Introduction
The Nagpur Bench of the Bombay High Court in Writ Petition No. 1257 of 2026, dated 27 February 2026, in the case of M/s. Hindustan Equipment Craft v. Assistant Commissioner of State Tax & Ors., held that the assignment of long-term leasehold rights in an industrial plot is essentially a transfer of benefits arising from immovable property. Because of this, such a transaction cannot be considered a “Supply of Services.” The Court also held that tax authorities cannot classify such transactions as “Miscellaneous Services” in order to charge GST. Hence, it is clear that GST is not leviable on such assignments of leasehold rights.
Facts
M/s. Hindustan Equipment Craft (hereinafter referred to as “the Petitioner”) held leasehold rights over an industrial plot allotted by the Maharashtra Industrial Development Corporation (“MIDC”) for a period of 95 years. The petitioner had constructed a factory building on the said plot. Later, the petitioner decided to assign its leasehold rights to M/s. Kothari Belting Company. This transfer was made with the earlier permission of MIDC. The assignment was done for a consideration of ₹1,15,00,000, and the petitioner also paid ₹2,33,500 as additional premium to MIDC as per the requirement under the lease deed. After this transaction, the petitioner received a show cause notice on the date September 22, 2025, from the Assistant Commissioner of State Tax. That show cause notice stated that the petitioner has failed to perform its GST liability in respect of the assignment of the leasehold rights. As per the tax authorities, the transfer of leasehold rights amounted to a “supply of services” under Section 7 of the Act, r/w Schedule II. Based on this, proceedings were initiated under Sections 73 and 75 of the Maharashtra GST Act for the recovery of unpaid tax. After that, an order dated December 30, 2025, was passed demanding the payment of GST from the petitioner. To challenge this order and the interpretation adopted by the tax authorities, the petitioner filed a writ petition in the Bombay High Court for quashing the demand.
Issues Before the Court
- Whether the assignment of long-term leasehold rights in an industrial plot constitutes a “supply of services” within the meaning of Section 7 of the GST Act and is therefore subject to GST.
- Whether the assignment by the petitioner of leasehold rights to a third party constitutes a transfer of benefits arising from immovable property rather than a taxable supply under GST.
- Whether the tax authorities were justified in including the assignment of leasehold rights in the residual category of “miscellaneous services” for the purpose of levying GST.
Contentions of the Parties
Petitioner’s Contentions
The petitioner contended that the tax authorities had misunderstood the nature of the transaction. According to the petitioner, the transfer that was made in favor of M/s. Kothari Belting Company was not a lease or sub-lease, but a complete assignment of lease rights, where all of the rights and interests in the property were transferred to the assignee. Thus, it could not be treated as leasing or renting of property, which is as provided in Schedule II of the GST Act as “supply of services”. The petitioner further argued that the transaction was a transfer of benefits arising from immovable property. Hence, it should not be brought under the purview of GST unless the law clearly provides for it. The petitioner also submitted that GST applies to the supply of goods and services, not to the transfer of immovable property. Furthermore, it was argued that the transaction was not carried out in the course or furtherance of business but was only a one-time transaction and not part of the company’s regular business activities.
Respondent’s Contentions
On the contrary, the State tax authorities (hereinafter referred to as “the respondents”) justified the demand raised against the petitioner and contended that the transaction clearly falls within the definition of “supply” under Section 7 of the GST Act, covering activities such as sale, transfer, lease, or disposal of any goods or services, in exchange of consideration, in the course or furtherance of business. According to the respondents, the assignment of leasehold rights involved the transfer of a valuable right in exchange for consideration and thus should be treated as a taxable supply. The respondents also relied on Schedule II of the GST Act, which includes activities related to land and buildings as a supply of services. Based on this reasoning, they argued that the assignment of leasehold rights should also be treated as a service. Furthermore, the tax authorities attempted to classify the transaction within “other miscellaneous services,” which are taxable at 18% under Sr. No. 35 of the Notification No. 11/2017-Central Tax (Rate). On this basis, they maintained that the GST demand raised against the petitioner was valid and justified.
Decision and Reasoning
The Bombay High Court allowed the writ petition, setting aside the tax demand. The Court stated that even the respondents had accepted the fact that the transaction was not a sub-lease, because the petitioner’s right over the property had completely extinguished after the assignment to the other party. Because of this, the transaction cannot be treated as leasing or renting of property. The court also rejected the attempt of the respondents to classify the transaction as ‘miscellaneous services. It was observed that the examples under this category include activities such as washing, cleaning, dyeing, beauty services, and other such services, and it would be unreasonable to extend this classification to the assignment of the leasehold rights over immovable properties. The Court further observed that the petitioner held a 95-year long-term lease, and the assignment of such leasehold rights to another party with the prior consent of the MIDC constituted a transfer of the benefits arising from immovable property rather than the supply of a service. While considering the case, the court relied on the judgment of the Gujarat High Court in the case of Gujarat Chamber of Commerce and Industry v. Union of India [(2025) 170 taxmann.com 251 (Gujarat)], in which the court held that the assignment of leasehold rights is a transfer of benefits arising from immovable property and therefore does not fall within the scope of “supply” as per Section 7 of the GST Act. Agreeing with this reasoning, the Bombay High Court held that GST cannot be levied on such transactions. Accordingly, the order dated 30th December 2025 was quashed, and the writ petition was allowed.
AMLEGALS Remarks
This judgment is significant as it clarifies how GST applies to transactions involving immovable property. The Court held that the assignment of leasehold rights in land is particularly a transfer of rights related to immovable property. Therefore, such a transaction cannot be treated as a “service supply” under GST laws and cannot be made taxable. The Court also made it clear that for GST to apply, the transaction must take place in the course or furtherance of business and must fall within the definition of “supply” under the law. By rejecting the tax authorities’ attempt to classify such transactions as “miscellaneous services,” the Court emphasized that tax laws should be applied with utmost care and in strict compliance with their objectives.
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