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

The petitioners’ 101 sq. m. land in Sy. No. 74/1, Mallinathapura Village, was acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation of ₹62,38,437.02, from which the Special Land Acquisition Officer deducted ₹9,22,529.28 as GST at 18%.

The petitioners sought a direction for repayment with interest, contending that compulsory acquisition was neither a sale of goods nor a supply of services.

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

Whether GST could be deducted from compensation awarded for property acquired through compulsory acquisition.

Whether the petitioners were entitled to repayment 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.

The Court referred to Section 3 of the Transfer of Property Act, 1882, under which immovable property includes things attached to or embedded in the earth for its beneficial enjoyment; buildings on land are therefore treated as immovable property.

Applying the GST framework, the Court held that compulsory acquisition by the State in exercise of eminent domain is not a supply of goods or services, because the owner neither sells goods nor provides a service.

The Court also referred to a Madras High Court decision concerning GST on acquisition compensation and to its own prior decision concerning tax deduction at source on land-acquisition interest.

The Court accepted that the acquisition and the GST deduction were undisputed.

It reasoned that land and structures constitute immovable property and that their compulsory transfer to the State is an exercise of eminent domain, not a taxable supply.

Although the respondents characterised the deduction as applying to the structure component, they identified no GST Act provision under which acquisition of land or a structure amounted to a supply.

The Court accordingly found the deduction to be beyond the respondents’ authority.

It quashed the award notice dated 30 September 2024 insofar as it provided for the GST deduction and directed the second respondent to refund ₹9,22,529.28 with interest at 15% per annum from the award date until payment.

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

The petition was disposed of on those terms.