Karnataka HC: GST cannot be deducted from land acquisition compensation; orders refund with 15% interest and ₹50,000 costs

The petitioner’s 364.21 sq. metres of land in Sy. No. 21/3 (21), Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation of Rs. 23,95,589.04, from which the Special Land Acquisition Officer deducted Rs. 2,11,825.22 as 18% GST.

The petitioner sought a direction for reimbursement, contending that compulsory acquisition was neither a supply of goods nor a service.

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

1. Whether compulsory acquisition of the petitioner’s land and structure under statutory authority constitutes a supply of goods or services attracting GST.

2. Whether the respondents could deduct Rs. 2,11,825.22 as GST from the compensation payable to the petitioner.

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 is an exercise of the State’s power of eminent domain, not a supply by the landowner.

It referred to Section 3 of the Transfer of Property Act, 1882, in explaining that buildings attached to land form part of immovable property, and held that such property is not goods for this purpose.

The Court also considered the Madras High Court’s decision in W.P. No. 3278 of 2024, which addressed GST deductions from land-acquisition compensation.

The acquisition and the deduction of GST were undisputed.

The respondents argued that GST applied to the structural component, but could not identify a provision of the GST Act under which acquisition of land or a structure amounted to a supply of goods or services.

The Court held that the petitioner had neither sold goods nor provided a service; rather, her property had been taken by statutory authority.

The respondents therefore lacked a basis to deduct GST from the compensation.

It directed the second respondent to refund Rs. 2,11,825.22 with interest at 15% per annum from the award date until payment; the interest was to be recovered personally from the second respondent.

The second respondent was also directed to pay the petitioner Rs. 50,000 in costs within one month.

The petition was disposed of accordingly.