ACQUISITION OF LAND & BUILDING. COMPENSATION., Goods and Services Tax - GST

[Sadanand Bulbule]

Dear all

Every one is aware that, the State Industrial Area Development Boards or any other such authorities acquire private land or building for the development of projects like Metro Rails, National Highways, Airports etc., and handover the acquired land/building to the developing agencies of the respective State Government and Union Government. Accordingly the owners of the land or the building are paid compensation as per the prevailing guidelines.It is also gathered that, many a times "extra money" is also paid over and above the standard compensation.

In my understanding, the land or the building is essentially immovable property being specifically exempt from GST vide Entry No. 5 of Schedule III of the CGST Act.

Query:

Whether such "extra money" can be termed as an act of tolerance for the purpose of Section 7 readwith Para 5[e] of Schedule II of the CGST Act? Is there any scope to bring that " extra money" under the GST net?

Clarification by the experts is solicited.

Posts / Replies

[Sadanand Bulbule]

I wish to add here that, the extra money or compensation given is "solatium", meaning damages that may be awarded for pain and suffering including sentimental attachment towards loss of property/asset. As such, solatium and compensation or consolation is towards loss of property acquired and such amount compensated towards damages, in my opinion, cannot be said to a "consideration" defined under Section 2[31] of the GST Act which is essentially in relation to the supply of goods and services. So solatium remains outside the domain of "supply" under Section 7 of the Act.

My understanding is based on the ratio of the judgement dated 19/09/2021 of the Hon'ble Supreme Court rendered in the case of Sunder Vs. Union of India reported in 2001(9) TMI 1121.

Since the GST authorities are issuing notices on the "solatium" amount, the experts are requested to throw fresh thoughts on this.

[Amit Agrawal]

One needs to check jurisdictional land acquisition Act/s for proper reply. but, broadly speaking, my views are as under:

A. There is no supply involved in compulsory acquisition of land & building. Whatever is owner of land & building receiving is 'Compensation' & not consideration and this is true for entire component of receipt (compensation) by whatever named called.

A1. In other words, owner of land & building have neither agreed to make nor made any supply. But, due to the law of land (i.e. jurisdictional land acquisition Act), he is compelled to hand-over land & building to the State. There is no choice not to handover to the owner of land & building.

A2. Once there is no supply involved, question of liability to pay any gst (on entire compensation, including 'Extra Money' narrated in the query) does not arise.

B. Even otherwise, 'Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building' are not treated as supply of goods / services as per Serial No. 5 of Schedule - II.

B1. And subject there is no separate supply involved for 'Extra money' narrated in subject query.

B2. So, even if acquisition of land & building is treated as sale transaction (which is doubtful, as explained in Para A & Sub-Paras thereunder), still, no gst is payable on entire consideration (which includes 'Extra Money' narrated in the query) for such sale.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

Ld. Amit Ji, I think these acquisitions are covered under RFCTLARR Act. Correct me if I am wrong Sadanand Sir.

I agree with views of Sri Amit Ji. that the compensation cannot take the color of consideration for supply. There has to be "reciprocity" between consideration and supply which to my opinion is not present in compensation. I.e. As Sri Amit Ji mentioned, there is no supply here.

One can take a cue from CIR v New Zealand Refining Co Ltd. 1997 18 NZTC 13,187 though foreign jurisdiction the rationale will apply in Indian GST as well in my opinion.

[KASTURI SETHI]

Dear Sh.Sadanand Bulbule Ji,

Sir, In my view, "extra money" is basically related to original standard compensation. The term, 'extra money' cannot be read in isolation from 'original standard compensation'. Extra money is not independent of the standard compensation. It is additional compensation and not additional consideration. Compensation can never be income.

Therefore, answer to both questions is as under :-

Q.No.1 NO

Q.No.2. NO

This very issue has been discussed in detail in C.B.I. & C. Circular No. 178/10/2022-GST, dated 3-8-2022.

I also support the views of both experts.

[Ganeshan Kalyani]

Extra money received is also in connection with the immovable property. Hence, it is covered in entry 5 of Schedule III and not subject to GST.

[Sadanand Bulbule]

Thanks to all the experts for endorsing my view too.

[Shilpi Jain]

Also Bombay High court decision in the case of Bai Mamubai Trust - 2019 (9) TMI 929 - BOMBAY HIGH COURT would be relevant.