Gujarat High Court Quashes Rs. 17.86 Crore Section 74 Notices to Deepak Nitrite — Assignment of GIDC Leasehold Rights Is Not a Supply, So Section 17(5)(d) Cannot Apply

The Court held that the blocking provision presupposes a taxable inward supply used for construction, and that no fraud or suppression could be alleged where GST was collected and deposited on the onward assignment.

The Gujarat High Court has quashed two show cause notices issued under Section 74 of the CGST Act proposing to recover Input Tax Credit of Rs. 17,86,41,900 availed on the acquisition of leasehold rights in a GIDC industrial plot, holding that the ITC could not be treated as blocked credit under Section 17(5)(d) [M/s Deepak Nitrite Ltd. v. Union of India & Ors.].

The bench of Justices A.S. Supehia and Vaibhavi D. Nanavati noted that the petitioner acquired leasehold rights over a plot of about 5.11 lakh sq. mtrs. at GIDC Dahej from Deepak Fertilizers and Petrochemicals Corporation for Rs. 117.11 crore, including GST of Rs. 17.86 crore. In January 2022 it assigned the same rights to its wholly owned subsidiary for Rs. 150.91 crore, collected GST of Rs. 23.02 crore and deposited it through GSTR-3B for December 2021.

Following its earlier decision in Gujarat Chamber of Commerce and Industry v. Union of India, which held that assignment of GIDC leasehold rights is a transfer of benefits arising out of immovable property and is not a supply leviable to GST under Section 9, the Court relied on its rulings dated 03.09.2026 and 10.02.2026. Those decisions held that Section 17(5)(d) “presupposes the existence of a taxable inward supply” and applies only to goods or services received for construction of immovable property on one’s own account. The department had not shown that the petitioner undertook any construction.

The Senior Standing Counsel for the department was unable to dispute the settled position. The Court further held that the question of fraud, wilful misstatement or suppression did not arise for invoking Section 74, particularly because the petitioner had collected and deposited GST of Rs. 23.02 crore on the onward assignment. Both notices, dated 22.03.2024 and 07.06.2024, were quashed.

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