Assignment of Leasehold Rights in India: Assessing Taxability under the GST Regime

The author is Lauren Prem, a fourth-year student at the Tamil Nadu National Law University. She wrote this article while being an intern in CTL for the month of April 2025

Abstract

Taxing assignment of leasehold rights under the GST regime has been an unsettled issue, intertwined within considerations of indirect taxation and property law, for a significantly long time. Property law theorists categorise assignment of leasehold rights as a sale of immoveable property, after delving into the legal meaning of the term ‘immoveable property’ which also includes ‘benefits arising out of such property.’ Further, sale of immoveable property cannot reasonably be equated to a service, which is a key factor to attract taxability under the CGST Act, 2017. The landmark judgement of the Gujarat High Court in the case of Gujarat Chamber for Commerce and Industry v. Union of India takes the same aforesaid view and excludes assignment transactions from the purview of GST law, also because such transactions do not fit the ordinary reasonable meaning of the term ‘service.’ Contrary to this view, circulars and notifications by the Department of Revenue categorise assignment transactions as a ‘service’ which is also taken to encompass ‘agreeing to do an act.’ Assignment transactions involve “agreeing to do an act.” Due to these contesting views, the matter remains to a large extent, unsettled.

This paper argues that the judgement of the Gujarat High Court in the GCCI case is incorrect to the extent that it excessively emphasises on the common meaning of the term ‘service’ without considering the treatment given to assignment transactions by the GST law itself. The Supreme Court has observed, time and again, that GST is a separate code. To expand on the same, the legislature is authorised to create legal fiction by allocating meanings to terms, distinct to common understanding. Thus, GST laws need to be strictly construed with regard to available circulars and notifications, rather than eschewing the meaning accorded to the term service within the GST framework.

Introduction

The applicability of GST on assignment of leasehold rights has been a contentious issue producing two distinct views from the Revenue department and taxpayers.[1]  The crux of this issue stems from the usual practice of state government bodies such as the Gujarat Industrial Development Corporation (GIDC), Haryana State Industrial and Infrastructure Development Corporation (HSIDC), Rajasthan State Industrial Development and Investment Corporation (RIICO), etc to provide lands on long-term leases with the availability of an option to sell or assign leasehold rights to other individuals (commercially termed as ‘assignment of leasehold rights’).[2] These bodies, collectively termed as State Industrial Development Corporation (‘SIDC’), assign leasehold rights to private parties on a long-term lease basis in return for some consideration, either in the form of a one-time premium or annual lease charge.[3] The legal question that lingers around this arrangement is whether GST can be levied on such consideration, in view of such assignment assuming the nature of service under GST law.

On one hand, the Department of Revenue (‘the Department’), precisely the Central Board of Indirect Taxes and Customs (‘CBIC’), in several cases, has demanded GST from the assignors on consideration received for assignment of leasehold rights, by contending that such assignment constitutes ‘supply of service’ under the provisions of the Central Goods and Services Tax Act, 2017 (‘The CGST Act’).[4] On the other hand, the assignment of leasehold rights is considered to be transfer of immoveable property, thereby falling outside the scope of ‘supply of services’ and GST laws ultimately.[5] A sufficient legal framework exists to support both these convergent views, without any concrete conclusions.

The taxability of assignment of leasehold rights has posed a conundrum to the extent that judicial decisions on this matter are inconsistent.[6] This paper aims to examine the taxability of assignment of leasehold rights under the GST regime in light of the definition of ‘supply of services’ under the provisions of the CGST Act and the broader objective of GST itself.

Against the backdrop of this introduction, part II of this paper seeks to examine the foundations of property law used to determine the classification of assignment of leasehold rights in the context of GST. In essence, it seeks to evaluate the arguments in property law contexts that classify such assignments as ‘sale of land’ that would consequently attract the exemption under Schedule III of the CGST Act. Part III seeks to establish that assignment of leasehold rights falls within the purview of ‘supply of service’ under the CGST Act, thus attracting taxability. In this pursuit, it demystifies all the arguments that classify the said assignment as sale of land. In other words, it seeks to demonstrate how and why the exemption under Schedule III is inapplicable. Part IV examines the constitutional and interpretational challenges that lie in the way of taxing assignment of leasehold rights under the GST regime. This part argues that bringing assignment of leasehold rights within the purview of the CGST Act poses constitutional challenges that require judicial interpretation expeditiously. Overall, the paper seeks to strengthen the notion that assignment of leasehold rights cannot reasonably be construed as an immovable property as it is legally taxable as a supply of service under the CGST Act.  

Classifying assignment of leasehold rights as Deemed Sale: Schedule III Exemption

Sale of land is granted an exemption from taxability as per schedule III of the GST Act, which provides for the transactions and activities not to be construed as supply of goods or services.[7] Courts of law, at certain instances, have held assignment of leasehold rights to be a deemed sale.[8] In light of this reasoning, the exemption under Schedule III is a game-changer in determining taxability of assignment of leasehold rights as sale of land is completely excluded from the GST regime. This classification of assignment of leasehold rights under deemed sale emerged, long before the inception of GST, in property law jurisprudence.[9] However, there is uncertainty regarding the extent to which this interpretation in property law contexts may be allowed in construing the provisions of GST law. This part seeks to explore the interpretations of property law and GST law that have shaped the classification of assigning leasehold rights as sale of land.

a) A definition-based analysis of property law: Land and Immoveable property

The term land or immoveable property is not defined under the CGST Act. These terms have to be understood in the context of property law interpretations. The Transfer of Property Act only defines ‘immoveable property’ in a negative sense by stating that immovable property “does not include standing timber, growing crops, or grass.”[10] Due to this, courts resort to positive definitions of other property legislations for a fuller understanding of the term.[11] The General Clauses Act, 1897 defines immoveable property to include “land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth.”[12] Similarly defined, section 3(a) of Land Acquisition Act, 1894 defines land to include ‘benefits arising out of land.’[13] Section 2(6) of the Registration Act, 1908 defines immoveable property to include benefits arising out of land.[14] 

Leasehold right is considered a ‘benefit arising out of land’ as the lessee’s right to enjoy possession over the land during the period of the lease. A combined reading of these definitions suggests that leasehold rights constitute immoveable property which includes ‘benefits arising out of land.’ In this manner, assignment of leasehold rights constitutes sale of immoveable property, specifically, sale of land. [15] Over time, courts have expanded on this preliminary analysis of provisions that reasonably lead to the conclusion that assignment of leasehold rights constitute sale of land.

b) Leasehold rights equal immoveable property

Treatment of such assignment as deemed sale arises from construing the term ‘property’ in a wider sense.[16] Assignment of leasehold rights, in essence, involves transferring rights arising out of the lease deed to another person (called the ‘assignee’).

The Gujarat High Court in the landmark judgement of Gujarat Chamber of Commerce and Industry v. UOI,[17] explained that the legal effect of this assignment involves cessation of the lessee’s obligation to the lessor and birth of a new relationship between the assignee and the lessor. The assignee, being substituted in place of the lessee, is made liable to fulfil obligations under the lease deed. [18] Rights bestowed upon the lessee under the lease deed are now exercisable by the assignee, indicating transfer of rights. In a broader sense, the term property is extended to all the recognisable types of interests that possess characteristics of a proprietary right [19] and every possible interest that a person can hold or enjoy.[20] This interpretation brings assignment of leasehold rights within the ambit of property. Similarly, the Apex Court also ascribed a wide connotation to the term ‘land’ to include everything on or under the land and not merely its surface.[21] In other words, benefits arising out of land, such as leasehold rights are also said to comprise land.[22] 

If rights arising out of immoveable property is itself construed as ‘property’, then transfer of such rights can be equated to transfer of property. In para 6 of Dwarkadas Shrinivas vs The Sholapur Spg. & Wvg. Co. Ltd. And Ors.,[23] the Bombay High Court observed that property may not just be composed of tangible aspects but may extend to incorporeal rights. It is also a general view in property law that property is the sum of all rights that are associated with its tangible ownership. If leasehold rights are construed as property, then assignment of leasehold rights by way of long-term leases may also be deemed a sale. This conclusion is supported by the views of various high courts that have bridged the gap between long-term leases and sale.

c) Bridging the gap between sale and long-term leases

Courts have considered assignment of leasehold rights to be a deemed sale in cases that previously arose in property law contexts even before GST’s inception. The deemed sale argument has been buttressed by drawing rationales from property law jurisprudence that consider long-term lease and sale at par. In the case Palaniappa Chetty v. Sreemath Devasikamony Pandara Sannadhi,[24] the lordships observed that there is no difference in principle between granting a lease in perpetuity and an absolute alienation of property in perpetuity, thus bridging the gap between long-term lease and sale. In Rama Reddi v. Ranga Dasan[25] , the court observed that a permanent lease is as much an alienation as a sale and mere payments of rent for the lease is not sufficient to bring forth a difference between such a long-term lease and sale.

The treatment of long-term leases under the Income Tax Act, 1961 is used as a supporting argument to bridge the gap between long-term lease and sale for GST purposes.[26] In the case Commissioner of Income Tax v. M/s. Poddar Cements, Tax Reference Case[27] the court treated a person holding leasehold rights as the owner of the property for income tax purposes and held his income to be taxable under the head ‘income from house property.’ The holding of the Court is in alignment with the practicalities of property law administration that treats long-term lease at par with sale due to the multifold benefits available to the holder. No material difference exists in the usage of property by a long-term leaseholder and an owner. Regulations regarding property law are often based on the extent of use that a property holder is entitled to. The Madras High Court in Foxconn India Developer (P.) Ltd. v. ITO[28] and the Delhi High Court in CIT v. Indian Newspaper Society[29] observed that long-term lease is treated akin to sale for income tax purposes. Affirming these rulings, the CBDT issued a circular no. 35/2016 dated 13.10.2016.[30] In light of the necessity to construe all tax provisions harmoniously, GST authorities contend that the CGST Act must also consider assignment transactions as akin to sales.

Assignment of Leasehold Rights: Outside the Gamut of Supply under GST

GST authorities consider assignment of leasehold rights to be a ‘supply of service’ under the CGST Act.[31] Against this backdrop, many petitions were filed before various High Courts challenging levy of GST on such assignment.[32] This part seeks to establish that classifying assignment of leasehold rights as a service, under the CGST Act, is well-founded. In this pursuit, it also seeks to evaluate the rationale behind the argument that brings assignment of leasehold rights within the gamut of supply of service.

a) Rationale behind the argument of treating assignment as supply of service

Section 7(1)(a) of the CGST Act defines supply to include “sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business”[33] In the case Builders Association of Navi Mumbai v. Union of India,[34] it was held that City and Industrial Development Corporation (CIDCO) was a person disposing of lands by way of leases in course of furtherance of its business. Premium was charged as a form of consideration, thereby including this transaction within the purview of supply of service under the CGST Act. Scholars state that the definition of supply under the CGST Act is sufficiently broad to encompass all sorts of transfers within its purview.[35]  In addition, advance rulings of Tamil Nadu,[36] Maharashtra[37] and West Bengal[38] have consistently held assignment of leasehold rights to be a service under GST. Assignment transactions are taken as a form of consideration for such service and are opined to be eligible for GST.[39]

The authority to levy GST on assignment transactions also flows from paragraph 2 of schedule II which provides for activities that are to be treated as supply of goods or services.[40] Clause (a) reads “any lease, tenancy, easement, licence to occupy land is a supply of services.”[41] A logical proposition follows that if lease is treated as a service, then assignment of leasehold rights must also be treated alike. In Advance Ruling No. UP ADRG 41/2023,[42] the tribunal noted that a lessee can transfer no better title than a service contract of lease, which is considered a service as per schedule II. It is a foundational principle of transfer of property that “no one can confer a better title than what he himself has.” The principle is derived from the latin maxim Nemo dat quod non habet.[43] This also supports the notion that assignment of leasehold rights cannot be considered any more than a service when lease itself is considered a service.

b) Demystifying faulty interpretations of immoveable property

Property law interpretations include ‘benefits arising out of land’ as immoveable property.[44] There are many issues in construing assignment of leasehold rights within the purview of immoveable property by categorising them as benefits arising out of land. In the case of Builders Association of Navi Mumbai v. Union of India,[45] learned senior counsel pointed out a legal danger in taking the position of equating any transfer of right or interest with sales. The fear that taking this position would render the entire provision of section 7, CGST Act redundant is not an unfounded one.[46] Lease can be construed as a benefit arising out of land in as much as assignment of leasehold rights is. Thus, taking that position would render any transfer as a sale because every transfer of immoveable property involves benefits arising out of such property. For instance, lease also entails transfer of right to enjoyment and possession, which is a benefit arising out of land.[47] The term ‘transfer’ under section 7 of the CGST Act will hold no meaning upon allowing this position.

Albeit assignment of leasehold rights involves transfer of the entire bundle of rights that the lessee holds, the assignee’s obligation to the lessor is subject to the terms and conditions of the lease deed.[48] The assignee supersedes the position of the lessee,[49] who only holds partial rights in the property owned by the lessor. Lease itself is a partial transfer and the right of reversion remains with the lessor. By virtue of the lease deed, the assignee’s enjoyment of property is not absolute and is subject to his obligations to the lessor. Upon reversion, the immoveable property, the subject matter of assignment deed, must be given back to the lessor.[50]  Sale, on the other hand, is a transfer of ownership[51] that is characterized by absolute alienation and not transfer of only some rights as in the instance of a lease.[52]  This distinction also honours the firmly established principle in property law jurisprudence that a person cannot transfer something that he does not hold.

c) Arbitrary importations from other laws to be eschewed

Rajat, a scholar on tax laws, argues that the provisions of Income Tax Act, 1961 which treats long-term lease holders as owners for the purposes of income tax, is consistent with the idea of regarding long-term leases and sales on an equal footing for the purposes of GST.[53] His argument rests on the notion that ground realities do not demonstrate a notable difference between long-term lease and sale. It is also premised on the necessity to ensure consistency in construing provisions of different tax laws. This argument cannot be accepted in light of GST as different tax laws have different purposes and such arbitrary importation is not fully justified.

In the same Building Association case, the counsel elucidates the dangers of reading the provisions or definitions of one law into another when the tests and objects differ for both these laws.[54] The rationale in Commissioner of Income Tax v. M/s. Poddar Cements, Tax Reference Case[55] that lessees under long-term leases are deemed owners for the purposes of ITA cannot be used to justify the same treatment of long-term lease and sale under the CGST Act. The concept of deemed owners under the ITA includes a significantly broad definition suited to serve the purpose of the act, which is to ensure that income tax is not avoided recklessly. The same importation cannot be brought under the CGST Act, which has an entirely different object. The object of ITA is to generate revenue by taxing income. The concept of deemed owners has been developed in the ITA to ensure unwanted escape of income. On the other hand, the GST aims to tax goods and services. Thus, the nature and extent of alienation plays a key role in determining whether an act constitutes service or not. Based on this line of reasoning the difference between sale and long-term lease is material. In other words, the difference between sale and long term lease cannot be done away with. Rajat’s contention that different interpretations in the context of CGST Act, ITA and land laws perpetuate inconsistency[56] cannot be accepted as interpretations are to be done in line with the object and purpose of respective legislations. In the absence of any ambiguity, the general rule of statutory interpretation demands sticking to the literal meaning attributable to the words of the statute. There is a need to examine the registration documents to identify if a said transaction amounts to outright sale or lease.[57] GST is a self-contained code. There is no requirement of resorting to other laws when the wordings are clear and explicit. Thus, assignment of leasehold rights cannot be treated at par with sale, merely for the reason that another law treats it such.

d) Assignment transactions involved “agreeing to do an act” under CGST

Under serial no.716 of Notification No.11/2017-Central Tax (Rate) dated 28th June, 2017, Group 99979 prescribes miscellaneous services on which GST can be levied. Subheading 999792 specifically classifies “agreeing to do an act” as a service.[58] As per this interpretation, assignment of leasehold rights can reasonably be interpreted as agreeing to transfer leasehold rights by the lessee.[59] In the decision in Remarkable Industries Private Limited[60] rendered by UP Authority for Advance Ruling, assignment of leasehold rights was held to be in the nature of agreeing to transfer one's leasehold rights. It was also observed that there was no fresh ‘benefit arising out of land’, other than the leasehold right itself, so as to equate assignment transactions to immoveable property or land.[61] The premium amount or compensation provided for assignment of leasehold rights is nothing but compensation provided to the lessee for agreeing to do an act.[62] Thus, assignment of leasehold rights is a service classifiable under Other miscellaneous service (SAC 999792) and taxable @ 18% under SI No. 35 of Notification No. 11/2017 CT (Rate) dated 28/06/2017.

In the case of Commissioner of Customs (Import) v. Dilip Kumar & Company,[63] it was observed that exemption notifications must be given a strict interpretation unless there is an ambiguity that demands purposive interpretation. There is no requirement to assess the extent to which assignment transactions fall within the purview of service in the presence of an express notification to that effect.

Assignment of Lease Rights: Issues in Classification as Supply of service under GST

Assignment of leasehold rights in light of GST provisions is a grey area that has produced multiple interpretations in the sphere of indirect taxation posing a conundrum amongst various stakeholders. [64] There is need for more clarity to ensure that taxpayers are not vexed by ambiguity. This part seeks to explore the challenges that plague the route concerning taxability of assignment of leasehold rights and rules out faulty interpretations defying the provisions of CGST Act. Further, it also examines circulars and interpretations that favour levy of GST on assignment transactions more than exempting them from levy.

a) Constitutional challenges on powers of Central Government

Constitutional petitions relating to assignment of leasehold rights greatly influence the classification of such transactions as supply of service or immoveable property, as the case may be. The constitutional validity of levying GST on assignment of leasehold rights has been upheld in the case of Mineral Area Development Authority and others v. Steel Authority of India and others.[65] The petitioner has challenged the power of the Central Government to levy GST in light of Entry 49 of List II of 7th Schedule to the Constitution of India, which empowers the state government to legislate on matter of taxation on immoveable properties. Additionally, petitions have also been filed before the Gujarat High Court and the Bombay High Court challenging the show cause notices sent by the GST authorities. The Gujarat High Court in Suyog Dye Chemie Pvt Ltd v. Union of India,[66] issued a stay order on tax demands relating to assignment transactions.

b) Judgements and circulars: Inconsistent views

The assignment of leasehold rights proves to be a contentious issue as there are inconsistencies within and between, circulars and judgements. Under the GST framework, circular no. 44/18/2018-CGST dated 02.05.2018 which clarifies the aspect of assignment of tenancy rights, particularly specifies that assignment transactions are subject to GST levy. [67] The judgement in Gujarat Chamber of Commerce and Industry v Union of India[68] excluded assignment transactions from GST after observing that leasehold rights are tantamount to immoveable property and cannot be construed as a service by any stretch of imagination. Such an interpretation violates the long-established property law doctrine that a person cannot transfer what he does not possess. The interpretation that a lessee can effect a sale produces an absurd result that cannot reasonably be supported, especially in light that a deed of assignment involves a relatively lesser degree of alienation as compared to sale. A deed of assignment bestows no additional rights that the lessee derives from the lease deed.

c) Reviewing foreign interpretations

Articles 24 and 25 of the Council Directive of the Council of the European Union on the common system of value added tax, specifically article 25 considers assignment of leasehold rights to be supply of service. The court considers these articles to have no relevance in the context of GST laws due to assignment transactions being considered transfer of immoveable property and arbitrary importations of meanings and interpretations from other tax laws to GST must be eschewed. [69] For the same reason that blindly borrowing meanings from other laws must be eschewed, property law interpretations of assignment cannot supersede an express circular numbered 44/18/2018-CGST dated 02.05.2018 that levies GST on assignment transactions relating to tenancy rights.

The court’s rationale and justifications in the GCCI case[70] for treating assignment transactions as transfer of immovable property involves glaring inconsistencies. Firstly, the court states that assignment of leasehold rights constitute immoveable property and the transaction amounts to sale, due to divesting of all rights of the lessee upon the assignee. The entire bundle of rights taken as immoveable property is assigned in favour of another party, giving it a colour of sale. Secondly, the court states that the assignee becomes liable to the lessor for all the covenants running with the land. [71] The second statement indicates that the assignee is subject to nothing more than a lease deed than the lessee is. This further bolsters the contention of the GST authorities that assignment of leasehold rights cannot be equated to sale of land and the exemption under item 5 of Schedule III will not be applicable to assignment transactions. Even if merit can be found in treating assignment of leasehold rights as immoveable property, ground realities suggest that the assignee will be subject to the lease deed in as much as the lessee, prior to the assignment. Placing assignment of leasehold rights at a higher footing than lease will prove to be viable only theoretically and in principle. Pragmatically, the deed of assignment does not possess the characteristic of absolute alienation available in case of a sale. Thus, classifying assignment of leasehold rights as a sale will shatter the basis upon which property law is built.

d) GST laws demand strict interpretation

The Gujarat High Court[72] held that assignment of leasehold rights falls outside the scope of supply under GST, after due consideration of the term ‘service’ and its connotations. In the absence of a particular definition, the court observed that the ordinary, natural meaning of the term ‘service’ must be ascribed to it. The submission of the counsel that service does not constitute transfer of property, as it would mean extending the purported meaning of the term[73] and imposing/ levying GST on assignment transactions is without the authority of law, has been accepted by the court.[74] However, there is no necessity to look at the natural or dictionary meaning of the term service when ‘supply of service’ defined under section 7(1)(a) of the CGST Act clearly stipulates transfer for consideration to be a form of supply. More importantly, the term “service” is defined under section 2(102) of the CGST act to mean anything other than goods, money and securities.[75] 

Rules of statutory interpretation state that when the language of the statute is clear, scope for further interpretation does not exist.[76] The Supreme Court has established through a long line of case laws that taxation statutes must be strictly construed without any loose ends. [77] In the case AV Fernandez v. State of Kerala,[78] Justice Bhagwati explained that determining liability provided by fiscal statutes must be given strict interpretations. Supply under section 7(1)(a)[79] contemplates all sorts of transfer and only sale of land is explicitly provided as an exemption under schedule III of the CGST Act. The entire issue is solely governed by the language of the provision itself.[80] When the wordings of the statute are so clear, there is no requirement to delve into purposive interpretations or view the terms of a provision based on its ordinary dictionary meaning.

Against the backdrop of adopting a strict interpretation, there is no requirement to delve into the purpose for which GST was introduced unless the wordings produce an ambiguous understanding of the provisions. The provisions of the service tax which exclude levying tax on transfer of title in immoveable property cannot be applied in the context of GST when explicit provisions provide for levy of GST on transfers other than sale of land. The court in GCCI stated that the principle in service tax would continue to apply to the GST regime as the object of the latter is to subsume all indirect taxes.[81] However, this rationale seems plausible and sound only in the absence of express notifications and circulars that clearly levy GST on assignment of leasehold rights.

e) Greater latitude of discretion in legislating tax statutes

In the GCCI case,[82] the court refused to allow GST on assignment of leasehold rights on grounds that assignment transactions do not fit the ordinary meaning of the term service. However, the statutory meaning of supply of service is allowed to differ from the dictionary meaning of the term service as the legislature has a wider discretion to ascribe meanings to terms to achieve certain objectives.

In T.N. Kalyana Mandapam Assn. v. Union of India and others,[83] the court observed that greater discretion is vested with the legislature to draft taxation statutes and a definition cannot be struck down on grounds of lack of legislative competence merely because it fails to incorporate the ordinary connotation of the term. The state is vested with the discretion to pick and choose persons and rates of taxation in line with objects of levy. In light of this ruling, the definition of supply under section 7(1)(a) cannot be struck down merely because the ordinary meaning of the term service excludes transfers. So long as the definition is not ultra vires the constitution, the general understanding of the term may be tweaked to suit the legislative purposes and objects of a particular legislation. It is also common in legal interpretation that a term can include one meaning in the context of one provision and a different meaning in the context of another. The legislature is vested with a greater latitude of discretion so as to even ascribe an artificial meaning to a word.[84] In the presence of a clear definition, it is unwarranted that the natural meaning of the term service may not envisage a transfer in the literal sense.

Conclusion

Levying of GST on assignment of leasehold rights remains a contentious issue till date. Inconsistency in judgements, circulars, notifications and allied laws contribute to the confusions in existing interpretations, thereby causing distress to various stakeholders. Dual interpretations classifying assignment of leasehold rights under the category of supply of service as per section 7(1)(a) of the CGST Act as well as transfer of immoveable property, coexist in the sphere of GST. Various advance rulings and authorities exist to support both these contradictory views. In addition to aspects concerning interpretation, there are technical issues such as pending litigation on the matter of assignment transactions that are yet to be clarified by courts. The constitutionality of the Central Government’s power to levy GST on transactions involving immoveable property is yet to be examined by the Supreme Court. This is also a factor that will change the course of GST levied by the Central Government pertaining to assignment transactions.

A recent judgement of the Gujarat High Court in GCCI v UOI has clarified the matter on assignment of leasehold rights by classifying leasehold rights as ‘interest arising out of land’ or immoveable property. The transactions as a whole are taken to be deemed sale of immoveable property as the lessee extinguishes his entire bundle of rights derived from the lease deed. This paper argues that the judgement is faulty as it overlooks the foundational principle of property law that one cannot transfer what he does not possess. A lessee who is merely entitled to a lease cannot effect a sale and any interpretation contradictory to this, tends to eschew ground realities that an assignee’s rights are subject to the lease deed. The assignee merely supersedes the lessee in his obligations to the lessor and is not entitled to absolute enjoyment of property as in the case of a sale.

Further, this paper also criticises a major portion of the GCCI judgement that rests on purposive interpretation and tracing origins of different terms and their connotations in the presence of express provisions levying GST on assignment of leasehold rights. The judgement fails to adhere to general rules of statutory interpretation that resorts to the literal words of the statute unless there is an ambiguity in that regard. A combined reading of section 7(1)(a) of the CGST Act and Notification No.11/2017-Central Tax (Rate) dated 28th June, 2017 providing for ‘agreeing to do an act’ clearly secure assignment transactions within the ambit of the CGST Act.

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References

[1] Gujarat Chamber of Commerce and Industry v. Union of India, (2025) 26 Centax 150 (Guj.).

[2] Rajat Dosi, ‘GST Chargeability on Assignment of Leasehold Rights: A Debate of Views’ [2023] 153 taxmann.com 331 (Article).

[3] Vibhor Sharma, ‘GST on Assignment of Leasehold Rights of SIDC Land’ [2023] 156 taxmann.com 357 (Article).

[4] Supra note 1, at para 3.

[5] Supra note 2.

[6] Kabir Instrument and Technology v Union of India, (2025) 27 Centax 41 (Guj.);  Builders Association of Navi Mumbai v. Union of India [2018] 92 taxmann.com 134

[7] Schedule III CGST Act 2017 (India)

[8] Rama Reddi v. Ranga Dasan (1925) 50 MLJ 589

[9] Shubham Khaitan, 'Assignment of leasehold rights on land under GST' (2022) 138 Taxmann.com 453 (Article).

[10] Transfer of Property Act 1882, s 3.

[11] Supra note 1, at para 13.6

[12] General Clauses Act 1897, s 3(26).

[13] Land Acquisition Act 1894, s 3(a).

[14] Registration Act 1908, s 2(6).

[15] Supra note 9, at para 11.

[16] Supra note 1, at para 20.2

[17] Supra note 1

[18] Supra note 1, at para 67.

[19] Commissioner, Hindu Religious Endowments, Madras v. Shri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt

[20] Ahmed G.H Arif v. CWT, (1969) 2 SCC 471, para 8.

[21] Jilubhai Nanbhai Khachar and others v. State of Gujarat and another, 1995 Supp (10) SCC 596, para 12

[22] Supra note 1, at para 20.1

[23] AIR 1951 BOM 86

[24] (1910) 20 MLJ 969

[25] (1925) 50 MLJ 589

[26] Supra note 2.

[27] AIR 1997 SUPREME COURT 2523

[28]  [2016] 68 taxmann.com 95/239 Taxman 513 (Tax Case Appeal No. 801/2013)

[29]  [2017] 81 taxmann.com 275 (ITA No. 918 & 920/2015) 

[30] Central Board of Direct Taxes, Circular No 35/2016 (13 October 2016).

[31] Supra note 1, para 3. 

[32] TTC MIDC Industries Association v. Union of India para2; Chambers of Small Industries Association v. State of Maharashtra para2.

[33] Central Goods and Services Tax Act 2017, s 7(1)(a).

[34] 2018 (12) G.S.T.L. 232 (Bom.)

[35] Supra note 2

[36] Indian Piston Ltd., In re Advance Ruling No. 26/AAR/2021 dated 30.07.2021

[37] Forest Development Corpn. of Maharashtra Ltd., In re [2022] 140 taxmann.com 413/2022 (67) G.S.T.L. 114 (AAR - Maharashtra)

[38] Enfields Apparels Ltd., In re [2020] 118 taxmann.com 339/2020 (40) G.S.T.L. 230/82 GST 109 (AAR – West Bengal)

[39] Supra note 1

[40] Central Goods and Services Tax Act 2017, Sch II para 2.

[41] Central Goods and Services Tax Act 2017, Sch II para 2(a).

[42] Uttar Pradesh Authority for Advance Ruling, Advance Ruling No. UP/ADRG/41/2023 (7 December 2023).

[43] Umadevi Nambiar v. Thamarasseri Roman Catholic Diocese, (2022) 7 SCC 90, para 19

[44] General Clauses Act 1897, s 3(26).

[45] 2018 (12) G.S.T.L. 232 (Bom.)

[46] Builders Association of Navi Mumbai v. Union of India, 2018 (12) G.S.T.L. 232 (Bom.), para 7. 

[47] Hindon Forge (P) Ltd. v. State of U.P., (2019) 2 SCC 198, para 2.

[48] Rajiv Kumar v. State of U.P., (2017) 8 SCC 791

[49] Supra note 1, at para 67. 

[50] Supra note 48.

[51] Transfer of Property Act 1882, s 54.

[52] Supra note 48.

[53] Supra note 2.

[54] Supra note 48, at para 9.

[55] AIR 1997 SC 2523

[56] Supra note 2.

[57] Residents Welfare Association, Noida v. State of Uttar Pradesh and others, (2009) 14 Supreme Court Cases 716

[58] Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017, Serial No. 716, Group 99979.​

[59] Supra note 1, at para 41(9)

[60] 2023 SCC Online UP AAR-GST 14

[61] Ibid. at para 38.

[62] Ibid. at para 40.

[63] (2018) 9 Supreme Court Cases 1

[64] Supra note 9.

[65] Civil Appeal No. 4487 of 2010

[66] Special Civil Application No. 17792 of 2023

[67] Central Board of Indirect Taxes and Customs, Circular No. 44/18/2018-CGST (2 May 2018).​

[68] Supra note 1, at para 82(7)

[69] Supra note 1, at para 82(10)

[70] Supra note 1

[71] Supra note 1, at para 82(4)

[72] Supra note 1, at para 81.

[73] Supra note 1, at para 12.7.

[74] Supra note 1, at para 13.

[75] Central Goods and Services Tax Act 2017, s 2(102).

[76] Commnr. Of Customs (Import), Mumbai vs M/S. Dilip Kumar And Company, AIR 2018 SC 3606,  para 22

[77] Ibid. at para 21; Saraswati Sugar Mills v. Haryana State Board reported in (1992) 1 SCC 418; Member Secretary, Andhra Pradesh State Board for Prevention and Control of Water Pollution v. Andhra Pradesh Rayons Ltd.; CIT Madras v. Kasturi and Sons reported in (1999) 3 SCC 346.

[78] AIR 1957 SC 657.

[79] Central Goods and Services Tax Act 2017, s 7(1)(a).

[80] Supra note 1, at para 58.

[81] Supra note 1, at para 75.

[82] Supra note 1.

[83] AIR 2004 SUPREME COURT 3757, at para 53.

[84] Commissioner of Income Tax, Bangalore v. Venkateswara Hatcheries (P) Ltd, (1999) 3 Supreme Court Cases 632, para 19.