Assignment of Leasehold Rights is Transfer of Immovable Property, Not Supply of Services: Bombay High Court Quashes GST Show Cause Notice Against Aerocom

“Assignment of Leasehold Rights is Neither Lease Nor Sub-Lease — It Is Transfer of Rights Arising from Immovable Property”, In a significant ruling with wide implications for industrial lease transactions, the Bombay High Court (Nagpur Bench) on January 9, 2026, quashed a Show Cause Notice issued by the CGST Department seeking to levy ₹27,00,000 in GST on the assignment of long-term leasehold rights by Aerocom Cushions Private Limited in an MIDC plot. The Division Bench of Justice Anil L. Pansare and Justice Nivedita P. Mehta held that the transaction in question did not constitute “supply of service” under the Central Goods and Services Tax Act, 2017, and therefore fell outside the ambit of GST.

The Court ruled that “assignment of leasehold rights with the consent of MIDC does not amount to lease or sub-lease, and thus, cannot be taxed under Schedule II of the CGST Act.” Importantly, the Court found that the essential ingredient of supply in the course or furtherance of business — as mandated under Section 7(1)(a) — was absent, and therefore, the transaction could not be considered a "supply" at all.

“Assignment of Leasehold Rights Is Not a Lease or Letting — It's a Sale of Immovable Property Rights”

The crux of the dispute arose from a show cause notice dated 20.12.2024 issued by the Assistant Commissioner (Anti-Evasion), CGST & CX Nagpur-1, alleging that Aerocom had concealed a taxable transaction by assigning its leasehold rights in an MIDC industrial plot to a third party, M/s. Rishita Industries, for ₹1.5 crore, and thus had evaded GST liability under Section 74(1) of the CGST Act.

While the Revenue argued that such assignment amounted to supply of service under Section 7(1) read with Schedule II, Clause 2(b) of the CGST Act, the Court emphatically rejected this. It held that:

“The transaction under question is assignment of leasehold rights… which admittedly is not a lease nor does it amount to sub-lease… Respondent No.1 has categorically mentioned that the petitioner’s right stands extinguished by the said transaction.” [Para 7]

Therefore, Clause 2(b) — which refers to “lease or letting out of the building” — had no application, and treating such assignment as “miscellaneous services” under Notification No. 11/2017 was a misclassification, said the Court.

“Petty services like washing, cleaning, beauty, etc., cannot be extended to assignment of leasehold rights in immovable property.” [Para 8]

“Essential Business Nexus Absent – No GST Liability under Section 7(1)”

The Court emphasized that even if the transaction involved consideration, it did not satisfy the test of being in the course or furtherance of business, as required under Section 7(1)(a) of the CGST Act.

“The transaction pertains exclusively to transfer of benefits arising out of an immovable property and has no nexus whatsoever with the business of the petitioner company… Consequently, the essential element of supply of service in the course of business is completely absent.” [Para 10]

The Court drew heavily from the Gujarat High Court’s authoritative ruling in Gujarat Chamber of Commerce and Industry v. Union of India, (2025) 170 taxmann.com 251 (Guj), which dealt with a similar issue involving transfer of industrial leasehold rights. In that case, the Gujarat High Court had held that:

“Assignment/sale/transfer of leasehold rights of the plot of land allotted by GIDC… shall be assignment/sale/transfer of benefits arising out of ‘immovable property’… and same would not be subject to levy of GST.” [Para 12, quoting Gujarat HC]

The Bombay High Court found itself in complete agreement with this view and affirmed:

“We subscribe to this view for the reasons quoted… and because the view is in consonance with the provisions of law on supply of services.” [Para 13]

Binding Nature of Precedent – Gujarat High Court’s View Applies in Maharashtra

The Court further held that the decision of the Gujarat High Court is binding on the tax authorities in Maharashtra, in absence of any contrary view. Referring to its own precedent in CIT, Vidarbha v. Smt. Godavari Devi Saraf, (1978) 113 ITR 589 (Bom), the Bench observed:

“Until a contrary decision is given by any other competent High Court, it is binding on a Tribunal in the State of Bombay... In that sense, the decision of Gujarat High Court is binding on the authorities below.” [Para 14]

Thus, the Court gave an unambiguous signal that assignment of industrial leasehold rights, even if involving substantial consideration, cannot be treated as supply for GST purposes if it is a one-off transfer of immovable property rights with no business nexus.

Distinction Clarified Between Initial Allotment by MIDC and Assignment by Lessee

The Court acknowledged that while the initial grant of lease by MIDC (or similar development corporations like GIDC) may fall within supply of services, it is already covered by entry no. 41 of Notification No. 12/2017, attracting NIL GST for one-time upfront payments.

However, a subsequent assignment by the lessee (like the petitioner) to a third party is a transfer of immovable property, not a new supply of service:

“Such transaction amounts to transfer of immovable property rights and not letting or renting – outside scope of Schedule II.” [Headnotes]

Final Relief Granted

Having declared the show cause notice unsustainable in law, the Court allowed the writ petition and quashed the notice dated 20.12.2024:

“The writ petition is accordingly allowed. Show cause notice… dated 20-12-2024 issued by respondent No.1 is quashed and set aside.” [Para 15]

The rule was made absolute. [Para 16]

Date of Decision: January 9, 2026