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

The petitioner’s 386 sq. m. property in Sy. No. 13, Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway. The award determined compensation of ₹16,43,689.16

from which the Special Land Acquisition Officer deducted ₹2,49,275.90 as 18% GST. The petitioner sought a refund 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 award.

Whether GST could be deducted from compensation awarded for the compulsory acquisition of the petitioner’s land and structure.

Whether the petitioner was 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 reasoned that compulsory acquisition by the State is an exercise of eminent domain, not a supply by the landowner.

It referred to Section 3 of the Transfer of Property Act, 1882, under which immovable property includes things attached to or embedded in land.

The Court also referred to the Madras High Court’s decision in W.P. No. 3278 of 2024 concerning GST on land-acquisition compensation. Although the parties referred to the GST Act and the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, the judgment identified no specific GST provision authorising the deduction.

The Court accepted that the petitioner’s land and structure were acquired and that ₹2,49,275.90 had been deducted as GST. It treated the land and structures as immovable property and held that their compulsory acquisition did not involve the petitioner supplying goods or services.

The respondents’ submission that GST applied to the structural component did not persuade the Court because they failed to identify a provision of the GST Act making the acquisition a taxable supply. The Court therefore concluded that the deduction exceeded the respondents’ authority.

It quashed the award notice dated 27 August 2024 insofar as it provided for the GST deduction and directed the second respondent to refund ₹2,49,275.90 with interest at 15% per annum from the date of the award until payment. The interest was directed to be recovered personally from the second respondent. The Court also ordered the second respondent to pay ₹50,000 in costs within one month.