No GST On Assignment Of Long-Term Leasehold Rights: Bombay High Court Quashes Notice Against MIDC Unit

The Bombay High Court at Nagpur on Friday has set aside a GST show cause notice seeking to tax the assignment of long-term leasehold rights. The court held that such a transaction is a transfer of benefits arising out of immovable property and is not a taxable “supply” under the GST law.

A division bench of Justice Anil L. Pansare and Justice Nivedita P. Mehta said the tax department had wrongly treated the transaction as a service. Agreeing with the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India, the bench said,

“Further we subscribe to the finding of Gujarat High Court that the assignment by sale and a transfer of leasehold rights of the plot of land allotted by the Corporation like GIDC or MIDC 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 and in such circumstances, the transaction would not be subject to levy of GST in terms of the GST Act.”

The case was filed by Aerocom Cushions Private Limited an industrila unit in the MIDC area of Nagpur. The company had challenged a show cause notice issued on December 20, 2024. The notice demanded Rs 27 lakh in GST under Section 74 of the Central Goods and Services Tax Act. The demand was raised over the transfer of leasehold rights.

Aerocom had assigned its 95-year leasehold rights in an MIDC industrial plot at Hingna, Nagpur, to a third party. The consideration was Rs 1.5 crore. The transfer was made with MIDC's consent and on payment of an additional premium.

The GST department claimed the assignment amounted to a supply of services. It sought to tax the transaction at 18% as “other miscellaneous services” under a 2017 rate notification. It also alleged that the company had concealed the transaction.

The High Court rejected this view. It noted that even the show cause notice accepted that Aerocom's rights stood extinguished after the assignment.

“In fact, in the show cause notice issued by respondent No.1, he has categorically mentioned that the transaction under question does not amount to sub-lease as the petitioner's right stands extinguished by the said transaction” the court said.

The bench also rejected the attempt to classify the transaction as a miscellaneous service. It noted that the relevant entry covers routine activities such as washing, cleaning, beauty, and physical well-being services.

Such services, the court said, “cannot be extended to assignment of leasehold rights in an immovable property.”

The court held that the assignment of a 95-year lease amounts to a transfer of benefits arising out of immovable property. It said the transaction had no connection with the company's business.

“The transaction pertains exclusively to the transfer of benefits arising out of an immovable property and has no nexus whatsoever with the business of the petitioner company,” the bench said.

The court relied on a 2025 Gujarat High Court ruling. That judgment held that assignment of leasehold rights is not liable to GST. Subscribing to the view, the court said the ruling is binding on tax authorities in Maharashtra in the absence of any contrary decision.

The court accordingly quashed the show cause notice and allowed the petition.

Case Title: Aerocom Cushions Private Limited Vs Assistant Commissioner (Anti-Evasion)

Citation: 2026 LLBiz HC(BOM) 21

Case Number: WRIT PETITION NO. 2145 OF 2025

For Petitioner: Advocate Vinay Shraff, with Advocate Darshana Bhaiya

For Respondents: Advocate K.K. Nalamwar