SOLATIUM IS OUTSIDE THE AMBIT OF GST., Goods and Services Tax - GST

[Sadanand Bulbule]

Dear all

Plz refer the issue ID No.118617 dated 02/07/2023. The combined ruling of the experts was much ahead than the following judgement, which has precisely concurred it now. This is the real beauty and strength of experts. May their tribe increase.

2025 (4) TMI 548 - KARNATAKA HIGH COURT  - SMT. ASHA R, SHRI VENKATESH R, SHRI NARASIMHAMURTHY KRISHNAPPA, M/S. MALACK AKBER HUSSAIN, M/S. AKTHER HUSSAIN MALACK, VERSUS THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (ENFORCEMENT-17), BANGALORE, JOINT COMMISSIONER OF COMMERCIAL TAXES (ADMIN) BANGALORE, THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES (ENFORCEMENT) -08, BANGALORE, ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (AUDIT) BENGALURU, STATE OF KARNATAKA, THE COMMISSIONER OF COMMERCIAL TAXES BENGALURU, ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES (ENFORCEMENT) BENGALURU.

Levy of GST - compensation paid in favour of the petitioners towards acquisition of their lands by the State/KIADB under the Head ‘Solatium’ - HELD THAT:- Compensation paid in favour of the petitioners by the KIADB under the Head “Solatium” is not exigible / amenable to levy of GST under the provisions of CGST / KGST Act and the impugned notices, orders etc., issued / passed by the respondents are illegal, arbitrary and without jurisdiction or authority of law and the same deserve to be quashed.

Even if Entry 5 of Schedule III were not there, sale of land and building cannot be brought under GST as they are covered under the State List II and there is no intention to tax sale/ acquisition immovable property per se under the GST legislations. It is also significant to note that this position is clarified by the aforesaid Circular No. 177/09/2022-TRU dated 03.08.2022 which clearly states that Sale of land either as it is or after some development is covered by Entry No.5 of Schedule III of the CGST/KGST Act and accordingly, does not attract GST; in other words, even if the said entries were not present in the said schedule, there was still no intention to tax stamp duty transactions of the nature which could be subsumed under the GST and consequently, not only sale of land or completed building, even compulsory acquisitions of such land cannot be the subject matter of a GST levy.

Learned Senior Counsel is also right in contending that after the retrospective amendment in Section 7 to exclude 7(1)(d) and include Section 7(1A), Schedule II is merely a classification schedule; Entry 5 (e) of Schedule treats "agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" as a supply of service and would only be a classification entry and the need to prove that an activity or transaction is a supply stems from Section 7(1).

It is relevant to state that “conditions to a contract” are different from “consideration to a contract”; so also, “conditions” contained in the contract cannot be seen in the light of “consideration” for the contract and merely because the service recipient has to fulfill such conditions would not mean that this value would form part of the value of the taxable services that are provided; to put it differently, when amount is paid for an obligation to do an act, it is only then Entry 5 (e) of Schedule II is attracted and not otherwise, thereby indicating that the terms and conditions of the agreements, documents etc., executed between the petitioners and KIADB are merely conditions to the contract and not obligations undertaken for a consideration as required under Entry 5 (e) of Schedule II which will have no application nor cover the solatium received by the petitioners.

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; 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 Government and the conditions are incidental to the acquisition of land and to ensure that there is finality to the same as regards both the parties and in the absence of an agreement for an obligation to do or refrain from any act coupled with consideration for the same, it cannot be said that solatium received by the petitioners is exigible/amenable to levy of GST as contended by the respondents whose contentions cannot be accepted on this ground also.

Conclusion - The compensation paid in favour of the petitioners towards acquisition of their lands by the State/KIADB under the Head ‘Solatium’ is not exigible/ amenable to levy of GST under the provisions of CGST/KGST Act, 2017.

Petition allowed.

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[Sadanand Bulbule]

The following judgement goes integrated with the concept of "solatium" under the GST Act:

2025 (4) TMI 549 - KARNATAKA HIGH COURT - M/S. ROHAN CORPORATION INDIA PVT LTD., VERSUS UNION OF INDIA, THE COMMISSIONER OF CENTRAL EXCISE & CENTRAL TAX (GST) MANGALURU, THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE & CENTRAL TAX, MANGALURU, SHRI SANJAY KUMAR MISHRA, LIQUIDATOR FOR LOTUS SHOPPING CENTERS PVT. LTD., THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES MANGALURU.

Levy of GST - transaction involving the sale of an incomplete building - Transaction falls under Entry 5(b) of Schedule II, which treats certain construction activities as a supply of services subject to GST or not? - refund of the GST paid - HELD THAT:- When the constructed immovable property whether fully constructed or partially constructed is sold, as such, without providing any construction service subsequently, the same would not attract Paragraph 5 (b) of Schedule II and Section 7 of the Act, since there is no supply of goods or services or both in the said transaction and consequently, the question of whether the building has received completion certification or not would be irrelevant in such cases. The fact that Paragraph 5 (b) of Schedule II and Section 7, contemplates only construction service provided by a builder/promoter to a service recipient is further evident from the description of service entries provided under “construction services” in the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 prescribed the rate of GST. Sale of land is treated under the Act as neither supply of goods nor a supply of service.

As far as sale of building is concerned, if the same is not coming within the ambit of Paragraph 5 (b) of Schedule II, then the same would be treated neither as supply of goods nor a supply of service. In the present case, the subject transaction would not fall within the ambit of Paragraph 5 (b) of Schedule II, as there was no construction service being contemplated between the parties and consequently, in terms of Paragraph 5 of Schedule III, the subject sale transaction between the Petitioner and Respondent No. 4 is neither a supply of goods nor a supply of service as wrongly held in the impugned order which deserves to be quashed.

Conclusion - The respondents completely fell in error in coming to the erroneous conclusion that the subject sale transaction is covered by Entry 5 (b) of Schedule II which was clearly inapplicable without appreciating that by virtue of Entry 5 of Schedule III or even otherwise, the subject sale transaction was neither exigible nor amenable to levy of GST and consequently, the impugned order rejecting the refund claim of the petitioner deserves to be quashed.

The impugned rejection order at Annexure-A dated 15.02.2023 passed by the 3rd respondent is hereby quashed - The refund application/claim of the petitioner is hereby allowed - Petition allowed.