18% GST on transfer of leasehold Industrial land not applicable, says Gujarat HC

The Gujarat High Court recently ruled that Goods & Services Tax (GST) does not apply to the transfer of leasehold rights on land allocated by the Gujarat Industrial Development Corporation (GIDC), offering major relief to industries dealing with leasehold land transfers.


This decision eases a contentious tax burden for industries, particularly those involved in leasehold land transactions.

The ruling addresses the key question of whether GST applies to transactions involving the transfer of leasehold rights.

It is expected to set a positive precedent for similar disputes across various courts.

There are several pending cases involving similar issues before other courts, including the Bombay High Court, where the matter pertains to the transfer of industrial land by the Maharashtra Industrial Development Corporation (MIDC) and subsequent transfers.

The central issue in these cases is whether GST should be levied on the transfer of leasehold or industrial land, considering that these transactions already attract state-imposed stamp duties.

The petitioners argued that such transactions should be classified as sales of land, which are explicitly excluded from the purview of GST under the law. The imposition of an 18% GST on each subsequent transfer significantly increases the tax burden, leading to tax cascading and rendering several transactions economically unfeasible.

The order was issued by Justices Bhargava D Karia and D N Ray on Friday (January 3), with the final order copy awaited.

Abhishek A. Rastogi, founder of Rastogi Chambers, commented, "The applicability of GST to these transactions required scrutiny, not only in terms of the GST framework but also in light of the issue of double taxation. The situation becomes more problematic when show cause notices are issued, and adjudicating authorities confirm the demand, triggering the requirement of a pre-deposit for filing an appeal."

This ruling highlights the need for greater clarity regarding GST applicability in such cases to avoid prolonged litigation and create a more favorable environment for industrial investments.

Rastogi further added, "It is expected that the issue will eventually be addressed by the Supreme Court, and it is hoped that the matter will be resolved pragmatically either by the GST Council or through court intervention."

Saurabh Agarwal, Tax Partner, EY, said, "The Gujarat High Court's decision brings critical relief and much-needed clarity for businesses. GIDC's retrospective demand for 18% GST on such lease transfers had created an undue liability of approximately ₹8,000 crore, severely impacting MSMEs and threatening the livelihood of businesses. This judgment touches on the broader question of whether long-term leases are equivalent to the sale of land—a debate predating the GST regime. While this landmark ruling provides interim clarity and would be a strong precedent for similar disputes across India, the maturity of GST law and a definitive judgment from the Supreme Court are essential to settle these issues conclusively. It will be beneficial for the industry if CBIC provides clarity on this aspect and the industry doesn’t have to wait for the final verdict from the Supreme Court."