The Karnataka High Court (Bengaluru Bench) has held that the acquisition of immovable property, whether land or structure, by the State in exercise of its power of eminent domain does not constitute a “supply of goods or service” within the meaning of the GST Act read with Article 366(12A) of the Constitution. The Court asserted that a landowner who is compelled to part with property under statutory acquisition neither sells goods nor provides a service. Therefore, the levy and deduction of GST from compensation payable to a landloser is wholly without jurisdiction and amounts to acting in excess of power.
Accordingly, the Court quashed the award notice to the extent it deducted GST from the compensation payable to the petitioner. The Competent Authority i.e., Respondent No. 2 was directed to refund the GST amount of Rs. 18.39 lakhs along with interest at the rate of 15% per annum from the date of the award till the date of actual payment.
A Single Judge Bench of Justice R. Nataraj noted that under Section 3 of the Transfer of Property Act, 1881, immovable property includes everything attached to or embedded in land for its beneficial enjoyment, meaning buildings and structures on land are also treated as immovable property. The Court then examined Article 366(12A) of the Constitution of India, which defines GST as a tax on supply of goods or services or both. The Court categorically held that an immovable property cannot, by any stretch of imagination, be construed as “goods”. Consequently, a compulsory acquisition involves neither a supply of goods nor a provision of services, it is an expropriation of a citizen’s property using statutory power.
The Court pointedly observed that despite filing boisterous objections claiming GST was mandated on works contract/structure valuation, Respondent Nos. 3 and 4 completely failed to explain under which specific provision of the GST Act the acquisition of land or a structure would amount to a “supply of goods” or “provision of service”. This failure was noted as a significant gap in the respondents’ case.
The High Court also drew upon its own earlier ruling, where it had held that income tax cannot be deducted at source even on interest awarded under Section 28 of the Land Acquisition Act, 1894, since such interest forms part of the compensation and is intended to factor in inflation during the period between determination and payment of compensation.
Briefly, P.S. Shamala, a 70-year-old resident of Kushalnagara, Kodagu District, owned agricultural land measuring 8.5 guntas in Survey No. 21/44 of Basavanahalli Village, Kushalnagar Taluk, Kodagu District. Her land was compulsorily acquired by the Union of India for the purpose of widening the Mysuru–Madikeri Highway at the instance of the National Highways Authority of India (NHAI). Later, an award was passed by the Special Land Acquisition Officer determining the total compensation payable to the petitioner at Rs. 1.21 crores.
However, out of the said amount, the respondent No. 2 i.e., the Special Land Acquisition Officer and Competent Authority deducted a sum of Rs. 18.39 lakhs representing 18% GST before disbursing the compensation to the petitioner. Aggrieved by this deduction, the petitioner sought a writ of mandamus directing Respondent Nos. 2 to 4 to reimburse the deducted GST amount of Rs. 18.39 lakhs along with interest on the said amount from the date of the award till the date of actual payment.
