Panacea Biotec Case: Bombay HC Rules Out 18% GST on Leasehold Land

GST on Leasehold Land: Bombay HC’s Landmark Ruling

In a groundbreaking judgment, the Bombay High Court has quashed the demand for 18% GST on the transfer of leasehold land by Panacea Biotec to Mankind Pharma. This decision provides significant clarity on the contentious issue of double taxation involving GST and stamp duty in such transactions.

The Case in Focus

The issue began when the Maharashtra Industrial Development Corporation (MIDC) assigned leasehold land to Panacea Biotec, which later transferred it to Mankind Pharma in 2022. The GST authorities claimed the transaction was taxable at 18%, issuing a notice that culminated in a demand order dated August 19, 2024.

Key Questions:

• Does assigning leasehold land constitute a taxable supply under GST?
• Should such transactions fall under Schedule III of the Central Goods and Services Tax Act, 2017, which excludes the sale of land and buildings from GST’s scope?

Legal Arguments and Procedural Gaps

1. Panacea Biotec’s Stand:

• The company argued that the assignment of leasehold land is excluded from GST under Schedule III.
• The transaction aligns more with the sale of land, which is outside GST’s ambit.

2. Overlapping Taxes:

• Panacea Biotec highlighted that stamp duty is already payable on such transactions. Imposing 18% GST would lead to double taxation, rendering transactions economically unviable.

3. Procedural Flaws in GST Demand:

• The petitioner contended that their reply to the show-cause notice was not considered, violating natural justice principles.

The Bombay High Court’s Decision

The Bombay HC quashed the GST demand, emphasizing the following points:

• Substance over Form: The transaction’s nature resembled the sale of land, falling outside GST’s scope.
• Schedule III Clarity: The legislative intent is to exclude such transactions from GST, aligning with similar rulings by the Gujarat HC.
• Procedural Fairness: The authorities failed to consider Panacea Biotec’s reply, making the demand procedurally invalid.

Implications for Businesses

The judgment offers substantial relief for industries engaged in leasehold land transactions. Key takeaways include:

• Avoiding Double Taxation: Businesses are safeguarded from the dual burden of GST and stamp duty, promoting economic feasibility.
• Clarity in GST Applicability: Aligning with Schedule III reinforces the exclusion of land-related transactions from GST.
• Legal Precedent: This case sets a benchmark for adjudicating similar disputes across India, enhancing trust in the tax system.

Economic and Legislative Impact

This decision could have a ripple effect on GST assessments involving leasehold rights. By recognizing the legislative framework’s intent, the judgment ensures:

• Business Viability: Eliminating additional tax burdens fosters a favourable investment environment.
• Streamlined Guidelines: Calls for clearer rules on transactions straddling the line between goods and services.

Conclusion

The Bombay High Court’s decision in the Panacea Biotec case reinforces procedural fairness, legislative clarity, and economic viability for businesses. As industries celebrate this landmark ruling, it lays the foundation for resolving similar disputes in favour of businesses, fostering a more robust and consistent GST framework.