GST On Assignment Of Lease Rights / Sale Of Leasehold Land, Buildings
& Machinery Under Asset Purchase Agreement: Maharashtra AAR Ruling
Summary: In a significant ruling, the Maharashtra
Authority for Advance Ruling held that the transfer of leasehold rights in land
and buildings by M/s. General Motors India Pvt. Ltd. to Hyundai Motors India
Ltd. under an Asset Purchase Agreement amounts to a taxable supply of service
under GST, as the buildings formed part of the leasehold estate and not a
separate immovable property sale. Additionally, the sale of plant and machinery
was held to be a taxable supply of goods, requiring GST to be levied at
applicable HSN-based rates, with valuation governed by Section 15 or 18(6) of
the CGST Act, whichever is higher. This ruling underscores that even transfers
lacking absolute ownership—like lease assignments—can attract GST when economic
value is transferred.
· Name
of Applicant: M/s. General Motors India Pvt. Ltd.
· Ruling
Authority: Maharashtra Authority for Advance Ruling (AAR)
·
Order No.:
GST-ARA-31/23-24/2024-25/B-__
·
Date of Ruling:
03 March 2025
Background
and Transaction Summary:
General Motors India Pvt.
Ltd. (GMI) entered into an Asset Purchase Agreement (APA) with Hyundai
Motors India Ltd. (HMI) on 16 August 2023, involving:
- Assignment of leasehold rights
over 300 acres of land in MIDC Talegaon
- Transfer of 42 completed buildings
- Sale of 9,664 plant and machinery
items
Total transaction value:
₹787.18 Crores
Breakup:
- Land Lease Rights: ₹529.29 Cr
- Buildings: ₹214.36 Cr
- Plant & Machinery: ₹43.52 Cr
GMI sought advance ruling
on taxability and GST applicability on each component.
Questions
Raised:
1. Is
the assignment of leasehold land rights a taxable supply of service
under GST?
2. Does
the transfer of completed buildings amount to “neither supply of goods
nor services” under Entry 5 of Schedule III?
3. Is
the itemized sale of plant and machinery a taxable supply of goods, and
if so, how should GST be applied?
Legal
Provisions Involved:
- Section 7, 15, 18(6)
of CGST Act
- Schedule II, Entry 2(a)
– Lease, tenancy, license, etc. = service
- Schedule III, Entry 5
– Sale of completed building = neither supply of goods nor services
- Notification No. 11/2017 – CT(R)
(Rate Notification for services)
- Notification No. 12/2017 – CT(R)
(Exemptions)
- SAC 999792
– Other miscellaneous services
Applicant’s
Submissions:
- Assignment of leasehold land is a supply
of service, and GST @ 18% has been discharged.
- Transfer of completed buildings
with possession and completion certificate is sale of immovable
property, hence outside GST (Schedule III).
- Sale of machinery is individual
supply of goods and GST is applied based on HSN and item-wise
value agreed in APA.
Jurisdictional
Officer’s Views:
- Agreed that lease rights assignment
is supply of service.
- Disagreed with applicant’s claim on buildings—stated
that buildings constructed on leased land form part of lease, and hence cannot
be treated as sale.
- Confirmed sale of machinery as
taxable supply of goods.
AAR
Discussion and Findings:
Leasehold
Land Assignment:
- Assignment of leasehold rights = supply
of service under Entry 2(a) of Schedule II.
- MIDC (the lessor) retains ownership;
GMI only has possessory rights.
- Exemption under Entry 41 of
Notification 12/2017 (applicable to MIDC) does not apply to GMI's
transfer to HMI.
- Held:
Taxable under SAC 999792 @ 18%.
Sale of
Buildings:
- As per Lease Deed, land and
all present/future buildings are part of lease.
- Buildings constructed during lease
become part of leasehold property.
- GMI, as lessee, does not have
ownership rights over the buildings.
- Conveyance deed alone is not
sufficient to prove title.
- Held:
No independent sale; building transfer is part of leasehold assignment,
hence taxable as supply of service under SAC 999792.
Sale of
Plant & Machinery:
- Each item listed and priced in APA
(Annexure A to Schedule 2).
- Plant and machinery are movable,
were capitalized in books, and qualify as goods.
- Tax to be paid:
- Either on transaction value
(Section 15), or
- As per Section 18(6): ITC
availed minus prescribed reduction
- Whichever is higher
- Held:
Taxable as supply of goods at applicable HSN-wise rates
Advance
Ruling:
|
Question
|
Ruling
by AAR
|
|
1.
Leasehold Rights
|
Assignment
of lease rights = supply of service, taxable @ 18% under SAC 999792
|
|
2.
Transfer of Buildings
|
Not
a sale; buildings are part of leased land. Treated as assignment of
leasehold rights, taxable as service
|
|
3.
Machinery Sale
|
Supply
of individual goods, taxable @ HSN-based rates on agreed
value or per Section 18(6), whichever is higher
|
Key Case
Law Cited:
- Builders Association of India v. UOI
(Bom HC) – Upheld GST on lease premium
- Enfield Apparels Ltd. (WB AAR)
– Leasehold transfer = service
- Fena Pvt. Ltd. (UP AAR)
– Similar ruling
- India Pistons Ltd. (TN AAR)
– Assignment of lease = taxable service
Conclusion:
This ruling clarifies the
taxability when:
- Land is held on lease from
government industrial body,
- Buildings are constructed by lessee,
- Capital assets like machinery
are sold separately.
The intention of GST
law is to tax economic value transfers, even if they don't involve
ownership in the traditional sense. Businesses involved in asset
restructuring or factory transfers must carefully assess:
- Nature of rights (ownership vs
lease),
- Classification (goods vs services),
- Rate and valuation (Section 15 vs
Section 18(6)).
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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