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

The petitioner’s 240 sq. m. land in Sy. No. 33, Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation of ₹8,55,376, from which the Special Land Acquisition Officer deducted ₹1,30,481.08 as 18% GST.

The petitioner sought reimbursement of the deduction and 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 award.

Whether GST could be deducted from compensation awarded for land and structures compulsorily acquired for a highway project

Whether the petitioner was entitled to repayment of the deducted amount, 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 under its power of eminent domain is not a supply of goods or services, because the owner neither sells goods nor provides a service.

It also referred to the Madras High Court’s decision in W.P. No. 3278 of 2024 concerning GST on acquisition compensation.

The Court cited its prior treatment of tax deducted at source on interest forming part of land-acquisition compensation, but did not identify a specific GST Act provision governing the deduction.

The acquisition and the GST deduction were undisputed.

The respondents’ assertion that GST applied to the structural component did not establish how acquisition of the land or structure constituted a taxable supply under the GST framework.

Applying its conclusion that compulsory acquisition is an expropriation, not a transaction involving a supply by the landowner, the Court found the deduction to be beyond the respondents’ authority.

It therefore ordered repayment with interest and costs.

It quashed the award notice dated 21 November 2024 insofar as it provided for the deduction and directed repayment of ₹1,30,481.08 with interest at 15% per annum from the date of the award until payment.

The interest was ordered to be recovered personally from respondent No. 2.

Respondent No. 2 was also directed to pay ₹50,000 in costs within one month.

The petition was disposed of on those terms.