Property Acquisition By State Not A Supply Of Goods Or Services: Karnataka High Court

The Karnataka High Court has held that compulsory acquisition of immovable property by the State in exercise of eminent domain does not amount to a supply of goods or services liable to Goods and Services Tax (GST).

Justice R. Nataraj quashed the deduction of Rs. 12,28,906 towards GST from the compensation payable to four landowners whose house property was acquired for widening the Mysuru-Madikeri Highway. The Bench observed:

“...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 petitioners have neither sold any goods nor provided any service in giving away their 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'.”

The petitioners, residents of Basavanahalli Village in Kodagu district, owned a house property measuring 1,195 sq. metres. The property was acquired for widening the Mysuru-Madikeri Highway.

An award determined compensation of Rs. 96,92,624.80 for the land and structure. The authorities deducted Rs. 12,28,906, representing 18% GST, from the compensation payable to the petitioners.

The landowners contended that acquisition of their property by the State could not be treated as a supply of goods or services. They submitted that they had neither sold any goods nor provided any service by surrendering the property pursuant to the acquisition proceedings. The authorities contended that GST was leviable on the works contract or structure component and that the same treatment had been applied uniformly to landowners.

The Court noted that the compensation included the value of the land and structure. It observed that immovable property, including a building attached to land, could not be treated as goods for GST purposes.

Further, the Bench noted that the authorities failed to identify any provision under the GST law under which acquisition of land or a structure would amount to a supply of goods or provision of services.

It held that the respondents had acted in excess of their powers by deducting GST from the compensation. It quashed the award notice to the extent it provided for deduction of GST and directed the authority to refund Rs. 12,28,906 with interest at 15% per annum from the date of the award until payment.

Lastly, the Bench directed that the interest on the deducted amount be recovered personally from the concerned official and imposed costs of Rs. 50,000 on the authority towards the expenses incurred by the petitioners in filing the writ petition.

Accordingly, the High Court disposed of the petitions.

For Petitioner: Advocate Narendra Gowda

For Respondent: Government Pleader Pooja M. Koorse appeared for respondent No. 1, while Advocate N. Kumar appeared for respondent Nos. 2 to 4