GST on Solatium: Karnataka HC Says No Tax on Land Compensation
This judgment offers critical clarity for landowners and government departments involved in land acquisition projects under the Right to Fair Compensation and Transparency in Land Acquisition Act, 2013.
Let’s break down what this means for you.
What Is Solatium in Land Acquisition?
- Mandated under Section 30(1) of the Land Acquisition Act, 2013.
- Intended as a form of recognition for the forced nature of the acquisition.
What Was the GST Dispute?
The Revenue Department treated solatium as a taxable supply under the GST Act. Several departments began deducting GST on this component while disbursing compensation to landowners.
Landowners challenged this before the Karnataka High Court, asserting:
- Solatium is not a consideration for any supply.
- It arises from a statutory obligation, not a contract or business arrangement.
Key Observations by Karnataka High Court
- The acquisition process is not a “supply of goods or services” under Section 7 of the CGST Act.
- Solatium is compensation for compulsory acquisition, not a fee for services.
- Levying GST on such payments would go against Article 265 of the Constitution (No tax without authority of law).
Implications for Taxpayers and Departments
- Public sector undertakings and government departments must revise their disbursement procedures.
- Landowners who faced GST deductions earlier may consider filing for refunds.
Practical Tip from Efiletax Experts
“Before accepting land compensation, check if GST was wrongly deducted. You may be eligible for a refund with interest.”
Legal Basis for Exemption
| Legal Reference | Explanation |
|---|---|
| CGST Act, 2017 | GST applies only to ‘supply’ of goods/services |
| Section 30(1), Land Acquisition Act, 2013 | Mandates solatium without any commercial exchange |
| Article 265, Constitution of India | Prohibits unauthorized taxation |
| Karnataka HC ruling | Reinforces that compensation is outside the GST scope |
Summary
The Karnataka High Court ruled that GST cannot be levied on solatium paid to landowners under land acquisition laws, as it’s a statutory compensation, not a taxable service.
FAQs
Q1: Is GST applicable on solatium paid by the government?
A: No, per Karnataka HC, solatium is not a supply under GST law.
Q2: Can landowners claim refunds for wrongly deducted GST?
A: Yes, if GST was deducted on solatium, refund can be claimed with supporting documents.
Q3: What sections support this exemption?
A: Section 7 of CGST Act, Article 265 of Constitution, and Section 30(1) of the Land Acquisition Act.