The Supreme Court rejected the Central agency's petitions against the Gujarat High Court's decision, establishing that the transfer of long-term lease rights for industrial properties under GIDC is not subject to VAT.
Supreme Court's Stance
The Court ruled that companies should not charge Goods and Services Tax (GST) when transferring long-term lease rights for industrial plots allocated by the Gujarat Industrial Development Corporation (GIDC). This decision was made with the support of taxpayers and after rejecting special petitions (SLPs) filed by the Centre against the Gujarat High Court's ruling from January 2025.
History of the Dispute
The bench, comprising Pamidigantam Shri Narasimhi and Alok Arathe, noted that a similar plea had been dismissed on May 22. This ruling concludes a dispute that led many industrial enterprises in Gujarat to face significant tax demands.
Abhishek A Rastogi, founder of Rastogi Chambers, representing taxpayers in the Supreme Court and other high courts, stated that the Supreme Court twice declined to intervene in the Finance Ministry's SLP on this matter, thereby ensuring that VAT is not applied to the transfer of long-term lease rights, and that the right to a refund will exist upon payment during an investigation.
Lease Transfer Mechanism
GIDC provides companies with industrial land on a long-term lease, typically for a period of 99 years. Over time, initial lessees transfer these rights to other companies for a one-time payment, often after constructing a factory or warehouse on the site.
After the introduction of VAT in 2017, tax authorities began treating such transfers as a taxable service and issued notices demanding the payment of 18 percent VAT. Companies and the Gujarat Chamber of Commerce and Industry contested these notices.
Taxpayers' Arguments
They argued that the transfer of full leasehold rights is essentially a sale of a share in the land, which is classified as immovable property and specifically excluded from the scope of VAT according to Schedule III of the Central GST Act. Since stamp duty has already been paid for such transfers, levying VAT would amount to double taxation.
High Court and Supreme Court Decisions
In January last year, the Gujarat High Court accepted the taxpayers' arguments. It ruled that when a lessee fully transfers long-term lease rights and exits the process, this transaction constitutes the transfer of immovable property, not the 'provision of a service,' and therefore, VAT does not apply. The High Court annulled the tax notices issued in a large batch of cases.
The Centre challenged this decision in the Supreme Court through an SLP. According to Rastogi, 'The Supreme Court has settled this issue for industrial plot lease rights in Gujarat. Companies that received tax demands for the transfer of lease rights will no longer have to pay 18 percent VAT on these transactions. This also reinforces the principle that clean transfers of long-term land lease rights are not taxed under VAT, although this judgment has specific facts.'

