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In a landmark ruling, the Gujarat High Court has exempted the transfer of leasehold rights in land granted by the Gujarat Industrial Development Corporation (GIDC) from goods and services tax (GST). This decision provides relief to businesses in Gujarat and Maharashtra, which faced retrospective GST demands of 18%, totaling INR 8,000 crore. The court ruled that such transactions should be treated as land sales, already subject to stamp duty, avoiding double taxation. While the judgment offers clarity and a precedent for similar disputes nationwide, including cases pending before the Bombay High Court, a definitive resolution may depend on a Supreme Court judgment or guidance from the Central Board of Indirect Taxes and Customs.
In a landmark judgment, the Gujarat High Court determined that goods and services tax (GST) does not apply to the transfer of leasehold rights to a third party in land granted by the Gujarat Industrial Development Corporation (GIDC). Advertisement
The ruling, made in the case of Suyog Dye Chemie vs Union of India, provides significant relief to businesses that had been facing retrospective GST demands of 18% on such lease transfers, amounting to liabilities of approximately INR 8,000 crore, specifically in Gujarat and Maharashtra.
The court's decision not only eases the financial burden on affected businesses but also addresses long-standing concerns over double taxation. It raises hope for the resolution of similar disputes, including those pending before the Bombay High Court, where the Chamber of Small Industry Associations had filed a writ petition challenging the GST implications.
The primary legal issue under consideration was whether GST should be imposed on transfers of leasehold or industrial land, especially given that these transactions are already subject to stamp duty imposed by the state. Petitioners argued that such transfers should be treated as land sales, which are expressly excluded from GST.
The imposition of an 18% GST on each subsequent transfer had created a heavy tax burden, resulting in cascading taxes and making many transactions economically unfeasible. Abhishek A Rastogi, founder of Rastogi Chambers, who represents petitioners in the Bombay High Court case, stated that the GST framework overlooks tax applicability on land and building sales, as these transactions fall under the exclusion. He added that any deviation from this would lead to tax cascading and double taxation, and the industry needs a prompt resolution, as several demand notices had already been issued, triggering litigation and pre-deposit burdens for appeals.
An expert remarked that while the Gujarat High Court ruling provides interim clarity and serves as a strong precedent for similar disputes nationwide, the ultimate resolution of these issues will depend on a definitive judgment from the Supreme Court. He emphasised that industry would benefit if the Central Board of Indirect Taxes and Customs issued clear guidance on the matter, preventing the need for prolonged waiting for the final decision from the Supreme Court.
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