Subbaiah A.P. & Ors. Vs Deputy Commissioner & Ors. (Karnataka High Court)
Summary: The Karnataka High Court held that GST could not be deducted from compensation payable for compulsory acquisition of land and a house property, as compulsory acquisition by the State in exercise of its power of eminent domain does not constitute a supply of goods or services. The petitioners’ house property measuring 1195 sq. mtrs. in Sy.No.21/29A (21), Basavanahalli Village, Kushal Nagar Taluk, Kodagu District, was acquired for widening the Mysuru-Madikeri Highway. Compensation of Rs.96,92,624.80 was determined, from which the Special Land Acquisition Officer deducted Rs.12,28,906 representing 18% GST.
The petitioners challenged the deduction contending that acquisition of land or house property was neither sale of goods nor provision of services and therefore could not attract the Central Goods and Services Tax Act, 2017. The respondents argued that while compensation attributable to land might not attract GST, the structural component assessed under the award was liable to GST as works contract/structure valuation. Rejecting this contention, the High Court observed that Section 3 of the Transfer of Property Act treats everything attached to or embedded in land for its beneficial enjoyment as immovable property and therefore buildings constructed upon land are also immovable property. GST, under Article 366(12A) of the Constitution, is a tax on supply of goods or services or both.
An immovable property could not be construed as goods, and compulsory acquisition was an expropriation of a citizen’s property through statutory power rather than a voluntary supply. The petitioners had neither sold goods nor provided any service by giving up their property. The Court further noted that the respondents could not identify any provision of the GST Act under which acquisition of land or a structure would amount to supply of goods or services. It referred to the Madras High Court’s order in W.P.No.3278/2024 recording NHAI’s admission that GST was not applicable to compensation paid for acquisition.
The Court also referred to its ruling concerning interest under Section 28 of the Land Acquisition Act, 1894, where it had held that such interest forms part of compensation and TDS could not be deducted. Holding that the respondents had acted in excess of their powers, the High Court quashed the award notice to the extent it deducted GST and directed refund of Rs.12,28,906 with interest at 15% per annum from the date of the award until payment. Significantly, the Court directed that the interest payable on the wrongly deducted GST be recovered personally from respondent No.2 and further imposed costs of Rs.50,000, payable to the petitioners within one month towards the expenses incurred in filing the “unwanted petition”.
Cases Discussed:
- W.P.No.3278/2024 (Madras High Court) — The Karnataka High Court referred to the Madras High Court’s order in a similar matter, where the National Highways Authority of India had admitted that no GST was applicable or charged on compensation paid to the petitioner and that no GST had been paid to the Central or State GST authorities. The source judgment does not state the parties’ names or date of this decision.
- W.P.No.35685/2025 and connected cases (Karnataka High Court) — Referred to by the petitioners for the proposition that tax could not be deducted at source from land acquisition compensation. The source judgment does not identify the parties to these proceedings. The Court further referred to its ruling that interest awarded under Section 28 of the Land Acquisition Act, 1894 forms part of compensation and is intended to factor inflation during the period between determination and payment of compensation.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioners have sought for a writ in the nature of mandamus to direct the respondent Nos.2 to 4 to reimburse the Goods and Services Tax (GST) amount of Rs.12,28,906.00 that was deducted out of the compensation paid in respect of the acquisition of the house property measuring 1195 sq.mtrs., in Sy.No.21/29A (21) of Basavanahalli Village, Kushal Nagar 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 petitioners claim that the house property belonging to them measuring 1195 sq.mtrs. bearing Sy.No.21/29A (21) of Basavanahalli Village, Kushal Nagar Taluk, Kodagu District, was acquired by the respondent No.2 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.96,92,624.80. The respondent No.2 deducted a sum of Rs.12,28,906.00 being 18% GST out of the compensation payable to the petitioners.
The petitioners claim that they are not liable to pay GST as acquisition of land cannot be construed as sale of goods or providing of service. The petitioners are therefore, before this Court challenging the deduction of GST from the compensation payable to them.
3. The learned counsel for the petitioners reiterated the aforesaid 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 house property/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 TDS cannot 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 petitioners is not only arbitrary but a colourable exercise of power.
4. Learned counsel for respondent Nos.2 to 4 contends that the GST Act mandates levy of GST on works contract/structure valuation and the same was applied uniformly to all landlosers. He contends that the petitioners’ 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. He contends 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. I have considered the submissions of the learned counsel for the petitioners as well as the learned counsel for respondent Nos.2 to 4.
6. The fact that the property of the petitioners is acquired for widening of the road by the respondent No.2 is not in dispute. It is also not in dispute that a sum of Rs.96,92,624.80 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.12,28,906.00 towards 18% GST. An immovable property is defined under Section 3 of the Transfer of Property Act, 1882, 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 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”.
7. Though the learned counsel for respondent Nos.2 to 4 contended that GST Act mandates levy of GST on works contract/structure valuation and the same was applied uniformly to all landlosers, he 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.”
8. 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.
9. Therefore, this Court has no hesitation to hold that the respondents have acted in excess of their power in deducting GST from compesation payable to the petitioners.
10. In that view of the matter, the award notice bearing No.LAQ / NHAI / NH-275 / AWD/Basavanahalli/01/2022-23 issued by the respondent No.2 in so far as deducting GST from the compensation payable to the petitioners is quashed. The respondent No.2 is directed to refund the GST of Rs.12,28,906.00 deducted from the compensation payable to the petitioners 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.50,000.00 (Rupees Fifty Thousand only) to the petitioner within a month, towards the expenses incurred in filing this unwanted petition.
11. This petition stands disposed off on the above terms.
12. Learned High Court Government Pleader for respondent No.1 and Sri. N. Kumar, learned counsel for respondent Nos.2 to 4 are permitted to file memo of appearance within ten days.
