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

The petitioner’s 1,941 sq. m. property in Sy. No. 31/1, Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation at ₹14,45,278, from which the Special Land Acquisition Officer deducted ₹2,20,466.10 as 18% GST.

The petitioner sought repayment of that amount with 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.

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

2. 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.

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 in exercise of eminent domain is not a supply of goods or services, because the owner neither sells goods nor provides a service by surrendering property under statutory authority.

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

The Court accepted that the petitioner’s land and structure had been acquired and that GST had been deducted from the compensation.

Because land and buildings are immovable property, and their compulsory acquisition is an exercise of eminent domain rather than a voluntary supply, the Court found no basis for treating the transaction as taxable under the supply framework.

The respondents’ argument that GST applied to the structural component did not identify a provision of the GST Act that made the acquisition a supply of goods or services.

The Court therefore held that the deduction exceeded the respondents’ authority.

It quashed the award notice insofar as it provided for that deduction and directed the second respondent to refund ₹2,20,466.10 with interest at 15% per annum from the date of the award until payment; the interest was to be recovered personally from the second respondent.

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