🚗 GST on Land Transfer: General Motors vs Hyundai Case Breakdown
In a landmark advance ruling, the Maharashtra Authority for Advance Rulings (AAR) has held that the transfer of leasehold land, buildings, and assets by General Motors India to Hyundai Motor India Ltd (HMIL) is subject to 18% GST. The case, involving GM’s now-defunct Talegaon facility, sets a significant precedent in the domain of industrial property and GST treatment in India.
The central issue: Can the transfer of leasehold land and assets be treated as a “sale” of immovable property, thus being out of GST’s scope?
🧾 What Triggered GST on the Talegaon Transfer?
- Background: GM exited the Indian market and transferred its Talegaon plant worth ₹787 crore—including buildings, machinery, and leasehold land—to Hyundai.
- GM’s Argument: The transfer was a sale of immovable property (land & buildings), exempt under Schedule III of the CGST Act, 2017.
- AAR’s Ruling: The leasehold land is not an absolute transfer of title. MIDC continues to hold ownership and approval is required for transfer.
📌 Why this matters?
The AAR viewed the transaction as an assignment of leasehold rights, classifying it as a taxable service, and hence liable to 18% GST.
🧠 Legal Insight: Leasehold vs Ownership under GST
✅ AAR’s Key Interpretation:
- Land leased by MIDC for 95 years with conditions is not equivalent to full ownership.
- Transfer of such rights falls under Schedule II Entry 2(a): “any lease, tenancy, easement, or license to occupy land is a supply of service.”
📚 Supporting Case Law:
- DLF Commercial Projects Ltd. v. CCE (2019): Long-term lease without transfer of ownership attracts service tax (now GST).
- Builders Association of Navi Mumbai v. UOI (2018): Clarified that allotment or transfer of leasehold industrial plots by government agencies are taxable under GST.
📊 Industry Expert View
According to Sandeep Sehgal, Partner – Tax, AKM Global:
“The ruling reinforces that leasehold transfers—especially when title stays with a statutory authority—will attract GST even if lease terms are extensive.”
This aligns with the broader taxation framework that distinguishes ownership from control. Leasehold rights, regardless of tenure, are considered supply of services, not sale of land.
🔎 Implications of the GM-Hyundai GST Ruling
| Aspect | Interpretation |
|---|---|
| Nature of Transfer | Assignment of lease rights (not sale of land) |
| Tax Applicability | GST @ 18% under Forward Charge |
| Section Involved | Schedule II Entry 2(a), CGST Act |
| Affected Parties | Manufacturers, Industrial plot assignees |
| Consent Required | Yes, from MIDC before transfer |
🔄 How This Impacts Future Industrial Transfers
This ruling will act as a guiding light for future M&A transactions, especially in:
- Industrial clusters under State Development Corporations
- Long-term lease agreements without freehold rights
- Transfer of abandoned or defunct manufacturing units
Key takeaway: If title of land remains with a statutory authority (like MIDC), any assignment of rights to a third party will be deemed service supply, attracting 18% GST.
✅ Final Thoughts: A Lesson in Substance Over Form
While land sales are exempt from GST, the form of transaction (leasehold) and retention of title by statutory bodies brings such deals within GST’s ambit. Businesses engaging in asset transfers must reassess their transaction structures and consult tax professionals to ensure compliance and cost planning.