Compulsory land acquisition is not a GST supply, Karnataka High Court rules; orders refund with 15% interest behoort

The petitioners’ house property, 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 ₹96,92,624.80, from which the Special Land Acquisition Officer deducted ₹12,28,906 as 18% GST.

The petitioners sought repayment of the deduction and interest, contending that compulsory acquisition was neither a supply of goods nor a provision of services.

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

1. Whether the compulsory acquisition of the petitioners’ land and house property could be treated as a supply of goods or services attracting GST.

2. Whether the petitioners were entitled to repayment of the GST deducted, 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 reasoned that compulsory acquisition by the State in exercise of eminent-domain powers is an expropriation, not a supply of goods or services; it therefore does not attract GST on the compensation at issue.

The Court also referred to a Madras High Court decision in W.P. No. 3278 of 2024 concerning GST on acquisition compensation and to its own prior ruling that interest forming part of land-acquisition compensation was not subject to tax deduction at source.

The acquisition of the property and the GST deduction were undisputed.

The Court found that the acquired land and attached structure constituted immovable property and that the petitioners had neither sold goods nor provided a service; rather, the State had taken the property compulsorily under statutory authority.

The respondents’ assertion that GST applied to the structural component was unsupported by identification of any provision making acquisition a taxable supply.

The Court therefore held that the deduction exceeded the respondents’ authority.

It further directed that the interest be recovered personally from the second respondent and ordered payment of ₹50,000 in costs to the petitioners within one month.

The petition was disposed of on those terms.