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

The petitioner’s land measuring 2,742 sq. m. in Sy. No. 12/2, Vaddarahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

Compensation of Rs. 70,56,462.35 was determined, from which the Special Land Acquisition Officer deducted Rs. 6,11,949.70 as 18% GST.

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

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

1. Whether GST could be deducted from compensation payable for land and structures acquired through compulsory acquisition

2. Whether the petitioner was entitled to interest on the deducted amount and costs

Article 366(12A) of the Constitution defines GST as a tax on the supply of goods or services or both; the Court held that compulsory acquisition, as an exercise of the State’s power of eminent domain, is not such a supply.

Section 3 of the Transfer of Property Act, 1882, was referred to for the proposition that immovable property includes things attached to or embedded in land for its beneficial enjoyment.

The Court also referred to a Madras High Court decision, W.P. No. 3278/2024, concerning the absence of 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.

No specific provision of the GST Act authorising the deduction was identified by the respondents.

The acquisition of the petitioner’s land and structures was compulsory, not a sale of goods or provision of services.

The Court reasoned that land and buildings constitute immovable property and that their transfer to the State through acquisition cannot be treated as a taxable supply, even on a broad interpretation of “supply”.

The respondents’ reliance on GST being uniformly applied to structural valuation did not establish a statutory basis for the deduction.

The Court therefore found the deduction to be beyond the respondents’ powers and ordered interest and costs as consequential relief.

It ordered that the interest be recovered personally from the second respondent and directed that respondent to pay Rs. 50,000 in costs within one month.

The petition was disposed of on those terms.