Karnataka High Court Rules GST Not Applicable on Solatium for Land Acquisition

Karnataka High Court Rules GST Not Applicable on Solatium for Land Acquisition

Bengaluru: In a landmark judgment that brings substantial relief to landowners, the Karnataka High Court has ruled that solatium, an additional compensation paid to landowners for the involuntary loss of land, is not subject to Goods and Services Tax (GST).

This verdict comes after several Bengaluru-based petitioners, including individuals whose lands were acquired by the Karnataka Industrial Area Development Board (KIADB) for the Bengaluru Metro Rail Project, challenged the imposition of GST on the compensation received.

The petitioners contended that solatium forms a part of the total compensation for land acquisition and is not a consideration for any service rendered. As such, it does not qualify as a "supply" under GST law. They argued that the transaction is not commercial but compulsory in nature and therefore should be exempt from taxation.

Justice S.R. Krishna Kumar of the Karnataka High Court sided with the petitioners, emphasizing that agreements made during land acquisition do not constitute service contracts. Accordingly, he quashed the demand notices issued by the commercial tax department and confirmed that GST is not applicable to solatium payments.

This ruling is expected to set a vital precedent, potentially influencing other similar cases across the country. It also brings financial relief to many individuals impacted by infrastructure projects involving land acquisition.

For personalized guidance on GST exemptions, land acquisition compensation, or any other tax matters, feel free to consult our expert team at SS Auditors.

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