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

The petitioner’s 410 sq. m. property in Sy. No. 16/8, Basavanahalli Village, was acquired for widening the Mysuru–Madikeri Highway.

The award determined compensation of ₹1,21,40,628, from which the Special Land Acquisition Officer deducted ₹18,51,960 as GST at 18%.

The petitioner sought a writ directing reimbursement of the deduction, with interest.

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

The petitioner also relied on earlier Karnataka High Court decisions concerning tax deductions from land-acquisition compensation.

1. Whether GST could be deducted from compensation paid 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 reasoned that compulsory acquisition through the State’s power of eminent domain is not a supply of goods or services and therefore does not attract GST.

The Court also referred to a Madras High Court decision in W.P. No. 3278/2024 concerning GST on acquisition compensation and to its earlier decisions concerning tax deducted from land-acquisition compensation and interest.

The respondents identified no provision of the GST Act authorising the deduction in this case.

The acquisition and the deduction of ₹18,51,960 were undisputed.

The Court treated the land and structures as immovable property and held that their compulsory transfer to the State was an exercise of eminent domain, not a voluntary supply of goods or services.

Although the respondents asserted that GST applied to the structural component, they failed to identify a statutory provision supporting that position.

The Court therefore held the deduction to be beyond the respondents’ authority and granted repayment with interest.

It ordered that the interest be recovered personally from the second respondent and directed that respondent to pay the petitioner ₹50,000 in costs within one month.

The petition was disposed of on those terms.