Gujarat HC Suspends GST Levy Proceedings for Leasehold Rights Transfer to GIDC Land and Issues Notice to Dept

The Gujarat High Court halted the proceedings for the problem concerned with the levy of the GST on the transfer of the leasehold rights to Gujarat Industrial Development Corporation (GIDC) land and sent the notice to the department.

The same order was passed by the bench of Justice Biren Vaishnav and Justice Mauna M. Bhatt while presiding over the petition concerning various notices that the state GST offices have been sent across Gujarat in the controversial matter of levying GST upon the leasehold rights transfer of GIDC land via private parties.

Numerous micro, small, and medium enterprises (MSMEs) operating in Gujarat are situated within the Gujarat Industrial Development Corporation (GIDC). These businesses have, until now, taken advantage of the infrastructural support offered by GIDC, which includes the provision of land at reduced rates on a 99-year lease.

State GST authorities are actively pursuing the issuance of summonses, notices, and advisories to encompass long-term lease transfers between private entities within the GST framework. In many instances, the taxation of such transactions has led to the reopening of already settled accounts with the buyer, even several years after the transaction occurred. This poses a genuine challenge for the MSMEs, as they might have already invested the proceeds from the lease transfer and moved forward.

The petitioner argues that, as per Schedule II of the Central Goods and Service Tax Act, 2017, which outlines activities considered as the supply of goods and services under GST, any lease, tenancy, easement, or license for land occupancy is classified as a supply of services and should, therefore, fall under the purview of the CGST Act. However, the actual subject of taxation in the petitioner’s case appears to be the sale of land, which does not fit within the category of supply of services according to Schedule III of the GST Act.

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The court, while scheduling a hearing for December 7, 2023, has granted interim relief in the form of a temporary halt to these actions.