No GST on MIDC Land Transfers, Says Nagpur Bench of Bombay High Court

Key highlights of the Bombay High Court ruling on MIDC plot transfers:

• GST Exemption Confirmed: Bombay High Court rules that transfers of MIDC plots to third parties are not subject to GST, ending long-standing uncertainty.
• Legal Consistency: Aligns with Gujarat High Court on GIDC land; transfer is treated as assignment of lease, not a new taxable supply.
• Business Relief: Companies complying with MIDC procedures are protected from retrospective tax notices, reducing compliance burden.

In a major relief for the business community, especially in Maharashtra, the Nagpur bench of the Bombay High Court has held that transfer of plots allotted by the MIDC to third parties will not attract GST. The judgment puts to rest a long-standing ambiguity that had resulted in GST notices being issued to several companies over recent years.

The court’s ruling follows a similar decision delivered earlier by the Gujarat High Court in a case involving land allotted by the Gujarat Industries Development Corporation (GIDC). In that case, the Gujarat court examined a central tax notification issued in June 2017, which prescribed a zero GST rate on one-time charges paid for the grant of long-term leases, defined as leases exceeding 30 years, by state industrial development corporations. The court observed that when land is transferred by the original allottee to a third party, the transferee simply steps into the role of the lessee, and the original tax treatment continues to apply.

Nagpur Bench Ruling Ends GST Uncertainty on MIDC Land Transfers

• On the same logic, the Nagpur Bench decided that transfer of plots of MIDC does not equate to a fresh taxable supply under GST.
• This decision has brought much relief for those entities who have been following the procedure laid down by the MIDC, including making payments for transfer charges.
• In recent years, Maharashtra-based companies have seen GST demand notices issued due to the transfer of MIDC land.
• These advisories created quite an impression of vagueness and fear, especially on small and medium-scale enterprises (SMEs).
• Such land transfer exercises are normally conducted in terms of restructuring, expansion, or a change of ownership.
• Industry representatives reported that these GST demands add to the complexity of compliance and enhance the cost of doing business.

One such case is that of Aerocom Cushions Private Ltd, a Nagpur-based company, which contested a notice issued by the GST authorities after the company acquired land from the original allottee, Rishita Industries. The company argued that the transfer was perfectly legal and in the form of transfer of the leasehold rights and thus not a supply. The High Court decision thus upheld the company’s argument.

Industry associations have hailed the ruling as a welcome step. “This ruling has removed an area of grey uncertainty and prevents genuine business activity from being unnecessarily taxed,” according to Julfesh Shad, Chairman of the Chamber of Small Industries Association (COSIA). He stated that the association has brought this issue to the attention of the government and judicial forums as the impact of the prohibition of such treatment in the GST law was being experienced by the industrial units.

The larger implications of this judgment are far-reaching. The MIDC land constitutes the backbone of Industry in Maharashtra, and it is important that taxation matters are clarified in this regard. The judgment of the court on this issue that no GST is payable on this transaction has relieved them of any burden of retrospective taxes in this regard.

Lawyers say that the ruling might serve as a guiding factor for the GST department and help lower disputes over the transfer of industrial lands. In general, the ruling reaffirmed the fact that GST cannot be imposed in the absence of new supply or services.

Aligning themselves with the judgment given by the Gujarat High Court, the Bombay High Court thereby made sure that the law is interpreted consistently, providing businesses with clarity, which helps keep Maharashtra on top as an investment destination for industries.