Quick answer: In M/s Hercules Pigments Pvt. Ltd. v. Union of India & Anr., decided on 27 August 2026, a Division Bench of the Gujarat High Court (A.S. Supehia and Vaibhavi D. Nanavati, JJ.) quashed a GST audit show-cause notice in a three-paragraph oral order, holding that the point was “squarely covered” by Gujarat Chamber of Commerce and Industry v. Union of India, reported at (2025) 26 Centax 150 (Guj.), against which the Union’s special leave petition — SLP (Civil) Diary No. 33570 of 2025 — had been dismissed by the Supreme Court on 21 July 2026, reported at (2026) 44 Centax 280 (S.C.). The order itself does not restate the underlying ratio. That ratio, as independently applied and quoted at length in the fully reasoned decision of KP Green Engineering Ltd. v. Union of India (Gujarat HC, 25 July 2025), holds that when a lessee assigns long-term leasehold rights in industrial land — typically allotted by a state industrial development corporation such as the Gujarat Industrial Development Corporation (GIDC) — to a third party for consideration, that assignment is a transfer of interest in immovable property, and falls outside the scope of “supply” under Section 7 of the Central Goods and Services Tax Act, 2017, read with Clause 5 of Schedule III. Critically, the same line of authority holds that the original grant of the lease by the development corporation, against premium and periodic rent, remains taxable as a supply of service — the exemption applies only to the second-stage assignment, not to the primary lease.
Key Takeaways
- Assignment of leasehold rights in industrial land by a lessee to a third party is not a “supply” under Section 7(1)(a) of the CGST Act, 2017. It is a transfer of interest in immovable property, falling within Clause 5 of Schedule III (sale of land), and is therefore outside GST altogether — not merely exempt, but not a supply in the first place.
- This does not mean GST never applies to land transactions. The original allotment of a plot on long-term lease by a body such as GIDC, against a premium and periodic rent, remains taxable as a supply of service under Clause 5(a) of Schedule II. The ratio draws a line between the primary grant (taxable) and the secondary assignment (not taxable) — a distinction easy to lose if the case is cited only for its headline.
- The Supreme Court’s dismissal of the Union’s special leave petition against the Gujarat High Court’s ruling leaves that ruling operative and highly persuasive, but a non-speaking dismissal of an SLP does not, without more, amount to a declaration of law binding under Article 141 of the Constitution on courts outside Gujarat — a point the Hercules Pigments order does not itself address.
- The Gujarat High Court is now disposing of fresh show-cause notices on this point in summary oral orders that record counsel’s submissions and the SLP dismissal without independently restating the reasoning — a sign the issue is treated as settled at the level of that Court, useful for practitioners seeking a quick, citable disposal of comparable notices.
- Businesses structuring the transfer of industrial plots — through slump sale, asset transfer, or straightforward assignment of leasehold rights — should distinguish carefully between assigning an existing lease and taking a fresh allotment, since only the former currently falls outside the GST net on this reasoning, and the position elsewhere in India depends on whether the local High Court has adopted the same view.
1. Introduction
Every industrial estate developed by a state corporation — the Gujarat Industrial Development Corporation (GIDC), Maharashtra’s MIDC, and their counterparts elsewhere — runs on the same basic structure: the corporation allots plots on long leases, typically 99 years, against an upfront premium and a modest periodic rent, and lessees then routinely sell their operations by assigning the leasehold interest to a buyer rather than by executing a fresh allotment. For years, the GST department has treated the consideration received on such an assignment as taxable, issuing show-cause notices under Section 74 of the CGST Act, 2017 to lessees who transferred their leasehold rights without discharging tax on the transaction. The Gujarat High Court has now disposed of one more such notice — against Hercules Pigments Pvt. Ltd. — in an order so brief that it says almost nothing about the underlying reasoning, relying instead on the fact that the point had already been settled by an earlier Division Bench and that the Supreme Court had, weeks before, declined to disturb that settlement.
That brevity is itself worth examining, because it signals how firmly the Gujarat High Court now regards this question as closed, at least within its own jurisdiction. But a two-line disposal by reference is only as useful to a practitioner as the reasoning it defers to. This article traces that reasoning through the fuller judgment that most recently applied it — KP Green Engineering Ltd. v. Union of India — back to its source in Gujarat Chamber of Commerce and Industry v. Union of India, sets out precisely what has and has not been decided, and considers what the ratio means for businesses holding or transacting in industrial leasehold land across India, not only in Gujarat.
2. Case summary and background
2.1 The petition and its prayers
Hercules Pigments Pvt. Ltd. filed R/Special Civil Application No. 15376 of 2024 under Articles 226 and 227 of the Constitution, challenging a Show Cause Notice bearing reference V(a)GST/198/Hercules/JC/Audit/Surat/24-25, dated 16 August 2024, issued by the GST audit authority at Surat. The order does not set out the underlying transaction that prompted the notice, nor the quantum demanded — it addresses only the legal point on which the petition was ultimately disposed of, and neither figure is stated anywhere in the text available.
The petitioner’s prayers, as recorded in the order, sought three distinct forms of relief: a writ quashing CBIC Circular No. 44/18/2018-CGST (described in the petition as dated 2 May 2015, an inconsistency in the prayer clause itself that the order does not resolve); a declaration that Parliament lacks the power to levy GST on the licence or lease of land, on the footing that such a levy is “akin to ‘Taxes on Lands and Buildings’” falling within the states’ exclusive domain under Entry 49 of List II of the Seventh Schedule, read with Article 246; and a writ quashing the specific show-cause notice itself. The second prayer, framed as a challenge to Parliament’s legislative competence, is considerably broader than anything the order goes on to decide.
2.2 Disposal
At the hearing, counsel for the petitioner submitted that the issue was “squarely covered” by Gujarat Chamber of Commerce and Industry v. Union of India, reported at (2025) 26 Centax 150 (Guj.), and that the Union’s special leave petition against that decision — SLP (Civil) Diary No. 33570 of 2025, along with allied matters — had been dismissed by the Supreme Court on 21 July 2026, reported at (2026) 44 Centax 280 (S.C.). The Senior Standing Counsel for the department was, in the Court’s words, “unable to controvert the aforesaid facts.” On that basis, the Bench recorded that “the challenge to the impugned Circular and the issue with regard to levy of GST [on] License or lease of land which is akin to ‘Taxes on Lands and Buildings’ has been laid [to] quietus by the Supreme Court and is not denied by the respondent-department,” and held that the petition “succeeds in terms of the judgment rendered by this Court in the case of Gujarat Chamber of Commerce and Industry.” The show-cause notice dated 16 August 2024 was quashed and set aside, with no order as to costs.
The order carries no marking, in the text retrieved, indicating whether it was directed to be reported. Its entire operative reasoning runs to five short paragraphs.
2.3 The reasoning it relies on
Because the Hercules Pigments order does not restate the underlying analysis, the substance must be traced to the decision it defers to. Gujarat Chamber of Commerce and Industry is not itself the article’s primary subject and has not been independently retrieved in full for this piece; its holding is verified here through KP Green Engineering Ltd. v. Union of India (R/Special Civil Application No. 6144 of 2025, decided 25 July 2025 by Bhargav D. Karia and Pranav Trivedi, JJ.), a fully reasoned fourteen-page Gujarat High Court judgment that quotes the operative paragraphs of Gujarat Chamber of Commerce and Industry verbatim before applying them to its own facts — the assignment, for a consideration of Rs. 2,20,00,000, of leasehold rights in a GIDC-allotted plot at Panoli, Ankleshwar, originally allotted in 2007 and assigned to a third party in 2017, on which the department had raised a demand of Rs. 39,60,000. That figure is drawn from the KP Green Engineering judgment itself, not from Hercules Pigments, and is reproduced here only to illustrate the pattern of demand the line of authority addresses.
3. Legal analysis
3.1 The statutory question: is assignment of leasehold rights a “supply”?
Section 7(1)(a) of the CGST Act, 2017 defines “supply” to include “all forms of supply of goods or services or both such as 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.” Schedule II, Clause 5(a) treats “any lease, tenancy, easement, licence to occupy land” as a supply of services, and Clause 5(b) does the same for the letting out of a building. Schedule III, Clause 5, by contrast, provides that “sale of land” is neither a supply of goods nor a supply of services, and therefore falls outside GST altogether under Section 7(2)(a).
The question that recurs across this line of cases is which side of that boundary an assignment of leasehold rights falls on. The department’s position, as recorded in Gujarat Chamber of Commerce and Industry (quoted in KP Green Engineering), was that a leasehold interest is intangible and distinct from the underlying immovable property, so that transferring it remains a “supply of service” regardless of who is transferring it or at what stage. The Gujarat High Court rejected that position for the specific case of an assignment by an existing lessee to a third party, reasoning as follows. First, when GIDC originally allots a plot on a 99-year lease against premium and rent, ownership remains with GIDC, which will recover the land on expiry — that transaction is, and remains, a supply of service in relation to land under Schedule II, Clause 5(a). Second, when the lessee subsequently assigns the entirety of its leasehold interest to a third party, the effect is different in kind: the assignor is left with no residual interest at all, the third party steps into the assignor’s shoes vis-à-vis GIDC, and — drawing on the Supreme Court’s discussion of the term “assignment” in Gopal Saran v. Satya Narayana, (1989) 3 SCC 56, and on the distinction between an assignment and a lease drawn in Byramjee Jeejeebhoy (P) Ltd. v. State of Maharashtra, AIR 1965 SC 590 — that transaction is properly characterised as a transfer of an interest in immovable property, not the creation or continuation of a lease. Section 105 read with Section 108(j) of the Transfer of Property Act, 1882 was invoked for the proposition that a leasehold right is itself an interest in immovable property capable of absolute transfer.
Third, and doctrinally more significant, the Court reasoned from the legislative history of the GST Act itself: it noted that the negative list of “service” under the erstwhile service tax regime specifically excluded transfer of title in immovable property, that development rights over land were not taxed even under that regime, and that the Minutes of the 5th and 7th GST Council meetings show the Council considering, and ultimately deferring, a proposal to bring the sale of land and buildings within GST — a deferral that Schedule III, Clause 5 gives effect to. On that basis, the Court concluded that Section 7(1)(a), read with Schedule II Clause 5(b) and Schedule III Clause 5, does not extend to assignment of leasehold rights, and that such a transaction is “not subject to levy of GST as provided under section 9 of the GST Act.”
3.2 What the ratio does not decide
The distinction the judgment draws is easy to elide, and the Hercules Pigments order — precisely because it does not restate the reasoning — does nothing to prevent that elision. The petitioner’s own prayer clause in Hercules Pigments sought a declaration that Parliament has no power to levy GST on “licence or lease of land” as such, framed as a constitutional competence argument under Entry 49 of List II. Nothing in the Gujarat Chamber of Commerce and Industry reasoning, as reflected in KP Green Engineering, goes that far. That reasoning is a statutory interpretation exercise addressed to a specific transaction — the second-stage assignment of an existing leasehold interest — and it expressly leaves the first-stage grant of a lease by GIDC intact as a taxable supply of service under Schedule II, Clause 5(a). A reader who takes Hercules Pigments at face value, without going behind it, could easily come away believing that GST has been held incompetent to reach any lease or licence of land — a considerably broader proposition than what has actually been decided. Practitioners relying on this line of authority to resist a demand should identify precisely which transaction is in issue: an assignment by an existing lessee falls within the ratio; an original allotment, however structured, does not.
3.3 The weight of a dismissed special leave petition
The order treats the Supreme Court’s dismissal of the Union’s SLP as having “laid [the issue] to quietus.” That framing invites a note of caution that the order itself does not supply. Under the settled position explained in Kunhayammed v. State of Kerala, (2000) 6 SCC 359, a dismissal of a special leave petition without recorded reasons does not attract the doctrine of merger and does not, by itself, constitute “law declared” binding on all courts under Article 141 of the Constitution — it forecloses the specific litigation between the parties but does not automatically elevate the High Court’s reasoning to a Supreme Court precedent binding outside that jurisdiction. The terms on which the Supreme Court actually dismissed SLP (Civil) Diary No. 33570 of 2025 are not before this analysis; if the dismissal was a bare “dismissed” without reasons, the Gujarat Chamber of Commerce and Industry ratio remains, formally, a Gujarat High Court precedent — persuasive, and now considerably reinforced by the absence of Supreme Court intervention, but not binding on other High Courts in the way a reasoned Supreme Court judgment would be. Businesses outside Gujarat relying on this line of authority should treat it as strong persuasive precedent rather than settled national law, pending either a reasoned Supreme Court ruling or convergent High Court authority elsewhere.
3.4 A recurring pattern, not a one-off finding
KP Green Engineering records, at its paragraph 9, that “this Court in various decisions have already decided” the same point — indicating that Gujarat Chamber of Commerce and Industry was itself a batch judgment covering multiple petitioners with materially similar facts, and that the ratio has since been applied repeatedly. Hercules Pigments is simply the latest in that sequence, and its brevity is consistent with a Court that regards further elaboration as unnecessary. For a taxpayer facing a fresh notice on indistinguishable facts, that is good news: the disposal is quick, and the citation trail is by now well established. For a taxpayer whose facts differ even slightly — for instance, where the assignment is bundled with other consideration, or where the original allottee is a government entity rather than GIDC — the brevity of orders like Hercules Pigments means less judicial guidance is available on where exactly the line falls, and the more detailed reasoning in KP Green Engineering becomes the necessary reference point rather than the order actually being relied upon.
4. Practical significance
For any business holding an industrial plot on long-term lease from GIDC or an equivalent state development corporation, and considering an exit by way of assignment rather than surrender and reallotment, this line of authority provides a strong basis for treating the assignment consideration as outside the scope of GST altogether — provided the transaction is genuinely an assignment of the existing leasehold interest, not a fresh allotment dressed up as one. Structuring documentation should make that distinction explicit: the assignment deed should reflect an outright transfer of the assignor’s entire interest, consistent with the “no residual rights retained” reasoning central to the ratio, since a transaction that leaves the assignor with any continuing interest risks being treated instead as a licence or sub-lease, which remains squarely a taxable supply of service under Schedule II.
Businesses facing an existing show-cause notice or demand on a past assignment of this kind now have a template response: cite Gujarat Chamber of Commerce and Industry, the Supreme Court’s dismissal of the SLP against it, and — for the fuller reasoning a departmental officer will need to see spelled out — KP Green Engineering. Given that the Gujarat High Court is disposing of comparable petitions summarily, a writ challenge to a fresh notice on indistinguishable facts is likely to be swift and inexpensive in that jurisdiction. Outside Gujarat, the same argument can and should be raised before the adjudicating authority and, if necessary, the jurisdictional High Court, but with the caveat noted above about the limited precedential force of a non-speaking SLP dismissal — the argument is strong, not yet uniformly settled nationally.
The distinction between original allotment and subsequent assignment also matters for stamp duty planning and for corporate transactions structured as slump sales or business transfers that include industrial land held on leasehold. Deal documentation and tax due diligence should treat GST exposure on the transfer of leasehold interest as a live but resolvable issue in Gujarat-governed transactions, while flagging it as an open question requiring jurisdiction-specific advice elsewhere. Finally, departments and assessees alike should note that this reasoning has no bearing on the GST payable at the point of original allotment — corporations such as GIDC remain liable to charge, and lessees liable to bear, GST on the premium and rent charged for the initial grant; only the second-stage assignment is affected.
5. Conclusion
Hercules Pigments adds little in the way of new reasoning, and that is precisely the point: it confirms that the Gujarat High Court now treats the taxability of leasehold assignments as a closed question, disposed of by reference rather than by fresh analysis. The real content of the ratio lies upstream, in Gujarat Chamber of Commerce and Industry and in the fuller application of that reasoning in KP Green Engineering — and it is narrower than a quick read of Hercules Pigments’ own prayer clauses might suggest. GST continues to apply to the original grant of an industrial lease; it does not apply, on this reasoning, to a lessee’s subsequent assignment of that lease to a third party. The Supreme Court’s decision not to interfere with that position strengthens it considerably, but does not, without a reasoned order, convert a Gujarat High Court ratio into a nationally binding rule. Businesses transacting in industrial leasehold land should welcome the certainty this line of cases now offers within Gujarat, while treating the position elsewhere as strong persuasive authority still open to being tested.
Authorities
Applied by the Court in Hercules Pigments
| Authority | Citation | Proposition |
|---|---|---|
| Gujarat Chamber of Commerce and Industry v. Union of India | (2025) 26 Centax 150 (Guj.) | Assignment of leasehold rights in industrial land by a lessee to a third party is a transfer of interest in immovable property, not a “supply” under Section 7(1)(a) of the CGST Act, 2017; original grant of lease by the development corporation remains taxable as supply of service. |
| Dismissal of SLP against the above | SLP (Civil) Diary No. 33570 of 2025 (and allied matters), dismissed by the Supreme Court on 21.07.2026, reported (2026) 44 Centax 280 (S.C.) | Recorded in the order as having “laid to quietus” the issue; terms of dismissal (reasoned or non-speaking) not independently verified for this article. |
Applied and quoted at length in KP Green Engineering Ltd. v. Union of India (Gujarat HC, 25 July 2025), relied on for the substance of the ratio
| Authority | Citation | Proposition |
|---|---|---|
| Gopal Saran v. Satya Narayana | (1989) 3 SCC 56 | Definition and legal character of “assignment” as an absolute transfer of the whole of a party’s interest in property. |
| Byramjee Jeejeebhoy (P) Ltd. v. State of Maharashtra | AIR 1965 SC 590 | Distinguishes a lease (transfer of a limited right to enjoy property for a term) from an assignment (transfer of the whole interest). |
Legislation and other sources considered
| Statute / source | Provisions | Source |
|---|---|---|
| Central Goods and Services Tax Act, 2017 | Sections 7, 9; Schedule II, Clause 5; Schedule III, Clause 5 | https://www.indiacode.nic.in/handle/123456789/2188 |
| Transfer of Property Act, 1882 | Sections 105, 108(j) | https://www.indiacode.nic.in/ |
| Finance Act, 1994 (service tax negative list) | Section 65B(44) | https://www.indiacode.nic.in/ |
| Kunhayammed v. State of Kerala | (2000) 6 SCC 359 | Settled principle on the limited precedential effect of a non-speaking dismissal of a special leave petition, cited here as background law, not as an authority applied in either judgment discussed. |
Judgments
M/s Hercules Pigments Pvt. Ltd. v. Union of India & Anr., R/Special Civil Application No. 15376 of 2024, High Court of Gujarat at Ahmedabad (A.S. Supehia and Vaibhavi D. Nanavati, JJ.), decided 27 August 2026 — https://indiankanoon.org/doc/138976958/
M/S KP Green Engineering Limited & Anr. v. Union of India & Ors., R/Special Civil Application No. 6144 of 2025, High Court of Gujarat at Ahmedabad (Bhargav D. Karia and Pranav Trivedi, JJ.), decided 25 July 2025 — https://indiankanoon.org/doc/55899612/
FAQ
Does this mean GST no longer applies to industrial land held on lease from GIDC or similar bodies? No. The original allotment of a plot by the development corporation, against a premium and periodic rent, remains taxable as a supply of service under Schedule II, Clause 5(a) of the CGST Act, 2017. Only the subsequent assignment of that leasehold interest by the lessee to a third party has been held to fall outside GST.
Can a business rely on this ratio outside Gujarat? It is strong persuasive authority, reinforced by the Supreme Court’s decision not to interfere with it, but a non-speaking dismissal of a special leave petition does not by itself bind courts outside the jurisdiction that decided the case. Assessees in other states should raise the argument but take jurisdiction-specific advice, since no other High Court’s position is addressed in the material examined here.
What distinguishes a taxable transaction from one that falls within this exemption? The key question is whether the transferring party retains any residual interest. A genuine assignment, in which the assignor’s entire interest passes to the assignee and the assignee steps directly into the assignor’s relationship with the original lessor, falls within the ratio. A sub-lease, licence, or arrangement that leaves the original lessee with a continuing interest is likely to remain a taxable supply of service.
This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.