Supreme Court Dismisses Revenue’s SLP In Aerocom: Leasehold Right Assignment Held Outside GST Net
In a significant relief for industrial plot holders and businesses operating on long-term leasehold land, the Supreme Court has dismissed the Revenue’s Special Leave Petition (SLP) against the Bombay High Court ruling in Assistant Commissioner (Anti-Evasion) vs. Aerocom Cushions Private Limited.
The dismissal effectively upholds the Bombay High Court’s view that assignment of leasehold rights in industrial land constitutes transfer of benefits arising out of immovable property and does not attract GST under Section 7 of the CGST Act.
Key Supreme Court Observation
During the hearing, the Supreme Court specifically questioned whether the assignment of leasehold rights could be said to be “in furtherance of business”, observing that only then could the transaction qualify as a taxable “supply” under GST law.
The Court reportedly observed:
“This is not furtherance of business. He has assigned the entire leasehold rights to the other party with the permission of MIDC. He has paid premium also. This cannot come within supply.”
Background Of The Dispute
The dispute originated from a GST demand raised on transfer of leasehold rights in an MIDC industrial plot by Aerocom Cushions Private Limited.
The Department alleged that assignment of leasehold rights amounted to supply of services taxable under Schedule II of the CGST Act and sought to classify the transaction under “other miscellaneous services” taxable at 18%.
However, the Bombay High Court quashed the show cause notice and held that:
- Assignment of leasehold rights is distinct from lease or sub-lease
- The original lessee’s rights stand extinguished upon assignment
- The transaction amounts to transfer of immovable-property rights
- The essential ingredient of “furtherance of business” is absent
Reliance On Gujarat Chamber Judgment
The Bombay High Court had relied heavily upon the Gujarat High Court ruling in Gujarat Chamber of Commerce and Industry v. Union of India, wherein it was held that assignment of leasehold rights in industrial plots amounts to transfer of benefits arising out of immovable property and therefore falls outside GST.
Interestingly, during the SLP hearing, the Revenue argued that the Gujarat High Court ruling is itself under challenge before the Supreme Court. However, the Apex Court declined interference in Aerocom on the basis of the facts involved in the present case.
Key Takeaways For Businesses
- Assignment of long-term leasehold rights with approval of MIDC/GIDC may not qualify as “supply” under GST.
- The Supreme Court has emphasized the importance of the “furtherance of business” test under Section 7 of the CGST Act.
- Transfer of leasehold rights resulting in complete extinguishment of the original lessee’s rights strengthens the argument that the transaction pertains to immovable property.
- The ruling offers strong support against GST demands raised on industrial plot assignments.
- However, the larger controversy may continue until the Supreme Court finally decides the pending challenge in the Gujarat Chamber matter.
Practical Impact
The dismissal of the SLP significantly strengthens the taxpayer-friendly interpretation emerging from various High Courts that assignment of leasehold rights is not equivalent to supply of services.
Industrial units, manufacturers, developers, and businesses operating on long-term industrial leasehold plots may now have stronger judicial backing to contest GST demands on transfer or assignment transactions involving industrial land rights.
Conclusion
The Supreme Court’s refusal to interfere in Aerocom Cushions marks an important development in the evolving jurisprudence surrounding GST on leasehold right transfers.
More importantly, the Court’s clear observation that such assignment is “not furtherance of business” and therefore cannot fall within “supply” is likely to play a crucial role in future litigation involving GST on industrial leasehold transactions.