GST Implications on Assignment of Industrial Leasehold Rights: Unfinished Business After Aerocon Cushions

1. Background: Why Long-Term Industrial Lease Rights Remain a Grey Area

The GST treatment of long-duration leasehold rights over industrial plots, particularly land allotted by State industrial development corporations, continues to generate disputes. Many assessees believed that the controversy was conclusively resolved after the Hon’ble Supreme Court dismissed the Revenue’s SLP in Assistant Commissioner (Anti-Evasion) & Anr. v. Aerocom Cushions Private Limited [SLP (Civil) Diary No. 26041 of 2026, dated May 22, 2026].

In that matter, the Bombay High Court had held that the permanent assignment of leasehold rights in an industrial plot was, in substance, a transfer of benefits arising out of immovable property and therefore akin to a sale of land, covered by Schedule III of the CGST Act and outside the ambit of GST. When the Revenue’s SLP was dismissed, many in industry interpreted this as a green signal to treat all such assignments as non-taxable.

However, the Supreme Court’s order was a non-speaking dismissal, without detailed reasoning or an examination of the broader statutory framework. Consequently, the fundamental legal tension between:

  • Schedule II (treating certain transactions as supply of services),
  • Schedule III (excluding sale of land from GST),
  • CBIC circulars, and
  • exemption notifications for long-term industrial land leases

remains very much alive. Field officers continue to rely on the bare provisions of the CGST law and departmental instructions, and are unlikely to stop raising demands solely on the strength of an in limine SLP dismissal.

2. Aerocom Cushions: Important Relief, But Not a Universal Shield

2.1 Key Facts and the Bombay High Court’s View

In the underlying dispute, the assessee had obtained a 95-year lease over an industrial plot from the Maharashtra Industrial Development Corporation (MIDC). Subsequently, the assessee permanently assigned these leasehold rights to another party for a consideration of ₹1.50 Crore.

The CGST authorities viewed this transfer as a “supply of service” under Section 7 read with Schedule II, and proposed to tax it as “other miscellaneous services” under Notification No. 11/2017-Central Tax (Rate). A Show Cause Notice was issued demanding GST at 18% on the assignment consideration.

The Bombay High Court set aside the notice, reasoning that:

  • When the original lessee permanently assigns its entire bundle of rights, and its interest in the lease is completely extinguished,
  • such an assignment is effectively a transfer of a benefit arising out of immovable property,
  • which is treated as equivalent to a sale of land and therefore falls under Schedule III,
  • and is not a lease or sub-lease attracting GST as a service.

The Revenue carried the matter to the Supreme Court. The Court passed a brief order stating:

“Delay condoned. We are not inclined to interfere with the impugned judgment and order of the High Court, hence, the special leave petition is dismissed.”

This order:

  • Confirms relief for Aerocom Cushions Private Limited on those specific facts,
  • But does not examine the detailed legal conflict between Schedule II and Schedule III,
  • And does not provide a reasoned ratio that can be universally applied as a binding precedent on all similar lease assignments.

Because it is a non-speaking dismissal, it does not re-write or override the statutory text or the CBIC’s existing circulars and notifications. From a practical enforcement perspective, GST officers remain bound by the law as written and by departmental instructions until the GST Council or CBIC issues clarificatory amendments.

3. Statutory Tug-of-War: How the Law Still Supports Departmental Demands

To build a sustainable legal position, an assessee cannot rely solely on a single court order, particularly a non-speaking SLP dismissal. A holistic reading of the CGST Act, the Schedules, and the CBIC’s notifications and circulars shows why departmental officers are likely to press ahead with GST demands on many lease assignment transactions.

3.1 Circular No. 44/2018-GST: Lease Premium as a Taxable Service

The starting point is Circular No. 44/2018-GST, which addresses the taxability of upfront charges for long-term leases of industrial land. The circular clearly states that: