back on expiry of lease period whereas
transaction of sale and transfer of leasehold rights by the
lessee- assignor in favour of assignee divest lessee-
assignor of all the absolute rights in the property.
Therefore, interest in the immovable property in form of
leasehold rights cannot be said to be different than the
immovable property itself. Section 2(119) of the GST Act
defines "works contract" being a contract for building,
construction, fabrication, completion, erection etc., of any
immovable property wherein transfer of property in goods
is involved in execution of such contract. Therefore, there
is no reference to the interest in immovable property in
works contract. Similarly section 17(5)(c) and (d) of the
GST Act refers to the immovable property regarding
works contract services and goods or services both
received by taxable person for construction of an
immovable property. Section 12 of the Integrated Goods
and Service Tax Act,2017 (for short 'the IGST Act') refers
to place of supply of services in reference to section
2(120) of the GST Act which applies to the IGST Act also
and as per sub-section(3) of section 12, place of supply of
services in relation to immovable property includes
services provided by architect, interior decorators etc.
and includes any service provided by way of grant of right
to use immovable property or for carrying out or
coordination of construction work by way of lodging
accommodation by a hotel, by way of accommodation in
any immovable property for organizing marriage or any
services ancillary to the services referred to in other
clauses, shall be the location at which the immovable
property is located.
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61. A bare perusal of the above Statement of Object and
Reasons, clearly indicates the legislative intention to
subsume all the existing indirect taxes in a single tax
called Goods and Services Tax to be levied on supply of
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goods or services or both at each stage of supply chain by
converging any tax that was being levied on the supply of
goods or services to be converged in Goods and Service
tax to be levied under the GST Act.
62. In view of the legislative intention, section 7 of the
GST Act which provides for the scope of supply of good or
services or both for the purpose of the GST Act includes
all forms of supply of goods or services or both by any
form such as transfer, sale, barter, exchange, license,
rental, lease or disposal made or agreed to be made for a
consideration by a person in the course or furtherance of
business. Therefore, considering the settled legal position
as held by the Hon'ble Supreme Court and other High
Courts from time to time, it is true that any lease or
letting out of a building including commercial, industrial,
residential complex for business either wholly or partly
would be "supply of service". Therefore, reading the
provisions of the Act together and harmoniously to
understand the nature of levy and the object and purpose
of its imposition, no activity of the nature mentioned in
the inclusive provision of section 7 of the GST Act can be
left out of the net of tax. Simultaneously, the provisions of
section 7 has to be read in terms of substantive provision
and Schedules which treats the activity as supply of
service, particularly, in relation to land and building and
includes a lease. The consideration, therefore, as
premium/one time premium is a measure on which tax is
to be levied, assessed and recovered. Therefore, when the
GIDC allots the plot of land on lease of 99 years and
charges premium for such allotment followed by
periodical lease rent to be paid, is to be considered as
supply of service in relation to land and building read
with clause 5(a) of Schedule-II which specifically provides
that renting of immovable property shall be treated as
supply of services.
63. However, when such leasehold right is transferred by
the lessee-assignor in favour of a third person-assignee by
execution of deed of assignment , it would be nothing but
transfer of an "immovable property" in view of the settled
legal position to the effect that lease for 99 years or for a
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long term in consideration of premium paid is as much an
alienation as sale or mortgage.
64. Corpus Juris Secundum relied upon on behalf of the
petitioner defines the word "property" which depends on
the context with which it is used. Firstly, it is applied to
the external things that are the objects of rights or
estates that is things that are the object of the ownership
and secondly, it is applied to the rights or estates that a
person may acquire in or to things. Therefore, in strict
legal parlance "property" is used to designate a right of
ownership or an aggregate of rights that are guaranteed
and protected by the Government and has been defined as
the right of any person to possess, use, enjoy and dispose
of a thing and to exclude everyone else from interfering
with it and more succinctly, it has been defined as any
vested right of any value which refers to both the actual
physical object and various incorporeal ownership rights
in the object i.e. plot of land and building thereon in facts
of the case as the right to possess, to enjoy the income
from, to alienate or to recover ownership from one who
has obtained title to the object.
65. Under the GST Act and IGST Act relating to Rate of
Tax, Exemption, Reverse Charge Scheme and other
matters concerning supply of services are covered by
notifications issued in exercise of powers conferred by
subsections (1), (3) and (4) of section 9, subsection (1) of
section 11, sub-section (5) of section 15 and sub-section
(1) of section 16 of the GST Act on the basis of
recommendations of the GST Council.
66. As per the notification no. 11/2017, lease of property
is included in Heading No. 9954 relating to construction
services which provides rates of GST involving transfer of
land or undivided share of land, as the case may be, and
value of such supply shall be equivalent to the total
amount charged for such supply less the value of transfer
of land or undivided share of land, as the case may be,
and value of such transfer of land or undivided share of
land shall be deemed to be 1/3rd of the total amount
charged for such supply and total amount means sum
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total of consideration charged for the aforesaid service
and amount charged for transfer of land or undivided
share of land, as the case may be, including by way of
lease or sublease. Therefore, levy of GST on construction
services are exclusive of 1/3rd of total amount charged for
such supply which includes transfer by way of lease or
sub-lease meaning thereby even for levy of GST on
construction services, value of the land by way of lease is
to be excluded considering such value being the value of
immovable property which is transferred.
67. In such circumstances, the contention raised on
behalf of the petitioner that leasehold rights are nothing
but interest in immovable property as per the provision of
section 105 read with section 108(j) of the Transfer of
Property Act constituting absolute transfer of right in
such property because transfer of such leasehold right
extinguishes the estate of the transferor-lessee-assignor
in the immovable property and all legal relationships with
lessor-GIDC are severed and third party-assignee
becomes lessee liable for obligation under the assignment
deed vis-à-vis the lessor-GIDC. As the assignor transfers
leasehold rights after receiving the consideration as
determined on the basis of value of such leasehold rights,
such transaction therefore would of an "immovable
property" and cannot be considered as "supply of
services" as held by Hon'ble Apex Court in case of Gopal
Saran v. Satya Narayana reported in (1989) 3 Supreme
Court Cases 56 wherein definition of "assignment" as
stated in Black's Law Dictionary, Special Deluxe Edition
page 106, is referred to as assignment means "is a
transfer or making over to another of the whole of any
property, real or personal, in possession or in action, or of
any estate or right therein". It has further been held that
assignment would include "The transfer by a party of all
its rights to some kind of property, usually intangible
property such as rights in lease, mortgage, agreement of
sale or a partnership." Considering such definition of
assignment, assignment of leasehold rights is also subject
to levy of stamp duty being transfer of "immovable
property".
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68. The Hon'ble Apex Court in case of Byramjee
Jeejeebhoy (P) Ltd vs State Of Maharashtra reported in
AIR 1965 Supreme Court 590 while holding as to what a
lease contemplates has observed that a demise or a
transfer of a right to enjoy land for a term or in perpetuity
in consideration of a price paid or promised or services or
other things of value to be rendered periodically or on
specified occasions to the transferor. The words "transfer
of right to enjoy such property" indicates that all the
rights of ownership are not transferred. Therefore, the
significance of those words as indicative of the limited
estate transfer is apparent in contrasted which flows in
section 54 where a sale is defined as "transfer of
ownership in exchange for a price". Therefore, while
assignment conveys the whole interest in the property
which passes to the assignee along with rights and
liability to sue and be sued upon the covenants in the
original lease.
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73. Therefore, the scope of "supply of services" would not
include transfer of leasehold rights as supply of service as
it would be transfer of "immovable property" being a
benefit arising out of immovable property consisting of
land and building.
74. Clause 5 of Schedule III of the GST Act clearly
provides that sale of land cannot to be treated as supply
of goods or services. Therefore, leasehold rights which
are to be considered as sale of land would be out of
purview of the provisions of scope of supply as per section
7 of the GST Act.
75. As the GST Act is nothing but a levy of tax upon all the
indirect taxes which were levied under different
legislation, it would be germane to refer to definition of
"service" as provided in section 2(102) of the GST Act to
mean as anything other than goods, money and securities.
Considering such definition in juxtaposition to provisions
of section 65B(44) of the Finance Act, 1944, there was
specific exclusion of transfer of title in immovable
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property from definition of 'service' itself which clearly
shows that there was no intention of the legislature to
impose tax on transfer of immovable property. Under the
Service Tax Act, even the development rights which are
the benefits arising from land were not liable to tax.
Leasehold right is in fact a greater right and interest in
land than development rights and the principle under the
service tax regime would therefore, continue even to
apply under the GST regime as the object of introduction
of GST is to subsume the existing taxes.
76. It would also be necessary to refer to the Minutes of
the meeting of 5th GST Council to the Agenda 2A which
clearly notes that service tax was not leviable on transfer
of immovable property and a specific proposal was made
to impose GST on sale of immovable property on the
ground that there was no constitutional embargo for
imposing such tax and the stamp duty was leviable on a
different aspect. 7th GST Council meeting held on 22nd
and 23rd December, 2016 after a detailed discussion
decided to defer imposition of tax on land and building
and thereafter, clause 5 of Schedule III of the GST Act
clearly excludes sale of land and building which fortifies
the intention of the GST Council not to impose tax on
transfer of immovable property continuing the underlying
object of erstwhile service tax regime.
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78. Moreover, in the facts of the various cases, GIDC had
only allotted the plot of land to the lessee who
constructed the building and developed the land to run
the business or industry for which such plot of land was
allotted. Therefore, what is assigned by the
lessee/assignor to the assignee for a consideration is not
only the land allotted by GIDC on lease but the entire land
along with building thereon which was constructed on
such land. The entire land and building is therefore,
transferred along with leasehold rights and interest in
land which is a capital asset in form of an immovable
property and the lessee/assignor earned benefits out of
land by way of constructing and operating factory
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building/shed which constitutes a "profit a pendre" which
is also an immovable property and therefore, would not
be subject to tax under the GST Act.
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81. Therefore, the contention of the respondents that by
excluding only sale of land and building as per Schedule-
III would not amount to transfer of leasehold rights as the
interest in immovable property being an intangible form
would be covered by the scope of supply of service, is not
tenable as transaction of assignment is nothing but
absolute transfer of right and interest arising out of the
land which would amount to transfer/sale of immovable
property which cannot be said to be "service" as
contemplated under the provisions of GST Act. Moreover,
assignment/transfer of rights would be out of scope of
supply of service.
82. In view of above discussion and analysis of the
provisions of section 7 read in context of the facts of the
case, the decisions relied upon on behalf of the
respondent are required to be dealt in support of the
proposition that interest in immovable property cannot be
considered as an immovable property as it is not
envisaged as such in the GST Act, as immovable property
is nothing but bundle of rights and right to give such
property on lease is one of such rights and further
transfer of the right to occupy or possess will continue to
remain as supply of service which character will not
change merely because lessee of GIDC affects absolute
transfer thereof in favor of the assignee leaving no right
whatsoever in respect of such leasehold land and
building.
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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
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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.
85. The petitions accordingly succeed and impugned show
cause notices and orders in original or appeal as the case
may be, are hereby quashed and set aside. Rule is made
absolute to the aforesaid extent. No order as to costs."
9. This Court in various decisions have already decided that
assignment by sale and transfer of lease hold right 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 such circumstances, the provision of Section 7(1)(a)
of the Act providing for scope of supply read with Clause 5(b) of
Schedule 2 and Clause 5 of Schedule 3 of the Act would not be
applicable to such transaction of assignment of lease hold rights
and the same would not be subject to levy of GST as provided
under Section 9 of the Act.
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10. In view of the same, the present petition succeeds. The
impugned order dated 29.12.2023 passed under Section 74 of
the Act is hereby quashed and set aside. Rule is made absolute
to the aforesaid extent with no orders as to costs.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
phalguni
