The Karnataka High Court has held that GST cannot be deducted from compensation payable for compulsory acquisition of land and structures by the State. The Court observed that acquisition under the State’s power of eminent domain does not constitute a “supply of goods or services” for the purposes of GST.
The petitioner’s property in Basavanahalli Village, Kushalnagar Taluk, Kodagu District, was acquired for widening the Mysuru–Madikeri Highway. Compensation of ₹1,21,33,938 was determined in respect of the acquired land and structure. However, the Special Land Acquisition Officer deducted ₹18,39,252 towards GST at 18%.
The petitioner challenged the deduction, contending that compulsory acquisition of immovable property could neither be regarded as a sale of goods nor as provision of services.
The respondents argued that while compensation attributable to land may not attract GST, the structural component included in the award was liable to GST. The High Court rejected this contention, noting that the respondents were unable to identify any provision under the GST law under which compulsory acquisition of land or an existing structure could be treated as a taxable supply.
The Court observed that buildings attached to land constitute immovable property. Referring to the constitutional concept of GST as a tax on the supply of goods or services, the Court held that immovable property cannot be construed as goods in the circumstances of compulsory acquisition.
Significantly, the Court held that the petitioner had neither sold goods nor rendered any service by surrendering property pursuant to statutory acquisition proceedings. Compulsory acquisition is an expropriation of a citizen’s property through statutory power, rather than a voluntary taxable supply.
Accordingly, the Court concluded that the authorities had acted in excess of their powers by deducting GST from the compensation.
The High Court quashed the award notice dated 6 August 2024 to the extent it provided for deduction of GST and directed the Special Land Acquisition Officer to refund ₹18,39,252 to the petitioner together with interest at 15% per annum from the date of the award until payment.
The Court further directed that the interest payable on the wrongly deducted GST should be recovered personally from respondent No. 2. In addition, costs of ₹50,000 were awarded to the petitioner, payable within one month.
The judgment reinforces the principle that compulsory acquisition of immovable property by exercise of statutory powers cannot, merely because compensation includes the value of structures, be converted into a taxable supply under GST unless the levy is clearly supported by the statutory framework.