Karnataka high court: GST cannot be imposed on solatium paid to landowner
Bengaluru: In a significant relief for landowners, the high court has ruled that solatium — the additional compensation paid for emotional and involuntary loss of land — cannot be taxed under the Goods and Services Tax (GST) regime.
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Justice SR Krishna Kumar delivered the verdict while allowing a batch of petitions filed by Bengaluru residents
R Asha
and several others, whose land had been acquired by KIADB for the
Bengaluru Metro Rail Project
.
As part of the acquisition process, the landowners were offered a compensation package that included solatium. The petitioners accepted the package.
However, the relief soon turned into a dispute when the commercial taxes department slapped them with show-cause notices, demanding GST on the solatium component of the compensation.
Despite their responses, the authorities went ahead and confirmed the tax demand.
The petitioners argued that the receipt of compensation, including the solatium component for transferring and relinquishing their right over the lands acquired by KIADB for the benefit of BMRCL would amount to transfer/sale of land under the CGST/KGST Act, which exempts the levy of GST. Consequently, the commercial taxes department did not have jurisdiction or authority to demand payment of
GST on solatium
, they added.
However, the govt advocate defended the GST demand.
Justice Krishna Kumar noted that the terms and conditions of the agreements in the documents executed between the petitioners and KIADB are merely conditions to a contract and do not reflect an obligation coupled with consideration.
"In the instant cases, the agreements entered into between the petitioners and KIADB may contain several conditions, but the same do not amount to an obligation coupled with consideration and payment of solatium to the petitioners cannot be construed or treated as supply of services under Entry 5(e) of Schedule II (of CGST/KGST Act).
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The subject matter of the agreements is not an obligation to do or tolerate an act. Rather it is simply acquisition of lands by the govt and the conditions are incidental to the acquisition of land and to ensure that there is finality to the same," the judge explained while quashing the tax demand notices.
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