Smt. P. S. Shamala Vs Deputy Commissioner (Karnataka High Court)
The Karnataka High Court allowed the writ petition challenging the deduction of ₹18,39,252 towards 18% GST from compensation awarded for compulsory acquisition of the petitioner’s land measuring 6.5 guntas for widening the Mysuru–Madikeri Highway. The compensation was determined at ₹1,21,33,938, from which GST was deducted by the acquiring authority.
The petitioner contended that compulsory acquisition of land does not amount to a sale of goods or provision of services and therefore the Central Goods and Services Tax Act, 2017, was inapplicable. It was also submitted that this Court had earlier held that no TDS could be deducted from compensation payable in similar land acquisition cases.
The respondents contended that GST was applicable on the works contract or structural component assessed under the award and that the levy had been uniformly applied to all landowners.
The High Court observed that acquisition of the petitioner’s property by the Union of India and the deduction of GST were undisputed. Referring to Section 3 of the Transfer of Property Act, 1881, the Court noted that buildings attached to land form part of immovable property. It further observed that GST is a tax on the supply of goods or services under Article 366(12A) of the Constitution of India, whereas compulsory acquisition involves expropriation of property through statutory power and not a supply of goods or services. The Court held that the petitioner had neither sold goods nor provided services by surrendering property under compulsory acquisition.
The Court also noted that the respondents failed to identify any provision of the GST Act under which compulsory acquisition of land or structures could be treated as a supply of goods or services. It referred to a decision of the Madras High Court in a similar matter where it was recorded that no GST was applicable on compensation paid for land acquisition. The Court further referred to its earlier decision holding that tax could not be deducted at source from interest awarded under Section 28 of the Land Acquisition Act, 1894, as such interest formed part of the compensation.
Holding that the respondents had acted in excess of their powers, the High Court quashed the award notice dated 06.08.2024 insofar as it deducted GST from the compensation. It directed respondent No.2 to refund ₹18,39,252 along with interest at 15% per annum from the date of the award until payment. The Court further directed that the interest be recovered personally from respondent No.2 and ordered respondent No.2 to pay costs of ₹50,000 to the petitioner within one month.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has sought for a writ in the nature of mandamus directing the respondent Nos.2 to 4 to reimburse the Goods and Services Tax (GST) amount of Rs.18,39,252/-that was deducted out of the compensation paid in respect of the acquisition of the land measuring 6.5 guntas in Sy. No.21/44 of Basavanahalli Village, Kushalnagar Taluk, Kodagu District, and award interest on the deducted amount of GST from the date of the award till the date of payment.
2. The petitioner claims that the land belonging to her measuring 8.5 guntas in Sy.No.21/44 of Basavanahalli Village, Kushalnagar Hobli, Kushalnagar Taluk, Kodagu District, was acquired by the Union of India for the purposes of respondent No.3 for widening Mysuru – Madikeri Highway. An award was passed determining the compensation payable at a sum of Rs.1,21,33,938/-. The respondent No.2 deducted a sum of Rs.18,39,252/- being 18% GST out of the compensation payable to the petitioner. The petitioner claims that she is not liable to pay GST as acquisition of land cannot be construed as sale of goods or providing of service. The petitioner is therefore, before this Court challenging the deduction of GST from the compensation payable to her.
3. The learned counsel for the petitioner reiterated the above contentions and submitted that the provisions of the Central Goods and Service Tax Act, 2017 (henceforth referred to as ‘GST Act’) is not applicable to an acquisition of land. He also contends that provisions of the Income Tax Act, 1961, also are not applicable whenever agricultural land is acquired and compensation is paid. He submits that this Court in W.P.No.35685/2025 and connected cases has already taken a view that no TDS can be deducted from the compensation payable. He also contends that there is no sale of any goods or provision of any service for provisions of the GST Act to be attracted. He therefore, submits that the deduction of GST from the compensation payable to the petitioner is not only arbitrary but a colourable exercise of power.
4. Respondent Nos.3 and 4 have filed a statement of objections in the connected petition in W.P.No.26239/2025, which is adopted in this petition. It is contended that the GST Act mandates levy of GST on works contract/structure valuation and the same was applied uniformly to all landlosers. It is contended that the petitioner’s claim that compensation under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, is exempt from any tax misconstrues the statutory framework. It is claimed that while compensation for land acquired may not attract GST, the structural component assessed under the award is liable to GST as per law.
5. Learned counsel for respondent Nos.2 to 4 reiterated the above contentions.
6. I have considered the submissions of the learned counsel for the petitioner as well as the learned counsel for respondent Nos.2 to 4.
7. The fact that the property of the petitioner is acquired for widening of the road by the Union of India is not in dispute. It is also not in dispute that a sum of Rs.1,21,33,938/-was determined as compensation payable in respect of the land and structure acquired. It is also not in dispute that the respondent No.2 has deducted a sum of Rs.18,39,252/-towards 18% GST. An immovable property is defined under Section 3 of the Transfer of Property Act, 1881, to include everything attached to it or imbedded for the beneficial enjoyment of the immovable property. This therefore means that even buildings constructed on land are treated as immovable property. The GST is a tax on supply of goods or services of both as provided under Article 366(12A) of the Constitution of India, which was inserted with effect from 16.09.2016. 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”.
8. Though the respondent Nos.3 and 4 have filed a statement of objections boisterously contending that GST Act mandates levy of GST on works contract/structure valuation and the same was applied uniformly to all landlosers, they failed to explain under what provision of the GST Act, the acquisition of a land or structure would amount to supply of goods or provision of service. As a matter of fact, the High Court of Judicature at Madras in W.P.No.3278/2024 while considering a similar contention, has held that
“In view of the admission of the third respondent (third respondent is National Highways Authority of India) in their counter affidavit, that no levy of GST is applicable and charged on the compensation amount paid to the petitioner and no GST has also been paid by the petitioner to any GST authorities of the Central Government or the State Government, no direction as sought for by the petitioner is necessary in this writ petition.”
9. This Court, while considering whether income tax could be deducted at source on the interest on compensation paid to a landloser, held that tax cannot be deducted at source even on the interest awarded under Section 28 of the Land Acquisition Act, 1894, as that forms part of the compensation and such interest is intended to factor inflation during the period between the determination of compensation and its payment.
10. Therefore, this Court has no hesitation to hold that the respondents have acted in excess of their power in deducting GST from compensation payable to the petitioner.
11. In that view of the matter, the award notice bearing No.LAQ / NHAI / NH-275 / AWD / Supplimentary-AWD / Basavanahalli/2023-24 dated 06.08.2024 issued by the respondent No.2 in so far as deducting GST from the compensation payable to the petitioner is quashed. The respondent No.2 is directed to refund the GST of Rs.18,39,252/- deducted from the compensation payable to the petitioner along with interest at the rate of 15% per annum from the date of the award till the date of payment. Interest payable on the deducted GST shall be recovered from the respondent No.2 personally. The respondent No.2 shall pay cost of Rs.50,000/- (Rupees Fifty Thousand only) to the petitioner within a month, towards the expenses incurred in filing this unwanted petition.
This petition stands disposed off on the above terms.
