Land acquisition is not a GST-taxable supply, Karnataka High Court rules; orders refund of ₹12.65 lakh deducted from compensation with 15% interest

The petitioner’s property, comprising 125.41 sq. m. in Site No. 595, Sy. No. 21/3 (21), Basavanahalli Village, was acquired for widening National Highway 275. Compensation was determined at ₹82,96,086, from which the Special Land Acquisition Officer deducted ₹12,65,505 as 18% GST.

The petitioner sought a writ directing reimbursement 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.

1. Whether GST could be deducted from compensation paid for property compulsorily acquired for a highway project.

2. Whether the petitioner was entitled to repayment of the deduction 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 an expropriation, not a supply of goods or services; therefore, GST cannot be deducted from acquisition compensation absent a statutory basis.

The Court also referred to a Madras High Court decision in W.P. No. 3278 of 2024 concerning GST on acquisition compensation and to this Court’s decision in W.P. No. 35685 of 2025 and connected cases concerning tax deduction at source from land-acquisition compensation.

The acquisition and the deduction of ₹12,65,505 were undisputed. The Court considered the acquired property, including structures, to be immovable property and found that the petitioner had neither sold goods nor provided services: the property had been taken compulsorily under statutory authority.

Although the respondents asserted that GST applied to the structural component, they identified no provision of the GST Act under which the acquisition amounted to a taxable supply. The Court accordingly held that the deduction exceeded the respondents’ authority.

It directed the second respondent to refund ₹12,65,505 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 ordered to pay the petitioner ₹50,000 in costs within one month. The petition was disposed of on those terms.