The Supreme Court has dismissed the tax authorities’ special leave petition against a Bombay High Court order that had quashed a GST demand on the assignment of long‑term industrial leasehold rights, effectively leaving intact the High Court’s finding that the transaction was a transfer of benefits arising out of immovable property and not liable to GST under the CGST framework.
In an order dated May 22, 2026, a bench of Justice Dipankar Datta and Justice Satish Chandra Sharma dismissed the Special Leave Petition filed by the Assistant Commissioner, Anti-Evasion, CGST & CX, Nagpur, challenging the Bombay High Court’s ruling in the case of Aerocom Cushions Private Limited versus Assistant Commissioner, Anti-Evasion, CGST & CX, Nagpur-1.
“We are not inclined to interfere with the impugned judgment and order of the High Court, hence, the special leave petition is dismissed,” the SC bench said.
The dispute arose when the tax authorities issued a show-cause notice to Aerocom Cushions demanding GST of INR 27 lakh on the assignment of its leasehold rights, held under a 95-year lease from MIDC, Hingna, Nagpur, to a third party, M/s Rishita Industries, for a consideration of INR 1.5 crore.
The Revenue contended that such an assignment amounted to a supply of service under Section 7(1) of the Central Goods and Services Tax Act, 2017, read with Schedule II, and was therefore taxable at 18 percent under the category of “other miscellaneous services.”
The Bombay High Court (Nagpur Bench), in its January ruling, had firmly rejected this position, holding that the assignment of leasehold rights is a transfer of benefits arising out of immovable property and therefore falls outside the scope of taxable supply under Section 7 of the CGST Act.
“This transaction on the face of record constitutes transfer of immovable property by the petitioner to M/s. Rishita Industries. The transaction pertains exclusively to transfer of benefits arising out of an immovable property and has no nexus whatsoever with the business of the petitioner company. Consequently, the essential element of supply of service in the course of business or in furtherance of business is completely absent,” noted Bombay HC bench.
The High Court had quashed and set aside the show-cause notice, aligning itself with the Gujarat High Court’s reasoning in Gujarat Chamber of Commerce and Industry v. Union of India, which had dealt with an identical issue in the context of GIDC allotments.
The tax authorities’ challenge before the Supreme Court sought to overturn this finding. The Supreme Court’s refusal to entertain the SLP now leaves the Bombay High Court’s ruling intact.
Gourav Sogani, partner at Economic Laws Practice, said: “Firstly, the judgments passed by the Hon’ble Bombay High Court and the Hon’ble Supreme Court will surely give comfort to the real estate industry, manufacturing units, renewable energy projects, etc., especially in industrial hubs like Mumbai, Ahmedabad, etc. Secondly, taxpayers who have received show cause notices and orders may rely on this order.”
“For stakeholders who have already paid GST under protest, they may examine the possibility of seeking a refund. Having said that, the issue will need to be watched closely, since the Revenue’s challenge to the Hon’ble Gujarat High Court’s decision in Gujarat Chamber of Commerce and Industry, which deals with the identical issue, is still pending before the Hon’ble Supreme Court. A final ruling in that matter, or any amendment to the GST law, could have wider implications for the industry at large,” Sogani added further.
The Bombay High Court, in its judgment, had noted that the transaction in question, where the petitioner’s leasehold rights stood extinguished upon assignment, was not a lease or sub-lease, and therefore could not be brought within the ambit of Schedule II of the CGST Act.
The tax authorities’ attempt to classify the assignment as “other miscellaneous services” taxable at 18 percent was also rejected by the High Court, which observed that such a classification, designed for services like washing, cleaning, and dyeing, could not reasonably be extended to assignments of industrial leasehold rights.
