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By: Manoj Mishra
05 Jun 20266 min read
However, recent decisions of the Gujarat High Court and the Bombay High Court have unsettled this long-held position and revived a more fundamental question: can rights arising from land be routinely brought within GST’s expansive concept of ‘supply of services’ or do they constitute a transfer of immovable property?
The answer may not lie solely within the GST statute. Rather, it may require a closer examination of foundational principles of property law, which provide the essential lens through which this controversy must be understood. At the statutory level, GST appears to draw a clear distinction. Schedule II treats lease, tenancy, easement, or licence to occupy land as a supply of services, whereas Schedule III excludes sale of land from the scope of supply altogether. The controversy surrounding assignment of leasehold rights lies at the intersection of these provisions and ultimately turns on proper characterisation.
A lease or licence involves a continuing grant of use while the lessor retains the underlying estate. An assignment, by contrast, is conceptually distinct: it entails the transfer of an existing interest, with the assignee stepping into the shoes of the lessee. In substance, what is transferred may not be merely a right to use land, but an interest arising from the land itself. The distinction is therefore not semantic; it is conceptual. As recognised under the Transfer of Property Act, 1882 and established jurisprudence, immovable property is best understood as a bundle of rights, including possession, enjoyment, exploitation, transferability, and assignability.
This distinction has now found judicial recognition. In Gujarat Chamber of Commerce and Industry v. Union of India, the Gujarat High Court treated assignment of leasehold rights as a transfer of benefits arising from immovable property. This view was subsequently echoed by the Bombay High Court in Aerocom Cushions (P.) Ltd. v. Assistant Commissioner (Anti-Evasion), CGST & CX. The judicial message is significant: where a transaction involves transfer of a recognised interest arising from land, it cannot be mechanically subsumed within GST’s broad expression of supply of services.
This raises an equally important institutional question. In the context of a uniform, destination-based GST regime, can tax administration afford a jurisdiction-by-jurisdiction approach to judicial precedent?
In Aerocom, the Bombay HC, relying on settled principles, emphasised that in the absence of any contrary ruling, authorities cannot lightly disregard persuasive HC decisions merely because they originate outside the State. The SC’s response to the Department’s Special Leave Petition against the Bombay HC ruling adds a further dimension to the debate. The Court declined to interfere, observing that it was “not inclined to interfere” with the HC’s ruling. This naturally leads to the next question: has the SC effectively affirmed the High Court’s view?
The legal position is more nuanced than a simple yes or no. Established jurisprudence in Kunhayammed v. State of Kerala, Khoday Distilleries Ltd. v. Mahadeshwara Sahakara Sakkare Karkhane Ltd., and Experion Developers draws an important distinction between refusing to entertain a challenge and affirming the reasoning of the decision under challenge. Ordinarily, dismissal of an SLP does not mean that the SC has adopted the HC’s reasoning as its own under the doctrine of merger, nor does it create binding law under Article 141 of the Constitution.
That said, the analysis does not end with the doctrine of merger. Judicial precedents caution against treating all dismissals as doctrinally identical. The language and context of the order matter. A bare order stating “SLP dismissed” stands on a different footing from an order recording that the Court is “not inclined to interfere.” Viewed in this light, the SC’s response in Aerocom may be seen as more than a routine procedural refusal. It is not, to be sure, a binding declaration of law, but it may indicate a degree of judicial comfort with or at least no immediate inclination to disturb the emerging HC position.
This distinction is important. While the order does not elevate the Bombay HC’s reasoning into law binding across the country, it may nonetheless lend additional persuasive force to the view that assignment of leasehold rights is more akin to a transfer of an interest in immovable property than to a taxable service.
The practical implications are difficult to ignore. Revenue authorities are now confronted with a favourable Gujarat HC judgement, a concurring judgement of Bombay HC and a SC non-interference. Although this may still fall short of a binding precedent under Article 141, the judicial position has undoubtedly gained persuasive momentum. It is becoming increasingly difficult to approach the issue as though the legal landscape remains unchanged. For industry, this is far more than a technical dispute over classification. It gives rise to immediate and commercially significant questions:
Should GST continue to be discharged on assignment transactions?
What would become of pending notices, ongoing audits and concluded positions?
Do transaction documents and structuring models require re-evaluation?
The significance of this development may also extend beyond industrial plot assignments. If assignment of leasehold rights is judicially understood as a transfer of an interest arising from land, similar arguments may surface in disputes involving development rights, transferable development rights (TDR), and floor space index (FSI) transactions. The comparison is not exact, since development rights operate within their own statutory and contractual frameworks. Even so, the broader implications for real estate taxation under GST are difficult to overlook. What is unfolding may therefore not be merely a dispute over leasehold assignments, but part of a larger judicial re-examination of the extent to which GST can apply to transactions involving rights emanating from land.
Caution, however, remains necessary. The SLP against the Gujarat HC decision in Gujarat Chamber of Commerce is still pending, and the final word on the issue has yet to be spoken. The present moment reflects judicial momentum rather than doctrinal finality.
Even so, something important has shifted. The emerging judicial trend appears increasingly reluctant to accept that every valuable right transferred for consideration must automatically be absorbed into GST’s broad supply of services framework. Instead, the courts are signalling a willingness to revisit such transactions through the lens of substance over form, particularly where what changes hands is a recognised interest arising from land.
In that sense, this controversy is no longer confined to the assignment of leasehold rights. It represents a broader judicial effort to recalibrate the relationship between property law concepts and GST classification principles, a development that industry, tax authorities, and policymakers alike can scarcely afford to ignore.
Shilpa Verma, Associate Director and Ajay Kumar Jha, Assistant Manager, Grant Thornton Bharat, have also contributed to this article.
This article first appeared in the Taxmann on 5 June 2026.
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