Compulsory land acquisition is not a GST-supply, Karnataka HC rules; orders refund with 15% interest”】【

The petitioner’s lands measuring 4,186 sq. m. in Sy. No. 21/26 and 1,789 sq. m. in Sy. No. 21/42, at Basavanahalli Village, were acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation at ₹1,75,50,715.84, from which the Special Land Acquisition Officer deducted ₹18,80,107.50 as 18% GST.

The petitioner sought a writ directing reimbursement of the deduction with interest, contending that compulsory acquisition was not a supply of goods or services.

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

1. Whether GST could be deducted from compensation paid for property acquired compulsorily by the State.

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 for its beneficial enjoyment as part of immovable property.

The Court held that compulsory acquisition through the State’s power of eminent domain is not a supply of goods or services, because the owner neither sells goods nor provides a service by surrendering the property.

It also referred to the Madras High Court’s decision in W.P. No. 3278/2024 concerning GST deductions from land-acquisition compensation.

The Court accepted that the property had been acquired and that GST had been deducted from the compensation.

Although the respondents asserted that GST was payable on the structural component, they identified no provision of the GST Act under which acquisition of land or a structure amounted to a supply of goods or services.

Applying the constitutional definition of GST and the treatment of buildings as immovable property, the Court concluded that compulsory acquisition was expropriation under statutory authority, not a taxable supply.

The deduction therefore exceeded the respondents’ powers.

It quashed the award notice insofar as it provided for the deduction and directed respondent No. 2 to refund ₹18,80,107.50 with interest at 15% per annum from the award date until payment.

The interest was to be recovered personally from respondent No. 2, who was also directed to pay ₹50,000 in costs within one month.

The petition was disposed of on those terms.