Facts of the Case:
In this case, the petitioner’s land was acquired by the Union of India. An award was passed granting compensation of ₹1.21 crore for the acquired land and structures. While disbursing the compensation, the acquiring authority deducted ₹18.39 lakh towards GST at the rate of 18%.
The petitioner contended that compulsory acquisition of land by the State does not amount to a sale of goods or provision of services and, therefore, cannot attract GST. It was further argued that acquisition proceedings represent an exercise of sovereign power under the doctrine of eminent domain and are fundamentally different from a commercial transaction. The respondents, on the other hand, sought to justify the deduction by contending that GST was leviable on the structural component of the acquired property and that such deduction had been uniformly applied in all acquisition cases.
Issue:
Whether GST can be levied and deducted from compensation paid for compulsory acquisition of land and structures by the State, and whether such acquisition constitutes a “supply of goods or services” under the GST regime.
Held That:
The Karnataka High Court allowed the writ petition and held that the deduction of GST from the compensation payable to the petitioner was wholly without authority of law. The Court observed that GST is a tax on the supply of goods or services and derives its constitutional basis from Article 366(12A) of the Constitution. However, compulsory acquisition of property by the State through statutory powers cannot be equated with either a supply of goods or a supply of services.
The Court emphasized that land and buildings are immovable property and do not fall within the ambit of “goods” under GST law. It further noted that acquisition of property under the power of eminent domain is not a voluntary commercial transaction but an expropriation authorized by statute. The landowner neither sells goods nor renders any service while surrendering property under compulsory acquisition. Consequently, the essential ingredients necessary to attract GST are entirely absent.
The Court found that although the authorities asserted that GST was leviable on the structural component of the compensation, they failed to identify any provision under the CGST Act that authorizes levy of GST on compensation arising from compulsory acquisition. The Court also referred to a similar decision of the Madras High Court, wherein it was recognized that no GST is leviable on compensation paid for land acquisition.
Holding that the respondents had acted beyond the scope of their statutory powers, the Court quashed the award notice to the extent it deducted GST from the compensation amount. It directed the authorities to refund ₹18,39,252/- to the petitioner along with interest at the rate of 15% per annum from the date of the award until actual payment. Significantly, the Court ordered that the interest component be recovered personally from the concerned officer responsible for the unauthorized deduction. Additionally, costs of ₹50,000/- were imposed on the authorities for compelling the petitioner to initiate avoidable litigation.
Case Name: SMT. P.S. SHAMALA v. THE DEPUTY COMMISSIONER & ORS. dated 10.07.2026
Citation: 2026 Taxo.online 2079
