Panacea Biotech Shares Fall 5% Despite Bombay HC Ruling Out 18% GST on Leasehold Land

The Bombay High Court on January 21, 2025, quashed the GST demand on the assignment of leasehold land under the Maharashtra Industrial Development Corporation (MIDC). This judgment, following a similar decision by the Gujarat High Court, is expected to bring much-needed relief to businesses and clarity to the applicability of GST on such transactions.

The Case in Question

The dispute stemmed from a transaction where MIDC initially assigned leasehold land to Panacea Biotec Ltd. In 2022, Panacea Biotec further assigned this leasehold land to Mankind Pharma. The core legal question was whether an 18% GST could be levied on this transfer.

The GST authorities had issued a show-cause notice to Panacea Biotec and confirmed the demand through an impugned order dated August 19, 2024. Panacea Biotec contested this, arguing that such transactions fall under Item 5 of Schedule III of the Central Goods and Services Tax Act, 2017, which excludes them from GST.

The petitioner further asserted that the transfer does not fall under Item 2 of Schedule II, as claimed by the GST authorities. Panacea Biotec had raised these arguments in their reply to the show-cause notice, but the authorities disregarded their submission.

Key Court Observations

The Bench, comprising Justice BP Colabawalla and Justice Firdosh P. Pooniwalla, highlighted that the GST authorities failed to acknowledge Panacea Biotec’s reply to the show-cause notice dated July 22, 2024. The Court noted this procedural lapse violated the principles of natural justice.

Additionally, the Court referred to a Gujarat High Court ruling, which established that similar transactions are not taxable under GST law. The Bombay High Court emphasised that this precedent must be considered while re-adjudicating the matter.

Consequently, the impugned order was quashed, and the GST authorities were directed to reconsider the show-cause notice comprehensively, taking into account the petitioner’s submissions and the Gujarat High Court’s judgment.

Implications of the Judgment

Relief for Businesses and Industry

The judgment offers clarity on the taxability of transactions involving the assignment of leasehold land, a long-debated issue in the industry. By ruling that such transactions are not subject to GST, the Court has provided a significant relief to businesses, aligning these transactions with the legislative intent of excluding land sales from GST.

Prevention of Double Taxation

The decision recognises that such transactions are already subject to stamp duty, and the imposition of an additional 18% GST would result in double taxation. This ensures that businesses can avoid unsustainable financial burdens, making land transactions more economically viable.

Procedural Fairness and Judicial Precedents

The ruling underscores the importance of procedural fairness and adherence to legal precedents. Tax authorities are now expected to carefully consider taxpayers’ submissions, reducing arbitrary demands and bolstering confidence in the tax system.

Stock Performance 

On January 24, 2025, Panacea Biotec share price hit a 5% lower circuit at 10:00 AM (IST) at ₹363.10. Panacea Biotec’s share price reached a 52-week high of ₹489 on December 12, 2024, and a 52-week low of ₹112.70 on June 04, 2024. As per BSE, the total traded volume for the stock stood at 0.23 lakh shares with a turnover of ₹85.81 lakhs.

At the current price, Panacea Biotec shares are trading at a price-to-earnings (P/E) ratio of -165.80x, based on its trailing 12-month earnings per share (EPS) of ₹-2.19, and a price-to-book (P/B) ratio of 7.02, according to exchange data.

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