In the case of Time Technoplast Ltd. vs. Union of India ([2025] 173 taxmann.com 868), the Gujarat High Court ruled that the assignment of leasehold rights in an industrial plot is not subject to Goods and Services Tax (GST). The case involves a company, Time Technoplast Ltd., that had been allotted an industrial plot on a leasehold basis by the Gujarat Industrial Development Corporation (GIDC). After acquiring full leasehold rights, the company transferred its interest in the plot, including the leasehold rights, to its wholly-owned subsidiary through a Deed of Assignment.
The GST authorities issued a show-cause notice, claiming that the transaction was a supply under GST, specifically invoking Clause 5(b) of Schedule II, which treats the lease or letting of land/buildings as a supply of services. The authorities contended that GST should be levied on the transfer fee.
However, Time Technoplast Ltd. challenged this, arguing that the transaction was merely the transfer of immovable property, not a service, and therefore, it should not attract GST.
Court's Reasoning:
1. Nature of the Transaction:
The Court analyzed the nature of the transaction and concluded that the assignment of leasehold rights was a one-time, absolute transfer of property, rather than a continuous service. GST is typically applied to services, and in this case, there was no ongoing service or lease arrangement that would qualify as a service under GST laws.
The Court clarified that a lease involves an arrangement where one party provides the right to use and enjoy property for a specified period in exchange for periodic payments. In contrast, the assignment of leasehold rights was a complete transfer, akin to a sale of property, which does not fall under the definition of services in the GST Act.
2. Schedule III Exclusion:
The Court also considered Schedule III of the CGST Act, which excludes the sale of land and buildings from the definition of a supply. Since the assignment of leasehold rights was effectively a transfer of property, the Court held that it fell under this exclusion, meaning it was not subject to GST.
Key Takeaways:
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Distinction Between Property Transfer and Services:
This ruling underscores the distinction between a property transfer and the provision of services. The assignment of leasehold rights in this case was a transfer of rights in immovable property, not a lease or rental service. -
GST Exemption for Property Transfers:
The Court's interpretation reinforces that transactions involving the transfer of land or property rights, including leasehold interests, are generally excluded from GST. This protects businesses from unintended GST liabilities on property transactions. -
Implications for Businesses:
This decision is significant for industries dealing with property, such as real estate and industrial development. Companies engaging in similar transactions—like transferring leasehold rights or other property interests—can now proceed with more clarity, knowing these transfers are not subject to GST.
Conclusion:
The Gujarat High Court’s ruling provides much-needed clarity on the application of GST to property-related transactions. By confirming that the assignment of leasehold rights is a transfer of property rather than a service, the Court has reinforced the principle that GST applies only to the supply of goods and services, not to property transfers. This ruling is an important reference for businesses in the real estate and industrial sectors, ensuring they can confidently handle property transactions without the fear of unnecessary GST burdens.
