GST Cannot Be Deducted From Compensation For Compulsory Land Acquisition: Karnataka High Court

The Karnataka High Court has recently quashed the deduction of Goods and Services Tax (GST) from compensation awarded for compulsory acquisition of land, holding that such acquisition is not a "supply of goods or services" under the GST law.

"An immovable property cannot at any stretch of imagination is construed as goods. Therefore, there is neither supply of goods nor services, but an expropriation of the property of a citizen using statutory power. The petitioner has neither sold any goods nor provided any service in giving away his property. Therefore, even if a wide latitude is given to the words "supply of goods or service", the acquisition of property by the State in exercise of its power of eminent domain, cannot fall within the definition of the words "supply of goods or service". Justice R. Nataraj held.

The court directed the authorities to refund ₹18.39 lakh deducted as GST from the compensation payable to P.S. Shamala, along with interest at 15% per annum from the date of the award until payment. It also ordered that the interest be recovered personally from the concerned Special Land Acquisition Officer.

In addition, the court imposed costs of ₹50,000 on the officer.

P.S. Shamala owned 8.5 guntas of land in Kodagu district. It was acquired for widening the Mysuru-Madikeri Highway. An award fixed compensation at ₹1.21 crore, but the Special Land Acquisition Officer deducted ₹18.39 lakh towards 18% GST.

Questioning the deduction, Shamala argued that acquisition of land is neither a sale of goods nor a supply of services. Her counsel submitted that the GST Act does not apply to compulsory acquisition of land because there is no sale of goods or provision of any service that could attract GST.

NHAI and its project director opposed the plea. They argued that while compensation for the land itself may not attract GST, the structural component covered under the award was liable to GST under the Act. They also contended that the deduction had been applied uniformly to all affected landowners.

The court was not persuaded. It observed that buildings attached to land are also treated as immovable property and cannot be regarded as "goods" under the GST regime. Acquisition of property by the State in exercise of its power of eminent domain, it said, is not a transaction involving the supply of goods or services.

While the authorities maintained that GST was payable on the structural component, the court noted that they had failed to identify any provision of the GST Act under which compulsory acquisition of land or structures could amount to a supply of goods or services.

The court also referred to a Madras High Court decision that dealt with a similar issue.

Holding that the authorities had acted in excess of their power, the court quashed the award to the extent it deducted GST from the compensation. It directed the authorities to refund the deducted amount with interest. The court also ordered that the interest payable to Shamala be recovered personally from the Special Land Acquisition Officer.

For the Petitioner: Advocate Narendra Gowda,

For Respondent No.1: Aditya Diwakar, Additional Government Advocate

For Respondent Nos. 2 to 4: Advocate Shilpa Shah