2026-VIL-08-AAAR
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SGST AAAR

GST – Andhra Pradesh AAAR - Taxability of assignment of leasehold rights, Applicability of Gujarat High Court judgment in M/s Gujarat chamber of Commerce and Industry case - Appeal against the Advance Ruling Order which held that the assignment of leasehold rights is a supply of service liable to GST, and that the recovery of land development costs by the appellant from the transferee is also a taxable supply of service under GST - Appellant contended that the assignment of leasehold rights should be treated as a 'sale of land' and therefore not liable to GST. The appellant also challenged the AAR's findings on the taxability of land development costs – HELD - The AAR correctly concluded that the assignment of leasehold rights is a supply of service under the GST law, as it involves the grant of right to use immovable property for consideration – The Section 7 read with Paragraph 2(a) of Schedule II unequivocally classifies the grant of right to use immovable property for consideration, as a supply of service. As correctly held in the AAR’s order, what is transferred in the present case is only the right to use the demised premises for the remaining period of the lease, and not ownership of the land itself - Further, the AAR has correctly observed that the view taken by the Hon’ble Gujarat High Court namely, that the assignment of leasehold rights in land constitutes a transfer of immovable property and is therefore outside the scope of GST, may not be consistent with the statutory framework of the GST regime. In view of the fact that the Departmental appeal against the said decision has been admitted by the Hon’ble Supreme Court, the Gujarat High Court decision relied by the appellant has not attained any finality - The AAR has correctly concluded, the intention of the GST law is to tax all transactions involving transfer of rights in immovable property that do not transfer title. The assignment of leasehold rights, even when long-term or for substantial consideration, does not change the nature of the transaction from a service to a sale of land - In light of the clear statutory mandate, persuasive advance rulings from other States, and CBIC Circular No. 44/18/2018-CGST dated 02.05.2018, which confirms taxability of leasehold assignments, the AAR’s conclusion that GST is applicable on the consideration payable by the transferee, is legally sound and requires no interference - The Advance Ruling Order is upheld and the appeal filed by the appellant is dismissed - Taxability of land development cost – HELD - The activities undertaken by the appellant to develop the land, such as formation of roads, drainage, levelling etc., enhance the usability and value of the demised premises, and therefore constitute an independent taxable service supply. The recovery of land development costs by the appellant represents a distinct and identifiable supply of construction services, which is taxable under GST - Moreover, the reimbursement of amount made by the transferee is separately identifiable, distinct from the consideration for leasehold rights, and represents consideration for services rendered by the appellant. The AAR rightly concluded that such recovery constitutes supply of services under Section 7 and attracts GST at the appropriate rate.
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