Supreme Court Confirms: Assignment of Leasehold Rights in Industrial Land Not Subject to GST
Overview of the Ruling
In a landmark development for GST jurisprudence, the Hon'ble Supreme Court has dismissed the Revenue's Special Leave Petition in Assistant Commissioner (Anti Evasion) & Anr. v. Aerocom Cushions Private Limited, thereby affirming the judgment of the Bombay High Court that the outright assignment of leasehold rights in an MIDC-allotted industrial plot — together with the factory building erected on it — to a third-party assignee for consideration does not qualify as a "supply of service" under Section 7 of the CGST Act, 2017.
This ruling carries profound significance for industrial assessees across India who hold long-term lease rights from State Industrial Development Corporations and have either already completed, or are contemplating, an assignment of such rights.
Background and Factual Matrix
The Assessee's Transaction
Aerocom Cushions Private Limited (hereinafter "the Assessee") had been allotted an industrial plot bearing No. F-14/2, MIDC, Hingna Road, Nagpur by the Maharashtra Industrial Development Corporation (MIDC) under a long-term lease spanning 95 years. The Assessee had also constructed a factory building on the said plot over the course of its business operations.
The lease deed executed between MIDC and the Assessee contained Clause 2(u), which expressly permitted the lessee to transfer its leasehold rights, subject to the prior written consent of MIDC.
Availing itself of this contractual right, the Assessee assigned its entire leasehold interest in the plot, along with the factory building standing thereon, in favour of M/s Rishita Industries (through its proprietor Mr. Sumit Madanlal Pagariya) for a total lump-sum consideration of Rs. 1,50,00,000/-. This assignment was effected with MIDC's prior approval, and the Assessee additionally paid a transfer premium of Rs. 3,95,640/- to MIDC as stipulated under the applicable terms.
The Revenue's Demand
The Assistant Commissioner (Anti-Evasion), CGST & CX, Nagpur-1 issued Show Cause Notice No. 47/AC/GST/NGP-I/2024 dated December 20, 2024 under Section 74(1) of the CGST Act, alleging that the Assessee had concealed this transaction and raising a demand for GST of Rs. 27,00,000/- on the consideration received.
The Revenue's position was that:
- The transfer of leasehold rights amounted to a "supply of services" under
Section 7(1)of the CGST Act read with Clause 2(b) of Schedule II - It was classifiable as "other miscellaneous services" taxable at 18% under Sl. No. 35 of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017
Proceedings Before the Bombay High Court
Aggrieved by the Show Cause Notice, the Assessee filed Writ Petition No. 2145 of 2025 before the Bombay High Court (Nagpur Bench).
Vide its judgment dated January 09, 2026 in Aerocom Cushions Private Limited v. Assistant Commissioner (Anti-Evasion), the Bombay High Court:
- Allowed the writ petition in its entirety
- Quashed the impugned Show Cause Notice
- Held that the assignment of leasehold rights in immovable property does not constitute a supply of service under the CGST Act
The Bombay High Court placed reliance on the ratio laid down by the Gujarat High Court in Gujarat Chamber of Commerce and Industry v. Union of India [R/SPECIAL CIVIL APPLICATION NO. 11345 of 2023] (hereinafter "the GCCI judgment"), which had extensively analysed the legislative framework and concluded that such transactions are transfers of immovable property, falling outside the GST net.
The Legal Question Before the Supreme Court
Whether the outright assignment/transfer of leasehold rights of an MIDC-allotted industrial plot, including the building constructed thereon, by the original lessee in favour of a third-party assignee for a lump-sum consideration — with MIDC's prior consent — constitutes a "supply of service" within the meaning of
Section 7of the CGST Act and is consequently chargeable to GST?
Supreme Court's Findings and Decision
The Supreme Court, in SLP (Civil) Diary No. 26041 of 2026, dismissed the Revenue's petition and affirmed the Bombay High Court's ruling. The key observations of the Court are recorded below:
On the "Course or Furtherance of Business" Requirement
During the hearing, the Court specifically asked the Revenue to demonstrate that the assignment in question was made in the course or furtherance of business, observing that "then only it comes within the definition of supply."
The Court noted that the Assessee had transferred its entire leasehold interest in the industrial plot to a third party with MIDC's permission, and had also discharged the applicable transfer premium. This was a one-time, outright assignment that permanently extinguished the Assessee's rights in the property.