Case Note & Summary
The case comprised a batch of five writ petitions filed before the High Court of Karnataka under Articles 226 and 227 of the Constitution of India. The petitioners were owners of immovable properties that had been acquired by the Karnataka Industrial Areas Development Board (KIADB) for the benefit of the Bangalore Metro Rail Corporation Limited (BMRCL) for the Bangalore Metro Rail Project. The acquisition was carried out under Section 28 of the Karnataka Industrial Area Development Act, 1966. As part of the acquisition process, the BMRCL offered a package compensation to the petitioners, who accepted it and entered into agreements with KIADB under Section 29(2) of the KIAD Act. The compensation included a solatium component. Subsequently, the commercial tax authorities issued show cause notices to the petitioners demanding payment of Goods and Services Tax (GST) on the solatium component, invoking the provisions of the Central Goods and Services Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017. In some of the petitions, the assessing authorities had already passed orders-in-original confirming the GST demands, while in one petition (WP No.2552/2024) only show cause notices had been issued and no final order had been passed. Aggrieved, the petitioners approached the High Court seeking quashing of the show cause notices and the orders, contending that the demand of GST on solatium was without jurisdiction and illegal. The primary legal issue was whether the receipt of solatium as part of compensation for compulsory land acquisition could be treated as a 'service' within the meaning of Entry 5(e) of Schedule II to the CGST Act read with the corresponding provisions of the KGST Act, or whether it fell within the exempt category of 'sale of land' under Entry 5 of Schedule III. The petitioners, through their senior counsel, argued that receiving compensation, even including solatium, did not constitute an agreement to refrain from an act or to tolerate an act or situation, which was a necessary ingredient of Entry 5(e). They placed reliance on various GST circulars and the case of Panna Lal Ghosh vs. Land Acquisition Collector. They contended that the transaction was essentially a transfer of land by the petitioners to the State, which was squarely covered by the exemption for sale of land, thereby excluding any liability to pay GST. The revenue, represented by the Additional Government Advocate, opposed the petitions and defended the show cause notices and orders. The court heard detailed arguments from both sides. The judgment excerpt does not contain the final decision of the court; the order part of the common order was not available in the provided text. Therefore, the exact outcome—whether the notices and orders were quashed or upheld—is not mentioned.
Headnote
A) Indirect Tax - Goods and Services Tax - Scope of 'Service' under CGST Act - Entry 5(e) of Schedule II, Central Goods and Services Tax Act, 2017 - Solatium component of land acquisition compensation - Petitioners argued that receiving solatium does not amount to agreeing to refrain from an act or tolerate a situation; thus not a taxable service. (Paras 3,5)
B) Indirect Tax - Exemption - Transfer of Land - Entry 5 of Schedule III, Central Goods and Services Tax Act, 2017 - Compensation for compulsory acquisition of land including solatium is a transfer/sale of land which falls within the exempt entry; therefore, GST cannot be levied. (Paras 5)
C) Indirect Tax - Writ Jurisdiction - Challenge to Show Cause Notices and Orders - Quashing sought on ground that revenue acted without authority of law - In WP No.2552/2024 only show cause notice issued; in other connected petitions orders-in-original passed confirming GST demands. (Paras 3,5)
Issue of Consideration
Whether the receipt of solatium as part of compensation for land acquired compulsorily by KIADB for BMRCL amounts to a 'service' taxable under Entry 5(e) of Schedule II to the CGST/KGST Act, or is exempt as a transfer of land under Entry 5 of Schedule III.
Law Points
- Receipt of solatium as part of compensation for compulsory land acquisition does not constitute a 'service' under Entry 5(e) of Schedule II to CGST/KGST Act
- such compensation including solatium is a transfer/sale of land exempt under Entry 5 of Schedule III to CGST/KGST Act
Case Details
2024 LawText (KAR) (09) 43
Writ Petition No.2552 of 2024 (T-IT) c/w Writ Petition No.17524 of 2024 (T-RES) c/w Writ Petition No.10838 of 2024 (T-RES) c/w Writ Petition No.4571 of 2024 (T-RES) c/w Writ Petition No.5858 of 2024 (T-RES)
V. Raghuraman, C R Raghavendra, Bhanu Kumar, Raghavendra C R, Bhanumurthy J S, Cherian Punnoose, Anil Kumar B, Krishika Vaishnav, A Mahesh Chowdhary, K. Hema Kumar
Smt. Asha R (WP 2552/2024), Shri Venkatesh R (WP 17524/2024), Shri Narasimhamurthy Krishnappa (WP 10838/2024), M/s Malack Akber Hussain (WP 4571/2024), M/s Akther Hussain Malack (WP 5858/2024)
Assistant Commissioner of Commercial Taxes (Enforcement-17) & Others (WP 2552/2024), Deputy Commissioner of Commercial Taxes (Enforcement)-08 & Others (WP 17524/2024), State of Karnataka & Others (WP 10838/2024), Additional Commissioner of Commercial Taxes (Enforcement) South Zone (WP 4571/2024), Commissioner of Commercial Taxes (Audit), South Zone (WP 5858/2024)
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Nature of Litigation
Writ petitions under Articles 226 and 227 of the Constitution challenging show cause notices and orders demanding GST on the solatium component of compensation received for land acquired compulsorily by KIADB for BMRCL's Bangalore Metro Rail Project.
Remedy Sought
To quash the show cause notices and orders issued under CGST/KGST Act, declare the demands illegal and unconstitutional, and refund any amounts paid.
Filing Reason
The respondent revenue authorities had issued show cause notices and, in most petitions, passed orders-in-original raising a GST demand on the solatium received by the petitioners, which the petitioners contended was beyond authority and not attracted.
Previous Decisions
In WP 2552/2024, only a show cause notice (Form GST DRC-01) had been issued; no order had been passed. In all other connected writ petitions, the assessing authorities had passed orders-in-original confirming the GST demands, along with summary orders in Form GST DRC-07.
Issues
Whether the receipt of solatium as part of compensation for compulsory land acquisition constitutes a 'service' within the meaning of Entry 5(e) of Schedule II to the CGST/KGST Act, 2017.
Whether such compensation including solatium is exempt from GST as a transfer of land under Entry 5 of Schedule III to the CGST/KGST Act.
Whether the impugned show cause notices and orders are without authority of law and liable to be quashed.
Submissions/Arguments
Petitioners argued that the receipt of solatium does not involve agreeing to refrain from an act or to tolerate a situation, and hence does not fall under the taxable service entry 5(e) of Schedule II.
They contended that the entire compensation, including solatium, represents consideration for transfer/sale of land, which is covered by the exempt entry No.5 of Schedule III to the CGST/KGST Act.
Reliance was placed on GST circulars and the case of Panna Lal Ghosh vs. Land Acquisition Collector to emphasize that solatium is part of land acquisition compensation and not a separate service.
The revenue, through its counsel, defended the show cause notices and orders, though specific arguments are not detailed in the extracted text.
Judgment Excerpts
The act of the petitioners receiving compensation containing / including the solatium component cannot be construed or treated as the petitioners agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act as contemplated in Entry 5(e) of Schedule – II to the CGST / KGST Act.
The receipt of compensation including solatium component from the respondents for the purpose of the petitioners transferring and relinquishing their right over the lands acquired by the State / KIADB for the benefit of BMRCL would amount to transfer/sale of land within the meaning of Entry No.5 of Schedule – III to the CGST / KGST Act, which exempts levy of GST.
Procedural History
Petitioners' lands were acquired by KIADB under Section 28 of the KIAD Act for the BMRCL Metro project. They entered into agreements and received package compensation including solatium. Revenue issued show cause notices under CGST/KGST Act seeking to levy GST on the solatium component. In WP 2552/2024, only the show cause notice was issued; in the other petitions, orders-in-original and summary orders were passed confirming the tax demands. Petitioners filed writ petitions before the High Court seeking quashing of the same. The court heard all petitions together and reserved them for common order.
Acts & Sections
- Karnataka Industrial Area Development Act, 1966: Section 28, Section 29(2)
- Central Goods and Services Tax Act, 2017: Entry 5(e) of Schedule II, Entry 5 of Schedule III
- Karnataka Goods and Services Tax Act, 2017: Section 73(9), Entry 5(e) of Schedule II, Entry 5 of Schedule III
- Land Acquisition Act, 1894:
- Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013:
