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

The petitioner’s 310 sq. m. of land in Sy. No. 1/1, Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

The award assessed compensation for the land and structure at ₹12,87,385, from which the authorities deducted ₹1,96,380.80 as 18% GST.

The petitioner sought a direction for repayment of the deduction, with 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.

Whether GST could be deducted from compensation awarded for land and structures compulsorily acquired for a public purpose.

Whether the petitioner was entitled to repayment of the deducted GST, 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, defines immovable property to include things attached to or embedded in the earth; the Court reasoned that land and buildings are immovable property and are not goods.

The Court held that compulsory acquisition through the State’s power of eminent domain, absent a supply of goods or services by the landowner, does not attract GST.

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

The Court found that the petitioner’s property had been compulsorily acquired and that GST had been deducted from the compensation.

The petitioner had neither sold goods nor provided a service; the transfer resulted from statutory acquisition.

The respondents’ assertion that GST applied to the structural component did not identify any provision of the GST Act under which acquisition of land or a structure constituted a taxable supply.

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

It directed that the interest be recovered personally from respondent No. 2 and ordered respondent No. 2 to pay the petitioner costs of ₹50,000 within one month.

The petition was disposed of accordingly.