Case Of: Smt. P.S. Shamala
Issued By: Karnataka High Court
Order No: W.P. No. 12641 of 2026
Date: 10th July 2026
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No GST on Compensation for Compulsory Acquisition of Land and Structures
The petitioner’s land and structure were compulsorily acquired for widening the Mysuru–Madikeri Highway, and compensation of ₹1.21 crore was determined.
Out of the compensation payable, the authorities deducted ₹18.39 lakh towards 18% GST. The petitioner challenged the deduction, contending that compulsory acquisition of property does not constitute supply of goods or services under GST law.
The respondents argued that while compensation attributable to land may not attract GST, the structural component of the award was liable to GST as works contract/structure valuation.
The Court examined the nature of compulsory acquisition and noted that buildings attached to land form part of immovable property.
The Karnataka High Court held that GST is a tax on the supply of goods or services, whereas compulsory acquisition is an expropriation of property by the State in exercise of statutory power.
The landowner neither sells goods nor provides any service while surrendering property pursuant to compulsory acquisition. Therefore, even on a broad interpretation, such acquisition cannot be regarded as a “supply of goods or services”.
The Court also rejected the distinction sought to be made for the structure component, observing that the respondents failed to identify any provision under the GST law under which acquisition of land or structure becomes a taxable supply.
Accordingly, the GST deduction was quashed and the authority was directed to refund ₹18.39 lakh with interest at 15% per annum from the date of the award until payment.
Immovable property cannot be construed as Goods nor that results into supply of goods or services. Even with wide latitude, term “supply of
goods or services” does not include the acquisition or expropriation of property by State.
For landowners and infrastructure authorities, the judgment is significant where compensation awards include separate valuation for land, buildings or other structures – such valuation by itself does not create a taxable supply.
The strong relief granted, including 15% interest and costs, also highlights the importance of establishing clear statutory authority before deducting GST from compulsory acquisition compensation.