Compulsory land acquisition compensation is not subject to GST, Karnataka High Court rules; orders refund with 15% interest

The petitioner’s land measuring 1,195 sq. mtrs. in Sy. No. 21/29A (21), Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation of ₹37,07,046, from which the Special Land Acquisition Officer deducted ₹5,65,481.60 as 18% GST.

The petitioner sought a writ directing reimbursement of the deduction with interest, contending that compulsory acquisition was neither a supply of goods nor a provision of services.

The respondents argued that GST applied to the structural component of the compensation.

1. Whether GST could be deducted from compensation awarded for compulsory acquisition of the petitioner’s land and structure

2. Whether the petitioner was entitled to reimbursement of the deducted amount with interest and costs

Article 366(12A) of the Constitution defines GST as a tax on the supply of goods or services or both.

Section 3 of the Transfer of Property Act, 1882, treats things attached to or embedded in land as part of immovable property.

The Court held that compulsory acquisition by the State in exercise of its power of eminent domain is an expropriation, not a supply of goods or services, and therefore does not attract GST.

The Court also referred to a Madras High Court decision in W.P. No. 3278 of 2024 concerning GST on acquisition compensation.

The Court treated the acquisition of the petitioner’s land and structure as a single exercise of statutory eminent-domain power.

Because the petitioner had neither sold goods nor provided a service, the acquisition did not constitute a taxable supply under Article 366(12A).

The respondents’ contention that GST was payable on the structural component was unsupported by any identified provision of the GST Act establishing that the acquisition amounted to a supply.

The deduction was therefore beyond the respondents’ authority.

The interest was directed to be recovered personally from the second respondent.

The Court also ordered the second respondent to pay the petitioner ₹50,000 in costs within one month; the petition was disposed of accordingly.