GST cannot be deducted from land-acquisition compensation, Karnataka HC rules; orders refund with 15% interest

The petitioner’s 250 sq. m. property in Sy. No. 13, Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation of ₹26,59,446.96, from which the authorities deducted ₹4,04,788.58 as 18% GST.

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

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

1. Whether the respondents could deduct GST from compensation awarded for the compulsory acquisition of the petitioner’s land and structure

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

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

The Court referred to Section 3 of the Transfer of Property Act, 1882, in treating buildings attached to land as immovable property.

It also relied on a Madras High Court decision in W.P. No. 3278 of 2024 concerning GST on acquisition compensation, and referred to its prior decision in W.P. No. 35685 of 2025 and connected cases on tax deduction from land-acquisition compensation and interest.

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

The acquisition and the compensation award were undisputed, as was the deduction of 18% GST.

The Court held that the petitioner had neither sold goods nor supplied a service; rather, the State had taken the property through statutory acquisition.

The respondents’ assertion that GST applied to the structural component did not establish a statutory basis for treating the acquisition as a taxable supply.

The Court therefore found the deduction to be beyond the respondents’ powers.

It quashed the award notice insofar as it authorised that deduction and directed the second respondent to refund ₹4,04,788.58 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 petitioner costs of ₹50,000 within one month.

The petition was disposed of accordingly.